FT on “The Shale Gas Bonanza”

It really must take a lot of hard work to ignore the potential for shale gas recently.  A front page story on the Davos issue of the  FT Weekend magazine on "The Shale Gas Bonanza" has a sub-heading that asks "Are we about to witness a new global energy revolution?".

However, the story itself, excellent as it is, concentrates almost exclusively on the Haynesville shale, and barely mentions international potential:

Indeed, the impact is expected to extend well beyond America’s borders. Industry consultants at PFC Energy in Washington, DC, believe that developing supplies trapped in shale deposits could more than quadruple the world’s known gas reserves. “This is a transformational event,” says its chairman, Robin West. His consultancy puts global reserves of natural gas from “unconventional” sources such as shale beds at 3,250 trillion cu ft, a total based on 1997 geological estimates that he believes will rise as the techniques available to extract the gas improve. By comparison, global reserves of natural gas from “conventional” sources total 620 trillion cu ft. Not all of these shale reserves will ever be tapped, but the technology to do so is available and, for the first time, companies are putting it to use.

Not really enough for some to anticipate a global energy revolution. But this piece does mention something I've barely touched upon far various reasons.

Next: shale oil?
US energy companies may be able to use technologies they acquired in the hunt for shale gas to tap oil trapped in dense rock formations.

Oil shale is back in the theoretical stage where shale was a few years ago.  That doesn't necessarily mean it will follow the gas trajectory…

Bill Albrecht, vice-president of Occidental Petroleum, the biggest US independent, says: “There is a huge resource here.” But the technique needs refining before it will win widespread adoption. “Relative to gas, it’s still an emerging technology,” he admits.

…of course it might. Among other places, North Dakota and France as new oil provinces. That will really annoy Peak Oilers.

Davos and Shale

I'm not quite sure how much clearer the message on shale needs to be to start convincing some of the declining amount of doubters. Surely a stage such as Davos and messengers in the order of Peter Voser of Shell should start to cause some doubts among scarcity mongers?

Natural gas will also assume a much larger role in energy supply, they said. “The potential impact of gas on the world is underestimated,” Mr Voser said. Not only is gas cleaner than burning oil or coal, but it is still in relative abundance. “That’s where we should push,” he said.

And from AP:

We underestimate what (shale gas) could do to the world in the next 10 to 20 years,” Peter Voser, chief executive officer of Royal Dutch Shell PLC, told other business leaders. “It’s a big deal and necessary — globally

Same old message from BP's Tony Hayward who has been saying this for months from various lecterns:

DAVOS, Switzerland, Jan 28 (Reuters) – New technologies to extract gas from shale rock have altered the U.S. energy outlook for the next 100 years, Tony Hayward, chief executive of BP (BP.L), said on Thursday.

Energy chiefs speaking at the World Economic Forum differed about the prospects for future oil supplies — with Iraq placed to account for up to 10 percent of that — but agreed new "unconventional gas" would be a huge fillip.

Unconventional gas includes natural gas extracted from shale and methane reserves in coal mines, which together are set to play a huge role in satisfying rising global energy demand.

"(It's) a complete game-changer in the U.S. It probably transforms the U.S. energy outlook for the next 100 years," said Hayward.

Peter Voser, chief executive of Royal Dutch Shell (RDSa.L), said such new reserves were "global and necessary".

Probably transforming the US energy outlook for the next 100 years? Perhaps Ofgem should consider the implications of that alone on any one of their four scenarios of disaster.

The Guardian discovers shale.

Earlier this month in a post called That's why it's called interruptible. Doh! I referred to the shoddy reporting of the Guardian in what can safely be called even at this early stage, the worst story on UK energy of 2010 :

Factories in the north-west of England and east Midlands are today having their energy supplies cut off for the first time in years as the severe weather and creaking power infrastructure lead to 1970s-style rationing.

In short, this was the start of the Britain is falling apart hysteria that gripped the nation during what ended up being simply a slightly colder January.  From the Guardian, the Conservative spin doctors and their equally paranoid allies then went to the usual suspects of not only the Mail and Express, but also tried to con The Telegraph (surprisingly they didn't bite) and the FT (which surprisingly nibbled at the story).  Most bizarre of all as I noted is that The Guardian is thought of as the large and small L Liberal and lefty UK daily, yet they played straight into the hand of those well known gas experts the Tories.

