News Base NRG Issue 20


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News Base NRG Issue 20

  1. 1. NRG NRG November 2011 Issue 20 ! News NEWSBASE ROUND-UP ! Analysis ! Intelligence –– GLOBAL –– ! NewsBase Published byAFROIL 2 NEWSBASE ROUND-UP GLOBAL! IEA warns of under-investment in MENA 2 NRGASIAELEC 4! CCS in the balance 4ASIANOIL 5! Opportunity knocks for Beach Energy 5CHINAOIL 7 This is the twentieth issue of the NewsBase Round-! Chinese shale leads to stalemate with up of Global energy issues. Russia 7ENERGO 9 NRG comes to you entirely at our expense, which we! Pot calling the kettle black? 9EUROIL 11 hope will further increase the value you derive from! Italy’s energy future uncertain under subscribing to NewsBase. new leadership 11FSU OGM 12 NRG covers developments from all global energy! Botas, SOCAR plan gas pipeline regions and sectors, and brings you the “best of the across Turkey 12GCEM 13 best” (as selected by our editors) from each of the! China’s emissions conflict 13 previous month’s weekly Monitors.GLNG 15! Offshore Australian project nears The global nature of the energy industry means that FID moment 15 no episode happens in isolation and we hope thatLATAMOIL 17 NRG will help to tie up events around the world in! US dilemma over Cuba’s oil 17DOWNSTREAM MENA 18 one single issue.! Sadara financing gains momentum 18MEOG 20 This month, AfrOil assesses an IEA warning about! IMF report flags up GCC revenue under-investment in MENA, while EurOil assesses bonanza in 2011 20NORTHAMOIL 22 Italy’s energy landscape with Berlusconi out of the! Alberta, Europe and the oil sands fight 22 picture.REM 24! North African solar can create an Please note, it is NOT possible to subscribe to Arab summer 24 NRG. It is, however, an additional service weUNCONVENTIONAL OGM 26 provide to our existing subscribers.! Australian CBM sector faces growing opposition 26For analysis and commentary on these and other stories, plus the latest oil and gas developments, see inside… Copyright © 2011 NewsBase Ltd. Edited by Ian GM Simm All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
  2. 2. NRG November 2011, Issue 20 page 2 AfrOilIEA warns of under-investment in MENAThere are a host of reasons why investments in the MENA region may fall below thenecessary levels, which poses serious risks to the world’s economyBy Ed Reed# Reduced investment in MENA’s upstream would increase price volatility# An oil price of US$150 per barrel in 2016-17 would put the world’s economy in the danger zone# MENA countries’ revenue and total global investment would be around the same under either outlookMuch of the world’s additional energy In order to meet this objective, spending a possibility that production growth fromrequirements up to 2035 will come from in the area needs to average US$100 the MENA region may not come as muchthe Middle East and North Africa, but it billion per year from 2011 to 2020 and as consumers would like.”may not be plain sailing and investments climb to US$115 billion per year from Such a slowing of investment, Birolare at risk of being sidetracked. In 2021 to 2035. All figures are in 2010 US continued, would be a “pity for theparticular, the International Energy dollars. global economy, a pity for the oil sectorAgency (IEA) has said efforts to preserve The IEA report, though, launched in and, in the long term, a pity for thosestability by diverting cash from energy London last week, said it was “far from [MENA] countries. There is a likelihoodspending into social projects could store certain that all of this investment will be that this could happen but we hope itup trouble further out. forthcoming, for many different reasons does not.” affecting some or all of the countries in Under the slower spending case, theBig bucks the region.” The WEO’s Deferred IEA suggested investments in oil and gasInvestment in global upstream spending Investment Case did not focus on any would be one third below that set outwill rise in 2011 to US$550 billion, specific countries in the region. under the New Policies Scenario in 2011-according to predictions set out in the A country may choose to slow 15. Then, from 2015-20, spending wouldIEA’s World Energy Outlook (WEO). development in its energy industry for a get back on track, matching up with theHowever, the report went on to warn that number of reasons, the OECD’s energy baseline projection by 2020.changes in the MENA region could fall watchdog said. (See text box.)below expectations in the medium term, The IEA’s head economist, Fatih Birol, Shaking it upjeopardising the region’s future. said the agency had been “very careful The shortfall in oil production by 2020 The MENA region is to provide 90% not to put in probabilities on such would be around 6 million barrels perof the world’s growth in oil production alternative scenarios but the fact that we day, which would have a “significantuntil 2035, under the IEA’s baseline have made this Deferred Investment impact” on global oil balances andplan, called the New Policies Scenario. Scenario, in itself, is a signal that we see therefore prices." Potential causes of reduced investment: !" Deliberate government policies to develop production capacity more slowly in order to hold back resources for future generations or to support the oil price in the near term !" Constraints on capital flows to upstream development because priority is given to spending on other public programmes !" Restricted, or higher-cost, access to loans or other forms of capital !" Delays owing to legal changes or renegotiation of existing agreements !" Increased political instability and conflicts !" Economic sanctions imposed by the international community !" Higher perceived investment risks, whether political or stemming from uncertainties in demand !" Constraints on inward investment as a result of stronger resource nationalism, particularly in regimes seeking to pre-empt popular uprisings !" Delays because of physical damage to infrastructure during conflicts Source: IEA WEO 2011 Copyright © 2011 NewsBase Ltd. Edited by Ian GM Simm All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
