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23 August 2014

Press review 23-08-2014 - American "shale gas" to reach Europe by 2016

I have repeatedly expressed my scepticism regarding the impact the outburst of gas extraction from source rocks in North America can have on the European market. However, in the market place most players seem to be driven by the belief that these gas resources will change the market.

Just this week the Portuguese Secretary of State for Energy announced the signing of several contracts between American and European companies to start shipping gas from the former to the latter from 2016 onwards. This gas is to enter Europe through Sines, the westernmost deep water LNG terminal in Europe, with a total storage capacity close to 400 000 m3.

The Secretary of State believes the so called "shale gas" to reach European shores at prices well under those paid today for conventional gas. Nevertheless, his discourse is mostly conditional, repeatedly employing the word "could". Portugal and Spain do not consume Russian gas, having historically relied on Algeria for this fuel. With exports from that country in decline, diversification through LNG is mostly inevitable.

An automatic translation of the article below can found here.
Sines pode receber gás americano mais barato
J. F. Palma-Ferreira, 19-08-2014

"O mercado do designado shale gas, ou gás de xisto, tem preços muito mais baixos que os que são praticados para o gás natural na Europa e constitui uma boa base para ter fornecedores alternativos de gás destinado aos consumidores ibéricos", explica Artur Trindade.

Estes contactos não se ficaram pelas palavras e foram firmados contratos de abastecimento. "Um dos primeiros contratos foi firmado pela Endesa, que poderá começar a receber gás norte-americano a partir de 2016, o que no setor do gás é um prazo muito curto", refere o secretário de Estado.

"Sines é um porto com capacidade ideal para receber este gás, que depois poderá ser distribuído pela rede de gasodutos existente em Portugal e Espanha, com a vantagem deste gás ter preços muito convidativos para os consumidores do mercado ibérico", adianta Artur Trindade.
But the story of the moment remains the stand-off between NATO and Russia over Ukraine. The economy of the troubled country is slowly paralysing, not in the least for the resources that became inaccessible to the east. The Kiev government has been pushing for a quick military end to the conflict and it is now evident why.
Ukraine may have an energy problem besides nat gas
Dina Gusovsky, 19-08-2014

Ukraine is running low on coal because of violence wracking in the country, according to a Ukrainian coal producer and a private equity firm that makes energy investments in Ukraine.

Pelicourt, the private equity firm, and Donbass Energy, which has operations ranging from coal mining to electricity generation, told CNBC that Ukraine could run out of coal supplies because of the destruction of the rail lines by Russian separatists.

According to Robert Bensh, managing partner of Pelicourt, the major mining region of Ukraine—also known as Donbass—could cease getting its coal to electricity producers within the next 40 days. The claims by Pelicourt and Donbass were presented last week to Ukrainian Energy Minister Yuriy Prodan.
I have been reporting the decline in petroleum extraction in Russia, but there is a more threatening development for the Moscow government. European costumers seem to be already cutting their consumption of Russian petroleum, perhaps anticipating possible sanctions in the sector.
Russian oil prices fall below $100/barrel, straining budget

Russian Urals crude weakened for an eight straight trading day on Monday due to weak European refining demand, falling well below $100 a barrel for the first time in a year in a move to increase the pain for Russian state finances amid Western sanctions.

Russia has balanced its budget at $114 a barrel this year as President Vladimir Putin is ramping up social military spending amid a conflict in Ukraine, which sent relations between Moscow and the West to their worst since the end of the Cold War.

Sanctions are expected to slow new Russian oil projects, compounding a decline in output in the last months from the world's largest producer.
In Iraq the Islamic State seems to be finally loosing the initiative with the recent air strikes by the US and the UK in the Kurdish region. Is it in retreat or consolidation? The article below points to the latter.
The Malaysian Insider
Iraq’s Islamic fighters profit from oil sales

Islamic State militants fighting in Iraq are selling oil from oilfields and refineries they control to local communities and smugglers, augmenting their existing ample finances, US intelligence officials said on Thursday.

At least some of the oil is used to fuel a power plant they seized after the radical Islamists captured large tracts of Iraq including the country's second city Mosul, killing thousands and causing hundreds of thousands to flee, the officials said.

The officials, who briefed reporters on condition of anonymity, said the militants, who took over state banks and looted homes and businesses, now have "hundreds of millions of dollars" at their disposal.
Beyond the Sunni, the Kurds are also hoping to profit from the dismemberment of Iraq. And finding clients to their petroleum shipments may be easier than it seems.
Minister: 7m barrels of Kurdish Oil Sold Internationally

The Kurdistan Region has sold 7 million barrels of oil internationally and is confident it will also win the right to sell in the United States, Kurdish natural resources minister Ashti Hawrami said.

In an interview with Rudaw, he said that Kurdish production capacity of 300,000 barrels per day (bpd) is expected to rise to 500,000 bpd by the end of the year.

[...] The Kurds have been looking increasingly confident about their oil exports, via a pipeline to the Turkish port of Ceyhan, following four major oil sales.

