BBC Lancashire on Shale Gas

As luck would have it, while visiting the in-laws,  BBC Lancashire had a big story with a live link to the Cuadrilla shale gas story:

 Tests are being carried out in Lancashire by a firm exploring a new way of extracting natural gas from underground rocks.

No link I can find to the actual on-air version, which is a shame.  It was the second lead and started out with a live link to a reporter on the site.  Fair and balanced, it even mentioned Gasland,  although in one of several mistakes repeated in this Lancashire Evening Post story, it said the UK  was different in that  the gas was drilled deeper than in the US.  Spot the other mistake:

An energy firm is testing for natural gas below Kirkham which could help provide one tenth of Britain’s energy supplies.

Cuadrilla Resources has constructed a rig in a former wheat field to investigate the potential of extracting natural gas from shale rock, a prehistoric clay found deep underground.

The tests are believed to be the first of their kind in the UK.

Cuadrilla claims that shale gas from Lancashire and other parts of Britain could one day be used to supply up to 10% of the country’s power needs.

The energy source already provides almost half of the USA’s power but it has not been tapped into in Britain as it is considered expensive and difficult to recover.

Shale of course does not provide even more than about 10% of US current production, although it should supply 50% or more by 2030 or so.

Note the usual UK press lover of hyperbole here.  The original Channel 4 and BBC Lancashire stories spoke of this field supplying five to ten percent of the UK's gas.  Even a shale fan like me would love to see that happen has to be cautious about that figure.  But the LEP, and we're sure others, will pump up estimates to the higher range.

BG or not BG?

Don't get me started on that BG: British Gas the division of Centrica that announced profit increases of 98%

British Gas is expected to reject customers' demands that it cut its prices, despite the fact that this week it will announce that profits have almost doubled in the first six months of the year.

Parent company Centrica is forecast to report the huge jump in profits after benefiting from the coldest winter for 30 years and the declining cost of wholesale energy.

But it is likely to resist calls to cut household bills, arguing that its margins will be squeezed later this year because wholesale gas prices have begun to rise again.

Rise again?  

The obscenity here is not Centrica.  They are simply taking advantage of Ofgem, and the government's, cupidity and stupidity.  Centrica's regulator is the only one on the planet that says prices aren't high enough.  First rule of thumb in the utility business is don't fight the regulator.

What better illustration here of British Gas's great good luck in having the world's doziest regulator is the different picture at BG, the energy exploration and production company spun out of British Gas plc years ago that works in the real world of global markets, not planet Ofgem.  

BG Group Plc, the U.K.’s third- largest oil and natural-gas company, said profit fell 21 percent on lower production and a higher exploration charge.

For both upstream and LNG, we expect a sequential drop in segment earnings due to the seasonality factor,” Oswald Clint, an analyst at Sanford C. Bernstein & Co., said before the release.

“It’s not going to be the same BG you knew before” because of lower natural gas prices, said Christine Tiscareno, an analyst at Standard & Poor’s in London. “The company has reached a more mature phase.”

One day, the UK consumer will have energy regulation from a mature stage.  Until then we'll get treated like children. How long until baby consumers grow up and realise big daddy Ofgem is just a flawed human like everyone else?

Natural gas to be cornerstone of green energy supply

After showing how pathetic and out of touch UK energy policy is compared to India,  another example of a country not as developed as us British, but who luckily have open minds.

In 2030, the nation's gas demand may rise to 444 billion cubic meters a day from 9 billion cubic meters a day last year, with shale gas as the major growth energy source, said Wood Mackenzie.

Shale gas is an unconventional gas resource stored in shale rocks. It has become an increasingly important source of natural gas in the United States, Canada, Europe, Asia and Australia.

The nation is now showing interest in new technologies that can lead to the production of shale gas. The IEA estimates the country's shale gas reserves are about 26 trillion cubic meters.

Earlier this month, Sinopec announced it had launched a new division for the exploration of shale gas in Southwest China's Sichuan Province. Sinopec started evaluating shale gas exploration in Sichuan Province in April, and its annual output may hit 2.5 billion cubic meters in five years, according to the China Business News.

Earlier reports said the oil giant had started shale gas explorations in Guizhou and Jiangsu provinces with the oil giant British Petroleum (BP), which can provide advanced technologies that China needed.

