No Hot Air

IEA on gas again:

Two countries, two views:

Apart from the FT, we couldn't find much in the UK press where the International Energy Agency talks about the gas glut, so we have to find out their views from the German press:

Unconventional gas is unquestionably a game-changer in North America with potentially significant implications for the rest of the world,” said Mr. Tanaka. The share of unconventional gas in total US gas output jumped from 44% in 2005 to around 50% in 2008 and, in the Reference Scenario, is projected to rise to almost 60% in 2030. The boom in North American unconventional gas production, together with the recession’s impact on demand, is expected to prolong the glut of gas supply for the next few years. The analysis of WEO-2009 shows that the annual under-utilisation of inter-regional pipeline and LNG capacity could rise from around 60 billion cubic metres in 2007 to 200 bcm by 2015. This glut could have far-reaching consequences for the structure of gas markets, with suppliers to Europe and Asia-Pacific coming under pressure to modify pricing terms under long-term contracts, to de-link gas prices from oil prices, sell more gas on a spot basis and to cut prices to stimulate demand.

But The Times doesn't want to hear from someone like the head of the IEA, when they can give a forum to the cheerleader in chief for nuclear, CCS, gas storage and everything with a government subsidy attached, Dieter Helm.  Mr Helm is an Oxford man, but he hasn't heard of gas:

How did we get to this state? Partly because energy policy has never been taken seriously. Without a crisis, it is always someone else’s problem — and one for the future. Most solutions require customers (and voters) to pay more now — and that is something politicians are loath to admit. But bad news on bills — and an energy crisis — is coming unless radical action is taken soon.

But what about un-radical action, like gas for example?  It's a strange world where the right is seeking radical action and old lefties like myself are promoting free market solutions.

Gas is barely mentioned on Planet Dieter and it's the same old story.

North Sea gas reserves have been running out

So?  Big deal in a gas glut.

He said something that since we know that Ireland generated just under 40% of it's power from wind recently, we got a bit suspicious about:

We not only pay among the highest bills for wind, but in Europe only Cyprus and Malta generate a lower proportion of their electricity from it

What is he trying to say?  That we generate too much wind or not enough?  Is he saying that our pitiful contribution to wind power is among the best in Europe?  If that is the case we didn't have to look far. Same newspaper, same day:

High winds across Spain on Sunday meant that for over five hours, over 53 per cent of the country’s power came from wind energy. The towering white wind turbines which loom over Castilla-La Mancha — home to Cervantes’s hero Don Quixote — and which dominate other parts of Spain, set a new record in wind energy production.

Red Electrica said this year wind power is expected to produce 13 per cent of all electricity, hydroelectric power 10 per cent and solar power 2.5 per cent. Spain’s solar industry is one of the fastest growing in the world.

Less Hysterical Tones on European Gas

From Datamonitor via iStockanalyst a story which starts out plainly noting that Nord Stream, the Russia/Germany pipeline under the Baltic has all the necessary approvals but then provides some of the best analysis of European gas going, and that includes us:

Thus it appears that the fundamental beliefs which have underpinned European states' energy planning for the past five years may soon be turned on their heads. From 2011, Nord Stream will increase the security of Russian supplies to Europe. LNG regasification capacity will also be far higher and it is reasonable to assume that LNG supply will remain strong for at least the next four years. Finally, indigenous supplies may not actually be declining at the rate previously assumed. Hence, over-reliance on gas (the central obstacle facing policy makers between now and the new generation of nuclear plants' activation around 2020) may not present such a critical flaw as previously thought. Of course, under-investment in new infrastructure resulting from the financial crisis could yet leave the gas market tight by 2015 (particularly if the global economy were to rebound powerfully) but perhaps the debate surrounding Europe's energy strategy might now be conducted in less hysterical tones.

Less hysterical, and less paranoid. And dare we ask realistic to boot?  It will take a while for the gas Chicken Littles to get worked out of the system, but their days may be numbered

Two sides of the global gas glut

All of a sudden everyone says what we've been saying for over a year:  There is a global gas glut.

