Articles from 2013
Ofgem and Bloomberg New Energy Finance, the bad news shale bears.
- Published on 24 February 2013
- Written by Nick Grealy
And now for the bad news, of which there was no shortage this week:
Tuesday, Alistair Buchanan told us that the lights were going out, and that shale gas wouldn’t help us out.
Unlike in the U.S., shale gas is not going to contribute significantly in Britain or elsewhere in Europe, he added, leaving Britain prone to competing for liquefied natural gas (LNG) in the global market.
The overall speech was nowhere near as catastrophic as the media pointed out, but it’s unlikely the media can sit through 72 slides of anything, let alone those of Buchanan. On the plus side he pointed out that gas will provide the only option to keep the lights on. That was the key takeaway and early on in the slides, conveniently ignored by those who wanted to concentrate on Buchanan’s recycling of one old myth that Asia and Europe would battle it out for dwindling LNG supplies, and the creation of a new one where shale gas in Europe wasn’t going to have any impact.
Buchanan, luckily for consumers, is taking retirement in June. How long until he turns up on the board or in a senior position on one of the companies he regulates? Perhaps a long cruise and he’ll be back by this time next year. It would be the least surprising news since Louis Renault found out there was gambling at Rick’s.
But back to today, and it’s deja vu all over again.The fact AB refers to Ofgem’s Project Discovery of 2009 as providing any rationale at all for his policy today, shows once he has an idea in his head, it’s impossible to dislodge. I was at IP Week in London on Wednesday, where both Shell and WoodMackenzie predicted that from 2015 through 2040, the world LNG market would be oversupplied. I mentioned Buchanan’s view of UK held hostage to Asian demand to one of the largest suppliers of LNG and they burst out laughing “ I wish that were true! Did he really say that?”.
Given his elemental mistake over world gas resources, it’s hard to take his take on “gas shale” as he continues to call them in Europe, very seriousy. One reason shale gas wouldn't work in Europe was environmental objections, the usual we're too crowded and dry stuff. But in a fundamental scientific errors, he channelled the Friends of the Earth by stating the importance of Howarth’s methane emissions “science” in slide 40. I’ve written to Ofgem pointing out the multiple studies which contradict this and asking for their comments.
An interesting development was that although, as usual, the gas industry wasn’t given a chance to put their two cents into the reports, the industry did actually bother to contradict it. First Energy UK:
Responding to Ofgem boss Alistair Buchanan's comments, the chief executive of industry trade body Energy UK said the Government should "get on with exploring the options for UK shale gas reserves".
"There are large reserves of gas under the UK with a resource density that would make it significantly accessible. Getting that gas to market in the UK is aided by already having an infrastructure in place. The industry can make a significant contribution to the energy needs of the UK both in terms of electricity and heating in a safe and environmentally sensitive manner working alongside the local communities in which it operates delivering significant benefits both locally and nationally."
The fact that Ken’s words weren’t reported anywhere except on Rigzone, underlines the uphill battle he faces.
I'll handle the other big story of the week, when and if I get a copy of the Bloomberg New Energy Finance’s indictment of the UK shale gas industry, yet another example of incurious reporting from the media:
Without a copy of the report, which BNEF is happy to provide as press release but not for any public debate the subject deserves, it’s impossible to accurately respond. The UK, press never the most curious but now also decimated as readership drops by double digits each year, are so harassed they long ago gave up reporting. As a result, environment correspondents practice sustainable journalism: most simply recycle press releases.
I don’t know how BNEF predict UK production costs considering none has actually happened, but to discuss something out there and easy to find, where on earth do BNEF's view of US costs come from where exactly?
They estimate extraction costs in Britain will range from $7.10 to $12.20 per million British thermal units, compared with the $4.54 to $4.83 rate in the US.
So where does this fit in? How could Bloomberg New Energy Finance conclude $4.54 to $4.83 and Credit Suisse say $0.00 to $6.19? Given this massive discrepancy, how can we take their projections for UK gas prices seriously?
The combination of a surge in production at lower and lower costs especially surprises in the gas rich part of the Marcelllus.The narrative was that the Marcelllus was going to be among the most expensive shale gas plays, despite being on the doorstep of the high demand (and higher than Henry Hub) New York City and New England gas hubs. That would lead to activity moving to the oil rich Utica, and Marcellus production would fall and prices would rise. Exactly the opposite is happening, as it has in the Haynesville Shale. The Haynesville has been producing massive volumes at low prices all along and there yet again, the conventional wisdom is being disrupted: Less rigs, lower gas prices and production numbers growing by leaps and bounds.
I think a key problem for conventional energy analysts, be they from BNEF, their brothers in arms at Shale Bubble or Art Berman still wrong after all these years, is to make the fundamental error of predicting the future based on the past. Just as Alistair Buchanan thinks he can dust off a report from four years ago and predict the future, some draw the wrong conclusions (or are they the ones they want to see?) from slides like this from real energy analysts like Credit Suisse in December 2012. Credit Suisse publish this for everyone to see BTW unlike BNEF.
Report’s like BNEF are out of date while they’re in the publishing stage. Luckily we’ve got figures that are up to date, taken a week before Bloomberg NEF's report was published from an Encana presentation via Seeking Alpha doesn't mention anything like BNEF's figures and even is an update on Credit Suisse's numbers which of course are averages
Europe doesn’t have to re-invent what the US has already done, and in terms of drilling efficiency, has long abandoned. Europe may be at 1980 levels of production, but we are at 2013 levels of technology. Europe has the advantage of backwardness. People like George Mitchell made all the mistakes, and we have the advantage of some key US experts now busily consulting in Europe.
By the way, Bloomberg NEF are terribly insulted that anyone could possibly construe them as having any vested interest in promoting a high gas price. Where on earth could I get any idea that they had any interest in making New Energy Finance look competitive ? Anyway, there is abundant proof that other parts of the Bloomberg empire don't share the BNEF's lack of enthusiasm for shale.
Highlighting the city's efforts to reduce air pollution and greenhouse gases by greening its fleet of vehicles, which includes a new campaign to support electric vehicle conversions, Bloomberg, who gave $50 million to the Sierra Club's anti-coal campaign in 2011, also spoke out strongly in favor of shale gas drilling in the state.
"It is up to the governor, but I personally have said we should be fracking, not in the watershed, but we should be fracking. … About 13,000 people get killed every year by the pollutants from coal-fired plants. … [Also, as] Boone alluded to, getting oil from outside this country is expensive and it transfers our wealth to people who are trying to destroy our lives. … Of all the things we can do, natural gas isn't perfect, but it certainly looks like it can make this country energy-independent and reduce dramatically the pollutants going into the air," Bloomberg said.
"Does it have some risks? Everything has some risks, but unless you are willing to give up electricity, and give up automobiles and trucks and airplanes and go back to living in a cave, you're going to have to get it from someplace. This is the best of all of the alternatives, and I would hope that the governor would come to that conclusion," he said.
But, as with Branson, that's something else we'll never read in the UK press.