The Battle For Market Share

image001

It’s been a while since I blogged about the Oil Price, and since my last note it does appear that things have stabilised and prices are slowly creeping up.

This is good news for for the Oil and Gas Industry and is starting to provide the comfort that producers need to start spending money on new plant again. In particular, it seems that refiners who profited most from the low oil prices early on and have a cash reserve available are starting to look at developing and upgrading their facilities for new and emerging markets.

They are also taking the opportunity to adapt refineries to be able to process heavier (cheaper but poorer quality) crudes and to meet more stringent EU and US fuel specifications.

This article from World Oil paints an interesting picture – a stand-off between those who were prepared to sell on even when oil prices plummeted and those that preferred to keep their oil in reserve and wait for higher prices to return.

 

 

Qatar Gas where UK fracked gas should be

pipes-2

From a recent article in Downstream Today.

Qatargas, the world’s largest LNG producer, signed a five-year sales and purchase agreement with Petronas LNG UK on Wednesday . . . Under the agreement Qatargas will deliver 1.1 million tonnes of liquefied natural gas (LNG) per year to the UK-based venture until Dec. 31 2023, extending a current five-year contract that was due to expire on Dec. 31 2018.

Why are we importing a million tonnes of LNG from Qatar?  Because we’re not producing enough gas of our own and as coal and oil fired power stations are shut down thanks to EU directives we’re becoming more reliant on importing the energy that we need.

Of course if the government stopped faffing about and got on with promoting fracking in this country we’d have a massive reserve of natural gas that we could tap into for years to come.

 

 

Pipeline policy follow-up

As a follow-up to my post from late August about the lack of joined up thinking within the EU for its gas pipeline plans, a more comprehensive article has emerged about the new relationship being forged between Russia and Turkey;

pipes-1

The article talks at length about how Russia will be able to increase its dominance in European gas markets – directly through a new TurkStream pipeline and indirectly through Turkey’s influence over the TANAP pipeline.

If this happens, Russia’s state-owned Gazprom will exercise high levels of control over both projects.

As a further embarrassment to the EU; Russia and Azerbaijan are looking to be involved with Iranian gas reserves (which are vast) and which were

also coveted by the West, which hopes to ship them into the EU as a hedge against Russia.

Far from reducing the EUs reliance on Russian gas “which supplies a third of the EU’s natural gas overall—though a much higher percentage to Germany and other northern EU nations” it seems that Russia is likely to increase its share unless another avenue can be found.

The most likely option at the moment is LNG from the US which has a glut of gas available thanks to fracking which has opened up new export opportunities as well as reducing domestic energy prices – too bad the EU (and previous UK governments) seem determined to ignore this fantastic opportunity on this side of the Atlantic.

Get fracking on with it

gas ring

Fracking has the potential to unlock significant benefits for the UK;

  • Cheaper gas
  • Increased revenue for government
  • Additional cash for local investment, and now
  • Extra money directly to the pockets of those most impacted.

As this article reports;

Britons living near “fracking” developments will be able to decide how a 1 billion pound ($1.3 billion) shale gas wealth fund should be spent, either by accepting direct personal payments or supporting projects such as railways or flood defences, the government said on Monday.

There is still a lot of objections from certain areas to fracking, much of it based on myth and legend and a lack of understanding of the technology and also the differences between how the UK is supplied with tap water compared to the US.

Whether the green lobby like it or not, it will come to the UK and it will be good thing;

Britain is estimated to have plenty of shale gas resources in place, enough to cover the country’s annual gas needs for hundreds of years.

Imagine that – not having to rely on imports of fuel for years.

The quote from Greenpeace UK’s chief scientist that;

You can’t put a price on the quality of the air you breathe, the water you drink, and the beauty of our countryside

Is particularly specious;

  • Gas is far cleaner than coal and oil and by replacing these fuels with gas will improve air quality
  • Water quality will not be affected. Fracking takes place hundreds of metres below the water table and almost all UK water is supplied from treatment works where any unexpected impurities will be removed.
  • To claim to be concerned about countryside beauty while advocating covering our land in giant monstrous wind turbine bird shredders is totally hypocritical.

Hopefully the government will push forward without delay.

Coal Own Goal

coal burning s

As I have written here before, the European Union’s race to eliminate coal under the flawed logic of reducing CO2 to save the planet is once again demonstrated.

As a cheap energy source, at a time of austerity and concern about reliance on fuel from potential rogue countries such as Russia, coal should be retained and money spent on modernisation. Instead, plants like the SSI steelworks in Redcar are forced to close with the loss of 1700 direct jobs and many hundreds more indirectly.

While at the same time we can read stories like this one in Downstream Today, telling of India’s latest mining project which it hopes

will in five years be Asia’s biggest coal mine.

India’s coal minister sums up the futility of EU green initiatives and the worthless soundbites that will no doubt come out of the UN Climate summit in Paris in December.

Environment is non-negotiable but we can’t live without coal. You can’t wish away coal,

The article goes on;

China, India and Indonesia now burn 71 percent of the world’s newly mined coal according to the World Coal Association, with new European and North American consumption negligible as their countries turn to cleaner energy.

