EU-Russian Shale War Escalates
The bottom line is that the same natural gas revolution in the US, which was enabled by hydraulic fracturing (fracking), is now threatening to loosen Gazprom’s noose on the EU, and Gazprom simply won’t have it. To head off a potential natural gas revolution in the EU, Gazprom is pulling out all the stops, and EU officials say that the company has been illegally throwing obstacles in the way of European gas diversification. --Jen Alic, The Christian Science Monitor, 12 September 2012
The EU publics are divided between those who fear fracking and those who fear Gazprom and so far, the former fear is trumping the latter. France and Bulgaria have both banned fracking under pressure from the public, but Poland is marching on, its officials relentlessly insisting that fracking is safe. The end victory for Gazprom would come in the form of a European Commission ruling banning fracking-a ruling which would be applied to all EU countries, including Poland which has shown more political will to stand up to the Gazprom boogey man than others. --Jen Alic, The Christian Science Monitor, 12 September 2012
The European Commission’s investigation of Gazprom is extremely serious for the Russian government-controlled gas company. This is no small bureaucratic inquiry. The antitrust investigation is being undertaken by the commission’s Directorate General for Competition. As Microsoft knows, DG Competition does not give up, and it does not tend to lose. In fact, DG Competition has not lost an abuse-of-dominance case before the European Court of Justice since the EU’s antitrust rules came into force in 1958. --Alan Riley, The Wall Street Journal, 12 September 2012
While Gazprom and the EU are locked in this stranglehold, others will see an opportunity. Anybody else with gas to sell and ways to get it to Europe has an advantage here. Over and over again, Russia has shown that it is an unreliable energy source; expect more EU countries to seek out ways to undermine Russia’s position as their key supplier. --Walter Russell Mead, The American Interest, 12 September 2012
Relations between natural gas suppliers and consumers in Europe have come to a crunch point over pricing as buyers seek to wriggle free of long established but costly contracts and benefit from newly available sellers elsewhere. The clash is becoming more political as sparks fly between the European Union and its leading gas supplier Russia. Discoveries of natural gas reserves in East Africa, Australia, the Mediterranean Sea, as well as the shale gas boom in North America are also expected to help push natural gas above coal as the second biggest fuel source by 2030 and later could even challenge oil. Europe will, in the long term, decrease the region’s dependence on supplies from Russia and the Middle East, thus reducing their dominance in energy markets,” Frost & Sullivan Consulting Analyst Michael Mbogoro said in a report published on Wednesday. “It is likely to also give rise to new geopolitical alliances at the expense of old,” he added. --Reuters, 12 September 2012
Newly discovered shale gas reserves around the globe are likely to promote consumption of gas as both an energy source and an affordable feedstock for a wide variety of chemicals and materials. "The rapid development of shale resources is set to change dramatically the current energy assets globally," says Frost & Sullivan Consulting Analyst Michael Mbogoro. Europe will, in the long term, decrease the region's dependence on supplies from Russia and the Middle East, thus reducing their dominance in energy markets. It is likely to also give rise to new geopolitical alliances at the expense of old. --Sacramento Bee, 12 September 2012
The UK’s independent Climate Change Committee (CCC) has today warned unequivocally that the government would breach the Climate Change Act if it pursues Chancellor George Osborne's plans for a surge in new gas investment. The letter also criticises recent statements from DECC in support of increased gas investment, which were wrung out of the department by Osborne during long-running negotiations over the future of renewable energy subsidies. The letter represents a major blow to Osborne who has been campaigning for the Energy Bill to increase support for gas investment. --James Murray, BusinessGreen, 13 September 2012
Energy secretary Ed Davey has played down the importance of shale gas to the UK’s energy plans. This will put him at loggerheads with coalition colleagues, including Tory environment secretary Owen Paterson. The energy minister faces a tough opponent in the form of George Osborne, a known supporter for increasing the role of natural gas in the UK’s plans for energy and the economy. --egovmonitor, 12 September 2012