  3. 3. NRG November 2011, Issue 20 page 3 AfrOil There would be liquids (CTL) productionan impact on gas, would increase.but the major Importers of energyshortfall would would be hit by higherbe a reduction in prices in both theavailable oil for medium and long term,the world’s with the total passingconsumers. US$46 trillion – around Higher-priced 10% higher – but supplyoil would spur would be morethe development diversified.of resources in China and the US – theother countries two top oil-dependentbut would not countries – would playcover the the greatest part inshortfall. In changes. In the US, fueladdition, demand would fall. crisis. They were not the main driver but is only lightly taxed, making pump prices Producers in the MENA region would they did play a role in weakening the extremely sensitive to changes in oilsee greater returns from their output in trade balance of the consuming supply. China, meanwhile, would focusthe short term, though they would not be countries,” Birol said. This year, he on large-scale production of electricfar off gains made under the New continued, the average oil price has been vehicles and greater efficiency.Policies Scenario. However, looking over US$102 per barrel, “which means that Overall, though, oil still accounts forthe entire period revenues would be global economic recovery is at risk, we 86% of total transport fuel in 2035, closemarginally down, at US$16.7 trillion are in the danger zone at present levels.” to the level under the New Policiesrather than US$17 trillion. Should prices rise to US$150 per Scenario. The greatest winner would be Total upstream investment would be barrel, “this is definitely a very risky biofuels, which would expand from 1.3around the same under either scenario, at scenario” for the world’s economy and million bpd in 2010 to 5.5 million bpd byaround US$15.3 trillion. While will have “major consequences.” the end of the period.production would be lower under the Compensating for the shortfall indeferred case, the price of extracting the Demand destruction MENA production would be Russia,energy would be “significantly higher” As a result of the reduced investment, Canada and Brazil. However, increasingthan output from MENA. primary oil demand would reach only 88 the pace of exploitation in non-MENA The deferred case would spark a short- million bpd in 2015, the WEO said, only states runs down these resources fasterterm surge in the oil price, peaking at marginally higher than 2010 and about and their share of output would be lowerUS$150 per barrel in 2016-17, when the 3.2 million bpd lower than the New in 2035.shortfall starts to bite owing to the long Policies Scenario. The peak of the The deferred case set out by the IEA islead times of energy projects. Prices demand reduction would be in 2017 – a concern, given the part that high energywould then fall back into line with the when the price would also peak – at 3.9 prices can play in spurring economicNew Policies Scenario by around 2020, million bpd lower than the figure in the around US$120 per barrel. New Policies Scenario. Investment decisions must be taken byImportantly, though, the Deferred However, the reduction would have a the countries holding resources – andInvestment Case would be “accompanied long-term impact and demand would be they have a duty to meet the needs ofby significantly increased price 1.5 million bpd below the New Policies their citizens. However, contributing to avolatility.” Scenario number in 2035. global slowdown, such as that which Birol said the IEA had not calculated The most significant impact would be emerged from the surge in energy pricesthe expected impact on the global seen in the near term, as prices rise and in 2008, will not benefit any partyeconomy should prices rise as high as it the market reacts to the shortfall through involved, including rulers throughout thehas been suggested they will go. energy conservation, mostly through region.However, as a benchmark, he noted that reduced driving. In the longer term, the However, countries – especially thoseoil prices in 2008 had averaged US$100 higher price would encourage switching with autocratic rulers – are likely toper barrel, which was 5% of global GDP. to alternatives for transportation – such choose between meeting actual short- “We believe the high prices played a as biofuels – and increasing efficiency. term difficulties over nebulous long-termcrucial role in the run-up to the financial Coal would also benefit, as coal-to- global economic woes." Copyright © 2011 NewsBase Ltd. Edited by Ian GM Simm All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
  4. 4. NRG November 2011, Issue 20 page 4 AsiaElecCCS in the balanceAs Australia’s first commercially viable CCS project goes bankrupt the technology is stillprovoking serious argument about the future of energy in the countryBy Graham Lees# The federal- and state-backed Zerogen CCS project failed to find enough private funding# The project lost US$150 million of public funding as it cost and technical problems# Green supporters say that commercial energy is moving away from coal towards renewablesWith the Australian coal and electricity found its coal gasification plans too an A$10 billion (US$10.18 billion) fundindustries still smarting from a new costly and also suffered from CO2 to finance renewable energy and lowcarbon trading law, a taxpayer-backed storage problems. Meanwhile, political emissions power plant technologies.project to develop the country’s first opponents to the federal and Queensland “The collapse of the Zerogen coalcommercially viable carbon capture and governments, both Labor Party emissions storage project in Queenslandstorage (CCS) thermal power plant (TPP) controlled, are calling for an inquiry into shows the commercial world is startinghas gone bankrupt. the loss of taxpayers’ money, while the the transition away from fossil fuels and The Zerogen project, funded by the Green Party and other environmental towards a clean energy economy,” thefederal and Queensland governments, groups said this should spell the end of Australian Conservation Foundationwas seen as a possible salvation for a fossil-fuelled power in Australia. “There (ACF) said.power industry still largely dependent on should be an immediate independent “Despite [Zerogen] receivingcoal and facing a swinging tax under a inquiry as to how this [Zerogen] money government subsidies of almost A$160carbon law going into force next July. has been lost and where it has gone,” said million [US$164 million], we still have Now Zerogen has ended amid federal parliamentary opposition climate no commercial-scale