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Friday, 5 August 2011

Blackstone Gets Financing for $1.7 Billion Offshore Wind Farm

Aug. 5 (Bloomberg) -- Blackstone Group LP, the biggest private-equity firm, secured financing for a 1.2 billion-euro ($1.7 billion) wind farm in the German North Sea as the nation abandons nuclear power in favor of renewable energy.
The 288-megawatt Meerwind project southwest of Helgoland will be Germany's largest offshore wind-energy plant, Blackstone Managing Director Sean Klimczak said today in a briefing in Berlin. The New York-based company also bought a license for a second offshore wind project expected to cost 1.3 billion euros and said it may buy more permits.
The 822 million-euro funding was granted by a group of seven commercial banks and two state-owned lenders, according to Peter Giller, board member at WindMW GmbH, the German developer majority-owned by Blackstone-controlled funds that secured the financing.
Germany's government is pushing development of sea-based electricity plants to make up for lost capacity as the country plans to shut down its atomic reactors by 2022, which last year comprised 23 percent of the nation's installed generation base.
Chancellor Angela Merkel's government has raised subsidies for offshore wind farms as part of a plan to install 10,000 megawatts of sea-based turbines by the end of this decade, up from about 210 megawatts now.
Germany's largest offshore wind farm that's already operating is the 60-megawatt Alpha Ventus project, according to Bloomberg New Energy Finance.
For the Meerwind project, the banks include Germany's Commerzbank AG, Banco Santander SA of Spain, and Lloyds Banking Group Plc together with Denmark's export credit agency EKF and German development bank KfW, Giller said. KfW and EKF are each providing 245 million euros.
Construction will start Sept. 1, 2012, and is due to be completed in 2013, Giller said.

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Why can't we grow new energy? Juan Enriquez on

Biologist and futurist Juan Enriquez talks about the potential of bioenergy. Our current energy sources — coal, oil, gas — are ultimately derived from ancient plants — they’re “concentrated sunlight.” He asks, Can we learn from that process and accelerate it? Can we get to the point where we grow our own energy as efficiently as we grow wheat? (Less than a month after this talk, his company announced a process to do just that.) (Recorded September 2007 in New York City. Duration: 18:16.)

What is bioenergy? Bioenergy is not ethanol. Bioenergy isn’t global warming. Bioenergy is something which seems counterintuitive. Bioenergy is oil. It’s gas. It’s coal. And part of building that bridge to the future, to the point where we can actually seed the oceans in a rational way, or put up these geo-spatial orbits that will twirl or do microwaves or stuff, is going to depend on how we understand bioenergy and manage it. And to do that you really have to look first at agriculture.
(photo of rock wall with petroglyphs-”Rock 39 Uluru, Lyndi and Jayson Flickr)
So we’ve been planting stuff for 11,000 years. And in the measure that we plant stuff, what we learn from agriculture is you’ve got to deal with pests, you’ve got to deal with all types of awful things-
(close up of insect heiroglyph-”Dr. Pat Hieroglyph Detail Flickr”)
you’ve got to cultivate stuff. In the measure that you learn how to use water to cultivate, then you’re going to be able to spread beyond the Nile. You’re gonna be able to power stuff, so irrigation makes a difference-
(close up of engraving of irrigation system- “Peerless Vineyard, CA, David Ramsey Collection / T Thompson 1892″)
irrigation starts to make you be allowed to plant stuff where you want it, as opposed to where the rivers flood. You start getting this organic agriculture, you start putting machinery onto this stuff-
(photo of tractor in a field- “Tractor in Howth Cullon on Flickr”)
machinery, with a whole bunch of water, leads to very large scale agriculture.
You put together machines and water, and you get landscapes that look like this.
(ariel photo of circular irrigated patches in prairie- “Djof Kansas Agriculture Flickr”)
(photo of tractor dealership lot)
And then you get sales that look like this. It’s brute force. So what you’ve been doing in agriculture is you start out with something that’s a reasonably natural system, you start taming that natural system, you put a lot of force behind that natural system, you put a whole bunch of pesticides and herbicides-
(photo of billboard-”You think YOUR job involves a lot of bullshit? North American Fertilizer Association”)
(laughter) -behind that natural system, and you end up with systems that look like this.
