From No Hot Air

(c) 2010 F. Bruce Abel

Here's the last few days from "No Hot Air," the best link in this field. It comes out of the UK.

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Total and Shale Video from Clean Skies
The Myth of Natural Gas Scarcity
No Hot Air in the Media
Can Shale Gas transform UK energy policy?
No Hot Air Energy Procurement
Recent Posts
As good, or as bad, as it gets?
Gas Market goes Global
Reality hits Russian Gas
BP on gas paranoia
Chesapake on Global Shale
Unconventional gas gaining momentum worldwide
Quebec Shale Gas
Bloomberg TV on shale in Europe
Ofgem should read this. But won't
A tale of two BG's
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Feb 10, 2010
As good, or as bad, as it gets?
We haven't had the new Ice Age that gas traders were hoping for before Christmas, but it has been colder than usual in North America and Europe.
But we've lived. Storage is almost seven per cent up on the five year average in the US, which shows that increased production, and LNG imports, easily handled what has been the coldest and snowiest winter in over five years. But from now on, spring if not in the air is at least on the horizon:
Traders may be thinking this is as cold as it gets and from here there’s only one way to go and that’s back to the warmer side,” said Peter Beutel, president of trading adviser Cameron Hanover Inc. in New Canaan, Connecticut. “There were also two reports in a row that took what was effectively a flat situation for storage in comparison to previous years and turned it into a surplus.”
Which brings us to prices. March UK NBP is 34.75 right now. One year ago, it was over 57 and when the contract started trading in October 2008 it was 92.
For NYMEX US gas the same numbers are $5.34, 6.52 and 8.88. Which means that the NBP has fallen far further than NYMEX. Which also means that NYMEX has a better track record in predicting prices.
Based on the past, futures don't do such a great job predicting eventual outcomes, although NYMEX has the better record. One can reasonably expect a premium for the future, but why was that premium 18% for NYMEX and 39% for the NBP?
Price predictions based on charts and ruminating over the past in an expectation that the past is plan for the future strikes me as pointless. If no one can predict the weather or the economic activity of a year from now, why think anyone can do it with accuracy in gas? But NYMEX has for a number of complex reasons, number one being liquidity, been more accurate and one can't completely discount the past as pointer to the future.
Going back to prices, NYMEX for next February is about 1.10 up on what February 2010 settled at, which is a 20% premium. But the NBP is up to it's old tricks with next February at a more reasonable but still outrageous 28% mark up on so far this month. The difference in a forward price for November 2010 against what actually outturned in November 09 is an even stronger, a whopping 55% difference between forward 11/2010 of 41.7 and System Average Price for November 2009 of 26.9.
What is going to happen next winter that is so scary? An even colder winter, combined with a mammoth economic recovery might do the trick. But what if there is more shale, more LNG, the economy continuing to flatline and a return to normal, or even milder temperatures? Then we can see that next winter may be, at least in the UK, cheaper than the past one, not 50%+ up year on year.
My theory about the inaccuracy of the UK curve is connected to the UK peculiarity of fixed term prices. Domestic consumers for example don't have a choice, and even worse, many UK business consumers don't give themselves the choice. Given the constant drumbeat of Ofgem who predict gas prices of over 60(!) in 2011, it's easy to get talked into the risk narrative. Don't fall into the trap,
Posted at 11:53 AM in Energy Prices Permalink Comments (4) TrackBack (0)
Feb 09, 2010
Gas Market goes Global
Shale's impact felt around the world is the headline in the Calgary Herald, consistently one of the best places to read about shale gas.
Within the past week, Russia's energy giant OAO Gazprom has announced it is delaying the development of the Shtokman natural gas field, while at the same time trotting through major investment centres saying the company is poised for growth. Is it another sign of the rapidly changing nature of the world's natural gas markets or a fresh instance of Russia looking to flex its muscles using its natural resources?One of the reasons given for the decision was the shale gas phenomenon in North America that has effectively decimated the need for imports of liquefied natural gas.But the very fact Russia is making a decision to delay the development of a massive natural gas field as a result of what's happening halfway around the globe potentially speaks volumes that the market for the commodity is moving slowly but surely from being continental to one that is global.