proof that carbonrecriminations of misspent taxpayers’ change spokesman Greg Hunt. capture and storage actually works,”money, while the country’s growing anti- Zerogen was a speculative project like ACF economic adviser Simon O’Connorfossil fuel lobby is calling for the the government’s planned Clean Energy said in a statement last week."abandonment of further CCS research, at Finance Corporation, Hunt said.least with taxpayers’ money. The federal government is in the CCS projects in Australia process of setting up the corporation with Source: CO2CRCToo costlyZerogen was established by theQueensland government in 2006 andinvested over US$100 million. Thefederal government added aboutUS$50 million. The coal industryhad also contributed over US$50million. The objective had been to buildand operate a 530-MW coal-firedcommercial TPP by 2015 using CCStechnology, which would remove90% of CO2. The operators of theZerogen project had earlier this yearsought but failed to secure financialbacking from the Japanese giantMitsubishi Corporation, although ina separate area Australia and Japanare co-operating in CCS technology. It appears that Zerogen, locatednear Rockhampton on the centralQueensland coast north of Brisbane, Copyright © 2011 NewsBase Ltd. Edited by Ian GM Simm All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
  5. 5. NRG November 2011, Issue 20 page 5 AsiaElec The foundation is an independent Europe, the United States and Japan. But ACF president and universityagency made up of academics and The institute has declined to comment science professor Ian Lowe argues thatscientists concerned about climate on the collapse of Zerogen. CCS is not the future.change and global warming. It calls for “It’s long overdue that we had angreater government support for Opposing views overall look at the issue of fundingrenewable energy projects via the Peter Cook, the chief executive of the research and development into carbonestablishment of a Clean Energy Finance Australian Co-operative Research Centre capture and storage, given that it’s aCorporation. for Greenhouse Gases, also known as speculative technology that can’t Some proponents believe the Zerogen CO2CRC, was less reticent. He told the possibly extend to all coal-fired powercollapse is a mere technical setback and Australian broadcaster ABC recently that and that, even if it worked, wouldwork on CCS should continue elsewhere. he believed work on a viable commercial probably be at least as expensive asIn fact, the federal government continues CCS system would continue because the renewable energy,” Lowe told the fund to the tune of about US$100 world was not about to stop using coal. “I think it’s entirely reasonable for themillion per year the public Global CCS “As long as society chooses to use coal coal industry to do research in this area,Institute in Canberra. The Zerogen and other fossil fuels there’s no but I think probably too much publicoperators say they will hand over all their alternative other than to use carbon money has been spent in this area, givenresearch to the institute, with which the capture and storage as the way of that it’s likely at best only ever to be afirm had loose links. mitigating the consequences of that use,” niche application.” The institute, financed by the federal said Cook, whose centre also studies The battle between Australia’s coal-government until the end of 2013, CCS technologies and receives funding fuelled power industry and renewablecollates research on CCS technology and from both the state and the Australian energy advocates looks set to continue."has links with other CCS developers in coal industry. AsianOilOpportunity knocksfor Beach EnergyThe problems facing coal-bed methane (CBM) projects in Australia could provide anopportunity for Adelaide-based Beach Energy to exploitBy Andrew Kemp# Beach is sitting on 8.5 trillion cubic metres of gas-in-place within a portion of unconventional acreage# The company’s unconventional potential lies within the Nappamerri Trough in the Cooper Basin# Growing environmental criticism of CBM projects could be a boon to BeachWith an abundance of natural gas and a produced 19.8 million tonnes of LNG in Energy, which is sitting on an estimatedstring of liquefied natural gas (LNG) 2010. 300 trillion cubic feet (8.5 trillion cubicprojects in the works, Australia is rapidly Yet Australia’s current crop of coal- metres) of gas-in-place within a portionbecoming one of the world’s most bed methane (CBM)-to-LNG projects of unconventional acreage, the CBMimportant natural gas export players. has drawn stinging criticism from sector’s problems could be to its According to a recent note by environmental groups. This has led to advantage.investment bank Jefferies, an estimated increased environmental oversight that Speaking to AsianOil, Beach’sUS$180 billion will have been invested could well slow development of the manager for investor relations, Chrisin the current crop of Australian LNG sector, raising questions of feedstock Jamieson, explained how the company’sprojects by 2017, the end result of which supply for several world-class CBM- shale and basin-centred gas play couldshould see national output rise by 250%, LNG projects that are currently in the prove to be a game-changer in 2012."with the country tipped to become the pipeline in Queensland.largest producer of LNG by 2020. It However, for Adelaide-based Beach Copyright © 2011 NewsBase Ltd. Edited by Ian GM Simm All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