India plans to launch shale gas auction in August 2011

Further sign that India is set to leapfrog the UK and Europe.  David Cameron is on his way to India with 200 business hanger-ons, similarly deluded that India will spend a lot of money with UK companies in gratitude for years of colonisation.  India may spend a lot of money buying up UK companies, although I hope that the business people don't include anyone from energy.  India is way ahead of us.  While Chris Huhne wants us to escape from fossil fuels unreliability and volatility,  India knows those days are about as dead as the Raj.

The identification of the gas producing areas will be done by early next year. This will be followed by carving out suitable blocks. Jitin Prasada, minister of state for petroleum and natural gas, had recently called a meeting of officials in the Directorate General of Hydrocarbons (DGH) and his ministry to discuss the future potential of shale gas. “The DGH has accordingly prepared a roadmap for the shale gas auction,” said a ministry official.

India is also likely to sign a cooperation agreement with the US Geological Survey later this year for knowledge sharing in the area of shale gas. The US has successfully exploited its shale gas reserves, which currently account for 20 per cent of the country’s gas production. An Indian delegation was also expected to visit shale gas sites in the US sometime this year, the ministry official said. Countries like Canada and China are also increasingly exploiting their shale gas reserves.

Maybe the UK should have a shale gas auction?  We sure need the money.  But we sure need the knowledge first.  My guess is that most of the UK shale acreage has been snapped up already.  But it would be nice for an informed government to be able to tell us.

UK Energy Statement

The UK Secretary for Energy and Climate Change managed to offer an entire statement to Parliament on energy neglecting to mention the largest source of the generation mix:  natural gas.

He did mention Ofgem's tired and out of date policy

At the moment, the UK is an economy reliant on fossil fuels. As UK oil and gas production decline, this leaves us more exposed to volatile prices and increasing global competition. The challenge is to spur the capital investment required for new energy infrastructure. The volatility of fossil fuel prices and continuing uncertainty about the carbon price makes such investment high risk pushing up costs and slowing development. So the first step is to support the carbon price.

Exposed to volatile prices and increasing global competition?  Has he read anything on energy policy that isn't three years old at least?

Fossil fuels can also have their place in a low carbon future, provided we can capture and store most of their carbon emissions. We will introduce an Emissions Performance Standard and intend to launch a formal call for future CCS demonstration projects by the end of the year.

Completely Crackpot Scheme.  Pull the plug on it.  Doesn't work.  Incredibly expensive.  And solves a problem (gas insecurity) that we no longer have.  Can we have a debate on gas that's based on facts, not paranoia and xenophobia?  We're running out of gas the same way we're running out of bananas.  Spend money on promoting UK shale gas if they do want to spend money.  But gas isn't there wanting a subsidy like all the other energy "experts" in the room.  The same ones who didn't hear about shale until about six weeks ago.

This is a bold vision. We will not be able to deliver it without a 21st century network that can support the 21st century infrastructure. The statement sets out practical measures we are taking to improve network access, and begin the building of a truly “smart” grid.

This vision, however, needs to be grounded in reality. The low carbon economy must happen but it will not happen tomorrow. There are potentially twenty billion barrels of oil equivalent remaining in the UK Continental Shelf. But we must maximise economic production while applying effective environmental and safety regulations. We are doubling inspections of offshore oil and gas rigs and will undertake a full review of the oil and gas environmental regime

Not one single thing has changed, apart from a promise to speed up Smart Metering.  Why did we have that election again?

Cuadrilla and UK Shale Gas Video

Original Channel 4 News story here. This has got to be the cleanest looking drilling rig going, looks like they only unpacked it yesterday.

Towards the  end of this story, it's mentioned that this may increase the UK's gas resources by 5-10%.  That doesn't sound like much, but here's why it is.

1)  Contrary to what most people think, or get told by shyster energy "con" sultants, UK energy use, measured in gas, electricity and oil is going down.  National Grid recently said that they expect gas consumption to decline 1% a year through 2020.  So even if 5 to 10% was small, it's going to be magnified anyway.

2)  88% of UK energy comes from the North Sea, either the UK, Dutch or Norwegian sectors. So 5% of total demand is equal to a displacement of almost half the UK's LNG imports or another way of looking at is displacing all LNG imports from Qatar to the UK.

3) It's slightly more complex than that in that the North Sea is declining allegedly from 2015 onwards.  I say allegedly since the North Sea has been running out from day one. We should have run out entirely ten years ago based on 1979 predictions for example.

