Tuesday, July 17, 2012

New cold war over shale gas

Russia inflames environmental fears to dominate energy market

We lost Bulgaria. We are likely soon to lose the Czech Republic. We gained Ukraine. Poland has always stood with us. Germany hedges its bets. France definitely is not with us. The United Kingdom probably will side with us. The Baltic States would love to join us if they have the resources. A fierce battle rages over Romania.

The adversary is Russia, a petro-state that projects power through control of the European energy market. President Vladimir Putin’s regime depends on selling hydrocarbons. That pays for the Russian state and for a patronage system that keeps his supporters and backers in clover.

Many of Gazprom’s decisions are political. It pays for long pipelines to bypass Ukraine. Political appointments and scams are costly. Analysts estimate that Gazprom needs to charge about $12 per 1,000 cubic feet of natural gas to break even. It collects about $16 per 1,000 cubic feet in Eastern Europe. In the United States, the cost is about $2.

The price of natural gas in America dropped because hydraulic fracturing glutted the market with cheap gas. There are no such commercial wells in Europe.

If hydraulic fracturing can be used on a commercial scale in Europe, the price of natural gas there will plummet. It could force Russia to start working for a living and would have radical political repercussions.

Almost all European countries have some shale gas deposits. Commercial use of those resources would increase energy independence, reduce demand for gas imports and thus reduce prices, improve the balance of trade and create local jobs. Three European countries, Poland, France and Ukraine, have potential deposits that may turn them into gas exporters.

The Polish reserves are deeper and older than the American ones. Drilling technology will have to evolve to adjust to the local geological features, as it has in the Barnett and Marcellus shale formations. Exxon has beat a retreat from Poland for now, but other, smaller companies are continuing to explore. Ukraine has just opened its territory to bids for shale gas exploration.

Unlike Poland and Ukraine, France has no history of Russian domination. Most of its energy comes from nuclear power. Russia is just its third-largest natural gas supplier, after Norway and Algeria. When environmentalist groups protested against the potential use of hydraulic fracturing in France, there was no interest group on the other side of the debate. Yet Total is using the technology outside France. Given the French economy’s dire straights, a decision to start exploiting France’s domestic gas resources has obvious advantages, even if hydraulic fracturing needs to be rebranded.

The significance of the French ban, the Bulgarian moratorium and a likely Czech one is not economic. Gazprom’s revenues from France, Bulgaria and the Czech Republic are relatively small. If Bulgaria and the Czech Republic start exploiting their own shale gas resources, they still will have to import some or even most of their natural gas. The holy grail for Gazprom is a European Union-wide ban or moratorium on the technology. The more countries adopt such restrictions, the stronger the case for it would be in Brussels, capital of the EU, and Strasbourg, seat of the European Parliament.

The challenge facing Gazprom is to convince nations that pay it exorbitant sums of foreign currency to forgo a technology that can save them a lot of money, create local jobs and support their political independence. This challenge is not unlike the task the Soviet Union faced after World War II: The United States offered the devastated countries of Europe substantial free economic aid in the Marshall Plan. Fearing economic and political independence, the Soviets had to persuade Europeans to give up free money.

Some Czech anti-hydraulic-fracturing demonstrators, who protested against granting concessions to Hutton Energy, an Australian company headquartered in London, carried signs proclaiming, “We do not want your American money.” They could have dusted off similar signs from 1947.


EU energy chief Oettinger warns of deindustrialisation

Policies governing the European Union's drive towards a low- carbon economy should not lose sight of the need to retain the bloc's industrial base, Energy Commissioner Guenther Oettinger said in a newspaper column on Monday.

"Europe should think about adding a fourth goal to the three 20-20-20 energy-related ones up to the year 2020," Oettinger wrote in the business daily Handelsblatt.

The bloc's goals are a planned 20 percent hike in energy efficiency, a 20 percent cut in CO2 emissions and reaching a 20 percent share of renewables in energy usage by 2020.

"(Europe) ... should make (another) permanent goal a 20 percent industrial contribution to gross domestic product (by 2020)," Oettinger said.

This share had sunk to 18 percent in 2010 from around 22 percent in 2000. "We need a strategy for the re-industrialisation of Europe," he said.

Oettinger said Europe was too dependent on energy imports - its main natural gas supplier is Russia and its oil comes mainly from the Middle East - and therefore had to ensure efficient energy production and usage, to help stand up to competitors such as the United States where gas prices have plummeted.

