The no European Shale Gas service industry myth

In the library on the left you can see reports from 2010 by Stephens of Chatham House or Geny of OIES predicting the impact of European shale gas will be constrained by a lack of service industry. Write one report from name brand conventional wisdom, and it gets cited by others which explains why this year’s Pøyry Report for Ofgem repeated the same rationale. A key reason the conventional wisdom can’t quite get shale is the speed with which it can change. Energy ‘experts’ treated the field as a dusty academic subject.One could safely write a paper citing another from twenty yearsbefore. One could be equally secure in using the same outline for an undergrad course in 1998 or 2008: very little if anything would have needed to change. But two years is a long time in shale.

I have always thought of the lack of a European Service industry was always a bit of a red herring. This is Florence Geny on the subject 

The service sector in the US was very responsive to a surge in demand for drilling and fraccing services, thanks to intense competition and an entrepreneurial spirit. However thesituation is different in Europe. Competition in the service sector, dominated by four international service companies (Schlumberger, Halliburton, Weatherford and Baker Hughes)and containing few local specialised manufacturers and service providers, is limited.Therefore, incentives for investing in the construction of new rigs, and at a competitive price,are far more limited than in the US. This situation may delay the development phase if there is high demand from operators.

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Shale Gas: The View from Japan

A very good introduction to shale gas comes from Asahi Shimbun, Japan’s second largest newspaper, in a series that covers the US, Europe, China and Japan in well balanced detail that we can only dream about from the UK press. Given that the UK insists that gas prices will inevitably rise from Japanese demand, this provides a good reality check. Who are you going to trust? Those who say UK energy prices will inevitably rise based on Japan LNG  demand, or the Japanese themselves.

The usage of renewable energies also needs to increase, yet renewables will not be able to meet Japan’s huge energy demand any time soon. As a result, the country will remain heavily dependent on gas for the foreseeable future.

This makes the shale gas boom especially good news for Japan.

Another way of looking at it is that if the shale gas boom is good for Japan, it is catastrophic for the constantly rising gas price scenario spun by DECC, Centrica, CBI, the BBC and even the FT. Yet here we have a newspaper with a circulation (7 million) that the UK press could only dream about, especially since the Shimbun is a serious quality newspaper. The other contrast is how the Japanese government, especially post Fukushima when it has to promote national recovery on one hand and finds itself the majority shareholder in companies like Tokyo Electric Power on the other, is happy to talk up the national interest instead of being a disinterested observer as in Europe.

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UK Shale Gas or not, UK gas prices will come down

A key rationale for the UK government energy strategy is gas prices will be expensive.This from the BBC’s Roger Harrabin:

Prices won’t be certain either. There’s a popular notion that gas will be a cheap source of power. The truth is, it’s impossible to predict whether volatile gas prices in the 2020s will be cheap or expensive.

Nevertheless we can see from mulitple other sources that the UK government is making a dangerous bet that they will increase. A root cause is the outdated notion that a shale boom will have no discernible impact outside North America due to a combination of apart from bad geology, environmental opposition in “crowded” Europe and the fundamental continuation of the oil gas link which will lead to increasing gas prices. On oil, one has to consider surging US oil production is going to have a moderating effect on oil prices.Oil is far more likely to fall than rise for structural reasons as not only US, but also Chinese, Australian, Canadian, Argentinian and Russian shale oil hits markets as Iraqi oil production also surges post 2015. We’re not running out of either gas or oil anytime soon. But to go back to the link, two recent stories show that the oil/gas link is simply falling to pieces. First from Europe, where until now, Statoil has provided a lot of oil linked gas to Europe based on long term contracts, but new contracts are linked to spot markets:

The gas is priced at competitive terms related to German and NW European hubs. The gas will be delivered through existing pipeline infrastructure from the Norwegian Continental Shelf, with the bulk of the deliveries going to Germany

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Japan’s key LNG deal for world prices

The noble part of UK’s energy policy was founded on the need to cut CO2, but for those who don’t believe in climate change (unlike myself), a high gas price narrative was constructed to make high prices palatable. Consumers continue to be told any short term subsidy for nuclear, carbon capture and renewables or efficiency will pay for itself because international gas prices only ever go up. Gas prices go up because world demand will chase a dwindling resource base, and most especiallly, Asian demand for LNG that is not only rare but linked to oil prices will push up import costs for the UK. This view is still the official version at DECC, Ofgem and the Confederation of British Industry. Those are three insitutions that should be informing the energy debate in a realistic way but aren’t. They still remain, as they should, influential to others, so groups like the Insitiution of Mechanical Engineers or the major supermarket chain I spoke to recently repeat to me that China will suck up all the gas in the world narrative, but the supermarket  wavered when I pointed out the emerging China shale gas story.

