No Hot Air

Domestic Gas Use: Conventional Wisdom no longer applies.

The most recent UK Energy Trends survey provides a snapshot of UK energy consumption in Q1 2009.

Overall, gas use declined 4.3% and electricity 5.1 %.  No one could expect any  less during the downturn of course. Perhaps today's news of a worse than anticipated drop in UK GDP shouldn't have been a surprise :

The 2.4 per cent decline in gross domestic product was sharper than the 1.9 per cent initially calculated, the Office for National Statistics reported, and was greater than the 2.1 per cent fall expected by economists. About half the revision was due to the introduction of new construction sector data and the rest was bacause of more complete services sector figures showing a sharper decline.

We've noted before the escalator connection between GDP and energy prices. Conventional wisdom is that a rising economy rises all boats, starting with oil and energy consumption and prices. But with the UK Iron and Steel industry dropping gas use by over 33%, it's increasingly hard to see if that demand destruction will be reconstructed when, or if,  happy days return to "normal" as the more bullish energy traders hope.

We think domestic use, something we don't generally worry about, provides some pointers towards the new normal. Domestic gas use was down 3.3% year on year, although January degree days were not merely 12% above average but even more worryingly were a massive 40% higher than in January 2008.

This bears repeating. January was 40% colder than the previous January yet domestics used over 3% less.  Energy shouldn 't have gone up exactly 40% of course, but assuming that several hundred thousand energy users didn't move to Spain or suffered an early death,  keeping the same number of houses at a livable temperature, use should have gone up, not down.

What probably happened is that consumers finally wised up: doubling the gas price finally made the investments in efficiency worthwhile and/or caused domestic behavioural change. Which means an impact on energy elasticity. One of the big unsaid fears over efficiency savings is that once prices bounce back, so will use.  We don't entirely agree.  Lower prices will lead to more carelessness, but not a return to the old days. The Hummer won't come back. Neither will walking around an uninsulated house in a tee shirt.  Wasting money, resources and thinking is sooo 20th century.

The Gas Opec is worried....

It sounds like the nice simple story some people, especially lazy journalists like to hear, easy enough to add their spin and sell it on.

The story is a Gas Exporting Countries Forum as a methane powered OPEC, someone bulls can simply point to and blame for natural gas prices.  At the same time, they serve a valuable (to long term price consultants and energy bulls in general) purpose in pushing up prices.

But they sound much more worried about stopping further price falls and demand destruction. Shale gas (yawn) is important to them, if not to our UK energy bulls:

Trinidad and Tobago Energy Minister Conrad Enill said today the growing role of shale gas in the US market was one of the main concerns discussed in a meeting of gas exporting countries.

"...what we were talking about, the entrance of shale gas into the US market," Reuters quoted Enill as saying on the sidelines of a meeting of the Gas Exporting Countries Forum in Doha.

"How is that going to impact the business in the future...how do we maximise production, how do we ensure the business grows, how do we ensure in growing the business we maintain price stability."

Note already one big difference between OPEC and GECF: The gas group is more interested in maintaining prices, not increasing them.  They realise already that increasing price is not an option.  T+T have a right to be worried. The big producer there is BG, who have made Trinidad and Tobago one of the world's largest gas exporters. But BG, descended from British Gas many years ago, is one of THE players and have a great track record strategically in creating the LNG market from scratch from Trinidad into both the US and world markets, while growing in Australia on Coal Bed Methane, and then lucking out (or was it skill?) on this century's mega discoveries offshore Brazil.

But BGs newest investment, although playing follower to Statoil Hydro, BP, Eni and Shell, is going to get the GECF more worried. Don't worry where BG's investment currently is. Worry about where the technology they learn there takes them next:

BG Group plc the U.K.’s third- largest natural-gas company, bought assets from Exco Resources Inc. for $1.06 billion to develop its first U.S. shale gas project.

We expect BG will use this shale gas to meet U.S. contract commitments, thereby releasing Atlantic basin LNG cargoes for higher priced global” markets, said Oswald Clint, a London-based analyst at Sanford C. Bernstein & Co.

