US LNG prices to Europe. How much?

int gas tradeThe price of natural gas is a complex enough subject as it is. I won’t write a book, since OIES already has, but gas pricing is a multi dimensional chess game, with dozens of different variables. 

That doesn’t stop some looking to simplify it, as we see from former Energy Secretary Chris Huhne’s rather convoluted logic in the Guardian today, where he appeals to the US to export their LNG to the UK to lower prices. 

North American LNG exports are clearly on the cards anyway, and it’s a sign of multi-dimensionality that whether or not US molecules physically arrive in the UK or not is irrelevant. Huhne’s thesis seems to be that US LNG is better than UK fracking because UK produced gas would only be exported to Europe via the Interconnector link, thus making UK shale gas production irrelevant in price terms.

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Changes are everywhere else, why not in energy thinking?

thermostatAs the shale revolution is making clear each passing day, it is indeed changing everything, and energy will continue to be one of the worlds’s largest industries and most widely traded commodities for years to come. But change is endemic these days, and three recent trends spotlight how simultaneous revolutions are accelerating in IT, manufacturing and transportation.

The macro implications for energy use spill over between sectors, but the trend is clear. Technology is a simultaneous revolution that portends both increasing energy production and declining energy consumption. This, in the overused phrase, truly does change everything, and it starts with technology.

 

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The beginning of the end of coal?

coalEven the most optimistic observers of shale gas never thought it would come to this. Or in my case perhaps, come to this happy event so soon:

In a report published earlier this month Citibank analysts suggested that “one of the most unassailable assumptions in global energy markets” — that coal demand would continue to rise in China for the foreseeable future — may be flawed.

China has a vested interest in reducing coal consumption. The only deliverable path available is to replicate the US experience in producing gas first and reducing gas second. The result is described in post by Steve Levine entitled Death Knell?

At last, the US and China—the world’s biggest carbon emitters—move to cut coal

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The big picture about shale energy

FTSome stories are so full of groundbreaking ideas that I can only recommend everyone read all the article in Foreign Affairs this week by Amy Myers Jaffe and Ed Morse. Morse is Chief Commodity Strategist for Citibank and makes a rare London conference visit to the FT Global Shale Summit next month in London.  Even Josh Fox is on the menu at that one, and the likes of Ed and Christof Rühl and Charif Souki will eat him up. Too bad I’ll be at another Global Summit in Beijing, this will be the most entertaining event in  UK shale all year.

Amy Myers Jaffe has been mentioned here a few times and I have slavishly been hanging on her every word for years. Now at the University of California, but formerly of Rice University in Houston, Jaffe has a proven track record in being literally years ahead of the curve. Put them together and this is blue sky thinking at its best, all the better for being true.

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Time to start thinking of Global Shale Oil

One of the oddest things about the Balcombe protests, and a source for much bemusement by the industry is how an oil well could bring out gas protestors. Cuadrilla have always, back from the original Battle of Balcombe in January 2012 clearly stated that they were looking for oil. The essential reason they chose Balcombe was because Conoco had drilled a well on the same site in 1986 to a colossal local yawn.

West Sussex has a history or oil, and for many local residents the only controversy was it’s failure. Dreams of Dallas on the Downs were attractive to many of the people who live on top of it. The UK debate in the 2010’s needs to move on from the public acceptance debate over shale gas to start to include the black stuff, especially as we wait, interminably it often seems, for the next onshore licensing round.

The 1986 decision to plug and abandon the well was a result of bad timing more than anything:

By July 1986, the average per-barrel free on board (F.O.B) price for OPEC crude oil had dropped from $23.29 in December 1985 to $9.85.

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UK Shale Gas and Prices Part 3

Last week David Cameron gave an interview that would have been front page news last month.  Yet, in a sign that the mainstream press has decided that shale gas protests stories belong in the silly season, the interview with BBC Radio Lancashire wasn’t worth mentioning to the London press.

The clear and unambiguous message of support  of shale gas from Cameron, Davey, Osborne and Fallon makes the Balcombe protests seem like an inconsequential chorus of doomsters by the side of the road. Which is what they almost exclusively are of course. 

Note here the consumer cost issue. Compared to the big picture protest angle of catastrophic climate change or mass poisoning of drinking water, suddenly changing the green debate to something as mundane as the gas bill appears rather petty. The idea that people will support shale gas or not based solely on gas bills, doesn’t reflect well on either environmentalists legitimate concerns or their arguments in the greater climate debate.

I only found out about this interview via Ribble Estuary Against Fracking, and their comment indicates how far in tone the debate has fallen:

Continue reading UK Shale Gas and Prices Part 3

Shale gas and Prices part two.

In the first part of an attempt to clear up confusion about UK shale gas and world prices I concentrated on LNG and will do so this time from the North American angle. Caution:if you thought part one was complicated, don’t even try this one.

Nothing shows more the gulf between the present and past than two recent news items, separated by only four and a half years. The WSJ looking backward in 2009: 

The conventional wisdom said that the U.S. would soon become a big importer of natural gas. The conventional wisdom blew it

In the summer of 2003, former Federal Reserve Chairman Alan Greenspan appeared before a congressional committee to share his thoughts about the U.S. natural-gas market. It might have been better for the industry, and some investors, had he kept those views to himself.

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UK shale and world prices

The question of the impact of shale gas on UK prices opens up another subject area of no less complexity and certainly one that long depended on popular conventional wisdom that could be distilled into a couple of sentences. 

The question is not whether UK prices will depend on international wholesale prices. Doug Parr of Greenpeace and the Committee on Climate Change’s David Kennedy who shared the stage with Ed Davey on Monday at the Royal Society, are absolutely right to point that out. The question is which way international wholesale prices are moving. The trend is clear that the US shale revolution is already impacting world prices and will only continue to do so going forward.

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Making money out of, and from, UK shale gas

For those who think it will be years until anyone can make any UK money out of shale, it may be easier than thought. It seems we will be soon making money from it.

Charlie Bean, deputy governor, said: “Polymer banknotes are cleaner, more secure and more durable than paper notes. They are also cheaper and more environmentally friendly. However, the Bank would print notes on polymer only if we were persuaded that the public would continue to have confidence in, and be comfortable with, our notes.”

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Time to start following the money on international shale

Yesterday’s unambiguous support from Ed Davey for UK shale gas can only help to also attract investment into both UK and European shale gas.

The UK’s double validation that shale can not only be done safely, but also fits into the climate change agenda is going to be viewed positively by European governments.  Even French civil servants have long admited in private that they, along with Germany, Ireland, Holland and Spain have been sitting on the fence waiting for UK developments. Certainly, a rejection of UK shale would slow down Europe, although it could never have been fatal – there is simply too much shale gas in the rest of Europe. UK leadership can work the other way, to accelerate the investment needed to answer questions, instead of endlessly asking them.

The shale industry in Europe has been hamstrung by a lack of funding that stemmed in large part from the fear usually at the top of investor’s lists, “regulatory uncertainty”. The catch-all phrase encompasses not only tax issues, but includes the response to basic questions those being asked to invest in EU shale need to know. Let’s use an example of an exploration company seeking funds for a drilling program.  Investors would ask some basic questions:

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