When does fracking sidle back onto the UK agenda?

It's kinda noteworthy that, the ruckus over the Cambo field notwithstanding, several more North Sea licences are under consideration.   And the Climate Change Committee (under silly "Lord Deben") has correctly opined that, while they'd prefer new licences not be granted, it's a purely political matter having nothing to do with objective reckoning of whether it would increase global CO2 emissions (which it wouldn't).  Ah, COP26 seems so long ago now ...

Of course the greenie-left is trying to get its retaliation in first, having spotted (again, correctly) what they take to be a great argument, namely that increased UK production would have no impact on the world price of oil or gas - so we wouldn't pay any less for our domestic energy.  AND - shock, horror - we might even export the stuff!  True, as far as it goes - but it misses two critical details that in my book invalidate the objection entirely.  (a) they are wrong about the price impact as regards local prices which would indeed fall (by a small amount), that being the transportation cost differential between home-grown and imports; (b) the Exchequer would gain mightily from the tax they would levy on the profits arising, there being clear daylight between production costs and today's high oil & gas prices.  All this atop the jobs created etc etc.

So:  perhaps some new offshore O&G licences first, & then see how the land lies?  Before getting back to the really interesting topic of fracking.  Incidentally, I am the last one to minimise the practical difficulties involved in fracking in the UK (we had many a thread on this several years ago); but the amounts of gas are so immense, and the value so high, we could afford to do the job really well and avoid, minimise, or handsomely compensate for any downsides.  There's no getting away from the political price that would be paid just now ...  but give it time: that shale gas ain't going anywhere.  And Germany seems to have changed its energy policy (as well as its military policy) quite significantly in the past few days.  The Ukraine factor might yet have transformative effects here, too.

ND  

Fracking Across The Globe

Been a bit busy of late but a couple of Grauniad headlines still caught the attention over the weekend, starting with the latest update from the increasingly active northern shale gas drilling scene:

Shale gas firm Cuadrilla brands anti-fracking activists 'irresponsible'  -  CEO Francis Egan complains about protesters ‘harassing’ contractors supplying Preston New Road site in Lancashire

Yes, after a very long hiatus the North of England Shale Show is back on the road!  Or being hindered by a roadblock, as it would seem, because there's plenty of pesky opposition - the usual combination of genuinely local nimbys, misinformed 'ordinary people' with too much time on their hands, and itinerant swampies now trading as Reclaim The Power.  (You'd imagine the hyperventilating hoards of Momentum wouldn't be far behind, except that they are fully occupied with fratricide just now.  And I'm guessing t'unions may have told Corbyn to keep out of it, based on how they made him support nuclear in Copeland.)   An enjoyable line in outdoor relief for all concerned (plus overtime for Old Bill) - except for the local contractors.

But shale in the UK never looked to be a near-term phenomenon (we've discussed this all before).  Even if the reserves are as big as Cuadrilla believe, in broad-spectrum practical terms they just ain't particularly accessible.  A far cry from the USA, where the recent OPEC-driven rise in oil price is, though rather modest by the standards of 2010-2014 prices, more than enough to re-ignite the mighty shale-drilling activity there, oil and gas.  This comes as a big shock to legions of idiots who consoled themselves with the thought that shale needed a price of $100 - or was it $80? - or $60? - to be viable.  Sorry, but technology doesn't work like that: it gets better and better, cheaper and cheaper, and always surprises idiots.  If in doubt, go short - because there's always more stuff out there than anyone thinks. 

This leads to another mighty quandry for all the antis who thought they could put moral / financial pressure on big companies and pension funds etc, to effect some kind of investment boycott of the fossil fuel industries, and force the authorities to mark down oil company oil reserves as stranded and worthless.  Why, the Grauniad itself even tried to run a campaign along these lines. Which brings us to the second headline:

Environmentalists urge French bank not to finance Texas fracking project Activist points to ‘hypocrisy’ in BNP Paribas’s involvement in south Texas export terminal, given bank’s claimed commitment to the environment

Well, sorry guys but shale in the USA is 100% mainstream now and you won't actually find a major bank or indeed any other financial institution that isn't already 'in'.  Because, as we know, shale is going to make the USA self-sufficient in energy as far forward as anyone can see, with momentous geo-political implications.  And that's before Venezuela lets rip, because they have more accessible shale oil reserves than Saudi has 'conventional' oil.  And (when they need the extra reserves) Russia has more gas than the world will ever need.

And the IEA - which is seriously schizophrenic on this issue, BTW - thinks we need much, much more oil ... (well, that's what it thinks this month).

Anyhow, Swampy and Cuadrilla will no doubt continue to slug it out in Lancashire.  But they are a sideshow of such small proportions, it'll make Paul Mason's head explode one day.