In the spirit of breaking journalistic frontiers, albeit 18 months after No Hot Air and several months after The Standard, Spectator, Telegraph and Sunday Times,  the same reporter suddenly discovers shale gas.

Old story, new paper and a new arena for Tony Hayward of BP who has been saying this for months:

A controversial method of extracting gas from shale rocks and coal seams pioneered in the US has been described by the head of BP as a "complete game changer" that would transform the future of energy in that country over the next 100 years.

Excitement in the industry over "unconventional" gas supplies has led to a wave of investment in America which Tony Hayward, BP's chief executive, believes could eventually spread around the world.

"[Unconventional gas is a] complete game changer in the US," he said in answer to a question at an energy summit which was part of the World Economic Forum in Davos, Switzerland. "It probably transforms the US energy outlook for the next 100 years. It's yet to seen if it can be applied globally."

Terry Macalister, who wrote both stories is the Guardian environment editor. This is a good story. It's just at least six months late. And it remains to be seen if it changes his mind about his story of earlier this month. UK Greens need to know all sides of shale, but they will need both the facts and open minds.

Ukraine and gas

According to Ofgem's Project Discovery a key threat to UK energy security is the possibility, even if outdated today, of disruptions caused by a repeat of the Ukraine/Russia gas dispute.  Never mind that the actual impact on UK prices and security of past disputes was negligible.

To counter that possible risk,  Ofgem proposes we all pay a premium on energy prices by building storage, importing gas from the less "risky" Nabucco proposed pipeline which traverses such stable areas as Turkmenistan, Iran and Iraq, or adding billions to energy bills through CCS.

One possibility may be more realistic.  If Ukraine has their own energy security, we have ours.  But will they factor in that possibility in any scenarios?  

In September 2009, EuroGas' affiliated company EuroGas GmbH signed a Memorandum of Understanding to explore for unconventional gas, such as shale and CBM gas, in the Lublin Basin in Western Ukraine. EuroGas was the first foreign company to successfully drill a coal-bed methane well in the Ukrainian part of the Lublin Basin in the late 1990s before former management of EuroGas opted to withdraw from Western Ukraine, a move which current management has now reversed because of the hydrocarbon potential of Western Ukraine in general, and of the Lublin Basin in particular.

When we drilled in the Ukrainian portion of the Lublin Basin back in the late 1990s, we saw the huge hydrocarbon potential that existed but that had been neglected by the Soviets. After a long and careful assessment, we are now convinced that this area merits considerable attention and we will be moving quickly to expand our prospect portfolio by assisting Ukraine to develop its own energy resources."

Shale in the Ukraine, or Poland isn't a done deal. But the chance that it could be should be put into the scenario hopper of Ofgem along with some of their far more unlikely fears.

Shale and Norway

Back on November 10 in "Geography and Natural Gas", I thought that the Albertan dilemma of high cost natural gas far away from markets would be repeated in Europe:

In Europe, if shale is produced in Poland or Northern Germany  why generate electricity in Berlin, Hamburg or Warsaw with gas imported from Russia, Norway or Nigeria?  Shale is so abundant that it may well be under most people's feet.  Not only will this make energy security risk meaningless or disrupt capital flows, it will make energy simultaneously cheaper and more precious.

Since then we've seen a winter where the import of Qatari gas is worrying the Russians as we saw the other day.  So it's only natural that the other European gas giant is factoring in the impact of shale:

Norwegian state-controlled Statoil said a “challenging” gas market may affect its development of new discoveries as an increase in shale-gas output weighs on price

We see a challenge from a short- and medium-term perspective because of the market situation and considerable uncertainty due to the new situation with shale gas,” Statoil executive Sverre Serc-Hanssen said today at a conference in Bergen, Norway.

Unlike Gazprom,  Statoil has been an early adopter shale gas fan via its big venture in the Marcellus with Chesapeake, which it confidently predicts will change gas forever in Europe, China and South Africa.  But it will mean fine tuning the portfolio to meet changing conditons.

