[NGW Magazine] Editorial: Dog Days

In August – a month devoted to platform maintenance, pipeline pigging and intensive strategising on beaches – it does not take much to make headlines. Gazprom though would have had some coverage even at a busy time of year as it announced record gas deliveries to Europe – and in a summer month, too. With exports of 586.5mn m³ on August 16, that was equivalent to 214bn m³/yr, or about a fifth more than its record 179bn m³ in 2016 – with the caveat that a Russian cubic metre contains less energy than a standard. Between January 1 and August 15, exports were up 12% year on year, with even the Baltic states taking twice as much.

The reasons were not hard to find: Gazprom is not only an exporter, but it is a major gas marketer and owner of storage capacity across Europe. After the long cold winter, these facilities would have been in need of recharging. And with more of the capacity in the Opal line legally restored to it at the very end of July, August flow rates have been rising accordingly. Then too there is the economic incentive to compete on price and retain market share. Norway has also seen record exports this summer.

One of the Baltic states, Lithuania, also took delivery of its first cargo of US LNG in August, the buyer providing little information about the price relative to Russian gas. But by the time the gas is delivered to the customer, any difference will have been lost among taxes and other charges and the summer-winter spread.

Russian exports eastwards came a little nearer to reality, as construction work began on the Amur gas processing plant: the starting point for the Power of Siberia gas pipeline that is planned to take some 38bn m³ to the Chinese border from 2019 – the same year as Nord Stream 2 and TurkStream start up in the west.

Among the many notable achievements of the first project is its use of Russian hardware, now competitively priced and technologically advanced. US and European Union sanctions have limited technology imports since 2014 and also made them more expensive, by weakening the rouble.

Russian steel mill TMK has proved capable of delivering the right quality linepipe, capable of withstanding not only the high pressure but also the wide fluctuations of temperature in that part of the world, as the Russian government’s policy is to save money and drive innovation. With the rouble weak, Gazprom wins on foreign exchange from its western gas exports, to spend on cheaper domestic materials. TMK claims also to have come up with sufficiently robust pipeline coatings to withstand the corrosive gas from Lukoil’s and Gazprom’s Astrakhan fields – another triumph, then, for western sanctions.

Turning to the southern hemisphere, LNG remains a controversial commodity in Australia: August saw tensions mounting between Canberra and the Queensland producers, the latter innocently fulfilling export contracts signed years ago, the former fretting over the price that the shrinking domestic supply will reach and the subsequent power price. Any shortage of gas for the domestic market is not the producers’ fault though, nor would it be politically astute for a government, a member of the OECD, to choke off supply to the trains, if it wants to attract investors and retain credit. One option is for Australia’s domestic sector to ‘buy into’ the world market, and utility AGL is already mulling a floating terminal in Victoria or New South Wales.

There is plenty of gas underground worldwide; it is just that states have preferred to defer the thorny question of shale gas production for as long as possible, either through moratoriums or to carry out further scientific studies, in the face of local opposition. Cutting production means prices will go up. Now it seems as if the end point of these deferrals has been reached, but persuading the public to accept shale gas production will be another matter.

Shale gas indeed has few friends outside the US, being all but banned in Europe as well, apparently on the precautionary principle. The UK is the one beacon of hope for producers, as August saw Cuadrilla embark on its first shale well in six years, targeting a supposedly prolific seam of shale lying several kilometres beneath the surface of northern England.

There are three claims employed by those against shale: one is that fossil fuels are on the way out and so investing in them is money wasted; the second is that it endangers the environment and should be dropped; the third is that it won’t be producible anyway as the geology is all wrong. This claim was revived the day the drilling started in August by a geologist who said the shale was the wrong era. This contradicted an earlier report by the British Geological Survey that said there were trillions of cubic feet of gas in place.

It will take a little time and money to establish the geology. And there are other companies in the UK, such as Centrica, Ineos and Total, who are also hoping that the shale gale from the US might at least cause a few gusts on the other side of the Atlantic. Maybe by Christmas, the truth will be known but, even if promising, significant UK gas production could be a decade away. It’s worth remembering that in Poland, it was the geology – not any protesters – that saw off shale investment. Total though has found a more tangible way to increase its production capacity at a stroke: it has bought Maersk Oil, of which more – and much else – inside

NGW

If you are interested in reading Natural Gas World Magazine Volume 2, Issue 16, you can purchase it in our store or if you want to read us regularly you can acquire a Premium Subscription to Natural Gas World.