It's hard to see where those higher priced commitments might be, given the role of Qatari, Equatorial Guinea, Gazprom in Sakhalin, Gazprom in Yamal, Algerian, Egyptian, Libyan, Australian, Brunei, Indonesian and Norwegian LNG in chasing supply markets that declined 8% last year.  And if BG learn some technological lessons, as they surely will, then there will be more shale worldwide to add to the pot.

 

Poland, Russia and us

Here in the UK, Russia is threatening us.  The solution, to be either fearful, or do something really counterproductive such as enabling Ukraine to be a failed state which is the real crux of the matter in EU Russia gas relations. 

What's Ukraine done for us lately?  Or to be exact, what have they done for themselves lately, apart from vex the  Russians at our expense?

Ukraine, which has suffered a roundhouse blow from the economic crisis, has had no finance minister since February. It also has no foreign minister or defense minister. The transportation minister just stepped down. The interior minister has offered to resign as well, after being accused of drunken behavior.

The deadlock has led the major European nations to voice growing alarm that Ukraine is incapable of dealing with its disintegrating economy.

They fear that an economic collapse here could reverberate throughout the former Soviet bloc and beyond.

On Wednesday, the foreign ministers of Germany and Poland made an unusual joint visit to the capital, Kiev. The German, Frank-Walter Steinmeier, declared that he was “extremely worried” about Ukraine, suggesting that its politicians must stop feuding if they wanted more assistance.

Sounds like Ukraine may not be an issue by the time the EU has built the Nabucco pipeline, which will bring us more reliable sources of supply. Like Uzbekistan and Iran for example. The  pipeline will also transit more reliable countries along the way. Like Armenia and Kurdistan for example.

Poland should be more worried about supply security than any one.  But they just inked an LNG deal with Qatar today.

It is the first long-term contract since 1993 which increases our energy security in real terms," Polish treasury minister Aleksander Grad said.

And why not.  Qatar needs customers too.  But who knows?  Maybe Poland won't need Russia at all.  Or Qatar:

BNK believes that the preliminary data it has analyzed, indicates that the makeup of the some of the shales within its Polish Concessions, are silica rich and appear to have thermal maturities and total organic carbon in a range that could make them successful shale gas projects

And :

BNK is also undertaking geologic mapping and data acquisitions in other parts of Europe in order to evaluate additional opportunities.

If Poland is successful, then that gives the UK an advantage in worrying even less about Russian gas.

More shale gas than expected...

Same old story, just a different place. New Brunswick in Maritime Canada:

Shares in a Halifax junior exploration company went up Friday with news that the company’s discovery of shale gas in southern New Brunswick is much larger than originally believed.

Corridor Resources Inc. announced that an independent study carried out in June estimates that 67.3 trillion cubic feet of shale gas is contained at Frederick Brook in the Sussex/Elgin sub-basins. This is three times the volume expected, according to an analyst’s report.

New Brunswick is often just one of those places people fly over on the way to New York, but the Maritimes are a former stomping ground of ours. Think of a very big Scotland. The Martimes are not exotic. And neither are many similar places in Europe geologically speaking.  This find may not ever be commercial. But the important thing is to look, which many companies are discreetly doing throughout the world.

The true undiscovered country in the UK is within many, but we point out not all, energy policy "experts" heads.Energy experts are a diverse bunch: academics, policy makers, energy companies and the experts who advise or work in banks among others. After a lifetime of peak oil, peak gas, or pro-nuclear thinking it is difficult to  change overnight. You can always tell an Oxbridge man, but you can never tell them much. Their careers have been predicated on a gas shortage, it must be hard to admit to  being flummoxed. But we've been talking about the non-shortage of UK gas for over a year. Times a wasting. Get with the new program or get out of the way.

More gas trapped under Dutch soil

The Netherlands has been pumping gas for the past 50 years from first onshore, and then off, and the UK Southern North Sea shares much of the same geology.  Check out the recent BBC4 programme Crude Britannia for more on that fascinating part of UK energy history.

Compare how the UK Southern North Sea is considered a mature province, yet the recent official report Focus on Dutch Gas still believes the prospects for the eastern side of the exact same geologic formation are far more optimistic the usual British catastrophic thinking, and that is while barely mentioning shale gas.

