Shale gas: what it could really mean for Europe. Photo Justin Woolford The Ukrainian crisis has revitalized discussions in Europe about the role shale gas could play in the European energy mix and to enhance security of supply. Opinions on this are very polarized. Whereas optimists declare that Europe could start commercial production in 2020, the pessimists insist that shale gas will never be profitable in Europe. According to Alexander Gusev, the real picture is not black-and-white. Cutting through the confusion surrounding the shale gas debate, Gusev, a researcher who works in a team headed by Nobel Prize winner Carlo Rubbia at the Institute for Advanced Sustainability Studies (IASS) in Potsdam, shows that domestic shale gas can be developed and could make a significant contribution to European gas supply, but its effects on the European gas market depend on many factors.
Speed of development Many experts argue that production of shale gas in Europe is not possible anytime soon. Price of shale gas Impact on European gas market Dr. Login to access the Oil & Gas Journal Subscriber Premium features. Poland Fracking: Shale Gas Production May Begin In 2014. WARSAW, Poland (AP) — Poland's treasury minister said Thursday that the country may start producing shale gas for commercial use in 2014, a move that should help the country limit its reliance on neighboring Russia for a large chunk of its energy needs. Mikolaj Budzanowski said that commercial production of up to 1 billion cubic meters per year could start in late 2014.
He said the deposits could be up to 2 trillion cubic meters, enough to add to Poland's energy mix for decades. Poland is seeking to diversify its energy sources to cut dependence on Russian imports and its shale gas deposits are a major element in the plan. Nuclear energy and renewable sources are also to be added to the energy mix. Poland's annual gas consumption is 14 billion cubic meters and 70 percent of that comes from Russia, at prices dictated by its Gazprom monopoly.
Some 20 international companies — many of them American — have obtained licenses to explore for shale gas and some have done some test drilling. Poland Shale: Marathon says Oil! Natural Gas: The Squeeze at the Bottom of the Resource Triangle. Figure 2. Stephen Holdritch's resource triangle for natural gas It seems to me that in the United States we are, or will soon be, reaching a different kind of squeeze at the bottom of the triangle for natural gas–the squeeze of too low prices for shale gas producers to be profitable.
If, somehow, natural gas prices do manage to rise sufficiently for the majority of shale gas producers to be profitable, the higher prices are likely to add to the oil’s high price squeeze on the economy that I noted in my earlier post. In this post, I will explain what I see as happening with US natural gas supply and prices, and how this fits in with the natural gas supply controversy we have been reading about in the press recently. 1. The cost of extraction seems likely to increase as we move down the natural gas resource triangle, toward shale gas. We know that if we look at US natural gas extraction, the cost per foot drilled rose more than four-fold between 2000 and 2007 (Figure 3), based on EIA data. Shale Gas Hype: Subprime 2.0?
If my RSS reader is any guide, most of the press about shale gas has focused on two issues. First, shale gas is in considerable supply, cheap to produce, and burns far cleaner than other fossil fuels. Second, shale gas does not look so hot environmentally, all in. Fracking can pollute ground water (and potable water is our most scarce resource) and releases enough methane to make shale gas as detrimental as coal.
Still, it has been treated as the Great Hope for America’s energy woes, a way to turn the US into an exporter, and maybe it will cure cancer too. The problem is that the good part of this story is largely wrong. As with the housing bubble, analysts and journalists who understand the economics are giving clear warnings, but they don’t seem to be getting much of an audience. At the same time, scientists began to conclude that America’s reserves of natural gas have been overhyped. And the broader implications: Natural gas is dirt cheap, hovering at a 10-year low. Mercenary Trader » American Banks vs. European Banks: A Fun Little Conspiracy Theory.
As we wait for Europe’s big weekend to unfold, here is an interesting thought, as generated by back and forth comments on recent pieces. In The Eurozone’s Wacky Plan, we noted the latest hail Mary hope of a “non-default default” — a way to roll over Greece without triggering a credit event, with attending invalidation (or temporary bypass) of CDS insurance payouts.
We also noted how this could be very bad news for European holders of CDS insurance (the guys who bought as a legit exposure hedge), as their PIIG debt would be de facto compromised by a non-default default, but their hedges left worthless. So here’s where it gets interesting…. In O Risk Manager Where Art Thou, we noted the below via Kash Mansori / John Mauldin: “Why have European and American financial institutions behaved so differently when it comes to the PIGs? Specifically, why have American firms been so willing to sell default insurance to the Europeans, though they have not bought much PIG debt? Musing: Marcellus Impact Study Rests on Some Shaky Assumptions. The latest study of the impact of the Marcellus shale formation on the economy of Pennsylvania continues the theme of prior reports by concluding that "…the development of the Pennsylvania Marcellus increased domestic energy production, creates jobs, and reduces government deficits.