Electricity would become the EU's main energy benchmark as it would expand its share in fuelling transport, Oettinger said, adding Europe needed a policy "that considered that security of supply and affordability of power are a decisive location factor in the global context," he wrote.

Oettinger, a German national, echoed rising concern about runaway power prices in his home country, where subsidising of fast-expanding green power is burdening industrial and household consumers.

This has already caused a government rethink on, and subsequent cuts to, solar power.

Environment Minister Peter Altmaier told the mass circulation Bild am Sonntag on Sunday he was sceptical about some important goals of Germany's energy U-turn, put in place last year in the wake of the Fukushima nuclear disaster.

In particular, Altmaier doubted whether power usage could be cut by 10 percent up to 2020, which the government had stipulated along with goals to get out of nuclear energy fast in favour of green power.


China goes for shale gas in a big way

China has already got a lot of what was American industry. With this it might get a big slice of Europe's too

With China having put shale gas near the top of the government agenda for energy security concerns, the scramble for this game-changing unconventional gas is gathering momentum.

The Ministry of Land and Resources said that more than 70 companies have shown their interest in participating in the country's much talked about second tender for domestic shale gas blocks, which is estimated to kick off this month or next.

China opened four blocks for the first round bidding to selected State-owned companies last June. China Petroleum & Chemical Corp and a provincial coalbed methane company won the bid for two blocks.

Compared with the first auction to test the water, the second one may offer about 17 blocks, located in areas including the provinces of Hunan and Anhui, for bidding, said Jiang Xinmin, deputy director of the Energy Research Institute, a think tank of the National Development and Reform Commission.

The ever-growing shale gas fever in China, buoyed by the United State's revolutionary breakthroughs in the sector, has turned the new sector that has yet to take off into a new gold rush for companies in the country.

Even domestic property companies, which have generated the biggest number of billionaires in recent years before they started wobbling on the government's tightening policies, are considering seeking a share.

Li Jun, board secretary of Zhongtian Urban Development Group Co, flew almost 2,000 kilometers from the southwestern city of Guiyang to the eastern costal city of Shanghai just to attend a shale gas forum held in the city in July.

"It's not a gamble. We hope to leverage the cash earned from the property market to invest in the energy arena," Li said. Zhongtian is a local real estate developer in Guizhou province with total assets of 15 billion yuan ($2.4 billion), according to its website.

State-owned companies strictly control the energy industry so shale gas may be the last resort for privately held companies to participate in the lucrative sector, Li said.

The Ministry of Land and Resources said in May that Chinese companies with more than 300 million yuan of registered assets and survey licenses for natural resources, among others, are allowed to tender.

Zhang Dawei, head of the oil and gas strategy center of the ministry, reiterated several times in public that private investors are allowed to bid to diversify the investment bodies.
Guanghui Energy Co, a privately held natural gas pipeline operator based in Xinjiang Uygur autonomous region, for instance, has shown its strong interest in shale gas exploration.

"We will definitely apply for the second auction but the government has the final say on whether we can squeeze in," said Wang Yuqin, board secretary of Shanghai-listed Guanghui.

Shale gas is a clean and efficient energy trapped within shale formations. China is estimated to have 25.1 trillion cubic meters of exploitable shale gas resources, exceeding the 24.4 trillion cu m in the United States, making it the world's biggest. If all gas can be extracted from the shale, it will able to meet natural gas demand for the world's second biggest energy consumer for two centuries.

China produced more than 103.1 billion cu m of natural gas last year with 7.3 percent year-on-year growth. Apparent consumption - production plus imports minus exports - was 129 billion cu m in the same year.

It topped the world with its 22 percent year-on-year growth in natural gas demand last year, with increasing Chinese production, imported pipe gas and liquefied natural gas supplies, according to the BP Statistical Review of World Energy.

China's natural gas consumption will be doubled within the 12th Five-Year Plan period (2011-2015) to account for 8 percent of its total energy mixture by the end of 2015 from 4 percent now, said Jiang, from the National Development and Reform Commission. He added that the development of shale gas is a strategic move, given China's ever-growing shortage of natural gas.


North Carolina sea-level scare neutered

Action killed off until 2015

North Carolina legislators intend to postpone consideration of a state-sponsored science panel’s warning of rising sea levels until July 2016, calling instead for more studies.

