Should Gazprom fear shale gas revolution?

[Derbedeu]

Should Gazprom fear shale gas revolution?


By Konstantin Rozhnov
Business reporter, BBC News
European countries heavily dependent on Russian gas supplies are cheered by signs of a balance shift in the continent's energy market.

Dozens of companies, including world majors, have begun exploring or even drilling in search of shale gas, amid talk of huge reserves in the US, Poland and many other countries.
Russian gas giant Gazprom's deputy chief executive Alexander Medvedev has reacted by branding shale gas projects as "dangerous", provoking suspicions that Russia could be unnerved by the latest developments in the world gas market.
In 2009, Russia was beaten by the US to the title of the world's leader in gas production, but it still satisfies more than a quarter of Europe's gas needs.
For his part, the head of Russia's union of oil and gas producers, Gennady Shmal, has told journalists: "Statements that there will be a revolution in the gas industry and that the United States and Europe will manage without our gas are a propagandistic stunt."
He added, however, that "it is necessary to monitor the situation in this sector", according to Itar-Tass news agency.
US know-how
US Energy Secretary Steven Chu said that US natural gas reserves had "definitely" increased by a third and had "probably doubled", thanks to new natural gas drilling technologies.
One of the unconventional methods which attracts a lot of attention and is credited with contributing to the US natural gas production surge is so-called "hydraulic fracturing", the technique of shale gas extraction.
Shale gas deposits sit in tight rock formations at depths of up to 3km, but new technology has made them accessible for the first time.
Shale gas now accounts for up to 20% of US natural gas production, and the US has been ready to help other countries discover whether they possess significant shale gas resources and show them how to turn the reserves into money.


Read more @: http://news.bbc.co.uk/2/hi/business/8609131.stm


Shale gas in Europe is lagging compared to the US, who have pioneered it, nonetheless, it will be an interesting development to follow this decade.

[Panchito12]

As usual from Russia, GAZPROOM talks a lot of bombastic crap but behind the scenes it's quietly searching around to purchase a US company with shale-gas expertise.

[Podman]

Interesting article. The only thing to keep in mind is nat gas is extremely expensive to ship overseas since you have to cool it into a liquid and transport in specialized ships. So US production and reserves are irrelevant to European gas supplies and prices. If Europeans find reserves they can use US technology to develop the fields and diversify away from Russia, but if they don't have the fields US gas won't help them.

This is why there are so many pipeline projects going on in Europe since the only feasible way to transport it is via pipes. Considering Russia's reserves and (albeit deteriorating) infrastructure, I'd still bet on Russia controllling the market for the forseable future.

[CaptMorgan68]

problem is Gazprom has long pursued a policy of locking its customers into long term contracts..... that's how it does business in Europe nowadays... the only thing Gazprom really has to fear is developing LNG markets but it's been catching up in that respect as well.... without LNG you need pipes and those can be very costly... Europeans have been talking Nabucco for years and the only things materializing are North Stream and South Stream with major European participation.....

[Ordie]

Russia's pipelines can only go so far and are fixed.

It's not like a garden hose where you can distribute gas on demand everywhere.

[Derbedeu]

Interesting article. The only thing to keep in mind is nat gas is extremely expensive to ship overseas since you have to cool it into a liquid and transport in specialized ships. So US production and reserves are irrelevant to European gas supplies and prices. If Europeans find reserves they can use US technology to develop the fields and diversify away from Russia, but if they don't have the fields US gas won't help them.

Europe has the reserves. 100's of Tcf (trillion cubic feet) of shale gas. The problems aren't the reserves as much as it is cost, the technology, impact on the environment, population density (compared to the US which has a lower pop. density) etc. It's still early in the game for Europe when it comes to shale gas, and so many of these problems aren't well-thought out yet. The good news is that a lot of European energy companies have started partnerships with US companies and exploration in shale gas, both in the US and in Europe, so I believe we'll see a lot of progress in Europe when it comes to shale gas this decade.

I would like to add that Europe will also benefit from LNG becoming cheaper, meaning that they could import gas from places such as the US, and ensure that Europe diversifies and secures its energy concerns. All in all, it looks like its going to be an exciting time in Europe's energy market and a reason to be optimistic.

[CaptMorgan68]

Russia's pipelines can only go so far and are fixed.