Unconventional wisdom on coal

I'm like a moth to a flame about the end of conventional wisdom stories, and energy is littered with them.  Gas, of course, but there are plenty of other CW theories that ended up being not very wise, but simply conventional.  People still need the comfort of some type of narrative, even wrong ones.  So while new energy narratives jostle for position,  the old ones still have a lot of mileage in them, and the conventional wisdom, even where discredited, still has a place in a collective folk memory even that of people who know they should know better.  In the UK, and in everything including energy,  we have that problem in spades.  Better to fail conventionally than to succeed unconventionally.

From NPR today,  coal and conventional wisdom:

Coal is the biggest single source of greenhouse gases. China and India are now huge consumers of coal, and their appetite is growing. "As long as economic development is a priority," says Morse, "I think climate takes a back seat, and in that situation, coal is going to win every time."

That's the conventional wisdom. But the deal made in Copenhagen may change all that. By Monday, as many as two dozen countries will have listed their emissions targets. China and the U.S. — the two biggest coal users — are leading the group. India is expected to join them, and so will South Africa — a major coal exporter.

We've been saying from day one here that the conventional wisdom about China in particular is wrong, and that China has the potential to change world energy. Many here in the UK use China demand as proof for anything from Peak Oil to food shortages to high gas prices. But they also tend to be the type of person who makes the basic mistake about China: it's not about China following the so-called developed economies, but surpassing them. As I've pointed out before: Prior to 1830 or so, China had the world's largest economy from circa 4000 BC, while we were still painting our faces blue,  surrendering to Romans, getting raped by Vikings, invaded by French etc etc. From 2030 or not long after, China will again be the worlds' largest economy. The last two hundred years of the Industrial Åge will then be seen as simply a colourful interlude.

Similarly the Age of Coal and it's close relative Energy Obesity as Peter Tertzakian calls it,  is coming to an end. Understanding the importance of this break point is key to casting off outdated concepts that otherwise weigh us down.

One energy expert who's watched this unfold is Trevor Houser, with the research firm RHG in New York. Houser advised the U.S. climate team in Copenhagen. He says China actually might like to get off the coal train.

And, as I've noted before, make a lot of money selling us the technology to do it for us as well.

Surprise

Surprising article on many levels.  Firstly, the location. The Japan Times, very good paper as it is, has a minimal circulation outside of Japan, unless this is a syndicated article and it will pop up elsewhere.  Secondly some of this content actually makes sense:

In Europe's case — respected authorities have been insisting — this must surely mean that heavy dependence on Russian gas will increase, raising all sorts of security fears and boosting the search for alternative pipeline supplies from Central Asia and the Middle East to avoid the Russian menace. And all this would be against a background of global supply of oil and gas "peaking" and the world actually running out of both commodities.

The story does not stop there. All over Western Europe, similar gas deposits have been identified, although on a smaller scale. With new fracking technology they become accessible at a cost that makes economic sense, and they are environmentally unobtrusive. Substantial deposits on a commercial scale have been located — and in some cases are already being developed — in Poland, Austria, Hungary, Sweden, Ukraine and the United Kingdom.

This is certainly a case of deja vu all over again for NHO readers, and nothing new.  I withhold judgement, there have been a number of cases of NHO articles being recycled, which is not an issue for me.  But the bizarre thing here is the writer:

David Arthur Russell Howell, Baron Howell of Guildford, PC (born 18 January 1936) is a British Conservative politician, journalist, and economic consultant. His daughter Frances is married to the Conservative MP George Osborne.[1]
Howell, who covered Energy and Transport under Margaret Thatcher, is, along with William Hague and Kenneth Clarke, one of the few Cabinet ministers from the 1979-1997 governments to still hold high office in the party, being its deputy leader in the House of Lords.

A biography likes this makes one think he is still connected to Tory thinking, not the least in conversations with his son-in-law,  the Tory Finance Minister in waiting. 

Why is one Tory talking much sense when other Tories are pushing the gas catastrophe narrative?  And why is the one talking sense relegated to a small circulation paper on the other side of the world?

Ofgem and Gazprom’s obsession

Ofgem and Gazprom share an obsession with Russian gas.  But why do they both come to different conclusions?  Ofgem's Project Discovery is convinced that in the short, medium and long term, the UK is going to depend on Russian gas flowing into Europe.  Only by ensuring Russia can invest can the UK have energy security (although as we see here from an Alistair Buchanan presentation),  we're still looking at UK gas prices double where they are today. It raises the point of where would gas prices be if we simply stopped obsessing about them. But that could put a large part of Ofgem out of a job.