  6. 6. NRG November 2011, Issue 20 page 6 AsianOilDigging deep unconventional play can be economic, out there and, unfortunately for the CBMThe company’s unconventional potential and we still have some work to do over players, they were caught off guard andrests within the Nappamerri Trough in the course of the next calendar year to do could have been more pro-active inthe Cooper Basin, sitting at a depth of that, it will be Beach’s biggest asset and educating the communities in which theyaround 3,500 metres. biggest cash generator by a long shot,” operate.” It was by targeting the deeper areas of he said, adding: “The shale and basin- The opposition to CBM has gainedthe basin, Jamieson noted, that the centred gas will dwarf the rest of the enough momentum to prompt LNGcompany had been able to unearth such a portfolio.” Beach is expecting to extract project developers to seek out newlarge find, with Beach looking at a target around 10-20% of the estimated gas-in- supplies of gas in case they are unable tosection that significantly exceeded initial place in PEL218, with Jamieson pointing secure enough from coal tenements.expectations. out that in its 40-year lifespan the Cooper Jamieson said: “Initially the Gladstone Jamieson described the size of the Basin had only produced 6 tcf (169.92 LNG facilities were planned on gas beingtarget as “quite extraordinary,” adding: bcm) of gas. supplied from CBM acreage. There are,“Initially we were chasing gas within the “If we can pull 30 tcf [850 bcm] of however, a lot of new challenges beingshale only; however, after coring and sales gas, then that would be more gas faced from both an environmental andfracture stimulation of the Holdfast-1 than all of the CBM reserves in social perspective.”well we discovered that we had a gas Queensland.” He pointed to BG Group teaming upsaturated section of around 700 metres This should prove good news for with Drillsearch to explore for andthat could extend to 1,300 metres, Queensland’s raft of CBM-LNG projects, develop the Cooper Basin’sassuming the deeper Patchawarra section which are facing increased difficulties in unconventional resources, while Santosis also gas saturated. Even in the best tapping into enough raw gas to keep their has approached Beach in relation toshale acreages in the US, the target areas projects at full capacity. supplying conventional gas to thecan be around 200 metres.” Only last week, the federal Gladstone facility. He said the sheer size of the target area government, in a bid to secure support “What we’re seeing is certain LNGhad transformed the potential of the for its Minerals Resource Rent Tax Bill, firms are likely [to be] short [of] gas,acreage. Yet while upbeat about the bowed to pressure from two independent which could be primarily driven by thediscovery, the executive said next year parliamentary representatives over challenges faced by CBM,” Jamiesonwould prove tremendously important for introducing greater environmental added.the company as it sought to prove the oversight of CBM and large coalcommercial viability of its resources. projects. Open markets To that end Beach plans to invest A$46 The regulations have drawn complaints Beyond the LNG market, however,million (US$46.06 million) in the 2012 from the extractive sector, however, Beach is also upbeat about Australia’sfinancial year in exploring Cooper’s which fears they could dampen rising domestic demand, with Jamiesonunconventional potential. development of the country’s fledgling noting that around 80% of gas from the It has already booked 2 tcf (56.64 CBM industry. It is under this scenario Queensland CBM projects is linked tobillion cubic metres) of contingent that Beach finds itself well placed to the offshore LNG market even asresources from the PEL218 acreage, in capitalise on the CBM industry’s demand on Australia’s eastern seaboardwhich it holds a 90% stake and Adelaide difficulties. grows.Energy holds the remaining 10%. Beach “We see ourselves as possibly being anis in the final stages of a takeover of CBM woes integral part of future gas supply both forAdelaide Energy, in which it currently Speaking to AsianOil recently, partner LNG and the domestic market driven byholds a stake of around 87.3%. and co-head of King & Spalding’s LNG our Cooper Basin reserves and “After fracture stimulating Holdfast-1 practice, Dan Rogers, noted that the resources,” he said. “The stars arewe had gas flowing at a rate of up to 2 Australian CBM sector had struggled to aligning for us because there’s nowmillion cubic feet [56,640 cubic metres] counter effectively the opposition’s upward pressure on pricing – a lot ofper day [of gas] and we were expecting message. commentators are talking about A$6-9100,000-500,000 cubic feet [2,830- “The [CBM] industry has just not done [US$6.08-9.01] per gigajoule for gas. If14,160 cubic metres],” Jamieson said. a good job of responding; either through prices reach that point it makes all putting industry-based facts into projects more viable from a commercialAll hail shale circulation or pushing people within the standpoint.”The size of the resources, if the government to hire independent scientists Beach’s gas resources couldcompany’s efforts in 2012 prove fruitful, to rebut the misinformation being used completely transform the company’swill likely transform it into a major gas by opposition groups,” he said. fortunes, potentially turning it into asupplier. It is a sentiment Jamieson echoed, major supplier to both the domestic and “If we can prove that the saying: “There’s a lot of misinformation international gas markets." Copyright © 2011 NewsBase Ltd. Edited by Ian GM Simm All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
  7. 7. NRG November 2011, Issue 20 page 7 AsianOil Despite its enthusiasm for shale, some time to come.” shale gas deposits.however, the company is not prepared to Aside from the Cooper shale, the Jamieson described the company’sput all of its “eggs into one basket.” company has a range of shale gas global footprint as “areas which don’t According to Jamieson, while the interests across Australia, in the cost a lot and don’t take a lot ofCooper Basin’s unconventional reserves Bonaparte, Otway and Gippsland Basins, management time,” but add a good dealare set to dominate the company’s focus where it is hoping to enjoy similar of upside for the company.going forward, Beach has also spread its success to that seen in the Cooper Basin.risk. Beach’s international presence, Opportunity knocks meanwhile, also gives the company Beach’s exposure to conventional andDiverse portfolio access to some promising upstream oil unconventional, foreign and domesticThe company will continue to focus on assets. In Egypt, Beach has a spread of energy plays gives the company aconventional gas production from its operations ranging from wildcat balanced portfolio to continue thejoint venture with Santos in the Cooper exploration to near-term production. In development of the Cooper Basin’s shaleBasin, as well as its oil production from Tanzania, it holds a 100% stake in the and basin-centred gas potential.the basin’s Western Flank. Tanganyika South Block, which lies If the recent upsets in the CBM Jamieson described these operations as along the promising East African Rift, industry are any indication, then tappingfantastic cash generators and the “engine sharing characteristics with Lake Albert into coal seam gas could prove to be aroom” of the company and said its shale acreage in Uganda that has seen major oil tricky prospect going forward, openinggas efforts in the Cooper would not discoveries. In the US, the firm’s the door to rich rewards if Beach cancompletely replace conventional operations in North Dakota produce harness the Cooper Basin’s hugeoperations and the company would minimal net production but have paid potential."