(photo of silos)
And it’s all brute force. And that’s the way we’ve been approaching energy.
So the lesson in agriculture is that you can actually change the system that’s based on brute force as you start merging that system and learning that system and actually applying biology. And you move from a discipline of engineering, you move from a discipline of chemistry, into a discipline of biology. And probably one of the most important human beings on the planet is this guy behind me.
(photo of Norman M Borlaug)
This is a guy called Norman M. Borlaug, he won the Nobel Prize, he’s got the Congressional Medal of Honor- he deserves all of this stuff. And he deserves this stuff because he probably has fed more people than any other human being alive, because he researched how to put biology behind seeds. He did this in Mexico. The reason why India and China no longer have these massive famines is because Norman Borlaug taught them how to grow grains in a more efficient way and launched the Green Revolution. That is something that a lot of people have criticized, but of course those are people who don’t realize that China and India, instead of having huge amounts of starving people, are exporting grains.
And the irony of this particular system is the place where he did the research, which was Mexico, didn’t adopt this technology, ignored this technology, talked about why this technology should be thought about but not really applied, and Mexico remains one of the largest grain importers on the planet, because it doesn’t apply technology that was discovered in Mexico, and in fact hasn’t recognized this man, to the point where there aren’t statues of this man all over Mexico. There are in China and India. And the institute that this guy ran has now moved to India. That is the difference between adopting technologies and discussing technologies.
Now it’s not just that this guy fed a huge amount of people in the world. It’s that this is the net effect in terms of what technology does, if you understand biology.
(chart- “A Century of Corn Yields”, plotting on a timeline rising numbers of bushels/ acre, noting changes in methods- “Recognizable to BC Farmer”-”Mechanical”-”Biological”)
What happened in agriculture? Well, if you take agriculture over a century, agriculture in about 1900 would have been recognizable to somebody planting 1,000 years earlier. Yeah, the plows look different. The machines were tractors or stuff instead of mules, but the farmer would have understood, this is what the guy’s doing, this is why he’s doing it, this is where he’s going. What really started to change in agriculture is when you started moving from this brute force engineering and chemistry into biology. And that’s where you get your productivity increases. And as you do that stuff, here’s what happens to productivity.
“9000 BC- Ag starts
1830 250 hours= 100 bushels wheat
1890 40 hrs.
1930 15 hrs.
1960 5 hrs.
1990s IT plus biotech
1950-2000 Ag labor productivity ^7x
-Non farm ^ 2.5x”)
Basically you go from 250 hours to produce 100 bushels, to 40, to 15, to 5. Agricultural labor productivity increased seven times, 1950 to 2000, whereas the rest of the economy increased about 2.5 times. This is an absolutely massive increase in how much is produced per person.
The effect of this, of course, is it’s not just amber waves of grain,
(photo- big pile of grain- “Mountains of Grain, BugMan50 Flickr”)
it is mountains of stuff. And 50 % of the EU budget is going to subsidize agriculture from mountains of stuff that people have overproduced.
This would be a good outcome for energy. And of course, by now, you’re probably saying to yourself- “self, I thought I came to a talk about energy- and here’s this guy talking about biology.” So where’s the link between these two things?
(photo- “Oil Spill YourLocalDave Flickr”- picture of oil spill by a highway)
One of the ironies of this whole system is we’re discussing what to do about a system we don’t understand. We don’t even know what oil is. We don’t know where oil comes from. I mean, literally, it’s still a source of debate- what this black river of stuff is, and where it comes from. The best assumption, and one of the best guesses in this stuff, is that this stuff (points to oil photo) comes out of this stuff. (cut to picture of trees) That these things absorb sunlight, rot under pressure for millions of years, and you get these black rivers. (cut back to oil spill photo)
Now the interesting thing about that thesis, if that thesis turns out to be true, is that oil, and all hydrocarbons, turned out to be concentrated sunlight. And if you think of bioenergy, bioenergy isn’t ethanol, bioenergy is taking the sun-
(photo of sun in the sky)
-concentrating it in amoebas, concentrating it in plants, and maybe that’s why you get these rainbows.
