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Europe's Forced Reappraisal Of Shale Gas

Commodities / Natural Gas May 11, 2013 - 06:18 PM GMT

By: Andrew_McKillop

Commodities

EYES SET WEST
European policymakers at Commission level, in European Council of ministers meetings, and in national governments now curtly say that the shale gas issue is "very political", because the subject will not go away. Allowing shale gas extraction by hydraulic fracturing to move ahead is already politically correct - in some countries such as Poland - and may soon also become correct in the UK, France, Germany, Spain and Italy. The logjam is breaking.


About a decade of shilly-shallying with shale energy in Europe, to the delight of price-gouging gas suppliers including Gazprom, Qatargas, Norway's Statoil and Algeria's Sonatrach, aided by the objective allies of these "take or pay" suppliers who oil index their gas prices, Europe's Greens, is now flying apart in a continental storm of political recrimination. Blanket bans on shale gas and oil development, claimed to protect the climate and environment in Europe, will almost certainly soon be a thing of a receding and little regretted past.

In the US, despite president Obama's "personal conviction" that global warming is a serious issue, and the lurid claims of the semi-hysterical "Artists Against Fracking" led by millionaire celebrities Yoko Ono and Lady Gaga - claims which extend to the assertion that fracking directly causes global warming - Obama regularly touts the boom in US energy due to shale gas and shale oil output growth at impressive and sustained annual average rates.

He also touts the positive impact of fast rising taxes paid to Federal and State governments by energy sector companies, and the hoped-for impact of cheap energy on US manufacturing. He adds that "needless regulation", a codeword for climate-enviroment regulations, will not be allowed to get in the way of the shale energy boom.

President Obama's "Jobs Tour in Texas", this week, brought a new-style president embracing the same US fossil energy industry that his Administration officials, many times, have openly disparaged, insulted and denigrated. Administration observers say that president Obama is beginning to realize that without the Shale Boom, spanning both gas and oil, the US economy could well be bumping along and grinding ever downward to unfathomable and frightening lows like the European economy.

ADDING UP THE BENEFITS
Writing in the UK 'Spectator' magazine this week, Prime Minister Cameron's adviser Peter Lilley firstly notes how Britain's politically correct media made a point of not reporting that recent tests show massive shale gas prospects in NW England's Bowman shale formation. He called this a "strangely unpublicised piece of news". He went on to say that moving shale gas development forward in the UK could help rebalance public finances by generating tax revenues, aid the economy by boosting manufacturing with cheap and clean energy, and rebalance England's north/south divide by creating jobs and new industry in the north of England.

In the US, economic analysis of why and how the economy is finally coming out of recession shows that the energy industry has been a key factor enabling the rest of the economy to recover.  Big oil's rapid development of shale oil production, and the continuing shale gas revolution are effectively President Obama's "secret weapons". They not only improve the job numbers but bring in huge new tax inflows to Federal and State coffers. Without the boost that energy has provided, most economists concur, the economy would be going backwards - like it is in Europe where gas costs up to 4 times more than US natural gas, and the profits flow to greedy Gazprom, greedy Qatargas and other "oil indexed price" gas suppliers, outside Europe.

US economic data is crystal clear. The energy industry has contributed more tax to the Federal government than any other industry. The top-10 list of companies paying the highest amount of Federal and State taxes includes Exxon Mobil, Chevron, ConocoPhillips and their shale gas divisions and subsidiaries such Exxon's gas subsidiary XTO Energy - who paid more taxes than Apple and Microsoft combined in 2012. At the State level, regional and local gas producers in some shale-gas dominant States such as North Dakota, Texas and Louisiana paid more tax than all other industrial tax contributors. The probable near-term launch of LNG exports from the US will extend this revenue boom for hard-pressed State governments and the Federal government.

The hand of the gas suppliers to Europe, operating "oil indexed" pricing is present, ironically, in the coming export boom fed by cheap US shale gas. The 'Financial Times' reports that Exxon Mobil and Qatar Petroleum have agreed a deal for the UK to import American LNG from their proposed $10 billion export project at Golden Pass, Texas. The Qatari financing for this was made on the back of Qatar's profits from price-gouging European and Asian gas buyers, but Qatar is aware that its days of price-gouging are numbered.