The French government is open to explore shale gas extraction in France, French daily le Figaro reports Wednesday, a few days ahead of a government-led conference on the country’s energy mix. The government could announce at its energy conference the creation of an ad-hoc commission to consider an experiment in shale gas extraction, the newspaper reports, citing a person close to the conference. --Fox Business News, 12 September 2012
Italy’s plans to double domestic production of oil and gas to slash its energy bill and boost economic growth face stiff headwinds from the kind of chronic red-tape that has left one major project paralysed by 11 years of paper shuffling. In a draft copy of a new national energy policy, seen by Reuters, the government said it wants to take hydrocarbon output to 14 percent of overall energy needs by 2020 from the present 7 percent, mobilizing investments of around 15 billion euros (11.8 billion pounds). --Reuters, 12 September 2012
Saudi Arabian Oil Co. is set to increase the number of drilling rigs it will use in coming months as it plans for an exploration push for shale gas and hydrocarbons in the Red Sea, a local energy analyst said. Saudi Arabia may hold the fifth-largest deposits of shale gas, behind China, the U.S., Argentina and Mexico, with as much as 645 trillion cubic feet of recoverable fuel. --Wael Mahdi,Bloomberg News, 11 September 2012
Britain risks being left in the slow lane as the global market for cheap, but controversially extracted, shale gas gathers pace, triggering fears of a talent drain. The so-called "unconventional" source of gas supply has transformed the energy landscape in the United States and some early efforts have been made to unlock the UK's potentially significant shale gas reserves. Colin Welsh, chief executive of corporate finance specialist Simmons & Company International, said there was "massive potential" in the UK but a number of hurdles had to be overcome. "If we don't take this opportunity to boost our economy, create jobs and meet demand for energy, the opportunity will just pass us by," said Welsh. --Scotland on Sunday, 9 September 2012
1) Will Gazprom-Green Alliance Kill European Shale Revolution? - The Christian Science Monitor, 12 September 2012
2) Walter Russell Mead: Putin Stands By His Gas Company - The American Interest, 12 September 2012
3) Shale Gas Revolution Shaking Up European Energy Policy - Reuters, 12 September 2012
4) Shale Gas Will Reshape World Energy Markets - Sacramento Bee, 12 September 2012
5) Shale Gas Could Fracture UK Government - egovmonitor, 12 September 2012
6) Green Anti-Shale Campaign: Climate Change Committee Rules “Dash For Gas” Would Be Illegal - BusinessGreen, 13 September 2012
7) While Britain Dithers: French Government Open To Explore Shale Gas Extraction - Fox Business News, 12 September 2012
8) Italy Plans To Double Domestic Oil And Gas Production - Reuters, 12 September 2012
9) Shale Gas In The UK: An Energy Policy Game Changer? - The Institute of Economic Affairs
1) Will Gazprom-Green Alliance Kill European Shale Revolution?
The Christian Science Monitor, 12 September 2012
Jen Alic
Gazprom has Europe’s natural gas market in a stranglehold and Europe is attempting to fight back, first with a raid last year on the Russian giant’s offices and then with a probe launched earlier this week against its allegedly illicit efforts to control the EU’s natural gas supplies.
The bottom line is that the same natural gas revolution in the US, which was enabled by hydraulic fracturing (fracking), is now threatening to loosen Gazprom’s noose on the EU, and Gazprom simply won’t have it.
To head off a potential natural gas revolution in the EU, Gazprom is pulling out all the stops, and EU officials say that the company has been illegally throwing obstacles in the way of European gas diversification.
Poland’s situation is a case in point. Last year, a US Department of Energy report estimated Poland’s shale gas reserves at 171 trillion cubic feet. Gazprom got nervous. In March this year, the Polish Geological Institute suddenly felt compelled to contradict that report, saying reserves were only around 24.8 trillion cubic feet. In June, Exxon announced it would pull out of its shale gas projects in Poland. Investors started getting cold feet and shares began to drop. Chevron and ConocoPhillips are plodding along with their shale gas operations, for now.
Still, 24.8 trillion cubic feet is no paltry volume and enough to ensure that Gazprom remains nervous. And then there is Ukraine, which also has sizable shale gas reserves and where the Russian noose is even tighter.
Right now, the only thing keeping the shale gas revolution from hitting Europe as it has in the US is technology: the shale reserves in Europe are on land that is more inaccessible, there is a lack of necessary infrastructure and fracking equipment, and protests against the environmental impact of fracking are more serious. But the biggest problem is Gazprom.