China as a boundless energy sink sucking up LNG by the tanker load isn’t happening even pre-shale gas. It’s true that Asia buys almost 2/3 of world LNG and thus has an influence on UK LNG prices, but it’s Japan, not China that is the price setter. Numbers are from 2011, Billion Cubic Metres and are taken from BP Statistical Review of World Energy 2012. Continue reading Japan’s key LNG deal for world prices

No Hot Air Library

This library has over 100 reports dating back to 2008 from both sides of the shale energy debate.  It’s important to hear both sides: A single study won’t inform anyone either for or against.  The No Hot Air Library is always eager to put new sources on our bookshelf. Drop us a line at guru@nohotair.co.uk if you find a source from any side that we have missed to share with the other 25000 visitors to this page the past year.

Could there be a French Shale Solution?

Bruno le Roux is leader of the Socialist Party in the National Assembly and he joins almost everyone in French politics these days, except the environment secretary in supporting at least some research on shale gas. Trust me on the translation here:

 When asked if he could there be a search in the direction of extraction of these gases, Bruno Le Roux said during the show “All politics” on France Inter / Le Monde / AFP “Of course.”

 “We are opposed to a method of extraction is problematic in terms of sustainable development. Are we opposed to shale gas? We are not opposed to a source of energy which we are  told that it could represent a particular competitive advantage tomorrow, “he said.

 “I say this very clearly: the issue of shale gas should continue to benefit from the research and science,” he added.

 According to him, “If tomorrow there is a possibility of treating this energy source that is accepted after a debate as ecologically as possible, not putting future generations at risk, I hope that the debate will continue to be open “. 

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Is a carbon tax possible?

 Calls for a carbon tax unite a wide range of economists and environmentalists.  Just three are Daniel Schrag as pointed out yesterday, the UK’s Dieter Helm and again this past week via The Guardian, Al Gore:

It will be difficult for sure but we can back away from the fiscal cliff and the climate cliff at the same time…One way is with a carbon tax. You can offset it with reductions in the payroll tax but you can then gain revenue with tax reform as part of a solution that raises revenue as well as cuts some of the spending … By including the carbon tax in the solution to the fiscal cliff we can back away from the climate cliff.

I was at an event in the UK Parliament last year where Fiona Harvey of the Guardian and Caroline Lucas MP of the Green Party, pressed me on the carbon tax. I think they were surprised when I said of course I supported one. My view is that natural gas will always be cleaner, and thus lower tax than coal.  On their side, this makes renewables more competitive. They’re going to be even more surprised now. In a classic be careful of what you wish for, the concept of a carbon tax in now being supported by a very surprising validator:

Exxon Mobil Corp. (XOM) is part of a growing coalition backing a carbon tax as an alternative to costly regulation, giving new found prominence to an idea once anathema in Washington.

Conservative economists and fossil-fuel lobbyists united in 2009 to fend off climate-change legislation that would have established a cap-and-trade mechanism. They are now locked in a backroom debate over a tax on carbon-dioxide emissions that could raise an estimated $100 billion in its first year.

A carbon tax would force electricity producers, refiners and manufacturers to pay a fee for the greenhouse gases they emit. It is gaining interest as lawmakers and President Barack Obama pledge to simplify the corporate tax code and raise revenue to narrow the deficit. The devastation from superstorm Sandy following the wildfires and drought of this summer have also increased concern about global warming.

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Is Shale Gas Good for Climate Change?

Over the next week to a month, as we see any number of revelations and decisions over UK shale gas finally pop out the other end of the UK government energy policy sausage machine, we’ll also see what I would describe as a UK energy experts burning papers in the courtyard moment. On the one hand, it will be nice to see the experts finally change their minds now facts have changed, but what took them so long? On a basic scientific level, we don’t know anything more about shale today than was evident two years ago. There’s one proven case of water contamination out of 36,000 wells in the US. It won’t take up lots of the countryside because people won’t put up with it and it’s very expensive to drill that way.The earthquakes it may cause will remain as imperceptible as before. Chemicals will be revealed as nothing more dangerous than those lurking under a sink. 400 trucks will pass by but at the rate of one every 20 minutes for three weeks. The earth will be violated, if one’s definition of a hole the size of dinner plate going two miles below the surface is Gaia rape. After that we create not underground caverns unleashing the hounds of hell, but fissures measured in millimetres or soon, even microns.

For too long the debate about “controversial” shale gas has dragged on and valuable time has been wasted as energy experts face their true problem: They were wrong. True experts, such as Daniel Yergin and Dieter Helm are happy to admit that they, like everyone else, myself included of course, never predicted the shale revolution. It’s the more insecure experts, especially among journalists, who are more insecure about their abilities. Some of that reaction comes from how they set themselves up as some sort of priests reading the entrails of organic goats to a public that was asked to treat them like Green gods. Anyone who disrupted their narrative would be automatically castigated as right wing stooge.  I can serenely anticipate many of the same experts will suddenly convert to the shale side, now they smell money. It’s going to be abandon ship time for many and soon they’ll hope we forget about their youthful indiscretions.The Guardian Friday shows that while force of habit still intrudes, they’re definitely heading in the direction of the lifeboats. Women, if not children, first:

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