 There may be an “acute glut” of natural gas in the next few years because of rising production of so-called unconventional fuel in the U.S. and Canada, according to the International Energy Agency.

Bloomberg have been slow on shale, whereas the WSJ has been on this since the beginning.

The International Energy Agency says in its annual outlook, published Tuesday, that a glut of natural gas is looming. The boom in North American shale gas and a demand-depressing recession mean there will be a giant amount of unused pipelines and liquefied gas terminals, enough to move 200 billion cubic meters, or 7.06 trillion cubic feet, by 2012. That’s more than enough for all of Africa or Latin America.

Back to Bloomberg:

Gas prices will tend to rise in Europe and Asia-Pacific because of the predominance of oil-indexation in their long-term supply contracts, diverging from those in North America,” according to the report

But WSJ says:

The consequences of that have already been felt on the European spot market. LNG exporters, discouraged from selling into the U.S. market, are increasingly offloading their cargoes in Europe and Asia, depressing spot prices.

That, the IEA says, “could increase the pressure on gas exporters and marketers in Europe and Asia-Pacific to move away from, or to adjust, the formal linkage between gas and oil prices in long-term contracts.” More uncontracted supplies being released to the spot market could push down prices and boost demand, especially in power generation, it says, which would soak up the supply glut.

The IEA report seems to have something for everyone's point of view.  It mentions how uncertain shale gas is outside the US, while also mentioning what a game changer it can be:

The extent to which the boom in unconventional gas production in North America
can be replicated in other parts of the world endowed with such resources remains
highly uncertain. Outside North America, unconventional resources have not yet been
appraised in detail and gas production is still small. Some regions, including China,
India, Australia and Europe, are thought to hold large resources, but there are major
potential obstacles to their development in some cases.

 This projection is subject to considerable uncertainty, especially after 2020; there is potential for output to increase much more.

No wonder people are confused.  The IEA puts in all the usual dampers on shale outside the US and then says it can be much more.

We tend to believe the Wall Street Journal more.  The IEA assumes that the gas/oil link will still be strong enough outside the US, whereas we and the WSJ think the gas oil link is wobbling in 2009.  To assume it will still be around at all in 2020 is very optimistic.

The Oxford Institute for Energy Studies asks:

Continental European Long-Term Gas Contracts: is a transition away from oil product-linked pricing inevitable and imminent?

The spot market is too volatile which doesn't help anyone: producers,end-users or transporters.  There has to be a new way to provide long term funding for gas without crippling volatility.  But it might make gas geology look simple.

Geography and natural gas

Back in the old days, or at least the last century days of drill, baby, drill gas and oil were considered to be so rare that nowhere was too far away to find it, and wherever that was no self respecting oil or gas company would let polar bears, newts or indigenous people stop them extracting it.

But shale gas is so abundant that we can see the rise of a new phenomenon:  the choosy gas driller. We remarked on that recently when Chesapeake Oil walked away from drilling in the NYC watershed part of the Marcellus Shale in upstate New York.  Aubrey McLendon said simply that "we don't need the brain damage".

I was reminded of this by news out of Canada, where the emergence of shale plays in the Eastern US and Canada has led to choosy buyers.

emergent economic forces don’t care about the mountains and are progressively challenging the traditional west-to-east flow of natural gas. In fact, the whole character of where North Americans get their natural gas is undergoing realignment of seismic proportion. Recent events provide indications of how the dynamics are changing

Alberta has traditionally been the Canadian Oil and Gas patch.  But the emergence of the Marcellus Shale has changed a lot:  Gas from the Marcellus Shale doesn't have to pay 3000 miles of transport fees to reach markets that are next door.  Marcellus drillers can charge a premium over Barnett or Haynesville gas but the customers make money anyway.