In the most recent delivery, on Sunday a tanker offloaded 80,000 cubic meters of Kurdish crude at Croatia’s Adriatic sea port of Omisalj, bought by Hungary’s oil and gas group, MOL.
I have been writing on the Syria/Iraq war for over an year, always noting that NATO kept fuelling the conflict by supporting simultaneously the Sunni and the Shiites. Nevertheless, I have always left the door open to the hypothesis of a concerted strategy behind this apparently disgruntled tactics. According to a British General there is simply no strategy, the UK government at least has simply been reacting randomly to events that it does not always grasp.
The Independent
Iraq crisis: A spineless lack of leadership, an abject lack of strategy
Richard Shirreff, 17-08-2014

[...] Farcical? Yes – but tragic too because there are real people on the ground who bear the consequence of this pantomime, as the reported massacre of Yazidi villagers for refusing to convert to Islam demonstrates; and no, knocking out a couple of Islamic State vehicles from a drone is not the answer. Also tragic, because this unhappy saga highlights all too graphically the collective loss of nerve in matters of defence and security, increasingly the defining characteristic of this government. The relative resolution shown in 2011 to protect the Libyan population is a distant memory.

The Syrian imbroglio has spawned a growing nest of jihadist vipers, particularly Isis. Notably absent has been any coherent policy, UK or international, to contain a threat which will increasingly have an impact on the vital interests of the West, backed up by a strategy in which ends, ways and means are integrated in the pursuit of that policy. The consequence has been knee-jerk reactions dictated by events, whether last year's abortive attempt to launch Tomahawk missiles at Syria, or last week's response to events in northern Iraq. As the post-First World War Middle East settlement increasingly unravels in blood and chaos, never was clarity of strategy more necessary.
The past few days, several media outlets have brought up the results of a study published by the Carbon Tracker Initiative last May (of which I was not aware). This study does the important work of characterising the petroleum supply curve and reaches startling conclusions: almost all the non-conventional plus much of the deep-water petroleum reaching the market is being sold under cost. This state of matters has been made possible by the amount of cheap credit petroleum companies are taking to fill in the gap. Naturally, this is something that will not last forever.
Oil Sands are Biggest Losers From Low Crude Prices: Study
Joe Carroll, 15-08-2014

ConocoPhillips (COP) and Royal Dutch Shell Plc (RDSA) are among global oil companies needing crude prices as high as $150 a barrel to turn a profit from Canada’s oil sands, the costliest petroleum projects in the world, according to a study.

The next most-expensive crude projects are in the deep waters off the coasts of Africa and Brazil, with each venture needing prices between $115 and $127 a barrel, said Carbon Tracker Initiative, a London-based think tank and environmental advocacy group, in a report today.
More details on this report are given below. There are projects being developed today that require a 50% increase in petroleum prices to become profitable.
Five Regions Where Big Oil Is Foolishly Chasing Profits
Nick Cunningham, 19-08-2014

The Carbon Tracker Initiative (CTI) has put together an impressive report that outlines the biggest and riskiest oil projects around the world being pursued by the oil majors. Many of them will not even break even unless oil prices rise by $30 to $40 dollars per barrel above the current price, which is around $100.

So, why then, are they putting shareholders’ money at risk by chasing such costly projects?

CTI’s research identified a list of the costliest projects being pursued by the oil majors, which can be loosely grouped into five regions around the world. These projects are unprofitable, yet oil companies continue to pour money into them.
This is an old story that recently got new developments. For the largest part, the Nuclear park in Europe has been neglected the past decades: research halted but serious plans for retirement where not set in place. Now retirement sets in compulsorily.
Two Belgian nuclear reactors may be closed permanently - state media

Two Belgian nuclear reactors owned by GDF-Suez unit Electrabel may remain offline until spring and may need to be halted permanently, Belgian state broadcaster VRT reported on Tuesday.

The Belgian nuclear regulator ordered production to be stopped at the 1,008 megawatt Tihange 2 reactor and the 1,006 megawatt Doel 3 reactor in 2012 after finding indications of cracks in their core tanks.
This week there were a few more hints on the increasing maturity of solar power technologies. The market is hotting up again and record capacity should be produced the following years.
Solar Boom Driving First Global Panel Shortage Since 2006
Ehren Goossens, 19-08-2014

[...] The looming shortage shows the rapid expansion of solar energy. The industry may install as much as 52 gigawatts this year and 61 gigawatts in 2015. That’s up from 40 gigawatts in 2013, and more than seven times what developers demanded five years ago, according to Bloomberg New Energy Finance.

The industry has about 70 gigawatts of production capacity, New Energy Finance estimates, including a significant amount of older equipment that’s not profitable. The supply-demand balance is tighter than those numbers suggest. De Haan estimates capacity at about 59 gigawatts, excluding manufacturing lines that are out of date or obsolete.
It seems we had the first frosts in Europe this past days; snow has fell in Scotland and the Alps. This sort of weather really comes at a bad moment.

Have a nice weekend.

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