ND

$50 Oil. Everything's Relative

We've long noted that everyone, from Saudi Arabia to the Green Party, misunderstands the logic of the US onshore oil & gas industry, namely that it (a) is rational; (b) is flexible; (c) understands sunk costs; (d) has ready access to equally flexible and rational finance; and (e) is constantly innovating - in the direction of reducing costs.  And thus it defies predictions every time.

This cartoon says it all really.

http://www.upstreamonline.com/

If you want some words to go with it, there's always Nick 'sometimes useless, sometimes not' Butler blogging in the FT.

[Saudi] strategy has not only failed but has caused serious damage to the Saudis themselves. Prices fell much further than anyone anticipated because other participants in the market did not respond as expected. The Saudi increase in production has not destroyed the US industry – American output has fallen only marginally despite a 70 per cent drop in prices. The kingdom simply underestimated the resilience of the US producers and their ability to cut costs.

Ain't that the truth.  

ND

Tory Shale Policy - Cooking on Gas Yet?

On Tuesday we had a look at the surprisingly robust implementation of Tory manifesto promises on onshore windfarm development - but what of the pro-shale policy ?  Towards the tail-end of the comments, someone mentioned shale fleetingly; but Lancashire County Council seems not to have got the message.

When we discussed this last year I opined that the protest-tide may have turned, in the face of new-found determination on the pro-shale side  -  see, for example, this publicity stunt: 'students for shale' !  The anti-shale independent beat the LibDems and Geens in Fylde at the election, but still came only fourth.  Going into the election, Labour had a cautious and rather qualified but nonetheless pro-shale policy, but some of the leadership candidates clearly intend to backslide to a more comfortable anti-everything position.  Evidently the daft old left has decided to get out onto the streets again, so a revived anti-shale movement may be afoot.

What larks.  I don't detect the newly emboldened Cameron has any time for faffing around on settled policy issues, nor any truck with the swampy brigade, but the Country Squire set still has a bit of influence with him.  Osborne is just plain pro, and Lancashire is presumably part of his Northern Powerhouse.  Amber Rudd is said to be taking the summer off to devise a new energy policy.  Let's see what she comes back with after the hols.


ND

Fracking and Fantasizing

As we've often discussed, cheap fossil fuel is a dagger in the heart of the green agenda, which tries so desperately to trade under the false flags of security of supply and lower long-run cost.  The sophistry with which DECC argues that its policies will result in "lower energy bills than they would otherwise have been" would delight a Jesuit wrangler or medieval schoolman.  The tortuous counterfactuals are mind-boggling.

With coal already dirt cheap (and I do mean dirt), oil at $50 or so, and gas following them down, the hollowness of this rhetoric sounds louder than ever.  And since (a) the government's new subsidy of choice - the Contract-for-Difference - settles against market price*, and (b) there is an overall £bn cap on the amount paid out, an awful lot of would-be renewables projects are looking increasingly fanciful (not to mention Hinkley C, which must surely now be cancelled - surely?).

Amusing, then, to hear loud whistling-in-the-dark from the direction of the Grauniad's Environment section:

Plummeting oil price casts shadow over fracking's future
The price of oil has dropped to around $55 per barrel, but fracking companies need prices of $60-100 to break even.

Hold tight fellahs, before you get your hopes up: let's just watch and see what happens. First thing will be, yes, a reduction in CO2 emissions, haha!, as even more coal gets displaced by cheaper natural gas.  Funny, eh?  

But no, the US fracking industry will not implode.  US onshore drilling is one of the most price-sensitive things known to man so, sure enough, the number of new wells drilled will fall.  This happens every cycle and is called The Laws of Supply and Demand, nothing unusual there.  But the Sunk Costs phenomenon will also be at work; and a shale producer with debt to service has nothing to do except keep producing, at whatever price, right down to his marginal cost of production (rather lower than "$60-100 oil eqivalent").  If he goes bust,  as some will, one of the big boys will gladly relieve him of his assets.

I still wonder when someone somewhere well to the east of the US shale industry with access to high explosives will take matters into his own hands.  Barring that, settle down for a big disappointment for our greenies, plus the usual surge of cost-cutting innovations the price-slump will certainly engender, facilitating the next round of new developments.

ND 

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* I acknowledge that the Energy Act gives DECC the power to rig the market price of electricity.  However, they'd probably find it hard to do more than give it a bit of a nudge before serious repercussions came their way 

Shale: Let The Bribery Begin

The great trick with shale is to proceed logically.   If there is as much UK potential as Cuadrilla and IGAS believe (and they really, really do: they wet themselves every time they think about it which is a dead giveaway), let them play 'put yer money where yer mouth is'.  Ever-thrusting INEOS* has just made a sensible move; offering 6% of revenues to landowners and locals: a kind of voluntary royalty that starts to create the same kind of favourable dynamic you get in the USA where real royalties are payable. 'Bribes and bulldozers' ?  Sounds good to me.  Trying to develop trillions of cubic feet of onshore gas on the cheap, in a densely populated area, is just, well, silly.