Everyone's a winner.  Apart from some gas transporters.  Which may explain why National Grid is eager to join in as the final link in CCS, transporting CO2 from power station to depleted gas field.   In the UK, if there were significant shale finds, National Grid might even get shut out of transporting them since the local grids were sold off.  Local grids could  transport shale finds the short distance to generators, CHP or larger end users.

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.

BBC discovers shale

Until now the BBC, the outlet which usually leads UK print media and puts it to shame, has not had it's finest hour in reporting on shale gas.

But now even they have suddenly discovered shale, and unlike those who report shale more as a US phenomenon, the BBC goes straight to what we've always said is the heart of it all:

  Upgraded shale gas reserves are particularly relevant ahead of the Copenhagen summit, as it could help the world meet the Kyoto targets for carbon emission cuts,

With coal being too dirty and wind farms and nuclear power plants arriving late, it seems the world is left with a stark choice: keep on polluting or turn out the lights.

Unless, that is, someone comes up with an alternative.
Energy executive Rune Bjornson thinks he has the answer.

"Natural gas, more than any other fuel, is an option we have here and now," he tells the BBC in an interview.

The video is the really interesting part here:  Bjornson when asked for a comparison of shale reserves in Europe says they are 14 times those of the Troll field, which is already the largest off shore field in Europe and in the US the reserves are "significantly more".

We have to point out here that it is Statoil who supply 80% of UK gas imports, so we're glad to see they are being listened to.

The BBC, in the spirit both of "balance" and good old fashioned English pessimism (notice we didn't say British pessimism) is desperate to create a controversy.  So who pops up, but Arthur Berman the world's most popular shale gas debunker.  Of course that is a very small field.  In fact, apart from Berman, it's empty.

The Texas-based geological consultant believes the latest estimates are vastly exaggerated and suggests the shale gas reserves are neither as large as nor as profitable as many in the industry predict.

The BBC doesn't provide balance to the many who have an alternative view on Berman :

HOW ARTHUR BERMAN COULD BE VERY WRONG…

There isn't anything in the BBC story that hasn't been said here at some length and some months ago.  However, to have shale put into the spotlight, directly discrediting previous BBC lights are going out stories will be important in changing the UK energy debate.  With a piece on shale in the UK's small, but influential Spectator Magazine, unavailable online,  and some other news coming up that we know of,  ignorance will soon be no excuse for UK energy "experts".

Which leads us back to the BBC piece, directly to No Hot Air's target audience:

Unconventional gas will exert downward pressure on energy prices for years to come," predicts Mr Sterne - in the US, as well as elsewhere.
"As shale gas fields come on line in the next five years, it is likely that European prices will drop in half."

Which leads us to ask:  Why use an energy consultant in a world where security of supply and energy prices risk no longer exist?

Daniel Yergin on Shale

There is not a better energy expert worldwide than Daniel Yergin, so his latest update from the WSJ can give Europe some examples based on the US experience. Number one is the speed and the breadth of the transformation:

...the natural gas revolution has unfolded with no great fanfare, no grand opening ceremony, no ribbon cutting. It just crept up. In 1990, unconventional gas—from shales, coal-bed methane and so-called "tight" formations—was about 10% of total U.S. production. Today it is around 40%, and growing fast, with shale gas by far the biggest part.

The potential of this "shale gale" only really became clear around 2007. In Washington, D.C., the discovery has come later—only in the last few months. Yet it is already changing the national energy dialogue and overall energy outlook in the U.S.—and could change the global natural gas balance.

No Hot Air first ran a story on shale in July 2008, three months after I started, a time as I noted recently that anyone who questioned the conventional wisdom that gas was like so over, was considered borderline bonkers.

A lot  of time has passed, and there have been a few peeps in the UK media, but Whitehall has failed to learn any lessons from Washington so far. Whitehall bases energy policy on the 2007 Energy White Paper, which based on an assumption of gas shortage promotes CCS, nuclear and all the expensive options.