" Earlier in its report, titled "The Pennsylvania Marcellus Natural Gas Industry: Status, Economic Impacts and Future Potential," the authors made the determination that if natural gas prices do not fall significantly in the future, "Marcellus economic activity could support over 250,000 jobs and generate $2 billion in annual state and local tax revenues. " In a state beset by financial difficulties from a weak economy and lucrative state and local worker pension benefits, the prospect of a pot of $2 billion in new revenues has to be viewed positively. The 2009 report contained a graphic showing how small the Barnett shale is compared to the Marcellus.
Exhibit 1. Barnett Shale Compared To Marcellus Exhibit 2. Question about the New York Times. There's another couple of pieces by Ian Urbina in the New York Times. This is the guy last seen noting that there's a lot of radioactivity in some of the wastewater from shale gas drilling/fracking. The new pieces report on a lot of internal skepticism at energy companies and regulators, respectively, about the economics of shale gas: But the gas may not be as easy and cheap to extract from shale formations deep underground as the companies are saying, according to hundreds of industry e-mails and internal documents and an analysis of data from thousands of wells.In the e-mails, energy executives, industry lawyers, state geologists and market analysts voice skepticism about lofty forecasts and question whether companies are intentionally, and even illegally, overstating the productivity of their wells and the size of their reserves.
And Interesting stuff, and both pieces are highly recommended reading. So why the difference? However, I have another (highly speculative) theory. SBC_Shale%20Gas%20Summit%20Beijing_Managing%20Uncertainty. Liquid gas is set to emerge from a supply glut | 27 October 2010 | www.commodityonline.com. According to an estimate by the BofA Merrill Lynch (BofAML) Research, this year’s global LNG market oversupply amounts to 3.9 bcf per day, however several global factors in LNG market will move towards balancing, a.. 27 Oct 2010 Commodity OnlineThe global LNG market remains broadly oversupplied.
The global LNG market has been hit from all sides. First, the shale gas revolution diminished the need for liquid gas in North America. Combined, these 3 factors pushed the global LNG market into a supply glut. According to an estimate by the BofA Merrill Lynch (BofAML) Research, this year’s global LNG market oversupply amounts to 3.9 bcf per day. But the balance is starting to tighten as Emerging Market (EM) demand grows underneath the glut; the global LNG balance is already starting to tighten.
Over half of global gas demand is generated by fast-growing EMs. Awash in capital, EMs keeps on adding re-gasification capacity to import more LNG. But the balance is starting to tighten. Exporting shale gas could keep US producers in business | FT Energy Source | FT.com. The shale boom keeps getting better and better. A new report by PFC Energy, the consultancy, shows that the already generous estimates of production from the huge gas field known as the Marcellus Shale were not big enough.
Apparently a Pennsylvania law kept well data closed for five years up to August. Now that the data is out, the results, PFC says, are startling. As of August 1st, the Pennsylvania Department of Environmental Protection (DEP) required that Operators submit the 12 month production records for the dates beginning July 2009 and ending June 2010. After compiling and organizing the data, the DEP released the well production records for those companies which participated in the data submission and the results display some interesting and unique insights into why the Marcellus truly is different than the rest of the shales.
So if production is not declining as rapidly as was thought, that means US gas production has room to grow even more robustly than anticipated. Not If. But When. Romney, Obama Seen Favoring U.S. LNG Exports. The United States' future as an exporter of liquefied natural gas (LNG) will hinge on a number of factors, not just on which presidential candidate is elected next month. The Obama administration last month delayed, for a third time, an independent study of the cumulative economic impacts of LNG exports, citing the complexity of the dynamic market. The report, which is a precondition for approval of additional exports, is now due to be released in late December. Despite the delay, the Obama administration appears to be generally supportive of approving a reasonable amount of U.S.
LNG export terminals, said Benjamin Salisbury, policy analyst with Washington, D.C. -based FBR Capital Markets. "The Obama administration appears to be generally supportive of a reasonable amount of LNG export approvals," FBR Capital Markets & Co. analysis Benjamin Salisbury told Rigzone in an interview. "We don't see his potential reelection as negative. " U.S. Proponents say U.S. Factors That Could Influence U.S. Unconventional gas resources changing more than markets. Vexed By Natural Gas. United States natural gas production in 2010, with just one month of data still due for delivery, is set to nearly match the all time highs last seen in the early 1970′s. By averaging 1,871,272.5 million cubic feet per month through November of last year, total US NG production is slated to reach 22,455,270 million cubic feet in 2010.
You can compare this figure with the all time high levels seen in 1971, 1972, and 1973 in the figure below. We are getting close. | see: Annual US Natural Gas: Marketed Production 1900-2009. There are a number of intriguing issues to discuss here. They range from the analytical war between NG Supply Optimists and NG Supply Pessimists, to the new, deep lows that natural gas prices are experiencing on a real basis. Indeed, the inflation-adjusted price of NG at $4.00 for a million btu has sent prices back towards the lows of 10 years ago. The problem is that the United States doesn’t know, just yet, what to do with its natural gas.