The plan for Shtokman had been tied to growing demand for liquefied natural gas, particularly into U.S. markets.However, the shale gas revolution -- which has helped the U.S. to leapfrog ahead of Russia as the world's largest natural gas producer -- means the LNG export strategy needs to be rethought.No kidding.Not only has the shale gas revolution changed the landscape, global LNG supplies are expected to continue to increase and global demand has yet to show significant signs of recovery.Taken together, these factors point to an oversupply of natural gas for the foreseeable future
Nothing particularly new to us of course. But bizarrely, here in the UK, The Telegraph seems to think that this a vindication for Ofgem's fears:
Some commentators believe Ofgem was off target with its diagnosis of the perils faced by the UK energy market in its Project Discovery document.
Possibly, but the regulator seems rather more prescient than its detractors, given the news that Gazprom, and its joint venture partners, are mothballing the enormous Shtokman gas field under the Barents Sea.In a recovery, where is Europe going to get its gas? Shtokman won't open until at least 2016, but only then if a new decision to invest in 2011 goes ahead.
Europe doesn't have the liquefied natural gas storage facilities sufficient to rely on imported LNG – new ones in Poland and Croatia are rumoured to be on hold.The UK does have facilities which Europe could suck dry unless Parliament legislates to hold it back – Shtokman means the politics of energy just got meaner.
The Telegraph should know better. The point here is that Shktoman LNG was never meant for Europe, but for North America, so the impact on us is non-existent. Where will Europe get it's gas they ask?
LNG from Algeria, Norway, Qatar, Egypt, Nigeria, Equatorial Guinea, Yemen and Canada would be one answer. Another answer is the LNG destined for Asia from further afield that will be displaced by shale production in China and India and many other places.
Another place they can get gas is from shale in Poland or Germany or Ukraine or Sweden or even the UK itself. But going back to the Calgary Herald, the idea that it's Shtokman or nothing in Russia is wrong too.
Russia also has significant, undeveloped shale gas reserves; the question is where these are relative to existing infrastructure, as well as the cost of development.If, in fact, the shale gas plays are proven to be as prolific as they are in North America, it's not out of the question these will be developed ahead of the Shtokman field, which is thought to contain almost four trillion cubic feet of natural gas. It's a situation not unlike the one faced in North America regarding the development of the Alaska or Mackenzie Valley pipelines.
Posted at 09:16 AM in Current Affairs, Energy Prices, LNG, Next Big Things, Prices and Politics, Shale Gas Permalink Comments (4) TrackBack (0)
Feb 07, 2010
Reality hits Russian Gas
I've noted before that Ofgem and Gazprom, as two semi-state organisations have a lot in common: both are desperately trying to rationalise their existence and both share a common obsession with Russian gas. The slight difference is Ofgem paranoia is about supply shortages as Gazprom is similarly delusionary in trying to avoid today's reality of demand falls.
Does this sound like a shortage?
An oil consortium headed by Russia’s Gazprom is considering postponing its vast Shtokman liquefied natural gas project in the Russian Arctic due to depressed global demand for gas.
Ofgem and it's Peak Oil pals would of course say the demand drop is caused by the recession. But even Gazprom has given up on that one:
.. a surge in domestic shale gas production has reduced the US’s need for LNG in the past 12 months, and forced the Shtokman partners to review their strategy.
Over at the WSJ, Gazprom are still trying to talk up the market:
State-controlled Gazprom said demand for natural gas will rise 70 billion cubic meters by 2020, Sergei Komlev, head of contract strategy and pricing at Gazprom Export, said at an investment conference in Moscow.
But reality intrudes again:
Yet experts, including Fatih Birol chief economist at the International Energy Agency, foresee low demand for gas in the coming five years."I have no good news for Russia, I'm afraid," Birol said. "I see a global gas glut hitting until 2015."
And Ofgem, sorry Gazprom counter:
Gazprom's Komlev said 2009 was a difficult year and that this year will be equally challenging."But we aren't as pessimistic about gas demand as some commentators," Komlev said. "We don't see a catastrophic decline in demand."Demand will rise as indigenous production in Europe declines, and under current export contracts, Gazprom will attain around one-third of the European gas market by 2020, up from the current 25%, he said."Despite lower demand last year, our European buyers haven't asked us to lower volumes in the longer term," said Komlev. "They assume that demand will rise."
