A look at the impact that LNG and unconventional gas could affect the future of the EU gas market.

Nicholas Newman 24 November 2012

In recent years, Europe has experienced a gas glut caused by the US becoming self-sufficient in gas (mainly due to unconventional gas production), which has also caused traditional US suppliers to divert exports to the European Market. However, there have been acts of god, banana skins and black swan events that have affected in recent times the EU gas market. These have included Japan’s massive emergency imports of gas and the Libyan war that halted gas exports to Europe, although Libyan gas exports are beginning to recover.

We are in the midst of on-going changes in the European gas market framework, in part due to European Commission intervention, but also due to the development of alternative gas import sources both domestic and foreign. We have seen the rise in the use of hub pricing, as there has been a decline in the dominance of oil indexed long-term gas contracts and a greater range of contracts made available. The trouble is the market is asking will the new trading environment depress prices or maintain Gazprom’s ability to influence the market. It is also being asked is too much world gas production capacity coming on stream too soon.

As for shale, America is not the only source for shale gas E&P so is UK, Poland, China, India, Australia and Argentina. Nevertheless, for the EU shale E&P is at a much earlier stage of development than in the US. There are fears that US shale gas could flood the EU gas market, thus delaying development of EU domestic production for years. In addition, there are fears that Europe is still not ready to fully exploit shale gas production on a large scale.

Factors affecting the EU gas market include developments in Asian pipeline gas and LNG demand. The black swan in the market could be China, Beijing could insist that the Central Asian gas resources it has been developing should be paid for at below market prices or even in kind. Or even that it will replace gas imports with its own massive reserves of unexploited unconventional gas, which it could switch too, instead of importing from Central Asia, Gulf States, South East Asia and Australia.

In addition, the timing and slippage of North American shale gas projects. Also the future pricing and production policies of gas producers together with market developments, including how soon will Europe’s economy recover and the impact of rival fuel sources on gas demand. However, forecasting about the future depends on how many acts of god, banana skins and black swans will occur to affect the European gas market.

Loosely based on notes of a seminar  given by Howard V. Rogers Senior Research Fellow OIES on

16 November 2011

http://www.oxfordprospect.co.uk/

Could shale gas discoveries herald a revolution in Europe?

Re: Could shale gas discoveries herald a revolution in Europe? http://www.powerengineeringint.com/articles/print/volume-19/issue-9/regulars/upfront/could-shale-gas-discoveries-herald-a-revolution-in-europe.html

I feel that many in the media are caught up in gold rush fever when they debate the future of shale/unconventional gas in Europe.

Unfortunately, the media hype about shale gas is not backed by the facts. Here are a number of reasons:

1.       The amount of shale/coal seam gas reserves in Europe is questionable despite the over optimistic forecasts provided by the US Geological Survey. The real problem is not how much CSG there is but how much of it can be extracted commercially, given the technological, geological and environmental challenges involved. Already, despite the hype about shale gas from Polish Prime Minister Tusk, news of recent test results have been disappointing to say the least. Prime Minister Tusk has not cancelled plans to construct Poland's first LNG import terminal project, with a capacity of 7.5 billion cubic metres per annum, which is due for completion in June 2014. Which will supply nearly half of the country' gas needs.

2.       To suggest that European produced shale gas prices will be similar to that of the US is unlikely for a number of reasons:

a.       The geology of Europe is much more complex, which makes it more difficult to extract shale gas than in North America.

b.      There is a worldwide shortage of land based drill teams and equipment, especially in Europe. This is likely to get worse as demand increases for such experienced and skilled teams from other oil and gas provinces and from the geothermal power sector.

c.       Unlike the US the European legal, environmental and regulatory landscape is much more complex and needs to be updated to meet the needs of E&P.

d.      If European shale gas production is to make a significant impact on reducing gas imports, then European gas prices must be considerably increased.

e.      At present, the development of shale gas on the US market has turned it into a net gas exporter, forcing Henry Hub prices down. Already several European industrial consumers such as power stations are using American gas.

That is why I think it is unlikely that shale gas discoveries herald a revolution in Europe.

For more info on this see page 14 http://content.yudu.com/A1rsht/EWApril2011/resources/3.htm

Poland plans to veto EU proposals to apply environmental legislation to shale gas.

Nicholas Newman http://www.oxfordprospect.co.uk/Freelance-Journalist.html

EU Commissioner has declared that it is investigating how the European Commission can apply its strict Environmental regime to Europe’s infant shale gas industry. The EU Energy Commissioner Guenther Oettinger seeks to create a common set of European wide standards to regulate the safety and environmental issues that face policy makers and regulators concerned with the development of shale gas. Such a common set of standards would the Commissioner hope promote a high level of environmental security, safety and energy independence.

Such ambitions have caused serious concern to the Polish government, with September 30, Maciej Olex-Szczytowski, a special adviser on economics and business to Poland’s Ministry of Foreign Affairs, said the country would veto any new EU legislation. Poland is concerned that such proposals would handicap its ambitions to  develope the country’s estimated 5.3 trillion cubic metres of shale gas.EU Energy Commissioner Guenther Oettinger has announced that his proposals should be ready for consideration by member states in Spring 2012.

 However, despite Poland’s concerns many of Europe’s investors in shale gas E&P would welcome the Commission’s moves to create a European common set of standards to apply to the industry, rather than the rather chaotic situation where every member state has its own set of regulations. http://www.oxfordprospect.co.uk/Energy-Features.html

EUROPES SHALE GAS REVOLUTION BRINGS GOOD NEWS TO ITS POWER SECTOR

Nicholas Newman http://oxfordprospect.co.uk/Freelance-Journalist.html

Europe’s shale gas revolution is good news for European power station operators, it changes the dynamics of the energy mix, and it provides a new domestic and reliable supply of fuel that is not vulnerable to the whims of Kremlin power politics and Gazprom market manipulations. So it is not surprising Poland’s power sector is eager for the country’s shale gas reserves to be developed as quickly as possible so it does not have to renew its pipeline gas contracts with Gazprom.

The development of shale gas increases price competition within Europe’s energy markets, meaning more competitive fuel prices that should further speed up Europe’s power sector’s ‘dash for gas’.  In addition, it helps aid the power sector in meeting Europe’s 20/20/20 ambitions, though it could affect continent’s dash for renewables.

However, before the shale gas revolution can be realised there are problems that have to be overcome; fortunately, the European Union and its member states are developing a common set of policies, regulations and laws to facilitate a Shale Gas revolution. For Europe’s power sector customers it should bring greater electricity price stability by reducing many of the market distortions that effect the price of gas in Europe. http://www.oxfordprospect.co.uk/Energy-Features.html