(photo of oil droplets refracting light in rainbow colors- cut to slide saying, in big letters, “Hydrocarbons Are Concentrated Sunlight”)
And as you’re looking at this system, if hydrocarbons are concentrated sunlight, then bioenergy works in a different way. And we’ve got to start thinking of oil and other hydrocarbons as part of these solar panels.
Maybe that’s one of the reasons why that if you fly over West Texas,
(ariel photo of TX oilfields- “West Texas Oil Fields, Odessa Tx, Telethon”)
the types of wells that you’re beginning to see don’t look unlike those pictures of Kansas, and those irrigated plots.
(cut back to aerial view of Kansas irrigation, then back to oilfields)
This is how you farm oil. And as you think of farming oil, and how oil has evolved, we started with this brute force approach. And then what did we learn? Then we learned we had to go bigger.
(photo of oil derrick being constructed in open water)
And then what’d we learn? Then we have to go even bigger.
(photo of tar sand mine in Alberta, Canada)
And we are getting really destructive as we’re going out and farming this bioenergy. These are the Athabasca tar sands, and there’s an enormous amount- first of mining, the largest trucks in the world are working here- and then you’ve got to pull out this black sludge which is basically oil that doesn’t flow, it’s tied to the sand- and then you’ve got to use a lot of steam to separate it, which only works at today’s oil prices.
(photo of coal seam in rock)
Coal. Coal turns out to be virtually the same stuff. It is probably plants, except that these have been burned and crushed under pressure.
(photo of stream running through a forest)
So you take something like this, you burn it, you put it under pressure, and likely as not, you get this, (cut back to coal photo) although again, I stress we don’t know. Which is curious as we debate all this stuff. But as you think of coal,
(photo of burned wheat kernels)
this is what burned wheat kernels look like. Not entirely unlike coal.
(photo of entry to coal mine)
And of course, coal mines are very dangerous places, because in some of these coal mines, you get gas. When that gas blows up, people die. So you’re producing a biogas out of coal, in some mines, but not in others.
Any place you see a differential, there’re some interesting questions. There’s some questions as to what you should be doing with this stuff. But again, coal. Maybe the same stuff, maybe the same system, maybe bioenergy, and you’re applying exactly the same technology.
Here’s your brute force approach. (photo of coal mine in background) Once you get through your brute force approach, then you just rip off whole mountaintops-
(photo of strip mine followed by photo of power plant)
And you end up with the single largest source of carbon emissions, which are coal-fired gas plants. That is probably not the best use of bioenergy.
As you think of what are the alternatives to this system,
(map of US w/ certain areas in the midwest and east of the rockies highlighted- “Coal Reserves in the United States”, showing where various types of reserves are found)
it’s important to find alternatives, because it turns out that the US is dwindling in its petroleum reserves, but it is not dwindling in its coal reserves. Nor is China. There are huge coal reserves that are sitting out there, and we’ve got to start thinking of them as biological energy, because if we keep treating them as chemical energy, or engineering energy, we’re gonna be in deep doo-doo.
Gas is a similar issue. Gas is also a biological product. And as you think of gas, well, you’re familiar with gas. (cover of kids’ book- “What Stinks?”) And here’s a different way of mining coal.
(photo of coal mining setup)
This is called coal bed methane. Why is this picture interesting? Because if coal turns out to be concentrated plant life, the reason why you may get a differential in gas output between one mine and another- the reason why one mine may blow up and another one may not blow up- may be because there’s stuff eating that stuff, and producing gas.
This is a well-known phenomenon. (photo of a can of baked beans) (laughter) You eat certain things, you produce a lot of gas. It may turn out that biological processes in coal mines have the same process. If that is true, then one of the ways of getting the energy out of coal may not be to rip whole mountaintops off, and it may not be to burn coal- it may be to have stuff process that coal in a biological fashion as you did in agriculture.
That is what bioenergy is. It is not ethanol, it is not subsidies to a few companies, it is not importing corn into Iowa because you’ve built so many of these ethanol plants, it is beginning to understand the transition that occurred in agriculture from brute force into biological force. And in the measure that you can do that, you can clean some stuff, and you can clean it pretty quickly.