One reason that they assume demand will rise is that the delusions of Ofgem are still widely held. For now.
Of course, Ofgem will soon have other Russian gas exporters to worry about.
Top Russian gas independent Novatek is considering fast-tracking its Arctic Yamal LNG project and will this year try out a potential shipping route to international markets
Posted at 07:33 PM in Current Affairs, Energy Prices, Next Big Things, Prices and Politics, Shale Gas Permalink Comments (1) TrackBack (0)
BP on gas paranoia
Sorry, I missed a very important story here. I can't stomach waking up to the BBC Today show every day, and on the one day something interesting turns up I missed it!
The chief executive of BP has said there is 'unreasonable paranoia' about gas supplies to the UK.In a rare broadcast interview, Tony Hayward told Today presenter Evan Davis that it was "curious as to why there is so much concern about us becoming more reliant on imported gas".
Gas is from 2:30 but the entire interview is worth it. Interesting how he then gave another rare interview, this time to The Guardian,
Dash for gas is UK's best energy strategy, says BP chief
there should be more emphasis put on gas, which was very commercial, using a mixture of what remained of UK North Sea supplies and imports. The BP man believed the UK should drop its "paranoid" concerns about gas imports from Russia and accept that piped and liquefied natural gas from overseas sources offered a better solution to help beat global warming and energy insecurity in the short term."There is a lot of gas in the world. There are a lot of diverse sources of gas in the world. The paranoia has been about Russia, but it is misplaced. We have approximately zero Russian gas in the UK [imported currently] and if you look at Europe, the imports of Russian gas into Europe have halved since 1980.
Much of that paranoia comes from newspapers like the Guardian. Who, unlike Ofgem, can at least change their minds when the facts change.
Tony Hayward said much of the same in a speech to the London Business School.
Europe is already a big user of natural gas, which is one reason why its industrial and power sectors emit less carbon than the US. The trouble is that European politicians sometimes speak as if dependence on imported gas is a problem.To them I say three things. First, Europe has long been structurally dependent on imported energy and - unlike the US - will become more so in the next few decades. The most effective way to reduce such dependence is to curb energy consumption – and costs - by significantly investing in energy efficiency. Second, even though the concern often focuses on Russian dominance, the supply picture is actually more diverse. Ample pipeline volumes from Norway, North Africa and soon the Caucasus are being augmented by a growing volume of liquefied natural gas at competitive prices. Russia’s share of EU gas imports has halved since 1980, and Russian gas represents only 6.5% of EU primary energy supply. In fact abundant new supplies from places like Qatar mean LNG is coming into its own as a globally traded commodity like oil. This is not a market Europe needs to fear.
And then this:
The issue for Britain is not a potential shortage of gas but a limitation on our ability to balance supply and demand across the country. In other words, it’s about the need for investment in infrastructure such as pipelines and storage capacity, not about the structure of supply.Only one third of our supplies in the coldest period last month came from the North Sea, nearly half was made up with imports either by pipeline from Norway and the Continent or in the form of LNG from Qatar, Trinidad, Algeria, Egypt and even further afield – that’s hardly an over-reliance on one supplier.
The message is clear, but will it be heard? Even on the reporting on this speech for example, Reuters reported on the big story of oil, but not a single mention of the merely pretty big gas angle.
Posted at 09:29 AM in Current Affairs, Energy Prices, Energy Tech, Next Big Things, Prices and Politics, Shale Gas Permalink Comments (0) TrackBack (0)
Feb 05, 2010
Chesapake on Global Shale
This is the only story so far on an Aubrey McLendon at the Credit Suisse Energy Summit, and the Reuters report sends a mixed message.
I don't see the world being swamped by shale gas in the next 10 years," McClendon said in remarks broadcast over the Internet. (But not yet on the CHK website)He noted he has yet to see a formation overseas that has the potential to rival those found in the United States.To successfully develop a shale gas basin a company needs infrastructure such as processing facilities, indigenous demand for gas and favorable commercial terms. Without those factors, many basins around the world are eliminated right away, the executive said.