“remain in conventional oil and gas for dividends in terms of learning to tap ChinaOilChinese shale leads tostalemate with RussiaSino-Russian gas talks have stalled in part because of pricing issues but also becauseBeijing wants to determine the full potential of domestic shale gas reservesBy Sam Wright# The IEA predicts that global gas demand will hit 4.75 tcm by 2035, while China’s will top 500 bcm# Gas supply talks with Russia have been prolonged and far from fruitful# Gazprom has set its sights on supplying Asian LNG demand, but that future is also looking murkyThe International Energy Agency (IEA) rely on the success, or lack thereof, of On the surface, the sticking point issaid recently that it expected global efforts to develop China’s enormous simple. Most of the Russian gas giantnatural gas demand to grow by 1.7% per shale gas reserves. Gazprom’s supply contracts are linked toyear until 2035, when it will reach 4.75 crude oil prices, which have soared ontrillion cubic metres. By this point, it is Talked to death the back of increased demand and unrestestimated that China will be consuming In 2006, Moscow and Beijing entered in the Middle East. For this quarter, somemore than 500 billion cubic metres per discussions over a long-term supply deal. of the company’s European gas contractsyear of gas, up from 110 bcm in 2010. The two sides have been discussing a are being carried out at a price of That prospect should have Russia plan that would see Russia send 68 bcm US$500 per 1,000 cubic metres – aroundrubbing its hands, but all signs seem to per year of gas to China by pipeline over US$100 more than current forwardindicate that country’s gas empire may a period of 30 years. For five years, prices."be losing its grip. Indeed, much of however, the talks have made littleRussia’s future in the Asian market could progress. Copyright © 2011 NewsBase Ltd. Edited by Ian GM Simm All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
  8. 8. NRG November 2011, Issue 20 page 8 ChinaOil Despite protests from its customers,the company has refused to budge.“Gazprom should not cover the mistakesin marketing and trading of ourcounterparties,” has been theunambiguous official line. Unsurprisingly, Gazprom’s stance hasprovoked rebellion. Poland, which has afamously turbulent relationship with itsneighbour and chief gas supplier, hasfiled an arbitration suit in a bid to forcethe company to cut prices under itsimport contract. There are whispers thatothers may follow. Wisely, China has outright rejectedGazprom’s insistence on using the oil-linked mechanism. In the face of theseobjections, the Russian firm, despite a vastly more than the 2.8 tcm of Yet despite this seemingly strongstring of comments to the contrary, has conventional gas reserves that BP’s position, Beijing has been reluctant toyet to suggest a viable alternative. Statistical Review of World Energy dismiss the Russian pipeline project out estimates the country had at the end of of hand. Just two weeks ago, ChineseFacing the figures 2010. Vice Foreign Minister Cheng GuopingIt is unlikely that this is for a lack of The US trails significantly behind described the negotiations as “in theireffort. After all, Gazprom is in a near China with 24 tcm of shale gas. final stages,” adding that they wereimpossible position. However, it has seen its energy market proceeding well. Recently, the state-owned China Daily, transformed in recent years as a result ofwhich is widely regarded as a unconventional development projects, Building the futuremouthpiece for the central government with gas output soaring and investment Part of this may be down to theon policy issues, speculated that even if piling in. challenges that China faces in bringingthe price of gas was set at US$350 per As China’s leaders view it, domestic its shale gas to market. The first –1,000 cubic metres, the deal with Russia shale gas could be enough to protect the unsurprisingly, given the country’s vastwould cost the country US$714 billion country from Russia’s penchant for using scale – is infrastructure.over 30 years. its pipelines as a political tool. This In the US, a large number of shale “If you use [this] as a guide [to] the practice has in the past led Gazprom to plays were discovered near conventionallong-term agreed purchase price that cut supplies to both Ukraine and Belarus. gas fields, providing a ready-madeChina gets in the current international “If the strategic goal is energy security pipeline network that drastically cut costsliquefied natural gas (LNG) market and and you’re now 55% dependent on and sped up development. China’sthe cost of China’s unconventional foreign crude, that undermines the goal reserves, on the other hand, are located innatural gas exploration, buying gas from of domestic energy security,” Eurasia areas ranging from Sichuan Province toRussia even at just US$250 per 1,000 Group analyst Damien Ma told the New Inner Mongolia and the Xinjiangcubic metres makes no sense,” it added. York Times. “A lot of companies want to autonomous region, none of which have“If Russia gives China a lower price, do more gas.” the level of established infrastructurehow can it face consumers in Europe?” Unluckily for Russia, the proposed needed to facilitate the rapid It is a fair point, and one that seems to alternative of LNG could well fall by the development of shale gas reserves.have hit home. On November 13, wayside, too. Earlier this year, For a country of China’s vastGazprom chief Alexei Miller, seemed to consultants McKinsey and Company resources, this might not usually be aacknowledge that the deal had finally hit warned Australian firms – a major source problem. Huge development projectsa dead end. Instead of the pipeline, he of LNG shipments to Asia – that local have come to be the norm, made fastersaid during a visit to Honolulu, LNG projects worth US$200 billion could be by cheap labour and the smoothing ofshipments are to be the new focus. at risk if shale gas production in China regulations by state-owned firms. took off as it has in the US. In total, it Yet shale gas is different from a high-An unconventional future said, domestic shale production could speed rail or bridge-building project. TheChina is estimated to have 36 tcm of provide as much as a quarter of the country’s level of expertise in hydraulicshale gas, which would give it the country’s total gas demand within four fracturing, or fracking, is well below thatworld’s largest reserves. This is also years. of the US." Copyright © 2011 NewsBase Ltd. Edited by Ian GM Simm All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
