Shale Gas 2009
Everywhere but here
If any covers it all, it would be interesting to see a UK paper reporting on the Gas Exporting Countries Forum. They'll probably be pushing a new gas OPEC story, let's put some more money on bills to cover a scheme to stop them before the lights go out.
One point we don't have to worry about in our little island is that sentence from the NY Times reporting on the conference:
The overabundance of natural gas is pushing down heating and electricity bills around the world.
Apart from ONE country.
Heating and electricity bills are no different from a tax, and a regressive one at that. They are a tax on civilisation. Unless you can handle cold and dark, you have to pay up. But, in the UK at least, that tax has been privatised, which is not in itself a bad thing, but it has uniquely been privatised with zero regulatory oversight. In fact, Ofgem is moving from merely acting as apologist for utilties to actually egging them on. Result: Ofgem sabotages the UK economy, adding at least £50 per month to the cost of living. The BBC was having kittens this morning about "an extra £10 per year on a £20K paramedic" due to the shock horror rise in National Insurance rates. But ask them to do an investigation of £50 per month and they don't want to know.
Back to the GECF, which probably will be pushed up as confirmation of a threat of rising prices, unless one reads beneath the lede.
The glut is partly the result of the invention in the United States of new drilling techniques that allow natural gas to be produced from geological formations considered unusable before. This so-called shale-bed gas is shaking up the market and poses a threat to the export revenue of Russia, the world’s largest natural gas exporting country, as prices for gas tumble worldwide.
The GECF isn't meeting to plot a takeover, they are meeting to defend themselves. It's hard to see what they can do. Shale is the energy Borg. Resistance is futile. But people are trying.
As a first order of business, Mr. Bokhanovsky commissioned a study on how to maintain the link between natural gas and oil prices in contracts, an idea opposed by the International Energy Agency, which advises energy consuming countries.
If the group evolves into a cartel, much like the Organization of the Petroleum Exporting Countries is for crude oil, it could put the brakes on market forces making relatively clean-burning gas less expensive than oil today, said Ian Cronshaw, an authority on natural gas at the International Energy Agency. “Our position is that markets should set prices,” he said
But if shale gas is even half as prevalent as thought, what the GECF wants and what they'll get are two different things. Gas will likely reference oil, as anyone references any competitor, but fixed formulas set in stone aren't enforceable or workable anymore.
And Chinese gas. But not shale.
Just to show that there are conventional discoveries still happening, here is news showing that not only shale gas "follows the lights", i.e. supplies close by markets. News today of an offshore discovery just where it's needed most.
SHANGHAI — Canada's Husky Energy Inc announced Wednesday it had discovered a significant deepwater gas reserve with its Chinese partner CNOOC, renewing exploration hopes in the South China Sea.
Based on preliminary analysis of drilling results, the discovery could provide more than 140 million cubic feet (four million cubic metres) of natural gas a day, the energy company said in a statement.
And Canadian gas...
I've done a lot on Albert and British Columbia gas here over the months. The Horn River shale in BC is a big play, and has the distinction of turning around the proposed Kitimat LNG terminal from importing gas to meet BC and US Pacific Northwest market needs to the new paradigm of exporting shale gas as LNG with Kogas of Korea and Gas Natural of Spain as lead participants.
Alberta as we've seen recently is a shale victim, in that it's expensive conventional gas is also far away from US and Eastern Canadian markets who can get cheaper gas closer to their markets without paying 3000 miles worth of transportation. We think Russia may find itself in similar straits.
In Eastern Canada, Alberta won't be helped if the Utica Shale midway between Quebec City and Montreal comes to pass:
Low gas prices could compromise the future of natural gas development in Quebec.
And an old face pops up, but either the speaker or the journalist is sending a mixed message.
At a conference in Montreal yesterday sponsored by FirstEnergy Capital and Société Générale, U.S. energy consultant Arthur Berman argued that many shale gas plays are uneconomical at current prices.
Arthur Berman, the Doctor Doom of shale gas (he could make a lot of money working for National Grid or CCS contractors!), suggests a novel way of making gas in the US worthwhile:
Scores of exploration companies raised capital from the public, drilled test wells and announced large potential reserves.
Shale fever gripped the world, leading to forecasts of huge global reserves. But much of the exploration activity occurred in the first half of 2008, when natural gas prices were soaring.
Berman, a geologist and consultant who spent 20 years at oil giant Amoco, is skeptical about the real value of shale reserves. Drilling companies, he says, routinely overstate reserves and underestimate risk, and this "destroys capital."
