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11 October 2014

Press review 11-10-2014 - Waiting for winter

Ebola took hold of the media this week with the first deaths in Europe and US. Most energy news disappeared from front-pages and TV night news broadcasts. Petroleum prices slid further this week and thus what may happen in Iraq, Lybia or Iran appears now less relevant.

There is though a major crisis in the making with gas supplies from Russia. Little attention is being paid to the subject while the weather is still mild, but winter will eventually set in. Negotiations with Russia are completely stalled for the moment; on the ground a fragile cease-fire holds with daily accusations of violations from both sides.

Rune Likvern provides some needed macroscopic insight on this story, with an update to his projection for gas extraction in the Norwegian Continental Shelf.
Fractional Flow
Status of Norwegian Natural Gas and a Forecast towards 2025
Rune Likvern, 05-10-2014

Norway, after Russia, has been and is the EU’s second biggest supplier of natural gas. In Europe the outlook for natural gas supplies is followed with heightened interests following the recent developments in Ukraine and its ability to continue to afford Russian natural gas. A big portion of the natural gas consumed by EU transits from Russia through Ukraine.

The potential for any interruptions to EU’s natural gas supplies has made EU consult other suppliers requesting these to have a look at their potentials to increase deliveries to offset any shortfalls to natural gas deliveries from Russia.

My forecast (developed in the spring of 2014) and the forecast from the Norwegian Ministry of Petroleum and Energy (MPE) shows basically the same trends, but differs about the timing for the start of the decline and how steep it will become. My forecast results in some kind of plateau towards the end of this decade followed by a steep decline, refer also figure 4.
Slovakia, a key gas hub through which a large share of the gas transiting from Ukraine enters Europe, is now registering less than half of the gas flow it is requiring from the Russian suppliers. This state of affairs can not last much longer without causing shortages at some point.
Slovakia says it could seek EU compensation over Russian gas shortfall

Slovakia could seek compensation from the European Union on potential losses from replacing what it says is a shortfall in deliveries requested from its main supplier Russia over the past month, an economy ministry spokeswoman said on Monday.

Poland, Slovakia, Austria and Hungary have all reported that Russia's state-controlled Gazprom has sent smaller deliveries than requested after the European Union began sending gas to Ukraine.

Slovakia, a major transit point for Russian gas through Ukraine to the EU, last week said that state importer SPP's flows from Russia were down more than 50 percent on its requested deliveries.
Meanwhile Russia speeds up its gaits to increase gas flows to China. Irrespective of what the press and some western governments may say, Russia is not on the loosing end of this conflict.
Gazprom ready to more than double Russia's gas supplies to China

Russian energy giant Gazprom is ready to boost natural gas supplies to China to 100 billion cubic meters a year in the near term, Gazprom CEO Alexei Miller said on Tuesday.

“Gazprom has entered this market quite recently by signing a very advantageous contract, which will yield $400 billion for us during 30 years,” Miller said at the St. Petersburg international gas forum.

“In fact, this is only the beginning. The prospects of supplies to the Chinese market, if we comment on them, are simply huge. We say that the volumes of our deliveries may shortly rise to 60 and even to 100 billion cubic meters a year,” the Gazprom CEO said.
Fuel shortages are something Ukraine at least will not escape this winter; as usual, common folk stand to pay the tab left by quarreling giants. Coal is for the greatest concern in the short term.
Ukraine’s southern region to switch to firewood due to fuel shortage

The head of Ukraine’ Kherson region has urged district heads to switch social facilities to firewood as alternative fuel, Ukrinform news agency said on Tuesday, citing the regional administration press service.

“Every district must be supplied in full with firewood. We must have our wood not to be exported, but left in the region for own needs,” the region’s administration head Andrei Putilov said.

The radical decision is explained by the acute shortage of coal.

Officials noted during a meeting of the regional education and science department that only 42% of schools and universities had coal, and eight districts in the region had no coal supplies at all.
And with the week closing a shortage of gas was announced as a certainty. It will be a long winter in Ukraine.
Ukraine worried about gas shortages
Daniel J. Graeber, 10-10-2014

Ukraine needs to secure a reliable natural gas partner as shortages are expected during the upcoming winter, a Cabinet official said.

The U.N. High Commissioner for Human Rights this week said energy security issues in Ukraine may take on a humanitarian tone as residents there fear there could be a natural gas shortage this winter.

Cabinet Minist Ostap Semerak told Ukrainian news agency Glavkom some of those fears may come to fruition.