EU governments are both desperate to break the Russian stranglehold by developing shale gas reserves and wary of going up against a gas giant on whom they depend for supplies. It’s a tough position and the outcome will depend on how the EU hedges its bets: Can it develop enough shale gas reserves quickly enough to take on Gazprom?
Poland is still a long way off from being able to fully develop its shale gas reserves. It will take time to conduct the necessary environmental impact studies and infrastructure would require a major overhaul.
The EU publics are divided between those who fear fracking and those who fear Gazprom and so far, the former fear is trumping the latter. France and Bulgaria have both banned fracking under pressure from the public, but Poland is marching on, its officials relentlessly insisting that fracking is safe.
Earlier this week, Germany’s Environmental Ministry urged a ban on fracking near drinking water reservoirs and mineral springs and called for environmental impact studies from developers, prompting concerns that Germany will tighten fracking regulations. Germany has massive natural gas potential, but environmental concerns are keeping a tight rein on development for now.
The end victory for Gazprom would come in the form of a European Commission ruling banning fracking-a ruling which would be applied to all EU countries, including Poland which has shown more political will to stand up to the Gazprom boogey man than others.
In the meantime, the EU is investigating Gazprom’s actions in eight countries-Bulgaria, Estonia, Latvia, Lithuania, Slovakia, Poland, Hungary and the Czech Republic. In Bulgaria, where fracking has been banned, Gazprom is the only supplier of gas. It is also the sole supplier to the Baltic states and Slovenia. It supplies over 80% of gas needs to Poland and Hungary, and nearly 70% of the Czech Republic’s.
It has strengthened its grip on Europe further due to the fact that it owns the one-way gas pipelines into the region and forces buyers into long-term contracts in which prices are tied to oil.
The EU has tried numerous tactics to loosen the Gazprom grip, including the implementation of new energy policies designed to separate supply from delivery and by seeking new pipelines that could deliver gas from elsewhere. While the EU’s alternative pipeline dreams have largely failed so far, it is eyeing developments now in Northern Iraq, where Turkey is courting the Kurds to build a new pipeline that could eventually deliver gas to EU markets. But this is a long way, and possibly a war, off.
Having failed so far in the area of alternative suppliers, the EU is now moving the front lines of the battle to the legal field, targeting unfair competition, which it stands a better, but still only minimal, chance of changing the rules of the game. The probe into Gazprom is looking at three things: Gazprom’s attempts to hinder the free flow of gas across the EU; its purposeful blocking of diversification efforts; unfair pricing and contractual arrangements.
Specifically, the EU says Gazprom has implemented a strategy to segment national markets by preventing gas exports and limiting delivery options, as well as by obligating buyers to use Gazprom infrastructure. Most significantly to the consumer, Gazprom’s pricing policies, which fix gas prices to oil prices, mean that European consumers see no benefit from the natural gas revolution in the US, which has increased global supplies and reduced prices on the open market.
Will the EU be able to actually levy fines for unfair competition and unravel the monopoly? Not unless it plays as dirty as Gazprom, which will simply cut off supplies and the circulation of those European countries that used to be in its back yard. Eastern and Central Europe will be the ones to pay the price for the European Union’s battle.
Let’s not pretend that energy companies are clean and that governments aren’t using them to forward nefarious geopolitical objectives (US multinationals in Northern Iraq, for instance). The point is not to paint Gazprom as the ultimate evil in energy. This is about Europe, and the EU’s “Mommy Dearest” struggle with Gazprom, which is undoubtedly playing an underhanded energy-politics game worthy of the most sinister of accolades.
One would not be surprised to discover that Gazprom has gone environmental and has had a hand in shaping the environmental concerns of the EU publics. As such, it is highly convenient that Gazprom has recently come under very public attack by our leading international environmental group. Everyone plays dirty, any means to an end.
2) Walter Russell Mead: Putin Stands by His Gas Company
The American Interest, 12 September 2012
The NYT reports on the European Union’s struggle to investigate Gazprom’s pricing and policies, and the Kremlin’s rebuttal:
President Vladimir V. Putin of Russia issued a decree on Tuesday that had the effect of prohibiting Gazprom, the state natural gas giant, from cooperating with European Union investigators trying to build an antitrust case against it.