Untitled2

This presentation is liking watching a train wreck. One has a horrible fascination with what elementary mistake will they make next. For example, this is not the kind of thing AB should have said in October discussing energy security:

Maintaining gas supplies in a severe winter is the biggest risk we see.

Six weeks later the big freeze starts. What happens?  Nada, zilch, zip. What does happen is an impact on prices. February gas for example was 42 pence per therm back then. The average month ahead for February is tracking at 36.5 throughout "risky" January. The price points above have no connection with reality.  Imagine what they would have been if had an un-severe winter.

But meanwhile, deputy chairman of Gazprom, Alexander Medvedev is also worried about Russian gas.  But his concern isn't supply, but demand

In a report obtained by Kommersant, Medvedev points to additional liquefied natural gas capacities in Qatar, which built up its LNG production by 67% to 167 billion cu m last year, as the primary reason for declining Russian natural gas sales in Europe.
According to the paper, Qatar's cheap LNG flooded the European spot market from May to December 2009 while natural gas on long-term contracts even in the last month of the year was twice as expensive.
The situation for Gazprom is also aggravated by the so-called 'revolution' in gas extraction from non-traditional sources in the U.S., the paper said, referring to the report.
"Whereas several years ago, none of the companies known to us predicted rapid gas production in the U.S., today virtually all companies speak about the prospects of shale gas production – something that may radically change the entire global gas market," the paper quoted the report as saying.

Here is the really bizarre bit. Ofgem's Project Discovery (which sounds like a voyage of reading very, very old copies of Heren), while noting that the US was no longer going to be an importer of natural gas,  never asked a) why and b) could it happen anywhere else.  Ofgem also are worried that LNG exports to Europe will get diverted to China and India, which is hard to figure in a world of surging Australian and Qatari demand meeting North America West Coast LNG exports meeting substantial Chinese and Indian shale production.

And of course, a little closer to home, someone closer to Russia has a view that makes Ofgem's fears sound not so much paranoid, as delusional:

The country, which imports 72 percent of its gas, could become an exporter of the fuel, said Maciej Wozniak, chief adviser on energy security to Prime Minister Donald Tusk.

“Everything leads to a conclusion that in four or five years, and this is how much time we have to prepare for this, Poland will become a place with quite a lot of gas,”



More on India and shale

I trawl the world for shale stories, but sometimes the information is already in public view in the most obvious places.  But not in the media.  I wasn't the only one to miss this from the White House

President Barack Obama and Prime Minister Manmohan Singh launched a Green
Partnership, reaffirming their countries’ strong commitment to taking vigorous action
to combat climate change, ensuring their mutual energy security, working towards
global food security, and building a clean energy economy that will drive investment,
job creation, and economic growth throughout the 21st century. Toward that end, Prime
Minister Singh and President Obama agreed to strengthen U.S.-India cooperation on
clean energy, climate change, and food security by launching the following initiatives

Which included this:

The U.S. and India will increase cooperation on unconventional natural gas including on coal bed methane, natural gas hydrates, and shale gas. The two countries will also work to reduce emissions from land use, including deforestation, forest degradation, enhanced sequestration, and sustainable management of forests.

India and natural gas

According to the worry warts at Ofgem,  India is another of those places that the UK will meet in competition for energy resources and fail.

We assume most growth in non-European global LNG demand is driven by the emerging economies such as China and India.

But what if they India embraces natural gas for the same reasons the UK should:

Delhi’s power is turning green, but customers must be prepared to pay more.
In a move that would significantly slash air pollution levels in the city, the Delhi government has decided to shut all its coal-fired power plants over the next four years and replace them with plants that use environment-friendly natural gas as fuel.
The shift to cleaner power will result in higher power bills for end- users, but Delhi’s chief secretary Rakesh Mehta is hopeful that citizens would pick up the tab.
“Consumers would be willing to pay more for cleaner atmosphere,” he told HT. “It is weighing cheap and dirty fuel power versus health of the citizens. In the longer run, health will surely weight out costs.

Facing the future realistically.  Which in India's case includes looking for shale gas.  Or simply whingeing like Ofgem.