For months, he has been publishing his controversial views in the magazine World Oil. In fact, his column became so unpopular with the magazine's advertisers - the petroleum companies themselves - that his November column was killed. Berman subsequently resigned as contributing editor.
He told his Montreal audience yesterday that he's not against companies drilling for shale gas and he hopes they succeed.
But he cautions there has been too much hype about the reserves and investors could get burned. "We're creating a bubble," he says.
Shale gas will be a part of North America's energy future, but it requires "peak" market conditions, he said. A more sustainable solution to North American supply must also involve imports of liquefied natural gas as well as exploration in the Arctic and the Gulf of Mexico.
Having dissed Mr B in the past, I have to give him the benefit of the doubt, but drilling in the Arctic sounds loopy, not to mention rather tough on polar bears.
I'll send him an email asking for clarification.
Meanwhile, someone else destroying capital as Berman puts it, is Apache in New Brunswick.
HOUSTON, Dec. 8 -- Apache Canada Ltd. signed a farmout and option agreement with Corridor Resources Inc., Halifax, NS, to pursue gas in Frederick Brook shale in southern New Brunswick, Canada.
The 18-month program of at least $25 million in spending is designed to evaluate the commercial potential of natural gas development in the Frederick Brook shale and light oil development at Corridor’s recent Caledonia oil discovery.
Whether they get the gas out of the ground or not, the economics here sound dubious. New Brunswick or Nova Scotia aren't exactly big markets. The only possible play I can see is to export the gas to New England, which is just as close to the Marcellus, or to use the new LNG Canaport Terminal in St John to export the gas. And of course that means the closest customer is Milford Haven. Which is owned in part by Qatar, but would displace this cargo
The first LNG super tanker to arrive on North America's east coast is anchored in the Bay of Fundy waiting to be berthed at Canaport LNG, where it will discharge enough liquid natural gas to half-fill the facility.
The Q-Flex has travelled 22 days and 15,000 kilometres from Ras Laffan Industrial City in Qatar and is described as "one of the largest and most advanced vessels of its kind."
But LNG movements are getting increasingly random. While Qatar is going to New Brunswick, BP exports Trinidadian gas to Kuwait. Go figure.
Remember that LNG vessels are self fueled. So perhaps the logic is that instead of using LNG as merely floating storage, they might as well keep the crews entertained by actually putting them out to sea on a tour of global LNG terminals. We already have the interestingly sounding Methane Jane scheduled at South Hook this week. How about Methane Marie Celeste?
The Lucky Country seems particularly blessed with natural gas. It has traditional supplies from the Hobart Strait, but the big news recently has been the massive Gorgon field off Northern Western Australia, much of which already earmarked for China, India and Japan. Add to the the world's first Coal Bed Methane to LNG project in Queensland and the shale potential of the Northern Territories Beetaloo Basin as we pointed out in September. How much gas can one country (and several others) need?
It looks like they are getting more:
Energy explorer Beach Petroleum has signed an agreement with a Canadian company to investigate shale gas potential in South Australia's Cooper Basin.
SA Mining Minister Paul Holloway says the agreement gives hope for what may had seen as a declining region in South Australia.
"Suddenly we're talking about not just an extended life but a whole new range of opportunities opening up for the Cooper Basin," he said.
Beach managing director Reg Nelson says a test well will be drilled in the first half of next year.
"I think we're looking at a gas supply that can go 50, 100 years or more," he said.
This sounds to us more of using shale to extend existing fields as originally in the Barnett and as we saw over the summer the extension of the Groningen gas field in the Netherlands. Groningen was thought to be declining even less than a year ago, but Exxon Mobil say the field can be productive until at 2060.
So where on earth are they are going to send this gas next. There is only so much gas Asia will take. But the answer lies closer to home, where gas comes up against coal in one of the world's largest coal producers:
The nation's third largest natural gas producer Santos Ltd says demand for the energy source could triple in eastern Australia over the next 10 years.
Santos vice-president for eastern Australia Mark Macfarlane told an investor presentation on Wednesday that gas demand in the eastern states was currently about 600 petajoules a year and that the number of domestic and industrial customers was rising.
He also told the Sydney presentation that gas was likely to be increasingly used as a cleaner feedstock than natural coal in power stations.
We guess that substituting natural gas for coal will free up all those exports to be sent to the UK for our Completely Crackpot Scheme of Carbon Capture and Storage!