"We will have a gas shortage ... for the upcoming winter," he said in an interview published Thursday. "We must find this gas in order to survive the winter [and] to ensure the effective work of the economy."
An aspect that may be delaying a new agreement with Russia is the present formation process of a new European Commission. Things have gone awry between social-democrats and conservatives, transforming parliamentary hearings for Commission candidates into a battle ground. Alenka Bratusek, former prime-minister of Slovenia, was slated by Jean-Claude Junker to become vice-president of the Commission, in charge of energy issues, but a particularly disastrous hearing terminated her chances. It is not yet clear how she will be replaced
Slovene commission nominee to be sent home
Valentina Pop, 08-10-2014

MEPs are Wednesday (8 October) to decide on the five commissioners who failed to get the green light after parliamentary hearings.

They are likely to ask that Slovenia’s Alenka Bratusek be replaced while some other portfolios be reshuffled.

Bratusek, who is supposed to be a vice-president in charge of EU's nascent "energy union", was deemed to have given a poor performance on Monday, with short and unconvincing answers.

Meanwhile, an anti-corruption commission at home contradicted her statements in the European Parliament, a further blow to the former prime minister who appointed herself as commissioner nominee while she was still in office.
Miguel Cañete will succeed to Günther Oetinger in the Energy Commission. His nomination is particularly delicate due to his (and his family's) ties to the fossil fuel industry. The Energy Commission seems set to remain a weak link in the European executive.
Cañete faces protests before EU confirmation hearing

Canete’s candidacy sparked widespread incredulity because of his links to the oil industry.

He was forced to sell his shares in two oil companies Petrolifera Ducar and Petrologis Canaris to shore up support after being chosen as climate action and energy boss.

But critics, including Podemos and the Greens in the European Parliament, have pointed out that his wife, son and brother in law remain shareholders or even sit on boards of the companies.
Closing the gas section some food for thought from Eni. The graph opening this review shows among other things how gas consumption has been far from forecasts in recent years. Economic recession and the rise of decentralised electricity generation have crippled consumption in Europe.
Eni Review Raises Questions about 'Age of Gas'
Jon Mainwaring, 06-10-2014

A review of the global oil and gas industry by Italian oil major Eni has raised a question mark over whether the world is about to enter a so-called "Age of Gas", with data showing that growth in oil consumption worldwide far outstripped growth in gas consumption last year.

The 13th edition of the company's World Oil and Gas Review, published Monday, found that the world saw consumption of oil and gas both increase last year. But while oil consumption grew by 1.4 percent, gas only grew at only one percent compared to average consumption growth between 2000 and 2013 of 2.5 percent.
The fall in prices still dominates petroleum related news. From the US come interesting signs of reversal, with an abatement of the spreads between cash and futures (meaning the contango structure is flattening). The US remains mostly a regional market and for now this trend seems unlikely to spread elsewhere.
As global oil futures tumble, U.S. cash crude traders ask: What glut?
Catherine Ngai and Jonathan Leff, 06-10-2014

U.S. futures have fallen 17 percent since mid-June and hit $88.18 per barrel on Thursday, the lowest since April 2013.

Among cash traders in Houston and Calgary, where batches of North American crude are bought and sold for delivery in a month's time based on a premium or discount versus futures, a long-anticipated collapse has failed to materialize.

[...] But glut is hardly a factor in U.S. cash markets. Bakken crude in North Dakota is trading at around $4.40 a barrel below benchmark WTI, a sharp recovery from a more than $10 discount a year ago. Light Louisiana Sweet has held steady since March around $3 over WTI. Western Canada Select, which often slumps in winter, is at a 14-month high.

At the same time, benchmark West Texas Intermediate futures have fared better then European Brent. The spread between Brent and WTI was $1.50 a barrel on Friday, near its narrowest since 2010.
At some other time the following news bit would have had far more echo. Apache, the company that owns the Forties field in the North Sea, looks set to jumping ship. The outlook is clearly bleak for this mature petroleum region.
City A.M.
US oil firm eyes sale of UK asset while Brent price falls continue
Caitlin Morrison, 06-10-2014

Oil and gas operator Apache is looking at withdrawing from its North Sea fields and either selling them off as an individual asset or spinning its entire international business into a new company.

Steve Farris, the company’s chairman, chief executive and presi­dent, said: “Apache continues to evaluate the separation of its inter­national business through capital markets or strategic transactions.”

[...] The US firm is the third-largest oil producer in the North Sea, behind BP and Royal Dutch Shell, and is the owner of Forties, the UK’s largest oil field.
Finishing off the fossil fuels section some insights on what is likely the most damaging policy conceived by energy optimists: carbon capture and sequestration. It essentially boils down to spending the triple to reduce electricity output by one third - what a deal!
Carbon capture's energy penalty problem
John Kemp, 06-10-2014

Refurbishing the 45-year old Unit #3 to extend its life for another 30 years and retrofitting it with equipment to capture carbon dioxide emissions has cost almost C$1.3 billion, according to the company's accounts, about three times as much as a similar-sized plant without CCS.