“Kern River Field (1899) 10 k bbl day > Steam > 85 k
Duri, Indo. (1945) 65 k bbl day > Steam > 200 k
Means, Tx Will inject CO 2
Bottom line? 3.3 Tr bbl conventional > 4.8 Tr (CERA)
Bio Materials?
Jad Mouawad NYT March 5, 2007
Oil Innovations Pump New Life Into Old Wells”)
We already have some indicators of productivity on this stuff. OK, if you put steam into coal fields, or petroleum fields, that have been running for decades, you can get a really substantial increase like an eight-fold increase in your output. This is just the beginning stages of this stuff.
And as you think of biomaterials, this guy, who did part of the sequencing of the human genome,
(photo of Craig Venter)
who just doubled the databases of genes and proteins known on earth by sailing around the world, has been thinking about how you structure this. And there’s a series of smart people thinking about this. And they’ve been putting together companies like Synthetic Genomics, like Ambria, like Codon, and what those companies are trying to do is to think of how do you apply biological principles to avoid brute force?
(“The Cell is the Hardware- Genes are the Software”
drawing of DNA)
Think of it in the following terms. Think of it as beginning to program stuff for specific purposes. Think of the cell as a hardware, think of the genes as a software. And in the measure that you begin to think of life as code that is interchangeable, that can become energy, that can become food, that can become fiber, that can become human beings, that can become a whole series of things- Then you’ve got to shift your approach as to how you’re going to structure and deal and think about energy in a very different way.
What are the first principles of this stuff and where are we heading? This is one of the gentle giants on the planet.
(photo of Hamilton Smith)
He’s one of the nicest human beings you’ve ever met. His name’s Hamilton Smith. He won the Nobel for figuring out how to cut genes- something called restriction enzymes. He was at Hopkins when he did this, and he’s such a modest guy that the day he won his mother called him- and said “I didn’t realize there was another Ham Smith at Hopkins, do you know he just won the Nobel?!” (laughter) I mean, that was mom. But anyway. This guy is just a class act. You find him at the bench every single day, working on a pipette, and building stuff. And one of the things this guy just built are these things.
(photo of two microscopic structures)
What is this? This is the first transplant of naked DNA, where you take an entire DNA operating system out of one cell, insert it into a different cell, and have that cell boot up as a separate species. That’s one month old. You will see stuff in the next month that will be just as important as this stuff.
And as you think about this stuff and what the implications of this are, we’re going to start not just converting ethanol from corn with very high subsidies. We’re going to start thinking about biology entering energy. It is very expensive to process this stuff, both in economic terms, and in energy terms.
(photo of giant yellow blocks)
This is what accumulates in the tar sands of Alberta. These are sulfur blocks. ‘Cause as you separate that petroleum from the sand, and use an enormous amount of energy inside that vapor- steam to separate this stuff- you also have to separate the sulfur. The difference between light crude and heavy crude- well, it’s about 14 bucks a barrel. That’s why you’re building these pyramids of sulfur blocks. And by the way, the scale on these things is pretty large.
(photo of semi truck parked on a vast pile of sulfur blocks)
Now if you can take part of the energy content out of doing this, you reduce the system, and you really do start applying biological principles to energy. This has to be a bridge to the point where you can get to wind-
(photo of wind farm)
to the point where you can get to solar-
(photo of solar panels)
to the point where you can get to nuclear-
(photo of nuclear plant)
-and hopefully you won’t build the next nuclear plant on a beautiful seashore next to an earthquake fault. (laughter) Just a thought.
But in the meantime, for the next decade at least, the name of the game is hydrocarbons. And be that oil, be that gas, be that coal, this is what we’re dealing with. And before I make this talk too long, here’s what’s happening in the current energy system.
(chart-”Efficiency… 86% current energy game” shows mix of current energy, “Conservation,” “Alternative”)
86% of the energy we consume are hydrocarbons. That means 86% of the stuff we’re consuming are probably processed plants and amoebas and the rest of the stuff. And there’s a role in here for conservation, there’s a role in here for alternative stuff, but we’ve also got to get that other portion right.