4) Finally:  5% of total UK use of 86.5 billion cubic metres, is about £600 million.  Can the government or the country turn down that kind of money?  Assume that the true figure for UK shale production is going to be much closer to 30% or more by 2025, and we should think again about Ofgem's proposals to ensure security of supply,  which is evidently a problem we no longer have, which cost £9 billion just for the experimental stage of CCS.

China, LNG and shale gas

Big news today on three key trends I've kept an eye on for the past two years

1) Reality is that the classic bull market story of China's energy demand as a squid sucking up world energy supply is a little more nuanced.  China wants to surpass the "developed" economies, and  the western energy example is not one they (or India) will blindly emulate.

2) China's LNG demand, while not insubstantial or likely to remain so, still comes from a very low base. China was a net exporter of natgas as recently as 2007 for one example.

3) Chinese shale resources are equal to North America's.  Combine that with the centrally planned economy and shale will happen in China far sooner than many think.  We already see sign of China (and India) leapfrogging a Europe still obsessed with yesterday's news of peak oil and insecure gas.

Wood Mackenzie are everywhere these days on shale.  WoodMac were originally of the school that shale is something far off in the future no one need worry about.  But now it seems the future is getting closer than thought:

Domestic unconventional gas production will account for over a quarter of China's total gas supply by 2030 and unconventional gas, particularly shale,will increase significantly to help meet China's strong gas demand growth, Wood Mackenzie said Monday.

     However, unconventional gas resources will take a significant time to develop and therefore meeting its gas demand will require China to import significant additional volumes of LNG and piped gas, particularly up to 2020, the energy consultancy said in a new report titled "Race for Supply – the Future of China's Gas Market."

Shale gas is the major growth story in China. As China's national oil  companies increase their unconventional gas activity, they will look for partnership and technology in the initial phase of development, creating a window of opportunity for qualified foreign players," Thompson said.

 Wood Mackenzie has raised its forecast of China's LNG demand in 2020 to 46 million mt/year, up from its previous forecast of 31 million mt/year.   "This will expand the opportunity for LNG suppliers seeking to secure markets, particularly those in Australasia,"

Although I'd reckon Qatar will be wanting a look in as well.  If we want to look all the way to 2030 and beyond by the way, something else to figure in LNG is that by the thirties Japan will be losing over 500,000 people per year, a million in the forties.  Not exactly positive for Japanese LNG imports.

Back to this decade, and WoodMac and I agree that 2015 onwards may be slightly interesting for gas in that demand will be very high but shale hasn't made an impact – yet.  That's the story not only in China but with declining North Sea production may be one in Europe too.  But by then, North American LNG exports could give everyone breathing space.

A new energy source for Britain?

Encouraging piece here from the UK's Channel 4 on UK shale gas.

Too bad they bury the story on the weekend edition, but you have to start somewhere:

Channel 4 News gains exclusive access to the UK's first shale gas well, a new way of extracting natural gas from underground rocks which could profoundly change the energy market. 

Update 2000 July 26: Good, balanced story, not too simplistic or sensational.  Should be on the web tomorrow.

I did an interview for BBC Radio 4 this week (Costing the Earth September 8), and they asked me one of the most common questions I get asked in the UK:  Why haven't we heard about shale before?

Good question, and the easy response is that UK journalists and editors don't want to hear good news.

No UK journalist, or their editor, seems to be able write a story without exclusive in the title, as if we're in Fleet Street 1955. You want exclusive read my story on Cuadrilla from March 11.  But I digress:

I think we're quite confident that we will find gas it's just whether we find gas in economic quantities.  

"I think it's very early days. It will take a lot of exploration and a lot of effort by small companies like us and larger companies as well. But ultimately we are hopeful that we would find certain deposits here that would add to the net reserves of the UK."

The story, which I haven't seen in an on air version yet, only touches on UK energy policy:

The increase in supply of gas in America has helped to push world gas prices down – which has contributed to the modest fall in domestic bills which British consumers have recently enjoyed. So successful have the shale gas drillers been that the major oil companies are scrambling to buy them up. 

Modest fall?  6 % less than in 2008 despite the wholesale price dropping 60%?  But that's another Ofgem failure.  This story is a start towards showing how paranoid Ofgem's policies are.


As if by magic, other UK journos jump on the bandwagon

Terry Macalister here in the Guardian on the Cuadrilla story:

Blackpool could become the new Houston if an experimental "shale gas" well being drilled in the north-west of England this week turns up the same stellar results that have been seen in America.