The decree prevents strategically important companies that do business overseas — a category that includes Gazprom — from providing information to foreign regulators without approval from the Kremlin. The decree says it applies to regulators from “unions of foreign states.”
Both sides have assets in a showdown: The EU needs Putin’s gas, and Putin needs the EU’s money.
While Gazprom and the EU are locked in this stranglehold, others will see an opportunity. Anybody else with gas to sell and ways to get it to Europe has an advantage here. Over and over again, Russia has shown that it is an unreliable energy source; expect more EU countries to seek out ways to undermine Russia’s position as their key supplier.
3) Shale Gas Revolution Shaking Up European Energy Policy
Reuters, 12 September 2012
Discoveries of natural gas reserves in East Africa, Australia, the Mediterranean Sea, as well as the shale gas boom in North America are also expected to help push natural gas above coal as the second biggest fuel source by 2030 and later could even challenge oil.
Relations between natural gas suppliers and consumers in Europe have come to a crunch point over pricing as buyers seek to wriggle free of long established but costly contracts and benefit from newly available sellers elsewhere.
The clash is becoming more political as sparks fly between the European Union and its leading gas supplier Russia.
Major natural gas exporters like Russia, Norway or Qatar sell mostly under long-term contracts that are linked to oil.
Because oil prices have stayed high despite economic turmoil, European power and gas suppliers are being squeezed as they buy gas under long-term deals linked to oil, while having to sell it to customers at lower retail prices linked to the freely traded spot market, such as Britain’s National Balancing Point (NBP).
In several recent contractual renegotiations Gazprom , the world’s biggest exporter of pipeline gas, and Qatar, leader of liquefied natural gas (LNG) exports, have given in to customer pressure and reduced their prices.
Customers are also due to renew contracts with Norway’s Statoil.
French bank Societe Generale said this week that it expected oil-indexed gas supplies to see a lower weighting than spot indexation in the pricing structure of European gas supply contracts by 2014.
“Oil indexation is facing major challenges. The old system, whereby long-term oil-linked contracts were signed to ensure both security of demand and security of supply and spot trading provided additional volumes, is facing a step change,” SocGen analyst Thierry Bros said.
Oil-indexed gas pricing began after gas was discovered in the North Sea and the Netherlands in the 1960s and sales contracts were priced against competing heavy fuel oil and heating oil.
The backlash against oil-linked contracts has gained ground as waning demand for gas and economic recession across Europe forces utilities to defend dwindling profit margins.
Discoveries of natural gas reserves in East Africa, Australia, the Mediterranean Sea, as well as the shale gas boom in North America are also expected to help push natural gas above coal as the second biggest fuel source by 2030 and later could even challenge oil.
These discoveries not only pose a challenge to pricing models of LNG export leader Qatar, but by delivering the super-cooled gas by ship to ports across the globe they also threaten the longstanding dominance of pipeline powers such as Russia or Norway.
“Europe will, in the long term, decrease the region’s dependence on supplies from Russia and the Middle East, thus reducing their dominance in energy markets,” Frost & Sullivan Consulting Analyst Michael Mbogoro said in a report published on Wednesday.
“It is likely to also give rise to new geopolitical alliances at the expense of old,” he added.
Full story
4) Shale Gas Will Reshape World Energy Markets
Sacramento Bee, 12 September 2012
In a new study our analysts look at how this source will have an impact on both energy and chemicals industries with geopolitical repercussions
Of all energy resources, oil and coal dominate global consumption. While natural gas currently holds a significant share of the energy market, newly discovered shale gas reserves around the globe are likely to promote consumption of gas as both an energy source and an affordable feedstock for a wide variety of chemicals and materials.
A new study by Frost & Sullivan titled "Analysis of the Global Shale Gas Market" examines the impact of shale gas on the chemical industry and looks at the shale gas market as a whole.
"The rapid development of shale resources is set to change dramatically the current energy assets globally," says Frost & Sullivan Consulting Analyst Michael Mbogoro. Europe will, in the long term, decrease the region's dependence on supplies from Russia and the Middle East, thus reducing their dominance in energy markets. It is likely to also give rise to new geopolitical alliances at the expense of old.