How we deal with that other portion is our bridge to the future. And as we think of this bridge to the future, one of the things you should ponder is we are leaving about 2/3 of the oil today inside those wells. So we’re spending an enormous amount of money and leaving most of the energy down there. Which of course requires more energy, to go out and get energy, the ratios become idiotic by the time you get to ethanol- it may even be a one to one ratio on the energy input and the energy output. That is a stupid way of managing this system.
Last point, last graph. One of the things that we’ve got to do is to stabilize oil prices. This is what oil prices look like. OK?
(graph of crude oil prices in 2006 dollars showing crazy fluctuations, with markers showing market influencing events)
This is a very bad system, because what happens is your hurdle rate gets set very low. People come up with really smart ideas for solar panels, or for wind, or for something else, and then guess what, the oil price goes through the floor, that company goes out of business, and then you can bring the oil price back up.
So if I had one closing and modest suggestion, let’s set a stable oil price in Europe and the United States. How do you do that? Well, let’s put a tax on oil that is a non-revenue tax, and it basically says for the next twenty years, the price of oil will be- whatever you want, 35 bucks, 40 bucks. If the OPEC price falls below that, we tax it. If the OPEC price goes above that, the tax goes away. What does that do for entrepreneurs? What does it do for companies? It tells people if you can produce energy for less than 35 bucks a barrel, or less than 40 bucks a barrel, or less than 50 bucks a barrel, let’s debate it- you will have a business. But let’s not put people through this cycle where it doesn’t pay to research because your company will go out of business as OPEC drives alternatives and keeps bioenergy from happening. Thank you.

The future of natural gas

Coming soon to a terminal near you

Shale gas should make the world a cleaner, safer place

ALONG the coast of China, six vast liquefied natural gas (LNG) terminals are under construction; by the end of 2015 they should have more than doubled the amount of LNG that the country can import. At the other end of the country, gas is flowing in along a new pipeline from Turkmenistan. In between the two, geologists and engineers are looking at all sorts of new wells that might boost the country’s already fast-growing domestic production. China will consume 260 billion cubic metres (260bcm, which is 9.2 trillion cubic feet) of gas a year by 2015, according to the country’s 12th five-year plan, more than tripling 2008’s 81bcm. The roots of this rapid growth, though, do not lie in China’s centralised planning. They are to be found in a piece of deregulation enacted decades ago on the other side of the world: America’s Natural Gas Policy Act of 1978.
America’s deregulation of its natural-gas market encouraged entrepreneurial energy companies to gamble on new technologies allowing them to extract the gas conventional drilling could not reach. Geologists had long known there was gas trapped in the country’s shale beds. Now the incentives for trying new ways of recovering it were greater, not least because, if it could be recovered, it could be got to market through pipelines newly obliged to offer “open access” to all comers.
Decades of development later, the independent companies which embraced horizontal drilling and the use of high-pressure fluids to crack open the otherwise impermeable shales—a process known as “fracking”—have brought about a revolution. Shale now provides 23% of America’s natural gas, up from 4% in 2005. That upheaval in American gas markets has gone on to change the way gas is traded globally. A lot of LNG export capacity created with American markets in mind—global supply increased 58% over the past five years—is looking for new outlets.
To the extent that the shale-gas success is repeated elsewhere, a vital source of energy will become available from an ever more diverse and numerous set of suppliers in increasingly free markets. This means that, unlike the boom in oil in the decades following the second world war, this growth in gas may not hand a powerful political weapon to those countries with the biggest reserves. Shale gas could significantly diminish the political clout that Russia, Venezuela and Iran once saw as part and parcel of their gas revenues.
“The power of the shale-gas revolution has surprised everyone,” says Christof Rühl, chief economist at BP. In 2003 America’s National Petroleum Council estimated that North America (including Canada and Mexico) might have 1.1 trillion cubic metres (tcm) of recoverable shale gas. This year America’s Advanced Resources International reckoned there might be 50 times as much.
The shale-gas bounty is not confined to America. The country’s Energy Information Administration released a report in April that looked at 48 shale-gas basins in 32 countries (see map). It puts recoverable reserves at 190tcm, and that excludes possible finds in the former Soviet Union and the Middle East, where huge reserves of conventional gas will make investment in shale gas unlikely for years to come. In short order estimates of the Earth’s bounty of recoverable gas have expanded by about 40%. Improving extraction technologies and geological inquisitiveness are sure to raise that figure in the years to come.