There are huge reserves of gas hidden under Dutch territory that could be exploited with new technologies, a new report says.

For the first time, the organisation made an inventory of the so-called unconventional gas potential in the Netherlands, both onshore and offshore. These can be wells of gas trapped inside coals or shale that can not be recovered with traditional techniques

It's worth noting the Dutch experience with exploration success next time a trader pulls out rig-count numbers. In the 80's 65% of wells drilled were dry, but in 2008, 70% of wells were producers. This is down to technology, not luck, and makes what are called traditional indicators traditional, but not particularly indicative.

Why did the Dutch commission this report?  For many familiar reasons:

The EBN study was done at the request of politicians who have expressed concern about Dutch gas reserves getting exhausted, which could lead to a stronger dependency on Russia, the largest owner of natural gas resources in the world.

But this should mean that UK gas theory should come to a similar conclusion:  That even without any shale potential, the production potential of the "mature" UK Southern North Sea may be nowhere near as dire as some would have us believe.

Price outlook remains bleak for natural gas

Or at least it's bleak for energy consultants.  Why try and convince people to sign up for multi-year deals to avoid risk, when the only risk is buy too soon?  How soon is too soon?  Excellent piece from the Edmonton Sun with not one single bullish indicator:

Lousy prices, sluggish demand, rising LNG imports, bulging inventories -- natural gas producers are swimming in a sea of misery these days....Given the magnitude of the resource base and what's happening to costs, we're looking at a five-year-plus period of lower prices.

The man said five years. Plus. 

And before we get accused of not knowing anything about the specialness of European gas markets as opposed to North American ones, listen to the someone from the old mainstream who, unlike most of the UK, is becoming part of the new mainstream:

Christof Rühl of BP says that energy security for the European Union depends on technology, flexibility and free markets... In the US, technological innovation has made it possible to obtain gas from ‘non-conventional' sources, such as shale and coalbeds.

for Rühl, it is also a story of technology responding to high prices with new supply and global integration of gas markets.

Outed...

 Some clarifications on this revealing article in today's London Evening Standard.

I don't think this is a conspiracy.  It's much more likely to be a simple cock up, although there is a bit of UK energy "experts" simply being in denial.

Then let me make clear:  I have nothing against either wind or nukes or anything in between. The post of May 29 entitled Finnish Fiasco makes clear the position on nukes.  

What NHO is all about is that the *conventional" thinking on energy is sometimes right, and often wrong. We just want people to have open minds.  Of which, we must say that Robert Lea is one. I first contacted him after his article of March 26 and pointed out how wrong he was. He didn't admit it, at first, but he has an open mind. Unlike some other energy experts, who are still firmly in denial mode.

Finally let me plug for any of those who are here for the first and only time: www.igasandelectric.com which should be live in a week or so. The genesis of this site was a reaction to the energy consultancy and switching site industry, who straddle the thin line between the disingenuous and the fraudulent. We just want to inject some reality, but most of all honesty, into the energy debate.

If you are honest, read the site more, and often and  drop us a line.

Thanks in advance.

Bears on the prowl..

Any bullish hopes for this winter are evaporating by the hour.

Goldman quoted in the FT:

That, at least, is the message from Goldman Sachs on Wednesday, which sees natural gas prices remaining weak throughout the coming weeks.

Surge in US unconventional gas production has led to a disconnect between natural gas prices and the oil complex
The surge observed in US natural gas production in the past two years has eliminated the need for gas-to-oil substitution in the US to guarantee sufficient natural gas supplies during the winter. As a result, the oil/gas ratio is near historical highs. We believe this ratio can increase further this summer as natural gas prices remain under pressure to curtail supply (through persistent drilling cuts) and incentivize demand (through coal-togas fuel substitution).

Sometimes we wonder that since we're so smart, why can't we work at Goldman. We come to the same conclusions, just a month earlier. And then we realise we like to see the kids more than twice a month and the urge passes.

And from Bloomberg:

June 24 (Bloomberg) -- Natural gas futures fell for a fifth day in New York as a government report tomorrow may show that weak demand, prompted by mild weather and the recession, is pushing U.S. stockpiles toward a record high

And we lost the link, but Bloomberg did a story today showing how UK Storage is 82% full, the highest ever at this time of year.  Before it happens, we have to point out that we said in in April that US stortage would be full by September and the merde will really hit the fan at that point.  They''ll be giving it away.