  9. 9. NRG November 2011, Issue 20 page 9 ChinaOil In March, PetroChina, which operates prices reach US$350 per 1,000 cubic simply too long, and the expected 30-the majority of domestic shale licences, metres. The company’s focus, for the year contract unrealistic. China, withcompleted its first horizontal shale gas time being at least, is thought to firmly nothing to lose, appears to be holding outwell after 11 months of drilling. Outside be on finding more conventional oil. to see what it can get. A ridiculously lowChina, this has been achieved in less than offer from Russia – say, US$250 per20 days. Looking forward 1,000 cubic metres – may be tempting, This comparison may be slightly Oil and coal still reign supreme in China. but is extremely unlikely.unfair. The well, drilled in Sichuan, was Natural gas currently accounts for just Instead, the next decade could mark amuch deeper than those typically found 4% of energy demand, and while the reversal in Russia’s fortunes. Alongsidein the US. Joint ventures, both domestic government is aiming to increase this to China’s plays, huge reserves could beginand foreign, are likely to provide know- 10-12% by 2020, it is a long way from a production in Poland and France, whilehow and technology that can reduce complete transformation of the country’s exploration is rife in other key Gazpromdrilling times drastically in the future. A energy mix. markets such as Ukraine. Poland innumber of major names are already on Despite this, China still needs to particular has repeatedly said that shaleboard, including ExxonMobil and US import large quantities of gas in the short will free it from Russian influence, anshale giant Chesapeake Energy. term. But the short term is precisely that. idea that has been seized on by the Polish Meanwhile, much responsibility rests Most estimates place the time needed for public.with PetroChina. Yet the company seems China to begin producing from its shale On November 13, the ever-optimisticstrangely divided. reserves at 10 years, despite all the Russian president, Dmitry Medvedev, On one hand, it has pledged to drill technical challenges. Once the ball is told journalists that his country expected220 shale wells in Sichuan over the next rolling, the timeline may well be much to supply as much gas to China in thefour years. On the other, it has quicker. future as it currently supplies to Europe.complained that domestic gas prices are China may be coy on the subject, but He could well be right, but there is atoo low and that it will only push forward for this reason the Russian pipeline looks good chance that delivery volumes maywith unconventional gas exploration if dead in the water. The turnaround is be nothing to brag about." EnergoPot calling the kettle black?Belarusian criticism of Lithuania’s Visaginas NPP mirrors almost exactly the concernsvoiced by Vilnius over plans for the Astravets plantBy Jennifer Delay# Minsk’s complaints appear to be largely political in nature# EU support for the Lithuanian project is likely to remain strong# If Belarus steps up its campaign, work on the Visaginas station may face more delaysThe Belarusian government has environmental impact assessment (EIA) has voiced similar complaints.expressed serious reservations about for the Visaginas project, despite A ministry representative told Itar-TassLithuania’s plans for building a 3,400- Belarus’ efforts to respond fully and in mid-October that he believedMW nuclear power plant (NPP) at transparently to questions about its own Lithuania’s critical remarks about theVisaginas to replace the Soviet-built EIA for a planned 2,400-MW NPP near Astravets project were motivated moreIgnalina facility. Astravets. by politics than by substantive concerns Mikhail Mikhadyuk, the deputy energy “Lithuania still has not given answers about safety and security.minister of Belarus, said to reporters in to Belarus about results of the He complained that Lithuania’s effortsthe middle of October that Vilnius had environmental impact assessment of its to drum up support for its project in thethus far failed to address Minsk’s future NPP,” Mikhadyuk was quoted as European Union and to highlightconcerns about the projects. saying by the Itar-Tass news agency. concerns about the Belarusian scheme He claimed that Lithuania had not An official in the Belarusian Ministry were evidence of “double standards.”"answered questions about the of Nature and Environmental Protection Copyright © 2011 NewsBase Ltd. Edited by Ian GM Simm All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
  10. 10. NRG November 2011, Issue 20 page 10 Energo The official, who was not named, said Lithuanian government’s main foreign Indeed, European energythat Vilnius’ hypocrisy was evident in its policy concerns is to safeguard the commissioner Guenther Oettingerexpressions of concern about the country’s independence against the offered words of support for theAstravets plant’s proximity to the border. possibility of Russian recidivism, and Visaginas NPP at a recent energy“Lithuania protests against the site [in the Belarus has on occasion acted zealously conference in Krakow.Astravets district], which is only 30 km to promote the interests of Russia, which After receiving information onfrom the Belarusian-Lithuanian border. has often (though not always) served as Vilnius’ plan for the construction of theHowever, Vilnius plans to build its NPP its main patron. Visaginas NPP from Lithuanian Energyat the distance of 2.3 km from the border The Kremlin, in turn, has its own Minister Arvydas