Nor is shale gas the only new sort of reserve: “tight gas” in sandstones and coal-bed methane (the sort of gas that used to kill canaries down mines) are also promising. Farther in the future, and more speculatively, there’s the gas frozen into hydrates on the planet’s continental shelves, which might offer more than 1,000tcm if a way can be found to exploit it. The cornucopian belief that human ingenuity will always find ways to increase the availability of resources is not a sure bet (see article). With gas, though, the odds look pretty good for decades to come.
A scenario developed for the International Energy Agency’s forthcoming “World Energy Outlook” offers a sense of what may unfold. Called the “Golden age of gas”, it sees annual world production rising by 1.8tcm between now and 2035, when it reaches 5.1tcm. A fair bit of that is provided by unconventional sources (see chart). The growth is about 50% stronger than in the scenario used as a baseline; trade in gas between the world’s major regions doubles. Coal use declines from the late 2010s onwards, and by 2030 gas has surpassed it, providing a quarter of all the world’s energy.
The development of shale-gas reserves beyond North America is still at an early stage. Although widespread pollution of groundwater by fracking seems unlikely (shales that hold gas typically lie far deeper than groundwater supplies), such risks have raised a great deal of environmental concern about the technology. Coupled with a sensitivity to the rural charms of la France profonde, this has led to a moratorium on shale-gas exploration in France. But in Poland, which may have Europe’s largest reserves, companies are busily sinking test wells to see what is there.
In South Africa, which may have the largest shale-gas reserves on the continent, the shales in the Karoo basin have attracted the attention of Shell, which is increasingly billing itself as a gas-focused company. Shell is also one of the companies looking at shale-gas reserves in China, which may be the largest on the planet. Chinese interest in shale gas is strong, with state companies buying up American expertise as they take stakes in established shale-gas producers. The country might be producing its first shale gas at scale before the current five-year plan is over.
Gas is currently bought and sold in three distinct global markets—North America, Europe and Asia—and prices differ widely between the three. In deregulated North America, with a competitive market and plenty of shale gas to augment conventional supplies, prices are low. In Asia, where gas is largely traded using a system of long-term contracts tied to the price of oil, prices are high. Europe sits in between: prices at the moment are around $4 per million btu in America, $8 in continental Europe and $11 in Asia (1m btu is about 300 kilowatt-hours).
The origins of long-term contracts and oil-linked pricing go back a long way. When gas first began to be used a lot in the 1960s it was a substitute for home heating oil, and so it made sense to tie its price to that of oil. Because big exploration, extraction and infrastructure investments required pots of capital, long-term contracts became an industry norm.
Today oil is generally no substitute for gas. Gas is used not to fill up cars and lorries—though there are gas-fired transport enthusiasts who would like to do something about that—but to fuel power stations and heat homes. Still, many gas producers are happy enough with the archaic pricing structure, particularly when oil prices are high. Customers with limited choices have had to put up with it. According to a recent study from the Massachusetts Institute of Technology, pipelines carry 80% of all gas traded between regions. The firms at the upstream end of those pipelines, such as Russia’s Gazprom, which supplies a quarter of all western Europe’s gas, thus have a strong hand in negotiations. Control of the pipelines meant that when Gazprom turned off the gas (as it did in 2009 in a dispute over trans-shipments through Ukraine), buyers had nowhere to turn for alternatives.
In the past couple of years, though, three factors—LNG from Qatar that was no longer needed in shale-gas-rich America, a little energy-market deregulation by the European Union and a drop in overall demand—have helped to loosen the grip of Gazprom. Power-sector reforms allowed smaller European utilities to compete more vigorously, buying LNG on the spot market at a price sometimes as low as half that of long-term contracts from Russia. Bigger utilities that were losing market share approached Gazprom, not known for sympathetic customer relations, for better terms. The normally intractable Russian company renegotiated contracts with European customers for a three-year “crisis period” to allow up to 15% of gas to be priced on cheaper spot terms. (Norway, also a big supplier to EU countries, had begun to sell gas on contracts that tied an even larger fraction to spot prices.)