It's not like a garden hose where you can distribute gas on demand everywhere.

genius how else would you suggest distributing gas other than pipelines and LNG? shale gas could probably be liquefied but LNG terminals require significant investment as well as certain political cohesiveness which I frankly find lacking in the West at the moment......... not too mention all the technical difficulties associated with shale extraction that are yet to be overcome....

[Podman]

Russia's pipelines can only go so far and are fixed.

It's not like a garden hose where you can distribute gas on demand everywhere.

I'm not sure that's true. I think the vast majority of Eastern European gas comes out of Russian pipes and there's no alternative supply. That's why when they shut off the flow a few winters ago during the pricing dispute with Ukraine a bunch od eastern European countries went cold in the middle of winter.

But maybe I'm misunderstanding your point :)

[Podman]

genius how else would you suggest distributing gas other than pipelines and LNG? shale gas could probably be liquefied but LNG terminals require significant investment as well as certain political cohesiveness which I frankly find lacking in the West at the moment.........

X2

Plus LNG requires long term planning. It's not like a pipe that you can open a valve. It requires cooling and shipping over the ocean on a ship and since it's not where Europe normally gets its gas it's a requires a whole new business arrangement. LNG works for countries like Japan that have regular shipments, but you don't just order LNG shipments unless there is a significant disruption/price spike.

[artjomh]

Shale gas is great, but the problem is exploration expertise.

Who do you figure will be drilling those holes in Europe? It won't be some grassroots, patriotic citizen's brigade out to overthrow Gazprom's yoke and free their country from dependence on foreign energy. Nope, the ones doing all the feasibility studies and the exploration would be usual suspects: ENI, Enel, E.On, Gasunie, GDF and yes, Gazprom. Because that's who has the money and the technical expertise.

A couple years back everyone was crowing about how LNG, liquefied natural gas, from Qatar will kick Gazprom's ass. Well, guess what, when Sakhalin-2 started shipping LNG last year, Gazprom became one of the biggest LNG producers in the world. Overnight.

Furthermore, Europe isn't America. Americans are investing heavily into this because foreign energy is expensive for them due to transportation overhead, so it makes sense for them to extract more from home sources. In Europe, the economics of gas production are completely different. There is such an oversupply of energy that investing in cost-intensive exploration, like shale gas or tar sands, is simply not economical. Pipeline gas and LNG are plentiful and cheaper.

The only reason why anyone would want to go in this business is if government are going to be financing feasibility studies, which isn't going to happen. Until companies like E.On feel like this would be more profitable for them, they are going to developing these new projects at a very leisurly pace and you are unlikely to see anything come online en masse for decades.

I drink beers with commodity traders from Credit Suisse most of the days now and every time someone mentions that Gazprom is going anywhere, we have a laugh.

[CaptMorgan68]

X2

Plus LNG requires long term planning. It's not like a pipe that you can open a valve. It requires cooling and shipping over the ocean on a ship and since it's not where Europe normally gets its gas it's a requires a whole new business arrangement. LNG works for countries like Japan that have regular shipments, but you don't just order LNG shipments unless there is a significant disruption/price spike.

x2..................

[CaptMorgan68]

Shale gas is great, but the problem is exploration expertise.

Who do you figure will be drilling those holes in Europe? It won't be some grassroots, patriotic citizen's brigade out to overthrow Gazprom's yoke and free their country from dependence on foreign energy. Nope, the ones doing all the feasibility studies and the exploration would be usual suspects: ENI, Enel, E.On, Gasunie, GDF and yes, Gazprom. Because that's who has the money and the technical expertise.

A couple years back everyone was crowing about how LNG, liquefied natural gas, from Qatar will kick Gazprom's ass. Well, guess what, when Sakhalin-2 started shipping LNG last year, Gazprom became one of the biggest LNG producers in the world. Overnight.

Furthermore, Europe isn't America. Americans are investing heavily into this because foreign energy is expensive for them due to transportation overhead, so it makes sense for them to extract more from home sources. In Europe, the economics of gas production are completely different. There is such an oversupply of energy that investing in cost-intensive exploration, like shale gas or tar sands, is simply not economical. Pipeline gas and LNG are plentiful and cheaper.

The only reason why anyone would want to go in this business is if government are going to be financing feasibility studies, which isn't going to happen. Until companies like E.On feel like this would be more profitable for them, they are going to developing these new projects at a very leisurly pace and you are unlikely to see anything come online en masse for decades.