A conference report that amended the much-debated Coastal Policies bill – House Bill 819 – to control how North Carolina prepares for climate change along its coast passed the Senate Monday night 40-1.
At 12:15 p.m. Tuesday, the House passed the conference report, which includes the bill, 68-46, thereby adopting the bill and sending it to the governor for final approval.

The bill to put the sea level debate on hold now goes to Gov. Bev Perdue. The governor’s Communication Director Jon Romano said Gov. Perdue has not yet received the bill or decided whether she will consider a veto.

Rep. Pat McElraft, R-Carteret, filed the bill April 7. It was originally intended to amend oceanfront setback laws to allow certain buildings constructed prior to Aug. 11, 2009, to be repaired or rebuilt on their original footprints, even if they didn’t meet current setback requirements. The Senate amended the bill on June 12, however, to include language directing the state on how to address sea level rise.

Rep. McElraft opposed the amendments to her bill. When it came back to the House on June 19, she made a motion to not concur with it, which the House supported. She then chaired the conference committee, which created the current version of the bill.

The latest version of HB 819 puts a temporary moratorium on the state adopting any rate of sea level change for the purpose of regulations. It calls for additional studies by the state Coastal Resources Commission’s science panel, to be completed by 2015.


World’s biggest maker of wind turbines going broke

The world’s biggest maker of wind turbines is considering putting itself up for sale as concerns mount over its giant debt pile. Vestas is studying the drastic move after entering debt restructuring talks with its lenders.

The banks have demanded that the Danish company prepares a comprehensive financial restructuring plan after it was forced to bolster its cash position by drawing down a €300m (£242m) bank facility.

The company, which has more than 20,000 employees worldwide, has been one of the biggest casualties of the global slowdown in the renewable energy industry. Two weeks ago, it cancelled plans to build a giant factory at Sheerness, Kent, dealing a blow to the government’s plans to create a domestic renewables industry.

Vestas was founded in 1898 by a blacksmith in the small town of Lem, on the west coast of Denmark. In 2009 it provoked uproar in Britain with the closure of an Isle of Wight factory, making 400 redundant.

The group has nearly €6 billion of annual sales but has racked up debts of more than €2 billion. Its shares have shed more than 95% of their value since the 2008 peak.

In January Vestas announced 2,300 job cuts after posting its second profit warning in just a few months and falling €60m into the red. Its market value has shrunk to £700m.

The company’s woes reflect a significant shift in the wind industry since the recession took hold. The sector has been battered by a perfect storm of government belt-tightening, lack of project financing and rising costs.

Lenders to Vestas, including Royal Bank of Scotland and HSBC, have appointed Ernst & Young to advise on negotiations with the company.

Vestas has hired PWC to help draw up a plan to repair its creaking balance sheet. The options include putting the company on the block. It could be an attractive target for industrial giants with a growing interest in renewables technology, such as General Electric and Siemens. There have been rumours that Chinese rivals are circling.

Alternatively, Vestas may decide to sell some of its assets. The company declined to comment.


Where are the jobs?

Short excerpt from a report by the Energy and Commerce Committee Majority Staff

Section 1603 of the American Reinvestment and Recovery Act (Recovery Act or “stimulus”) created a grant program administered by the Department of Treasury (Treasury) and the Department of Energy (DOE). This program offered cash payments to renewable energy projects, mainly solar and wind.

Before the stimulus, qualifying renewable energy projects were Federally supported, primarily through the production tax credit or investment tax credit. Through March 15, 2012, $8.2 billion (74.7 percent) of the total amount in Section 1603 grants awarded was for wind and another $2.0 billion (17.4 percent) was for solar electricity. The remaining 8 percent went to technologies such as geothermal electricity, biomass, solar thermal, and small wind.

The Recovery Act was touted by President Obama as a jobs program. Separately, DOE Secretary Steven Chu, in testimony before a joint subcommittees of the Committee on Energy and Commerce (Committee) on March 16, 2011, stated that “the Section 1603 tax grant program has created tens of thousands of jobs in industries such as wind and solar by providing up-front incentives to thousands of projects.”

An investigation by the Subcommittee on Oversight and Investigations shows that: Most current methods used to calculate jobs created by Section 1603 are largely unreliable. What accurate jobs data that exists for Section 1603 shows that it produces very few long-term jobs.



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