Most demand in Asia will come from China and Japan, following China's insatiable energy needs (as a result of rapid growth) and Japan's expected increased dependence on natural gas following the Fukushima nuclear disaster. The large shale gas reserves in China will only temporarily ease the import burden, even if one accounts for increased power generation capacity from other sources (hydro, solar, wind).
Furthermore, large chemical companies are shifting investment patterns to exploit the rich shalegas reserves in the United States, at the expense of the Middle East and other natural gas-rich regions.
North American natural gas prices are the lowest globally, and chemical companies are fuelling a revival of the US manufacturing sector by capitalising on this cheap supply.
Full story
5) Shale Gas Could Fracture UK Government
egovmonitor, 12 September 2012
Energy secretary Ed Davey has played down the importance of shale gas to the UK’s energy plans. This will put him at loggerheads with coalition colleagues, including Tory environment secretary Owen Paterson. The energy minister faces a tough opponent in the form of George Osborne, a known supporter for increasing the role of natural gas in the UK’s plans for energy and the economy.
Paterson has been a vocal supporter of utilising shale gas reserves, which has led to a reduction in gas prices in the USA.
The US was the first country to harvest large amounts of gas with the controversial method of “fracking”. Whilst fracking can lead to a high yield of fuel gathered, it can also be disastrous for the ecology due to contamination and spills.
However, Liberal Democrat Ed Davey has argued that while shale gas exploitation can make a difference to the price of gas, the actual financial benefits could be marginal at best.
He said, “Analysts think shale gas extraction in Europe will be more expensive than in the US, and probably won’t happen at scale until the end of this decade.”
Davey went on to point out how competitive the gas market it becoming, with emerging economies needing more and more energy for expansion. He highlighted that China is expected to double its demand for the fuel in the next five years.
6) Green Desperation: Climate Change Committee Rules “Dash For Gas” Would Be Illegal
BusinessGreen, 13 September 2012
James Murray
The UK’s independent Climate Change Committee (CCC) has today warned unequivocally that the government would breach the Climate Change Act if it pursues Chancellor George Osborne's plans for a surge in new gas investment.
In what will be seen as an explosive intervention in the simmering row between the Lib Dems and the Chancellor over whether to include a target to decarbonise the electricity sector by 2030 in the upcoming Energy Bill, the CCC today stated categorically that "extensive use of unabated gas-fired capacity (i.e. without carbon capture and storage technology (CCS)) in 2030 and beyond would be incompatible with meeting legislated carbon budgets".
In an open letter to Energy and Climate Change Secretary Ed Davey, signed by the CCC board, including the new chair, Conservative Peer Lord Deben, the group criticises the "apparently ambivalent position of the government about whether it is trying to build a low-carbon or a gas-based power system", warning that after extensive discussions with investors and energy companies it has become clear current policy uncertainty has created a "very poor" investment climate.
The letter also criticises recent statements from DECC in support of increased gas investment, which were wrung out of the department by Osborne during long-running negotiations over the future of renewable energy subsidies.
"We are writing to express the great concern of the Committee on Climate Change about the recent Government statement "that it sees gas as continuing to play an important role in the energy mix well into and beyond 2030...[not] restricted to providing back up to renewables"," the letter states, adding that while there is an important medium term role for gas that has already been factored into the UK's carbon budgets, "unabated gas-fired generation could therefore not form the basis for Government policy, given the need under the Climate Change Act to set policies to meet carbon budgets and the 2050 target".
The letter represents a major blow to Osborne who has been campaigning for the Energy Bill to increase support for gas investment. A leaked letter from Osborne to Davey earlier this summer revealed he wants to ignore CCC recommendations for the Energy Bill to include a target requiring the electricity sector to decarbonise by 2030 as part of wider efforts to turn the UK into a "gas hub".
The letter argues this approach would be in breach of the Climate Change Act and reiterates the CCC's recommendation that the Energy Bill use secondary legislation to include a carbon target for the electricity sector of 50gCO2/kWh that would come into place from 2030 and effectively ban the use of both coal and gas fired power plants without CCS technology.
It argued such a target would provide investor certainty while also allowing "flexibility for periodic review (e.g. prior to drafting a Delivery Plan) and possible modification based on new information about technology costs, gas prices, carbon prices and feasible build rates".