I drink beers with commodity traders from Credit Suisse most of the days now and every time someone mentions that Gazprom is going anywhere, we have a laugh.

x2.... very well put

[AlexMartin2]

Hehe, just read about shale gas on other forum. So, now I'm an expert in this topic :)

Calorific value of shale gas is 2-2.5 times lower that natural gas. Shale gas have no more than 3600 kcal/kg, natural gas - 8000 kcal/kg. Mining/production cost of shale gas more than $200 for 1000m3 by assessment of independent researchers. Moreover, if end consumers will be using shale gas, they need to receive it. And get 2-2.5 times more gas (in volume). So they will need second(?) gas transporting system, different burners and so on. Shale gas cannot be used by heat stations, metallurgical works, etc, because its formula is different, too many bad additions.

Gazprom may sleep peacefully :)

[Difool]

I don't see a realistic alternative option for Europe in the next decades other than to get gas from Russia. Maybe Iran but that depends on the political development of that country.
It's always good not to depend on one supplier. So besides Norwegian gas Nabucco pipeline might be another option. But this pipeline would make really sense if Iran would be using it, too.
The need for Gas in the EU is rising. So the more we can get the better it is. North-Stream, South-Stream, Whatever-Stream go ahead!

[Derbedeu]

Furthermore, Europe isn't America. Americans are investing heavily into this because foreign energy is expensive for them due to transportation overhead, so it makes sense for them to extract more from home sources. In Europe, the economics of gas production are completely different. There is such an oversupply of energy that investing in cost-intensive exploration, like shale gas or tar sands, is simply not economical. Pipeline gas and LNG are plentiful and cheaper.

The only reason why anyone would want to go in this business is if government are going to be financing feasibility studies, which isn't going to happen. Until companies like E.On feel like this would be more profitable for them, they are going to developing these new projects at a very leisurly pace and you are unlikely to see anything come online en masse for decades.



Governments are already supporting such studies, as well as providing lucrative terms for gas companies. Poland will actually start drilling it's own shale gas well in conjunction with Conoco Philips this coming month. Yes it will take years for shale gas to come online en masse in Europe, but not decades. Keep in mind that a decade ago, shale gas in the US was nearly as inconsequential as it is in Europe today.

While shale gas will never replace LNG or pipelines, it will significantly reduce Europe's dependence on them, which is a good thing.

[CaptMorgan68]

Governments are already supporting such studies, as well as providing lucrative terms for gas companies. Poland will actually start drilling it's own shale gas well in conjunction with Conoco Philips this coming month. Yes it will take years for shale gas to come online en masse in Europe, but not decades. Keep in mind that a decade ago, shale gas in the US was nearly as inconsequential as it is in Europe today.

While shale gas will never replace LNG or pipelines, it will significantly reduce Europe's dependence on them, which is a good thing.

Poland also just signed a long-term supply contract with Gazprom.... it might become an aternative additional but they obviously don't think it could replace what they get from Russia

[artjomh]

By supporting I mean "paying for them", not "urging and begging".

Also, what Conoco is doing with the Poland is not production. They are drilling to evaluate if there is actually anything there and if its worth investing in. Actual production for sale, if it's even going to happen, could easily be 10 years away.


Keep in mind that a decade ago, shale gas in the US was nearly as inconsequential as it is in Europe today. I just don't see it gaining much traction.

Shale gas boom in the US led to significant drops in gas prices. While it is a great idea for consumers, it is the opposite for energy majors. In fact, R&D and new project development is inversely proportional to the dynamics of natural gas prices, so dumping more fuel on the market would naturally lead to LESS new projects developing SLOWER, rather than MORE projects and FASTER.

Shale gas is like tar sands. In the long run, it is a great idea because easily accessible oil and natural gas are not infinite and there will come a time when developing shale gas and tar sands may be a lot more economical than drilling in the ocean. But we are just not there yet.

[CaptMorgan68]

By supporting I mean "paying for them", not "urging and begging".

Also, what Conoco is doing with the Poland is not production. They are drilling to evaluate if there is actually anything there and if its worth investing in. Actual production for sale, if it's even going to happen, could easily be 10 years away.

or more....

[Derbedeu]

By supporting I mean "paying for them", not "urging and begging".