Since then the European market has recovered. Prices rose after Libyan gas was cut off as a result of the country’s uprising and a lot of Qatari LNG has found a new destination in Japan, deprived of much of its nuclear power since the disaster at its Fukushima plant.
Unsurprisingly, further attempts to pressure Gazprom into revising its terms have faltered. In February it rebuffed appeals by Germany’s e.ON, one of its most important customers, to link its gas to spot prices. Gazprom’s boss, Alexei Miller, told shareholders at the end of June that oil-indexed long-term gas contracts were here to stay. In private the company is still talking to customers about changing the shape of future contracts, and appears more inclined nowadays to regard European utilities as potential partners rather than spineless adversaries.
Looking reasonable, say cynics, is a ruse to discourage investment in shale reserves and alternative pipelines. If an agreeable-seeming Gazprom, along with increased bullishness about LNG and shale gas, were to dampen European enthusiasm for Nabucco, a long-planned pipeline which might bring 30bcm of gas a year to Europe from the Caspian and the Middle East, that would suit Russia pretty well. But Russia’s new attitude could also spring from a realisation that the world really is changing. A study from the James Baker Institute at Rice University, published in July, reckons that, if shale-gas reserves are fully exploited, Gazprom’s share of the west European market might fall from 27% in 2009 to 13% by 2040.
And Gazprom is finding that China, with which it has been negotiating pipeline deals since 2005, is not interested in the sort of long-term locked contracts that have previously typified Asian markets; indeed it is not even willing to pay European prices. Its immense shale-gas potential might make it even less willing to pay up, inclining it to depend less on pipeline gas and to take the risk that it can smooth out ebbs and flows through spot markets. If the proportion of imported pipeline gas falls, so does the pricing power of conventional suppliers, even if the overall volume they supply goes up.
It’s everywhere
Increasingly, it looks as if today’s significant regional price differences will be arbitraged away, and that gas could become as fungible and as widely traded as oil. LNG’s growth (23% by volume in 2010) shows no sign of slowing. European LNG import capacity has more than doubled since 2000; the costs of building an import terminal have plunged. So far this year twice as many LNG vessels have been ordered from the world’s shipyards as in the whole of 2010. Qatar, which along with Iran and Russia holds the world’s most impressive conventional gas reserves, is adding new liquefaction plants. Other countries are also busily constructing export terminals; while Australia leads the way, Indonesia, Papua New Guinea and others are all set to bring more LNG to the world markets. There’s even work on liquefaction plants in America.
One consequence of a global gas market supplied from widely distributed conventional and unconventional sources is that this diversity will reduce the power of big suppliers to set prices and bully buyers. There has been occasional talk of a “gas OPEC”, most audibly when, just before the end of 2008, a dozen or so gas producers met in Moscow under the chairmanship of Russia’s prime minister, Vladimir Putin. Despite the rattling of sabres on pipelines, though, something analogous to OPEC looks near impossible under current conditions. For one thing, utilities mostly have spare capacity and can thus adjust their fuel mix in a way that car drivers confronted with an oil shortage cannot. What is more, managing the supply of gas month by month, as the oil cartel seeks to do, would be near impossible when most gas continues to be supplied on long-term contracts that are difficult to break.
And the new technologies are widening the production base all the time, weakening the strategic importance of conventional reserves and the power of those who hold them. Before shale gas, it was thought that Venezuela might soon become an important gas source for America, and that Iran’s vast gas reserves would motivate potential customers to break the sanctions imposed on it as a result of its nuclear programme. Both things are now less likely; the Baker Institute study suggests that while both countries will grow in importance—it foresees 26% of the world’s LNG coming from Venezuela, Iran and Nigeria by 2040—they will do so much more slowly than they would have in a world of constrained supplies.
The growth of the gas market will not be untroubled. Large projects will be delayed sometimes, leading to periods of tight supply; there may also be overcapacity at times, as there has been recently. America’s shale-gas success—a matter not just of helpful geology and Yankee ingenuity, but also of various legal and regulatory positions such as those of the 1978 act—may prove hard to replicate in some other countries. Environmental worries could stop shale gas dead in places. But although the pace may slow and the road may have bumps, for the moment the revolution looks set to roll on.