Nothing really new in the last paragraph, but the middle one sounds depressing. Or is it? He has yet to see a formation to rival the US ones, but they never will see if they don't look. And boy are they looking. There has been a lot under the radar as people have been saying all along, even if specifics are still unidentified foreign objects:
Chesapeake and its joint venture partner Statoil ASA (STL.OL) have narrowed their search for an overseas shale play to about 15 basins, down from an initial survey of about 200, McClendon said.
Fifteen basins is more than there are in North America, and that leaves 185 left for the other guys to squabble over. At the end of the day, why should there not be somewhere in the world equivalent to some of the smaller NA shales? Depending on where it is, even a small shale could be game changing for that market. Or in the UK's case even for markets next door.
This is educated guess time. I'm the last person in the world to give investment advice, and I'm not. But exactly because Ofgem is so obsessed about Russia, start thinking of the disruptive impact on the UK of major shale discoveries in order of likelihood: France, Italy and Ireland.
Which still leaves a dozen other possibilities worldwide, any or all of which will impact world LNG prices. At least one of the 15 basins is in China, again an educated guess. Removing that demand from world LNG markets will be big.
Other guesses are left field ones, but there will definitely be something in Latin America, an area relatively isolated from world energy markets until recently. That however would definitely be the type of area where the gas may continue to be stranded, far from markets and infrastructure.
UPDATE: The presentation is here:
Posted at 09:17 AM in Energy Prices, LNG, Next Big Things, Shale Gas Permalink Comments (0) TrackBack (0)
Feb 04, 2010
Unconventional gas gaining momentum worldwide
This update from Petroleum Economist is part of a free preview. When I appeared in the December issue, even I had to sneak a free trial as the only way to see that piece. I'm sure that Ofgem and DECC's budget runs to paying for PE, so bang goes that excuse as we see one more nail in the coffin of gas scarcity.
Unconventional gas has driven some of the biggest energy news stories in North America and Australia in recent years as production ramps up and companies look to build positions in this long-term growth play. There remain many growth opportunities in these regions and, despite the slowdown driven by the market turmoil over the past 18 months, unconventional gas remains an attractive long-term investment. Meanwhile, outside North America and Australia, momentum is also building and these new regions could create the headlines of the future.
The dramatic rise in shale-gas production in the US, following tight-gas and coal-bed methane (CBM) production growth, has demonstrated the scale of the effect unconventional gas can have on even the very largest gas market.
What's interesting here is that the author Rhodri Thomas of Wood Mackenzie has been quoted as being skeptical of the time scales of shale in the past. Judging from this snippet, he, unlike the experts at Ofgem is capable of changing his mind when the facts change. At Ofgem, when the facts change, they simply ignore them.
Anyone want to pass on the rest to me? Or to offer high priced consultancy work so I can pay my own way? Naturally, I can't publish the rest, PE isn't the (involuntary) charitable organisation NHO is. :)
Posted at 10:40 AM in Energy Prices, Energy Tech, Next Big Things, Shale Gas Permalink Comments (2) TrackBack (0)
Quebec Shale Gas
More news on the Utica Shale in the Saint Lawrence Valley, where shale gas is conveniently situated between Montreal and Quebec City. The location obviously makes gas for those cities far cheaper than Alberta or US Gulf Coast Gas. But how much gas is actually there? It could be a lot. Another game changer (yawn)?
A pair of Calgary juniors are eagerly awaiting the results of the latest shale gas wells in Quebec.Questerre Energy and Canadian Quantum Energy Corp. both announced that drilling on the Gentilly No. 2 horizontal well has finished and testing will begin later this year.The well, which is being operated by Talisman Energy, is only the second horizontal well to be drilled into the emerging shale basin, but observers are already comparing region's Utica shale to the Marcellus shale in Pennsylvania, which is shaping up to be one of the largest natural gas fields in North America.
As we have pointed out, the only controversy over the size of the Marcellus is whether it is as big as the Qatar gas field or merely only the second largest gas field in the world.
Posted at 09:52 AM in Energy Prices, Energy Tech, Next Big Things, Shale Gas Permalink Comments (1) TrackBack (0)