Being at the European Gas Conference and the European Unconventional Gas Summit this past week in Vienna was like visiting parallel universes. I think it was big mistake, profitable as it may have been to the organisers, not to have put the groups together. Believe it or not, there were still many at the EGC who saw getting gas supply as a challenge, while the problem for Unconventionals revolved around more on how to market it. More on the UGS later, but for now, my thoughts on the EGC, which was at least four times the size.
The EGC has been the traditional meeting ground of the European gas industry for several years, providing an arena for the European gas industry to talk about the same essential issue, Russia and security of supply since Soviet times. In the past, solutions revolved around increasing supply from the East. This was the place where Soviet Gas Ministry, which morphed into Gazprom from one day to the next in 1989, spun the old religion. You can trust us to be a secure supplier, all you have to do is pay oil linked prices and import gas thousands of miles from new fields. The narrative was one where if Europe wanted security of supply, the only answer was investment in mega projects east of the Urals in Russia or east of the Caspian. One couldn’t mention either problems or alternatives, because there aren’t any. Europe was expected to cough up twice: First to provide investment in infrastructure and then to pay oil indexed prices once gas started flowing.
The Netherlands had invented gas link pricing which gave them, along with Norwegians and Algerians the incentive to share a cozy relationship where they played Fantasy League gas market pricing based on an extremely illiquid market with no new supplies. Everyone pretended to have a gas market, but with no new sources of supply, the North Sea, Algeria and Russia could compete but not compete via oil link prices.
LNG markets were only a recent development that could be relied upon to add marginal gas to Europe, but with the implicit threat that cargoes could sail anywhere but Europe and most of them were oil linked too. It was noteworthy that that at the EGC itself Jean Abiteboul of Cheniere continued to promote US LNG exports as European solution. But for every Cheniere, there were several others who wanted to believe that the US shale revolution, both in LNG and technology for European production, would stay at home.
At the EGC we should be thankful that someone at least mentioned shale gas, it being a topic that was unknown two years ago and mentioned only in passing last year. For the most part, shale moved from the subject no one knew about to being the subject whose consequences were so awful that that nobody wanted to talk about it. Why spoil a good party?
It being impossible to be in two places at once, I may have missed something on shale at the EGC but nothing major was on the agenda, I dropped in on some sessions and had reliable reports from others on the rest.
At the opening session, speakers had different reactions. The hosts, Austria’s OMV didn’t even mention shale. Perhaps they though it was too risky? They certainly didn’t seem to think pipelines from Turkmenistan, Azerbaijan or Kurdistan were in the least problematic. Rune Bjornson of Statoil spun the comforting old line the dinosaurs wanted to hear and were happy to pay for: Shale gas wouldn’t have any impact on Europe for at least ten years, echoing recent Centrica and Shell statements. Meanwhile on the margins of the Unconventional Forum, Statoil were paying close attention to European shale opportunities as they enthused about exporting their success in the Marcellus to Europe from Cove Point as LNG. Shale gas would have impact in Europe after all, it just may not be our shale gas. Statoil are also excited about shale oil opportunities in Australia. I spoke to a few of the old gas guys and shale oil, the big unmentioned subject of the UCG wasn’t even on the radar.
Notably, Philip Lowe of the EU was almost more optimistic about shale than anyone else. He said “there may be significant shale gas developments in Europe despite current pessimism.” That confirms my view that despite conventional wisdom among both gas dinosaurs and UKIP that Europe is preventing shale’s emergence, the reality is the EU being far ahead of member states, most especially France, Germany and in a sad but true surprise that UKIP should point out more often, the UK.
It was especially cheering to see Philip Lowe pushing the benefits of natural gas transportation. If any of the delegates were in that business I missed them.Their absence proves the EGC is a forum not to promote gas as solution but to perpetuate it as a money making problem.
Hiroshi Kondo of Tokyo Gas again highlighted how non-Europeans get shale gas, when he talked of how unacceptable oil linked prices were in the real world of shale gas, where Tokyo Gas is going upstream to source supply.Those in the UK who still believe the fraudulent fantasy of Japanese LNG pushing up UK gas prices to make UK renewables competitive really need to have a Japanese reality check. What struck me at the conference sidelines was the clear division between Europe and the rest of the world. North Americans obviously were enthusiastic and informed, but so were Asians. Nigerians, Arabs, Venezuelans, and Iranians on the other hand were informed to various degrees, but uniformly worried. These were the guys desperate to discuss depletion rates, public acceptance and cost as issues that would make shale go away. Some curious people from Qatar visited the shale conference at least. They were not pleased.
The many Russians who attended both conferences, couldn’t be drawn. I had more luck getting information out of the Soviets in the 1970’s than I did with Russians of today. However, the geologists amongst them were evidently interested in keeping abreast of technology. Gazprom’s interest in using shale technology for much more profitable oil production could yet see a new reality dawn. For Russia, the prospect of significantly increased oil production combined with promoting gas use in generation and transportation instead of promoting it as rare and expensive premium product could mean that they get richer. Pretending shale is good for oil and bad for gas is only going to lose further market share. The Golden Age of Gas in Europe could be good for Russia, but not for any Russia that won’t adjust to new realities. Russia is never going to be inconsequential to European gas, but it needs to accept that they won’t have eternal monolithic influence either. If we expand the total market in Europe by replacing coal and diesel, even lower cost gas will bring in greater revenues than gas promoted as premium fuel. Smart aleck that I am, I did point out that even Lenin realised how a bigger pie is better for everyone, but few Russians have any respect for him anymore it seems.
This report from The Voice of Russia today shows that if nothing else, Russia is consistent:
Only North America has the conditions suitable for it, including geology, liberal regulation, private land ownership, easy loans, technology and high-density infrastructure. Rustam Tankayev of the Union of Oil and Gas Industrialists, comments.
"Europe is not rich in shale gas. Shale gas production in Europe leads to contamination of ground water. This means that water entering city reservoirs will be contaminated as well. Hydraulic fracturing caused by shale gas production triggers earthquakes in adjacent areas, where no earthquakes have ever been recorded before. 2 to 4 magnitude earthquakes occurred in Britain at the outset of mass shale gas production. Shale gas production technology is far from perfect."
A second article continued the theme:
"We are interested in big and long-term contracts. One- or two- year contracts are no good deals for the gas industry. We would welcome 15- and 20-year contracts for gas supplies."
If the Russian company starts feeling close-bodied on the European market, it may go to the East, where it will find new deposits and new consumers, Vitaly Kryukov says.
Hmm. One thing for sure. Just don’t expect Tokyo Gas to be lining up.