Sekmokas, Oettingerwith Belarus and believes that it’s OK,” reasons for keeping a close eye on the congratulated Lithuania and the threeItar-Tass quoted him as saying. Baltic States. On one hand, Estonia, neighbouring states that had signed on to Latvia and Lithuania are home to the project – Estonia, Latvia and Poland.Mirror image substantial minority populations of ethnic The partners have “[achieved] aNot surprisingly, the complaints aired by Russians. On the other hand, they also significant milestone in the projectMikhadyuk and the unnamed ministry have turned decisively away from implementation and selection of aofficial mirror almost exactly concerns Moscow, having gained membership in strategic investor,” he said, according tovoiced earlier by Lithuanian officials. both the North Atlantic Treaty a statement issued by the Ministry of As noted above, Lithuania was the first Organisation (NATO) and the European express anxiety about the Belarusian Union, and they have generally been cool Now that the plan has been submittedplant’s proximity to the border between to suggestions for expanding co- to Oettinger according to Article 41 ofthe two states. operation with Russia. the European Atomic Energy Officials in Vilnius have also gone on Lithuania was the first to express Community (Euratom) treaty, Lithuaniarecord as saying that Minsk has been anxiety about the Belarusian plant’s is in a position to begin co-ordinatingslow to answer their questions about the proximity to the border between the two implementation of the project with EUEIA for the Astravets plant – and that states institutions, the ministry added.their own efforts have been designed to The EU, meanwhile, also has political Even so, it may take time for Vilnius toensure full disclosure and transparency. interests at stake. It is bound to be more respond to the Belarusian complaints, Moreover, they have speculated about sympathetic to Lithuania, as a member particularly if they gain in intensity. If so,the political component of Belarus’ state, than to Belarus, which is the target it runs the risk of seeing work on thedecision to build the NPP in co-operation of sanctions imposed by Brussels. Visaginas station fall behind schedule yetwith Russia. Atomstroyexport, a Its regulations also call for Lithuania to again. Lithuania had said initially that itsubsidiary of Russia’s state atomic cut its carbon emissions and to reduce its hoped to bring the NPP on line in 2015energy concern Rosatom, has been reliance on fossil fuels, and the Visaginas but pushed its target date back to 2020awarded a contract for the construction project is in line with these aims. after encountering difficulties in findingof the Belarusian station. This raises the question of whether funding and a strategic investor. these political considerations will have Rokas Zilinskas, the chairman of thePolitics any practical impact on the Visaginas Lithuanian parliament’s nuclear energyMinsk’s decision to follow virtually the project. commission, alleged in late 2010 thatsame line of argument against the Russian interference been a factor inVisaginas NPP that Vilnius has already Support from Brussels these delays.employed against the Astravets station In all likelihood, they will not affect the He claimed that pressure from Moscowindicates that the Belarusian position is level of EU support for the project. had led South Korea’s KEPCO tobeing driven more by politics withdraw from the first tender forthan by substantive concerns. the Visaginas constructionIndeed, given the symmetry contract, even though it wasbetween other points, the viewed as the most likely winnerunnamed ministry official’s of the contest. Japan’s Hitachimention of Vilnius’ political won the second tender earlier thisconsiderations is probably year."evidence of this. That politics would be a Location of Lithuania’sfactor is hardly surprising. Visaginas NPPAfter all, one of the Copyright © 2011 NewsBase Ltd. Edited by Ian GM Simm All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
  11. 11. NRG November 2011, Issue 20 page 11 EurOilItaly’s energy future uncertainunder new leadershipA shift in focus could come with the exit of Silvio Berlusconi and the arrival of a newgovernment but right now a great deal of uncertainty surrounds Italy’s energy futureBy Christopher Coats# Events over the past 18 months have left Italy with a variety of energy challenges at home and abroad# The dynamics of Italy’s foreign relations stand to change in the absence of Berlusconi# Italy is looking to expand its energy presence in North Africa and elsewhere overseasFollowing weeks of political upheaval saw its long-standing government from EU and local political leaders. Afterand roller-coaster market instability, Italy collapse as pro-democracy movements being set aside until political pressurenow finds itself with new national led to an armed conflict lasting months, had subsided, the campaign has now lostleadership. With it comes the promise of resulting in a complete halt in its strongest proponent in Berlusconi,a technical approach to governance and production. causing further uncertainty about athe introduction of new financial Despite international pressure, Italy nuclear future in Italy.measures aimed at calming global had spent the last decade cultivatingworries about the country’s ability to trade and diplomatic relations with Foreign relationsdeal with its overwhelming debt. Libya’s former leader, Muammar These events have left Italy and the The exit of controversial Prime Ghadaffi, through heavy investment in country’s largest energy firmsMinister Silvio Berslusconi and the aid and development, establishing Libya increasingly isolated when it comes toappointment of Mario Monti to lead the as one of its three main providers of oil their immediate opportunities not onlygovernment to implement a host of new and natural gas alongside Algeria and for growth but also for the country’sregulations promoted by the European Russia. The armed conflict saw Italy’s immediate oil and gas needs. ThisUnion (EU) and the International energy imports under threat, as situation may be further exacerbated byMonetary Fund (IMF) were welcomed by companies such as Eni were forced to the absence of Bersluconi, whopolitical and market leaders across the remove expatriate staff from the North demonstrated a willingness to seek outglobe. But it is