Other Asian nations are increasingly looking to coal to power their economies too, with Pakistan, the Philippines and Vietnam opening new plants, pushing the Asia/Pacific region to 80 percent of new coal plants.

The list of other countries expanding their coal infrastructure goes one; Japan plans to build another 41 new coal-fired units over the next decade, Australia’s exports rose driven by increased demand from South Korea and Taiwan.

It’s no wonder the EU share of global GDP is declining if politicians continue to make crass regulations without any cognisance of the consequences.

When politics and energy collide

Khursania3

News from Downstream Today (and reported elsewhere too), that Shell’s plans to expand its LNG business could be scuppered by the latest western sanctions planned against Russia.

Shell have, for some time, had a tie-up with Russian Gas Major Gazprom, which includes operating the large LNG facility Sakhalin-2 in the Pacific. But

On Friday the U.S. government said it was restricting exports, re-exports and transfers of technology and equipment to the Yuzhno-Kirinskoye field.  Shell, with considerable assets in the United States, would face consequences if it went against the sanction, as would other potential foreign investors.

The intention of these new sanctions is to target future projects rather than tackle current supplies that might cause prices to rise.

Last year, Washington slapped sanctions on an Arctic project that state-owned Russian oil major Rosneft planned to develop with U.S. oil major ExxonMobil, effectively forcing the two companies to suspend drilling despite the discovery of oil.

It’s a dangerous game to play, while restricting exploration clearly hurts Russian exports it is also damaging to western oil companies who have to keep replenishing their reserves of oil and gas to keep shareholders happy and provide ongoing work for their staff – and Engineering contractors too.

LNG Future

lng2
Construction shot of Oman LNG. The storage tanks will hold liquefied natural gas at -162°C.

 

The LNG industry is an interesting one.  The ability to take methane out of the ground, chill it to -162°C so that it liquefies at atmospheric pressure, then pump it on to a ship and sail that ship to wherever the gas needed is an incredible feat of engineering.

The liquefied gas is then stored in vast tanks the size of Wembley stadium and re-vaporised on demand to provide natural gas for power stations and other facilities.

LNG contracts are often locked in for 20+ years as the upfront investment in a new facility is massive.  “Take or Pay” contracts are common too – where a buyer HAS to take the LNG (even if they don’t want or need it) or pay a proportion of the price anyway.  The supplier will then sell the cargo on the spot market.

Early plants sprung up in the north Africa the Middle East and Far East.  I visited the MLNG-Dua site at Bintulu in Malaysia, back in the late 90s to do some trouble shooting, but these days Australia is fast becoming the market leader.

The latest innovation that is about to hit the water is FLNG – a Floating LNG production and storage facility.  FPSOs (Floating production, storage and offloading) facilities for crude oil have been commonly used for decades, and enable remote fields to be accessed relatively cheaply but doing the same for natural gas has always been more of a challenge.

In this article from Downstream Today, it’s clear that Shell see FLNG as the future for them;  http://www.downstreamtoday.com/news/article.aspx?a_id=46823

lng
Not sure where this photo of a receiving terminal and power station comes from – possibly Japan. Again, the large LNG storage tanks are clearly visible and dwarf the power station and other storage.

 

If you want to read a bit more about LNG, here’s a link to the wiki page;
http://en.wikipedia.org/wiki/Liquefied_natural_gas

The EU Are Never Happy

hp photosmart 720

Despite claiming to be greener than green and seeking to close down all the coal-fired power stations in Europe, the EU are still not happy.

The UK plans to support the conversion of the Lynemouth coal power plant to operate entirely on biomass – something you would imagine the EU would welcome, but no.  Now they are planning an in-depth investigation to see if the UK government support for the project breaks state-aid regulation.

the Commission therefore has concerns that the actual rate of return could be higher than the parties estimate and could lead to overcompensation.

And more…

The Commission is therefore also concerned that on balance the measure’s negative effects on competition could outweigh its positive effect on achieving EU 2020 targets for renewable energy.

Unbelievable.

EU Green Law Added 40 Euro Cents/Barrel to Refining Costs

_Red lorry yellow lorry

 

Refining margins are tight – we all know that.  With spot prices falling things will ease a bit, but it doesn’t help when politicians decide that Big Energy is a handy cash cow in times of austerity.

This report outlines how EU energy policy is hitting refiners in Europe.

EU green energy law added 40 euro cents a barrel to costs for Europe’s refineries, but the decisive factor in undermining their competitiveness was a steep rise in energy costs, preliminary European Commission research has found.

No kidding!

And get this …

Energy costs in the EU rose four-fold in 2000 through 2012, compared with a doubling elsewhere in the world, where prices overall were held back by the rise in U.S. shale production.

So when politicians tell you that the EU is good for business, or that they will freeze prices as a solution to the problem, be very suspicious.

Does Nuclear Have A Future

road ahead

This is an interesting article about the potential for a new generation of nuclear power plantsthe sodium-cooled fast reactor (SFR).

While nuclear energy has some drawbacks, I still believe that it has to be part of any coherent and secure energy policy for any developed nation – if you are a champion of Global Warming (and I am not) then you must face up to the fact that the only viable and reliable source of CO2-free energy is Nuclear.