SaskPower received $240 million from Canada's government to help with construction costs and will realise additional revenues from the sale of CO2 to an enhanced oil recovery project. But the high capital costs of Unit #3 underscore how far away CCS remains from being competitive with conventional power stations or renewables such as wind and solar.

[...] The refurbished and retrofitted Unit #3 is also much less efficient than its predecessor. It will supply "over 110 megawatts" of electricity to the grid compared with 139 MW previously, a reduction of around 20 percent, according to SaskPower.
The past few months the wholesale electricity market in Germany has been one of the cheapest in Europe. This does not mean electricity generation is cheaper, rather that traditional suppliers are being purged from the market by de-centralised suppliers, mostly solar. It is an hidden benefit to consumers, often forgotten, but also a sign of negligent energy policies: the infrastructure should be able to distribute even more renewable energy, but that would "kill" traditional suppliers that will still be required in the near future.
Renewables International
Widening gap between French and German power prices
Craig Morris, 05-10-2014

Germany’s Photon Magazine, which also tracks wholesale prices on the exchange, found that baseload prices were down from an average of 4.467 cents in September 2012 to 4.171 cents in September 2013 and 3.479 cents last month – nearly a full cent.

[...] The most surprising charts do not show prices particularly high or low, but rather a great distinction between those in Germany and in France & Switzerland. For instance, on September 17 German peak wholesale prices will more than 1.1 cents cheaper than in France. On that day, wholesale generation was kept at 42.6 GW around noon time in Germany.

The difference was even greater on September 22, when German peak power cost 1.6 cents less than in France. That day, conventional power was pushed back to 40.5 GW has solar power production peaked.
These market quirks takes us back to the opening graph. The winding down of gas fired electricity is visible in many ways, for instance in the manufacturing of turbines, .
Siemens may close some energy plants amid low margins

German industrial conglomerate Siemens expects low profit margins at its energy division in the next couple of years and could close some factories as a result, the head of the division told the Boersen-Zeitung newspaper.

Lisa Davis said the company was reviewing individual sites and it was unclear whether some would be closed or whether they would be used for different products.

"We will see low margins (in the Power and Gas unit) in the next two to three years," she was quoted as saying.

The newly-created Siemens Power and Gas division makes products ranging from gas turbines and compressors to oilfield equipment. Siemens strengthened it this year with the acquisitions of U.S.-based Dresser Rand as well as Rolls Royce's power unit.
Last but least is the sole energy news piece that made it to front-pages this week. The go-ahead to the Hinkley Point nuclear power plant finally came, with a 0.12 €/kWh tab attached to it, and to be adjusted with inflation. It becomes remarkably clear that nuclear power is no longer competitive in Europe, at least at the present stage of technological development. Requirements for such infrastructure are today very different from what they were 3 decades ago, in the hey day of the European nuclear programme.
The Guardian
European Commission approves Hinkley Point nuclear subsidy deal
Terry Macalister and Damian Carrington, 08-10-2014

The European Commission (EC) on Wednesday gave the green light to a subsidy scheme that will enable the first new nuclear reactors to be built in Britain for nearly 20 years.

But the EC claimed that the decision had been made only after the financial arrangements put forward by the UK had been substantially modified to save cash for the British taxpayer.

[...] There was little explanation from the EC on what exactly had been changed, argued critics. The basic deal allows the French-owned electricity generator to be guaranteed £92.50 per megawatt hour over the 35-year life of the Hinkley plant. This subsidy, twice the current price of electricity, will be paid out of household energy bills.
Closing a note on information technology. Another city in Germany is ditching proprietary software for open source solutions based on Linux. The work made through the years by the city of Munich today greatly facilitates this kind of migration, that is clearly the future of IT, at least in Europe.
German City Gummersbach Drops Windows XP and Gets SUSE with a MATE Desktop

"The administration now uses 300 thin client PCs, with desktop and applications retrieved a SuSE Linux Terminal Server cluster of six servers. The desktop environment is Mate. The city staffers use the LibreOffice suite of office productivity tools and the Open-Xchange suite of email, instant messaging, calendaring and online collaboration tools. Some departments use Wollmux, an open source tool for managing forms and document templates developed by the German city of Munich," reads the announcement made on the official website for the European Commission.

From an outside point of view it looks like Linux is becoming more and more popular in Germany. City officials from all over the county must see the progress made by other administrations and they are setting the wheels in motion to do the same. Granted, it will take a long time for Linux and Windows systems to hit at least parity, but that day is coming soon.
Have a great weekend.

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