The fours stages here are ignorance, denial, acceptance and action. We still have a lot of work on ignorance, but the denial stage will come soon enough. That will mean trying the water issue, pipeline access, the "Europe is too crowded" issue and for the truly desperate they'll disinter Arhur Berman and the Peak Oil crowd who are horrified to see the career choice of a lifetime which sold a lot of books two years ago suddenly evaporate into irrelevance.

 It may be half a decade before the strength of the unconventional gas revolution outside North America can be properly assessed. But what has begun as the shale gale in the U.S. could end up being an increasingly powerful wind that blows through the world economy.

We do have a need to properly assess shale in Europe, but we think two to five years to start production is about right, but surely existing shale programs from industry and academia will give us better indications sooner. We can't criticise shale on the grounds that we don't have any answers when so far we aren't asking any questions.

CCS at coal-fired plants to almost double cost of power production

Based in Canberra, the Global Carbon Capture and Storage Institute is a cross government organisation that is tasked with promoting CCS.  But if this is promotion,  we'd hate to hear anything negative:

The use of carbon capture and storage (CCS) technology at coal-burning power plants would add 78 per cent to the price of producing electricity, according to a new report released yesterday.

"A viable business case for commercial-scale, integrated projects has not been established at this time for coal-fired power generation and other large CO2-emitting industries," said the report, titled Strategic Analysis of the Global Status of Carbon Capture and Storage.

Their solution of course is for governments to dip into our pockets and support coal CCS.  Whereas last time we looked, all gas is asking for is a level playing field and a carbon price. Which won't cost most people anything at all, and certainly far less than the untried CCS technology which appears to be up to 20 years away anyway. We're trying to find out about CCS at gas plants, but can't find much that makes sense. The GCCSI report states that gas carbon capture is twice as expensive as coal.  Any hints out there as to why?

The smart ones walk away.

Most oil companies have never made themselves any friends in the past through a desire to "drill, baby, drill" just about anywhere, polar bears, dolphins, indigenous tribes and every other sentient being be damned.

Aubrey McLendon, head of Chesapeake Energy is disrupting, along with most things, that part of the hydrocarbon matrix that  has never found a potential source they didn't like.  

Gas drillers have been exploring  the giant Marcellus Shale coming up from West Virginia and Pennsylvania for most of the past year, and were waiting for go ahead on drilling in upstate New York to unleash yet another gas land-rush. 

Although the southern section in the Catskills,is especially attractive for being in the New York City exurbs, this portion of the Marcellus was also close to the watershed for the NYC drinking water supply. There was the potential for a big battle between classic Manhattan limousine liberals and upstaters who wanted to take the money and move to Miami, an attractive prospect in a depressed area.  In short the old nimby v economy story, which usually ends up eating column inches and grand debate for years.

But not this time:

Bowing to intense public pressure, the Chesapeake Energy Corporation says it will not drill for natural gas within the upstate New York watershed, an environmentally sensitive region that supplies unfiltered water to nine million people.

The reversal seems to signal a more conciliatory tone from the gas industry, which is facing mounting opposition in New York to its drilling practices.

But before the New York Green Party uncorks the organic Champagne,  this isn't a victory for them, it's a victory for rational common sense:

“We are not going to develop those leases, and we are not taking any more leases, and I don’t think anybody else in the industry would dare to acquire leases in the New York City watershed,” Aubrey K. McLendon, the chief executive officer at Chesapeake Energy, said in an interview on Monday in Fort Worth. “Why go through the brain damage of that, when we have so many other opportunities?”

Over all, Mr. McClendon said, the company’s holdings in the watershed are “a drop in the bucket” compared with the Marcellus field’s potential. He suggested that Chesapeake had more to lose by drilling there than by forgoing it, even though he contended such drilling would do no harm.

“How could any one well be so profitable that it would be worth damaging the New York City water system?” he said.