-Gregor.
Europe. The rise of unconventional gas | Industrial Fuels and Power. Shale Gas: Not a 'Game Changer' After All. The New Truth About Natural Gas Could Shock the Market -- Seekin. Investor sentiment is changing – to the positive – on natural gas. Despite record or near record injection levels into storage in the US most weeks, gas prices have remained steady or even risen. The number of drill rigs actively drilling for gas has barely budged, though it has been down in the US three of the last four weeks.
But the market believes slightly increased demand and slightly lower rig counts is enough to move the natural gas price in the US up between 10-15% in the last week. (Canadian gas prices are up 1-2%.) The US gas market could really get a boost this week as early estimates for injection are between 60 bcf (billion cubic feet) and 100 bcf. But there are a couple of other ideas that the market is grappling with. One thing to remember is that when a market is bearish, it doesn’t want to look at good news (and vice versa). The other idea is that the total recoverable amount of gas in these new shale plays is not what the market believes.
You can read his blog here. MIT on The Future of Natural Gas. Why Natural Gas Disrupts the Energy Industry. Matt Ridley and Freeman Dyson on The Shale Gas Shock. Details Written by Nick Grealy Published: 02 May 2011 I knew this report was coming, just not so soon: The Global Warming Policy Foundation cordially invite you to attend a press conference to launch its new report about the shale gas revolution and its likely implications for UK and international climate policy. The report The Shale Gas Shock, written by Matt Ridley and with a foreword by Professor Freeman Dyson, finds that abundant and relatively cheap shale gas indefinitely postpones the exhaustion of fossil fuels and promises to reduce pollution and accelerate the decarbonisation of the world economy. When: 12:30am Wednesday 4 May 2011 Where: 1 Carlton House Terrace, London SW1Y 5DB Who: Matt Ridley, science writer and author of The Shale Gas Shock Dr Benny Peiser, Director of the Global Warming Policy Foundation Lord Lawson, Chairman of the Global Warming Policy Foundation And, before people ask, I'm pretty far to the left of many involved with The Global Warming Policy Foundation. 1. 2. 3.
The magic words: ’shale gas’ hits the diplomatic circuit | FT En. Shale gas excitement seems to be spreading everywhere. Gideon Rachman, the FT’s foreign affairs commentator, describes how he has been cornered more than once at international conferences (not energy-focused conferences, we suspect) by someone declaring the importance of shale gas. He likens it to the scene in The Graduate in which Dustin Hoffman’s character is given the prosaic advice: ‘plastics’. The excitement in the US is understandable; the production of shale gas does appear to be having a big effect on gas production there, just a few years after the technology to extract it became accessible. But Rachman has found a lot of excitement in China and particularly Europe. This might seem odd given that there are still big questions about the extent and recoverability of Europe’s shale gas reserves. In recent months, western officials have noticed a distinctly more friendly tone in their dealings with Russia.
Perhaps it’s not so surprising that the diplomatic mood has already turned. Shale as meta- and mega- trend for 2012. Published on 25 March 2013 Written by Nick Grealy In this chilly spring of our discontent, during which George Osborne insists we have no alternative but years of austerity, warming news from David Cameron and Ed Davey. Shale Gas will keep Britain energy secure : Centrica plc has entered into an agreement with Cheniere Energy Partners, L.P, to purchase 91,250,000 mmbtu (89 billion cubic feet) of annual liquefied natural gas (LNG) volumes for export from the Sabine Pass liquefaction plant in Louisiana in the United States. This amounts to approximately 1.75 million metric tonnes per annum (mmtpa), and is the equivalent of the annual gas demand of around 1.8 million UK homes. The contract is for an initial 20 year period, with the option for a 10 year extension, and the target date for first commercial delivery is September 2018 UK Prime Minister, David Cameron, said “I warmly welcome this commercial agreement between Centrica and Cheniere.
The future of natural gas: Coming soon to a terminal near you. Musings: Is Natural Gas Heading for a Repeat of the 80s & 90s? Sleepwalking into gas dependency. The 100 Year Natural Gas Myth - Gas cartel to vote on supply cuts. Europe to order 70GW of gas plants by 2017-report | Energy & Oil. Why keep drilling for natural gas? | FT Energy Source | FT.com. Gas against wind. Natural Gas Flip-Flop. Three themes emerge from Algeria’s gas exporters’ meeting | FT E. Does This Mean Natural Gas Is A Raging Buy? The Price Link Between Crude Oil and Natural Gas Is Disappearing. A conventional fuel, an unconventional future - The Globe and Ma. European shale gas pricing under $420/Mcm beat Russian gas.