The letter has the potential to spark a major political row between the Lib Dems and Osborne as the Chancellor continues to push for an increase in support for gas investment through both the Energy Bill and the government's upcoming gas strategy.
The Treasury had signalled that in return for its support for modest cuts to renewable energy subsidies earlier this summer it had insisted on a commitment to shelve the decarbonisation target.
But Energy and Climate Change Secretary Ed Davey stressed at the time that the debate about the target was still on-going, noting that the Department of Energy and Climate Change still needed to formally respond to the CCC's recommendations.
Significantly, a motion has been tabled at the Lib Dem conference that supports the target and criticises the apparent retreat from climate change policy being undertaken by Osborne and others in the Conservative Party.
The argument over the target is now likely to reach the top of the government with pressure mounting on Cameron to face down critics of the government's green policies and adopt the CCC recommendations in full.
7) While Britain Dithers: French Government Open To Explore Shale Gas Extraction
Fox Business News, 12 September 2012
The French government is open to explore shale gas extraction in France, French daily le Figaro reports Wednesday, a few days ahead of a government-led conference on the country’s energy mix.
The government could announce at its energy conference the creation of an ad-hoc commission to consider an experiment in shale gas extraction, the newspaper reports, citing a person close to the conference.
No one at the environment and energy ministry was immediately available to comment.
Shale gas, or natural gas trapped in hard shale rock, is extracted through hydraulic fracturing, or fracking, a method involving the injection of water, chemicals and sand into the rocks at a high pressure to release the gas.
The method has been banned in France since last year after an intense public campaign by environmentalists who warned of potential pollution to water tables and damage to the landscape.
8) Italy Plans To Double Domestic Oil And Gas Production
Reuters, 12 September 2012
Italy’s plans to double domestic production of oil and gas to slash its energy bill and boost economic growth face stiff headwinds from the kind of chronic red-tape that has left one major project paralysed by 11 years of paper shuffling.
In a draft copy of a new national energy policy, seen by Reuters, the government said it wants to take hydrocarbon output to 14 percent of overall energy needs by 2020 from the present 7 percent, mobilizing investments of around 15 billion euros (11.8 billion pounds).
Part of broader energy plans to generate around 180 billion euros of investments to 2020, it is projected to create about 25,000 jobs and save 5 billion euros per year thanks to fewer imports.
“What they’re trying to do makes sense, but it’s just not feasible because of the permitting maze. Every region has its own rules, every decision ends up in court, it’s a total mess,” says Davide Tabarelli, head of energy thinktank Nomisma Energia.
Grassroots opposition has left many energy projects high and dry. Mario Monti’s technocrat government, due to step down next year, has pledged to cut back red tape to improve Italy’s poor record on attracting foreign investment and modernise networks.
Earlier this year UK gas producer BG Group (BG.L) threatened to shelve plans to build a liquefied natural gas plant in the southern region of Puglia after failing for 11 years to obtain all the necessary permits.
“You can’t expect a big multinational to halt a project for over 11 years. There’s a limit to everything,” said BG Italia head Luca Manzella.
Rome intends to streamline the permitting process by creating a single licensing procedure as in other European countries to replace the fragmented system which can involve 2-3 different green lights. [...]
Rome estimates potential domestic oil and gas reserves of around 700 mtoe, Europe’s largest outside the Nordic countries. To help tap those resources it is seeking to attract national and international companies to its shores.
Full story
9) Shale Gas In The UK: An Energy Policy Game Changer?
The Institute of Economic Affairs
The Institute of Economics Affairs' 22nd Annual Beesley Lecture Series
20th September 2012, Institute of Directors, London
Speaker:
Howard Rogers, Director, Natural Gas Research Programme, Oxford Institute for Energy Studies
Chair and Commentator:
Benny Peiser, Director, Global Warming Policy Foundation
Conference overview:
Will shale gas revolutionise the UK energy industry? This lecture will provide an historic perspective of gas in the UK energy mix, and examine future gas supply and prices, and how shale gas might impact energy policy.
· Gas in the UK energy mix – an historic perspective
· Future UK gas supply and prices in a globalising market
· The interaction between gas, coal and renewables
· The prospects for UK shale gas and the impact on energy policy
Full details here
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