GAZPROM TOO
Gazprom has been publicly criticized by Vladimir Putin - for earning less money on declining export volumes in part due to Gazprom's stubborn refusal to cut gas prices, compromising Putin's unrealistic goals for GDP growth in Russia. Among Putin's threatened punishment, he said that Gazprom may lose its status of sole exclusive gas exporter, and that shale gas development in Russia - of course by Russian companies - will be welcomed. Gazprom has itself moved to seeking shale gas development joint ventures in Europe, and in other parts of the world, despite this signing and sealing the coming decline of prices for its exports to Europe and Asia.

Knowing that the "best before date" for price-gouging gas supplies, not only to Europe but also to Asia is approaching rapidly, signalled by the US shale gas revolution and the linked takeoff of shale oil production and global LNG transport capacity, the "oil indexers" are breaking ranks in an attempt to keep their grip on the supply valve for global gas and oil.

Gazprom has moved to take an active role in developing Mozambique's extremely massive offshore reserves of stranded gas. Qatar, Norway and Algeria are likewise highly active in their attempts at gaining partial control of major shale gas and stranded gas resource development projects across the world, in regions as varied as NW Australia, the NE coast of South America, West African offshore,  and Sahel Africa. When the global market tips from supplier-dominated to consumer-dominated, however, they will get no gifts from previous captive customers who paid oil indexed prices.

In Europe, gas prices have stayed "historically elevated" for multiple reasons. Apart from the political refusal to develop the continent's already proven shale gas resources, other reasons include low reserves of current generation conventional gas resources, dependence on renowned price-gouging suppliers like Gazprom and Qatargas, the high-cost development of both new pipelines and LNG terminals, and Europe's clean energy policies and programmes including its now-flimsy discredited "carbon pricing" system based on emissions permits issuance and trading.

LAST VICTORIES OF THE LUDDITES
As in Asia, where only gas transport capacity shortages maintained high prices, this has a direct impact - raising prices - on electricity production, but in Europe this handicap was heavily intensified by "climate correct".  As recently as 2010, European coal-fired power producers had to buy carbon allowance permits at 30 euros per tonne CO2 equivalent of greenhouse gas emissions, but today these trade at around 3 euros per tonne. In 2010 the decision to build modern, start-of-the-art, highly efficient, low emission gas-fueled power plants using expensive imported gas but emitting 3 times less carbon than older coal-fired plants was a rational economic decision for power companies.

Today it is financial suicide, starkly reflected by Germany's No 1 utility E.On's CEO Johannes Teyssen this week announcing a 94% decline in first-quarter 2013 operating profit for E.On's state-of-the-art gas-fired combined cycle power plants with far lower emissions of greenhouse gases per kWh output than output from coal plants. Teyssen's gas-fired plants cannot compete with coal-fired plants using ultra-cheap imported American coal, no longer needed in the US due to abundant supplies of cleaner-burning gas, and lose money on every kWh they generate. On days and at times when Germany's massive capacities of windpower and solar power are at peak output and able to provide 60 000 MW,
power prices in Germany can plunge to almost zero euro cents per kWh. Any production of gas-based electricity at such times is a massive money loser.

Across Europe, utilities are increasing their coal burn for baseload power, as they cut back on gas-fired output, raising Europe's emissions of greenhouse gases at the same time that US emissions decline.

To be sure this is a victory for Europe's Greens - and their objective allies the greedy gas suppliers to Europe - but we can be rather sure that public opinion in Europe has no more time for this costly farce. Their political defeat is imminent. The "carbon finance" farce will disappear, along with the pompous farce of "politically correct" global warming concern, forbidding all development of shale energy, in Europe, while Gazprom and Qatargas invest to produce and export shale gas - to Europe!

By Andrew McKillop

Contact: xtran9@gmail.com

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2013 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisor.

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