The simple fact is that there is so much gas that contrary to reputation, drillers can be choosy.  Bad luck if you own land in the Catskills.  And Dorset.  There often will be  those among the  legions of UK nimbyists who secretly want to sell out and move to Marbella.  The lesson from New York is possibly don't protest too much. 

Who's screwing who?

If you are a gas trader, then the view is far different from being a gas consumer:

Shale Is Really Screwing Natural Gas Investors

Production of natural gas from shale has been surprising both industry players and analysts on the upside, which clearly isn't helpful for natural gas prices either now or into 2010.

Whoa!  When prices were over £1 a therm in summer 2008, was that helpful?  For end-users now, or at least for those who have consistently followed our advice and only, and we mean ONLY, bought on day ahead prices, then things are looking better all the time:

Thus the era of ultra-cheap natural gas could be upon us, which would be bad news

Not so disastrous news for end users, and not so bad for the economy either. Everyone has to pay for energy, what is so bad when we all can pay less for it?  Energy is simply a tax that isn't democratic: taxation without representation. If taxes were lower, markets would be ecstatic. Lower energy should be good news too. But not at some guys over the Barrel at Platts:

One recent example of just how jaw-dropping the US shale gas story has become came from big independent Newfield Exploration. Houston-based Newfield said in a conference call this week that its production from Oklahoma's Woodford Shale today is 308,000 Mcfe/d, versus about 240,000 Mcfe/d at June 30 -- up nearly 30% in less than four months. Moreover, the company has an inventory of 28 drilled but uncompleted Woodford wells waiting to be put online by early 2010, signalling the potential to boost production still higher.

The astounding output jump prompted a comment from analysts at investment bank Wells Fargo, who in an October 22 report called Newfield's gushing Woodford production trend "disturbing." They noted the company's output had "reached recent highs despite (a drilling) slowdown and deferred completions."

But Newfield, and the Woodford field, are hardly the only purveyors of über-volumes of gas. Despite cutbacks in activity elsewhere, dozens of companies both large and small are drilling away at shale and other unconventional plays which they claim continue to offer towering economic rates of return. Their efforts have resulted in huge gas volumes flowing around the US and also recently in Canada. But with just a week left in the refill season, US gas storage bins are brimming over with the commodity. And current demand is not enough to use it all, which could continue the surplus into next year.    

Put us with the happy end-users and the realist traders

While prices are now teetering at the $5/Mcf level, many industry observers look at storage figures and scratch their heads. Says one: "Given the amount of gas sitting around out there, it's a mystery why prices are so high.

Why electric cars will impact your natural gas bill

We always have thought that a key paradigm shift in energy is how we are using less of it.  But what would be the impact of electric vehicles on gas and power use?

The answer is that we don't yet know, but we should at least start asking the question. One more transformation over the next few years looks like being EVs.

After years of hope and hype, electron-powered driving finally appears to be on the verge of reality.

In the next three years, at least a dozen pure electric or plug-in hybrid cars are slated to hit the market in the U.S. Electricity-driven vehicles from giants such as General Motors Co. and Nissan Motor Co., as well as start-ups like Fisker Automotive Inc. in Irvine, will provide consumers with a wide variety of choices. ..

Battery makers and automakers alike are tooling up factories to produce big volumes of electric vehicles. Meanwhile, power utilities and regulators are scrambling to figure out just how big the market will be...

"This is happening and it's happening soon," said Mark Duvall, director of electric transportation at the Electric Power Research Institute, an independent, nonprofit research group. "By the end of 2011, consumers will have more choices in vehicles they can plug in than they currently do for hybrids."...

But in the last couple of years, huge improvements and new battery chemistries "opened the opportunity" for ambitious product plans, she said. Gioia predicts that as many as a quarter of new vehicles sold by 2020 will be electrics, plug-in hybrids or traditional hybrids.

It's too early to say at this point how much electricity, and gas to generate that, will be needed to power EVs.  But it's not too early to say that abundant natural gas and distributed generation is the way to supply those needs whatever they end up being.