far from clear how this African country. energy partnerships beyond andnew technocratic leadership will work in Meanwhile at home, Italy has seen two sometimes against wider regionalpractice, including how it will shape domestic efforts to step up energy sentiment.Italy’s precarious energy standing. independence curtailed by local protest This approach – leading to close Although the news of Bersluconi’s exit movements. Offshore drilling projects working and diplomatic relationshipswas enough to drive up oil and gas prices were restricted after the Deepwater with Ghadaffi and Russia’s Primeacross the globe – further allowing local Horizon spill in the Gulf of Mexico Minister Vladimir Putin, will not likelycompanies such as Eni the spike in inspired calls for new project rules in the be continued under the stewardship ofprofits necessary to weather current Mediterranean, leading to a ban on Monti, a much stronger proponent of EUchallenges – it is far less clear how his efforts within 5 nautical miles (9.3 km) market integration and member statedeparture will affect the country’s of the Italian coastline. While the new partnerships. Having announced hisbroader energy future. regulations have mostly hindered smaller campaign to return to Russia’s highest operators, such as Mediterranean Oil and office, Putin echoed this sentiment in aChallenges Gas, new proposals from the EU on speech last week where he derided EUThe last 18 months have left Italy with a offshore drilling could have a further energy policies while praising thecollection of energy challenges, impact on projects in the region. Finally, outgoing Berlusconi as a friend and “oneincluding issues pertaining to its the government’s push to revive Italy’s of the last of the Mohicans of Europeandomestic operations and production as long-dormant nuclear power programme politics”, according to the Wall Streetwell as overseas exploration and after the events surrounding the tsunami Journal."production. The country’s most in Japan this year and its impact onprominent energy trading partner, Libya, nuclear plants sparked a wave of protest Copyright © 2011 NewsBase Ltd. Edited by Ian GM Simm All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
  12. 12. NRG November 2011, Issue 20 page 12 EurOil Although Putin is favoured to return to have slowed a return to pre-conflict willing or able to pursue such costlyoffice, the change in leadership in Libya production levels. infrastructure projects in the comingmay offer Italy some relief, as Eni has Elsewhere in North Africa, Italy has year.returned to production efforts in the sought more exposure to the region’s For now, the country’s energy futurecountry after embracing the Libyan energy potential, recently moving remains vague, with little allotted forTransitional National Government forward on a long-delayed pipeline traditional or novel approaches to(TNG) despite earlier reservations. Eni project linking Algeria, one of its largest meeting domestic energy needs orhas revived production efforts in Libya, energy providers, with the island of expanding its hydrocarbon presenceincluding its work in the Elephant field Sicily. abroad.south of Tripoli, but levels remain The move would increase imports into Having announced that it has little tomodest. Fully supported by the EU, the Italy, as well as side-step potentially contribute to Europe’s expanding shaleTNG will provide a greater opportunity unstable transport systems in the extraction marketplace and that it hasfor Italy to expand its presence in North transitional political environments of done little to build a government supportAfrica in the months ahead, though Tunisia and Libya. However, faced with system for renewables, the country againinfrastructure deficiencies and lingering likely spending cuts and a significant is looking to its traditional providers forworries concerning regional stability tightening of the belt, Italy may not be an energy answer." FSU OGMBotas, SOCAR plan gaspipeline across TurkeyThe unveiling of a new scheme to move Shah Deniz Stage 2 production to Europe appearsto have made a situation that was already complicated even more soBy Charles Coe# SOCAR is already considering delivery proposals from Nabucco, ITGI and TAP# However, it appears to have doubts about all three pipelines# The proposed link across Turkey could feed gas into BP’s proposed South-East Europe pipelineElshad Nasirov, the vice president of the bcm per year Nabucco gas pipeline, the mooted the SEEP pipeline plan becauseState Oil Company of Azerbaijan 10 bcm per year Interconnector-Turkey- it views the Nabucco, ITGI and TAP(SOCAR), stated last week that his firm Greece-Italy (ITGI) pipeline or the 10-20 consortia as unreliable partners for awould team up with Botas, Turkey’s state bcm per year Trans Adriatic Pipeline variety of reasons. The plan cannotpipeline operator, to form a consortium (TAP). succeed, though, without build a new pipeline to pump As such, the move by SOCAR andAzerbaijani natural gas across Turkey to Complications Botas is seen as a necessary preliminary,Europe. Nasirov’s announcement appears to have in that it is designed to establish The pipeline is to have a capacity of no made a situation that was already infrastructure that can reliably move 10less than 16 billion cubic metres per year, complicated even more so. bcm per year of gas through Turkey.Nasirov said. That is the volume of gas This is partly because it follows a This cannot be done with Turkey’sthat Shah Deniz Stage 2 (SD2) is move by BP, the operator of the Shah existing gas pipeline network, which isexpected to produce when it comes on Deniz field, to unveil a proposal for considered to be too disjointed to providestream in 2017. putting a consortium together to carry 10 a clear transit route across the country. Some 6 bcm per year of the total has bcm per year of SD2 gas from Turkey’s It is not clear whether BP willalready been promised to Turkey, while western border into Central Europe. BP participate in the construction of this newthe remaining 10 bcm per year will be calls its plan the South-East Europe pipeline across Turkey."contracted to shippers using one of Pipeline (SEEP).several proposed pipeline projects: the 31 The multinational is believed to have Copyright © 2011 NewsBase Ltd. Edited by Ian GM Simm All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents