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25 October 2014

Press review 25-10-2014 - RIP Christophe de Margerie

The radio woke me up this Tuesday with the news of the tragic death of Christophe de Margerie. A sad reminder of the unpredictability and ultimate frailty of life. De Margerie had been a voice of striking poise and realism in the petroleum world, greatly contrasting with the hyperbolae that usually mars the business-as-usual discourse, particularly in the US. His balanced views always had an impact; when he spoke the press listened. If source rock fracturation has not yet been applied in France is in great measure due to his realistic assessment of the potential of these resources.

De Margerie understood like few that resource constraints are as much an opportunity as they are a challenge to the petroleum industry. Petroleum is not running out, rather the easier to extract reserves. This understanding is best reflected in how well the company he lead fared the past decade, par rapport to other multi-nationals.

No wonder then the posthumous praise de Margerie received from most sectors he had been involved with: politics, business, even sports. A real loss in many ways.

The gas supply from Russia continues to be the most relevant energy story for Europe. Late last week there was a first agreement on a provisional price for deliveries to Ukraine, about 100 $/tcm over the price the Yanukovych government was paying. But ultimately the Russians seek a price more in line with what its other clients pay.
Reuters
Ukraine says it agrees on interim gas price with Russia
Pavel Polityuk, 17-10-2014

Ukraine's and Russia's leaders have reached a preliminary agreement on a price for gas supplies this winter but Kiev may need international help to pay, Ukrainian President Petro Poroshenko said on Saturday.

Poroshenko met Russian President Vladimir Putin in Milan on Friday to discuss the conflict in Ukraine's eastern regions, where pro-Russian separatists are fighting Kiev government forces.

Russia cut off gas supply to Ukraine in mid-June following more than two years of dispute on the price. Russia said Ukraine had to pay off large debts for previously-supplied gas before it would resume supply.

"(We) reached an agreement," Poroshenko said in an interview with Ukrainian TV channels. "Until March 31 we will fix the price at $385."
Poroshenko's rejoice was before time. Although a price has been set to go through the arbitration process that will eventually settle the dispute, Ukraine does not have the means to pay.
EUObserver
Still no Russia gas deal as Europe heads into winter
Andrew Rettman, 22-10-2014

With temperatures already near freezing in eastern Europe, Ukraine will hold elections on Sunday (26 October) amid uncertainty on Russian gas supplies.

The situation arises after EU, Russian, and Ukrainian negotiators failed to reach a deal in Brussels on Tuesday.

They will meet again on 29 October, but big gaps remain between Kiev and Moscow.

Russia's energy minister Alexander Novak told press in the EU capital the main question is how Ukraine will make $1.6 billion of advance payments for November and December supplies.

“The issue of providing liquidity [to Ukraine] needs to be studied”, he said.

“There could be a bridging loan by a first-class bank or by another institution, such as the EBRD [a multilateral European bank], or from the budget of the European Commission”.
One of the options on the table at the moment, and what it seems the most likely, is for these 3 G$ to come out of the European Commission's budget. That is mine and yours money dear reader. I certainly did not ask for this.
EurActiv
Moscow: Ukraine expects the West to pay its $3.1 billion gas bill
Georgi Gotev, 21-10-2014

Speaking to EurActiv in an exclusive interview, Chizhov said that at the meeting in Milan on 17 December with Russian President Vladimir Putin and his Ukrainian counterpart Petro Poroshenko, an agreement was reached for an “intermediary price” of $385 per thousand cubic metres (tcm) for Russian gas to be sold to Ukraine during the winter.

[...] Another element of the agreement reached in Milan is that Ukraine pays Gazprom $3.1 billion before the end of this month.

This sum, as Chizhov explained, includes arrears from November and December of last year and those of the second quarter of this year. He said that the sum was uncontested.
Meanwhile the puny attempts by the out-going Energy Commisioner Günther Oettinger to downplay the potential impact of an all-out supply cut to Europe have been completely shredded by a leaked report from Ministry of Economy of his own country. Who is Oettinger trying to foul?
Wolf Street
LEAKED: What Happens to Germany if Russia Turns off the Gas
Wolf Richter, 21-10-2014

[...] In reality, even for Germany – which is not nearly as dependent on Russian natural gas as Poland, Finland, Estonia, or Bulgaria – it’s a dreadful scenario. That’s what emerged from a report by the German Federal Energy Ministry that was leaked to the Spiegel. The report, which even Parliament hadn’t seen, became part of the risk analysis that the Federal Economy Ministry sent to the European Commission in late August – and to the very same Vice-President of the European Commission responsible for Energy, Günther Oettinger. He has known about the facts at least since then. Nevertheless, as part of the Commission’s gas “stress test,” he continued spouting off his falsely soothing words.

The analysis examined what would happen in Germany if Russian gas supply were completely turned off for six months during the winter. It would reduce gas supply by 23 billion cubic meters, when typically Germany uses 51.2 billion cubic meters during that time. That’s a 45% cut!
And Norway has excused itself of any supply boost to fill in for Russia. Not only are the volumes extracted from the North Sea much smaller, Norway is at the zenith of its extraction curve. Any mismanagement today will certainly impact the decline curve tomorrow.
World Bulletin
Norway unable to supply extra gas to Europe: Minister
19-10-2014

Norway cannot be a sufficient alternative to Europe in case of a possible cut in gas supplies from Russia, Norway's Energy Minister has said.

According to Aftenposten newspaper, Norwegian Energy Minister Tord Lien sent a letter to European Union officials saying that Norwegian gas will not be an adequate source for Europe if Russia cuts off gas supplies.
Norway takes across to petroleum related news. Beyond the shattering effects of the recent price dip on the American "shale" industry, Norway seems another country greatly affected. The industry was already slowing down its investments before the dip leaving many service companies in trouble, but suddenly things become much worse.
Rigzone
Norway's Seismic Surveyors Say Hit by Lower Oil Price
23-10-2014

Norwegian seismic surveyors TGS and PGS said on Thursday that demand from oil companies had deteriorated further due to falling oil prices during the quarter and tough market conditions were expected to last.

Seismic surveyors, which map out the seabed in search of oil and gas deposits, have been hit this year by energy firms cutting capital spending to protect profit margins and dividends to shareholders and, in recent weeks, by falling oil prices.

"Near-term uncertainty in exploration spending has been increased by a negative oil price development with the price of Brent dropping close to 25 percent during the last four months," TGS said in a statement.
And the so called "Arctic Oil", once porpalled as the next big thing in the petroleum world seems to have been adjourned sine die.
Business Week
Norway’s Arctic Oil Ambitions Threatened by Slump in Oil
Mikael Holter, 23-10-2014

The Arctic Barents Sea off northern Norway is reckoned to contain 40 percent of the country’s undiscovered resources and seen as key to extending oil output as aging North Sea fields decline. But operating there is expensive, and even before the recent plunge in prices, state-controlled Statoil ASA (STL)’s key project in the area had been delayed twice.

“The premises for what we’re discussing could be gone because of a weakening market,” Terje Aasland, a lawmaker from the opposition Labor Party, said during a debate on Arctic oil in Oslo yesterday. “What we believed a few months ago, we don’t believe today.”
And there is also Brasil with its large reserves under the Atlantic salt strata that no one seems to know how to extract profitably at present prices.
BloombergView
Oil Bust Has Brazil in Deep Water
Mac Margolis, 17-10-2014

But the immediate cash relief brought by cheaper oil is Petrobras's long-term migraine. Think back to 2007, when Brazil announced the discovery of up to 80 billion barrels of high-grade oil below the Atlantic, the largest find in the Americas since the Cantarell field in 1976, in the Gulf of Mexico.

The political engineers were ecstatic. Petrobras's leaders jetted off to tout Brazil as a future oil power. The mere whiff of a fresh revenue stream started a three-year brawl in Congress over how to split up the imagined bounty.

Buoyed by the bonanza, the company unveiled one of the world's most ambitious business plans: $221 billion in investment between 2014 and 2018. The problem was, the plan was built on expectations of oil trading at $100 per barrel on average through 2017, and slightly less in 2030, according to Valor Economico.
In the US consternation sets in. It is hard to explain how so much money has flowed into resources of this dimension. "Shale sub-prime" is indeed appropriate wording.
Bloomberg
Shale Boom’s Allure to Wall Street Tested by Bear Market
Isaac Arnsdorf, 23-10-2014

[...] “External money has flowed to shale plays like it never flowed to conventional exploration,” said Michelle Foss, an energy economist at the University of Texas at Austin.

Last year, domestic onshore producers spent $38 billion more than the $19 billion of cash flow they generated, compared with $1 billion versus $18 billion a decade earlier, according to data from Tudor Pickering Holt, which specializes in energy.

The borrowing and deficits are “extraordinarily different” than in the past, according to Bobby Tudor, the company’s chairman and CEO.

“Everyone loved the shale boom,” said Cinnamond of Aston/River Road. “People got carried away.”
The coal shortages in India have been a persistence presence in this review. Surprisingly, there is a somewhat similar story developing in the US.
OilPrice.com
U.S. Utilities Facing Fuel Shortage Problems As Winter Approaches
Nick Cunningham, 19-10-2014

American utility companies are facing lower-than-average fuel supplies as they begin to stockpile for the winter.

Part of the reason is the country’s oil boom. Moving oil by rail has become so widespread that train backups are making it hard for utilities to receive shipments of coal, which in some cases is leaving power plants critically low on fuel supplies.