Also, what Conoco is doing with the Poland is not production. They are drilling to evaluate if there is actually anything there and if its worth investing in. Actual production for sale, if it's even going to happen, could easily be 10 years away.

It is going to happen, and chances are in less than a decade.



I just don't see it gaining much traction.

Shale gas boom in the US led to significant drops in gas prices. While it is a great idea for consumers, it is the opposite for energy majors. In fact, R&D and new project development is inversely proportional to the dynamics of natural gas prices, so dumping more fuel on the market would naturally lead to LESS new projects developing SLOWER, rather than MORE projects and FASTER.The number of companies tripping over themselves to get a foothold in shale gas production, both in the US and Europe, belies your assumption. Four major gas companies have already bought rights for shale gas exploration in Poland alone, and one of them will start exploratory drilling this month. They wouldn't be doing so if a) they didn't think anything was there and b) it won't be profitable to them.

Companies can't afford to sit on their hands and wait for the next big thing to come around, they tend to think ahead. As you yourself noted, these projects require major investments and preparation, which is why companies are looking to get in now. These projects usually start at a slow pace, but really pick up speed after a while.

2020 is a very long time time away. Shale gas production in Europe will certainly be online by then, especially as there is a political and economical interest by governments and companies in the field.

[daily666]

or more....

More. And the only ones who have the technology of obtaining the shale gas are the Americans. Exxon Mobil, Chevron, ConocoPhillips are already here with Lane Energy starting their drilling next month. The whole thing was played loud by the Polish side before closing the trading agreement with Gazprom.

I personally heard the opinions (and I work for the industry) that it's just a momentary topic for the politicians to shout about and the geology of Poland is somewhat different than US, so it's not possible to get natural gas this way. We'll see.

[muttbutt]

Poland also just signed a long-term supply contract with Gazprom.... it might become an aternative additional but they obviously don't think it could replace what they get from Russia
It's not about "replacing" anything, it's diversification of supply.

[void]

If shale gas is expensive to extract then Gazprom has nothing to worry about. Look at oil. Canada's tar sands oil deposits are MASSIVE, but I dont think Saudi Arabia is too worried because tar sands oil is ridiculously expensive to extract and damaging to the environment. I expect the situation is much the same for gas.

[Flamming_Python]

It is going to happen, and chances are in less than a decade.

The number of companies tripping over themselves to get a foothold in shale gas production, both in the US and Europe, belies your assumption. Four major gas companies have already bought rights for shale gas exploration in Poland alone, and one of them will start exploratory drilling this month. They wouldn't be doing so if a) they didn't think anything was there and b) it won't be profitable to them.

Companies can't afford to sit on their hands and wait for the next big thing to come around, they tend to think ahead. As you yourself noted, these projects require major investments and preparation, which is why companies are looking to get in now. These projects usually start at a slow pace, but really pick up speed after a while.

2020 is a very long time time away. Shale gas production in Europe will certainly be online by then, especially as there is a political and economical interest by governments and companies in the field.

You're subscribing to wishfull thinking. One day the whole of Europe was up in arms about being 'dependent' on Russia's gas supply, Nabucco, etc... the whole thing. And the next day this silver bullet comes along which everyone knew was there, but only now have figured out (after failure of Nabucco) that it's just what they need.

Sorry but even if shale gas production is up and running by 2020, it's not going to account for much most likely. Even if at full production it could completely satisfy Poland's current domestic demand, full production takes years to establish and may not be economically sensible, not to mention that Polish and other European industry would have expanded by then, therefore total energy needs will be greater.

The country with the infastructure, supplies, ability to deliver, guarantees, etc... when it comes to energy supply right now is Russia. If Poland wants to become a major player it will take far longer than 10 years to establish.

[jokuvaan]

Some time ago I watched a long document about shale gas and Gazprom. If European shale gas revolution does fully happen, it means that for example Nord Stream will never pay back the money invested in it, stakes are high.

[JPBaz]

Here is another article on the opportunity shale gas presents in the EU.

http://www.nytimes.com/2009/10/10/business/energy-environment/10gas.html

Another interesting note is how great the opportunity will be in other developing countries (China and India) and the impact of potential shale gas and a move away from coal.

[IconOfEvi]

WHats interesting is other countries are coming around to the abiogenic theory of oil - essentially, if you dig deep enough, you will find oil, because its being constantly made.

Vietnam I believe already has an operating oil rig on the principle.