But STILL the UK energy establishment doesn't get it.  They can't resist the disaster angle.  They're like a dog with a very, very old and stinky bone:

Britain needs to pump up investment in gas storage facilities because increased dependence on imports poses a serious threat to the nation's security
Our national circumstances have changed radically in supply terms in recent years, bringing new risks," said Paddy Ashdown, former head of Britain's Liberal Democratic Party, who co-chaired the panel that compiled the report.

And we'reone of the few people who admit in polite society that they vote Lib Dem. We'll drop him a line and tell him it's the 21st century now.

Outbreak of optimism

What is it about UK journos that they invariably look for lead linings in every passing cloud, all while acting as stenographers for scare switch sites.  Is being an actual reporter, someone who discovers news as opposed to rewriting fluff, all that hard work?   

Three stories here to relieve the gloom. Peter Tertzakian is someone we feel like being a stenographer to, and his common sense approach would get printed in the UK press as often as, well, us for example. Maybe if we point people to this John Stewart video, he'll get heard more often. Here he is in print telling us the other side of the coin to the we're doomed view:

The big energy debate over the last few years has been around the concept of “peak oil.” There is little doubt that offsetting production declines and bringing more oil to hungry markets like China will challenge the upstream industry, but it’s time for the debate to also include discussion about “peak demand,” and even declining demand. In wealthy mature economies, the data is clearly starting to show it.

And one side of how demand is declining, and by a big potential number comes from Italy :

Solar electricity could compete, cost wise, with other sources of electricity in parts of Southern Europe, by as early as next year, according to an industry report released Monday

And why is photo-voltaic about to take off?  Lots of the reason is staring you in the face.  LCD display technology is broadly similar to PV.  But with TV now so cheap, Taiwanese manufacturers are seeing opportunity:

Beyond this, they are even talking about expanding into a new line of green business, a huge shift for them, which could be silicon-based LED or Solar ...

Optimism is profitable.  Fear eats the balance sheet.  When will UK business get that?

Deja Vu all over again.

Absolutely nothing new in this piece, from Investopedia, someone we never heard of before, although they are part of Forbes Digital. The story opens with some promise, although it's been what we've been saying since last summer.

Although the market generally ignores Western Europe when it comes to oil and gas development, the continent does have existing fields already producing, and several promising areas for future exploration and production of unconventional oil and gas resources.

But then:

One of the largest fields in Europe is the Groningen natural gas field in the Netherlands, which just celebrated the 50th anniversary of its discovery. Exxon Mobil (NYSE:XOM) and Royal Dutch Shell (NYSE:RDS.B) drilled the first well in the field jointly, and the entire field contains an estimated 100 Tcf of natural gas.
There are other formations both below and above the natural gas producing areas, according to geologists, including an oil sand, gas shale and a coal seam. Although the industry has known about these other areas for years, not enough is known about these formations to determine if they are commercial.

As reported in No Hot Air "That was then, this is now"  June 18.  And the story continues

A little bit to the south, micro cap Toreador Resources (Nasdaq:TRGL) is exploring the Paris Oil Basin

As we said on 4 June in "Paris Texas?"  Anything new in this piece yet:

Also in France, Total SA (NYSE:TOT) and several other companies are seeking permits in Southern France to explore the natural gas shales that are present in the region.

Mais non.  We reported on that one on 30 May "And now French Shale Gas".  Maybe he's waiting for the last paragraph

This potential has not gone unnoticed by the more aggressive U.S. based exploration and production companies. Chesapeake Energy (NYSE:CHK) is in a joint venture with StatOil Hydro ASA (NYSE:STO) to develop the Marcellus Shale in the Northeastern United States. StatOil Hydro said, in May, 2009, that it and Chesapeake Energy were looking at 14 different shale plays outside the U.S. The areas in Europe under study are Hungary and Poland.

We hate to sound like a poorly paid broken record, but we said that on 18 May in "European Shale Gas doesn't start out in Europe.  The only question not answered is how much do people like this get paid, and who pays for the advice.