Coal stocks were inordinately depleted during the unusually long, cold snowy winter in the U.S., which saw an elevated level of electricity demand. Months later, coal-fired power plants are still struggling to replace their coal supplies.
And in the UK the issue is not so much the lack fuel, rather the lack of infrastructure to burn it. This is a very old story that pops in this review now and then, gas and electricity shortages are a real possibility in the UK during the following five years. Britons better pray for a mild winter and a definitive agreement with Russia.
OilPrice.com
Britons Face Power Shortages As Two Nuclear Plants Cut Production
Andy Tully, 20-10-2014

After a routine inspection in August found cracks in one boiler tower at Haysham 1 on England’s west coast, officials ordered the twin reactors there and at Hartlepool on the country’s east coast to shut down. When they’re restarted, they’ll run only at 75 to 80 percent capacity to prevent further cracks, according to the British utility that operates them, EDF Energy.

The two plants have met about 4 percent of Britain’s winter energy demand, but now the National Grid will have to resort to restarting older power plants whose operations have been suspended. Even so, power shortages in the coming winter and even next year are believed to be more likely because Britain has been retiring coal-fired power plants faster than it has been building less-polluting replacements.
The following story is one of the most fascinating thing I read this year. Venezuela is running out of conventional petroleum and that is posing serious constraints to its operations on the heavy petroleums of the Orinocco basin. Just another reminder that non conventional petroleums are really a different breed of resources - and far less reliable to power an healthy economy.
PanAm Post
Venezuela’s Oil Industry So Clogged It Needs Historic Import from Algeria
Elisa Vásquez, 20-10-2014

Venezuela, the country with the largest oil reserves on the planet, will receive a shipment of imported oil on October 26. This is a first in the nation’s oil-exporting history, which began in the late 19th century.

The 2-million-barrel cargo will arrive from an OPEC partner, Algeria — even though Algeria has a daily export capacity much lower than Venezuela’s: 1.5 million barrels versus 3.9 million.

This imported light oil (Saharan blend) is meant to help the state oil Venezuelan company, PDVSA, improve the quality of the heavy oil that lies underneath its most plentiful reserves, the Orinoco Oil Strip, in Venezuela’s southeast.

PDVSA sources told Reuters in August that this acquisition will reduce costs in this procedure, since the company was using naphtha to lighten the heavy oil, which is more expensive.
Coming now to alternative energies, there were news of further progress towards the resolution of the dispute over Iran's Nuclear programme. An happy ending to this story will also have positive outcomes to the petroleum market, at least to what consumers are concerned.
Reuters
Iran acts to comply with interim nuclear deal with powers: IAEA
Fredrik Dahl, 20-10-2014

Iran is taking further action to comply with an interim nuclear agreement with six world powers, a monthly U.N. atomic agency report showed, a finding the West may see as positive ahead of a November deadline for clinching a long-term deal.

The report by the International Atomic Energy Agency (IAEA), seen by Reuters, made clear that Iran is meeting its commitments under the temporary deal, as it and major powers seek to negotiate a final settlement of a decade-old nuclear dispute.

It said Iran had diluted more than 4,100 kg of uranium enriched to a fissile concentration of up to 2 percent down to the level of natural uranium. This was one of the additional steps Iran agreed to undertake when the six-month accord that took effect early this year was extended by four months in July.
The French government has put its money on where its mouth is concerning Nucler. Whereas this is by no means the best moment to quit Nuclear, the French programme looks far more thought out than the knee-jerk reactions of the German government. It will be a long-term steady retreat, always backed by other indigenous sources of power. The big question is: what about mobility? How will this retreat square with the likely (and government programmed) growth of electric vehicles?
OilPrice.com
Is France’s Love Affair with Nuclear Over?
Chris Dalby, 19-10-2014

French President Francois Hollande has promised to limit the growth of the country’s nuclear power, many older reactors have been targeted for decommissioning, and Greenpeace and other environmental groups have been relentless in their anti-nuclear campaigning. But until now, it seemed unlikely that France would ever truly rethink its love affair with nuclear power.

Last week, it did. On Oct. 10, France’s parliament voted to begin moving to undo decades of nuclear growth and to reduce its importance to the country’s energy mix. Over the next 11 years, France will reduce the amount of electricity coming from nuclear by one-quarter -- from 75 percent to 50 percent. To do that, estimates are that as many as 20 of France’s 58 reactors would have to be closed.

The vote was part of a package of legal reforms in France’s long-awaited energy transition law, a main pillar of which was slowing nuclear power production and then maintaining it at the new lower level before progressively lowering it over the next 10 years.
There are no positive news to end with this review. I would just like to recall the memory of Christophe de Margerie and its posture of balance taught: achievements in life may not rely on hyperbola or extravagance. Peace to his soul.

Have a nice weekend.