Terry could have made everyones' life a bit easier if he responded to my e-mails a year or more ago, but why do a story if you're the first one?

My take on the Cuadrilla story is this:

The history of shale is that the first drillers

a) won't say a thing for years or months

b) say, as Cuadrilla say It's very early days," he said. "It will take a lot of exploration and a lot of effort by small companies like us, and larger companies as well, but ultimately we are hopeful that we would find certain deposits here that would add to the net reserves of the UK."

c) but we've never seen a single shale in North America going from Barnett to Haynesville to Marcellus to Horn River to Eagle Ford to Utica where they weren't being both incredibly cautious to the press, investors and everyone else while at the same time miraculously buying up every bit of acreage they could find.

Which is why I say to those who read stories like this and don't think shale will have any impact for many years, think again.

Shale isn't coming to Europe.  It's already here.

One view changes, and the other…same old stuff.

Unlike No Hot Air,  who have always said that the shale will have an impact globally far, far sooner than the "experts" (who missed shale entirely until a few months ago) who predict that shale is ten years off, Wood Mackenzie have always been cautious about shale.

They are changing their tune.  We don't have a problem with that. The facts change, opinions change.  That's only fair.

Global unconventional gas has the potential to reshape global gas dynamics, according to a report by analyst Wood Mackenzie. Indeed, according to the report’s authors, companies that position themselves early will be best placed to benefit from the “unconventional gas revolution.”

Rhodri Thomas, a principal analyst from WoodMac’s unconventional gas service, said, “Development of just a small proportion of this resource could dramatically change local gas markets with further implications for global gas dynamics.”

An important point here,

It is too early to say how the future of unconventional gas will play out, but it is clear that stakeholders across the gas value chain—gas suppliers, resource holders, buyers and policy makers—need to understand the possible impact of future developments,” said Thomas.

completely lost as usual on us here in the UK:

Britain is “very likely” to face an oil shock within the next decade, triggering economic volatility as fraught with “nasty surprises” as the 1970s, the energy secretary has warned.

Chris Huhne told the Financial Times that Britain was in danger of becoming as vulnerable to price spikes as before the discovery of big North Sea oilfields, leaving the economy open to “very severe blows”.

How divorced from reality is this?  How depressing.  What a self fulfilling prophecy.

The UK:  capital of Peak Oil.  Or is that Peak Stupidity?

Going back to WoodMac.  Countries that are able to position themselves as early adopters will be best placed to position themselves to take advantage of the gas revolution.  But it needs regulation that isn't stuck in the past. 

No one admires the past of the UK as much as I.  But why on earth do we have to live in it?

Another LNG project bites the dust

What more proof does anyone need that LNG projects in North America are history than the news from the Bangor Daily News that the the Calais (Maine USA) LNG project is now an ex-project.

But this is slightly different, in that in the land of lobster, the big sucking sound of this LNG project is the world's bloodsucking  vampire squid bailing out, or is that simply an "investment decision".

A company hoping to build a liquefied natural gas terminal in Calais is working to line up a new financial backer after the original partner opted to drop out of the project.If a new backer is not found within three weeks, Calais LNG will withdraw its application from the Board of Environmental Protection, according to a letter sent Wednesday to state regulators.Calais LNG wrote to BEP chairwoman Sue Lessard that GS Power Holdings LLC — a subsidiary of the global investment firm Goldman Sachs Group Inc. — “is in the process of selling its interest in the project to a new financial partner.”

Would you buy a used LNG project off Goldman?

Ronald Shems, an attorney for Save Passamaquoddy Bay 3-Nation Alliance, also noted that Calais LNG has been touting Goldman Sachs’ involvement as proof of the project’s strength.

“The fact that Goldman Sachs is pulling out speaks volumes to the project’s merit,” Shems said.

It was unclear Wednesday evening whether Goldman Sachs will have any additional involvement in the project other than through GS Power Holdings LLC. Calais LNG’s website highlights in several places the role that Goldman Sachs is playing in the project.

“In the Calais LNG project, Goldman Sachs sees an opportunity to invest in a project that will supply much-needed, cost-effective, cleaner natural gas to areas including Maine, New Hampshire, and Boston where there is growing demand for natural gas and a shortage of supply,” the site states.

There's only one question here.  Why on earth did it take them so long?  These guys, squids or not, have a reputation for competence.  What happened here?