Sniffing the air - it's diesel fumes from drilling rigs, BTW -  I'd say the path is fairly clear for the UK shale explorers now.  The man in the street (falsely believing we get our gas from Russia, it seems) is pretty much minded to let them go ahead.  Swampy and his friends are looking forward to scrimmages in country lanes, which is their democratic right.  The Old Bill is looking forward to plenty of overtime, and private security firms to deploying a lot of cheap-labour patrols and barbed wire.  Local authorities are looking forward to some extra revenues: and land-owners will get a bit of the action, too.  Water companies will sell a lot of water, and put a bunch of land to more productive use.  University departments from geology to chemical engineering are angling for lucrative projects.  A raft of service industries will make hay selling shovels to the gold prospectors.  The PR industry will be conducting community outreach projects on a scale beyond their wildest dreams.  And not a subsidy in sight !

Funnily enough, in the end it is probably 50:50 at best as to whether there's anything to be done by way of large-scale development in the UK because, quite objectively, the production costs will be high here and gas prices are seriously declining across the globe.  In a race between developing, say, Algerian shale (they have astronomic potential in their Big Open Spaces) and UK shale, my money is on Algeria.  And - of course - Russian pipeline gas is cheaper still!  But hey, so long as it's not public money ...

A final word on 'bribes'.  A lot of lefty-greenies hold up Norway as a paragon of how oil and gas development should be done:  tax it big, and create a SWF.  Well OK, with a population of 5 million that's probably right.  But do they know how licences are awarded in Norway ?  The bidders put their money on the table at the Ministry of Petroleum, on top of which they offer creative ideas like we will also sponsor this little fishing village (which, needless to say, is otherwise completely unviable).  "Bribery" ?  Well, if you must.

ND

* I've always liked INEOS (and BTW have no shareholding or other interests in it).  Emerging as did several companies from the bloated, decaying corpse of once-glorious ICI, it represents the 'creative destruction' that is capitalism.  In their final years the management of ICI were a disgrace.  They held the stewardship of unique and fabulous assets from Chesire to Teesside; became fat and lazy; and as their indolence and lack of imagination led inevitably to decline, they concentrated on seeking special treatment from government, threatening job losses if they didn't get their way.   Darwinian dynamics brought the story to its conclusion. 

Fracking & A Rare Example of Political Will

Fracking has the hallmarks of an issue best left until after the election, like Blair studiously did with Nuclear before 2005.  Swampy doesn't vote, so let him fester in his damp hole and get mistaken for a badger: but actual middle class people are known to take fright at the prospect of a drilling rig in their back yard.  In the likely scheme of any UK shale developments what practical difference does a year make?  I'm as big an enthusiast on shale as anyone, and a great believer in Political Will: and still my answer would be: not a jot.  The gas ain't going anywhere; and there's a good chance there may be nothing to show for any exploration conducted between now and next May.  But there could be some messy headlines.

Nonetheless, the government has got religion on this, and has been plugging on rather purposefully for a good few months.  Do they actually fancy running battles with Greens down country lanes  ? (I'm quite sure PC Plod does ...)  Is this part of the great Crosby playbook ?

For what its worth, I'd say the shale policy is being pursued fairly intelligently (everything is relative, mind) with a 50:50 chance of positive political outcome.  The most recent announcement (full steam ahead but careful of the National Parks) is sensibly cast.  There's a section of the population that likes the smack of firm government; energy security-of-supply is a well-known refuge for political scoundrels (and little Putin is certainly playing his part); and there's another part of the population that generally knuckles down to the inevitable, so long as it is mildly sugar-coated - which this one is.  Even the Guardian's critique is qualified, and resigned to the inevitable.

I can also tell you (from the front line, first hand) that the drilling companies have taken the signal and are intent on playing hardball: not Henry Ford-style, but with serious determination, based on the understanding the government has their backs.  Local councils will generally play along with a determined developer, particularly when there's that bit of sugar-coating on offer; so persistence will win out.  And the academics - who some assume are greens to a man - are in fact pragmatists to a man, always on the look-out for sponsored research opportunities.  They will largely be onside too, with a whole new industry in prospect. 

Yes, 95% go with whichever way the wind is blowing, and the government has decided to blow.  Of course, they're showing the same steely resolve with nuclear and all manner of 'renewables' lunacy too, so it may be viewed as all of a piece*.   Energy policy, misguided or otherwise, seems to have that effect on people.  You don't get forgiven for letting the lights go on the blink.

ND
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* Funnily enough, all of this - the fracking and the faffing - is undermined by falling gas prices, happening across Europe and Asia without any help from UK shale !

Price Of Oil Looks Shaky

Back in November when we discussed this before, we all chorused that the price of oil would remain rangebound, $100-120, for the near-term future.  It's at the soft end of that just now, and today we read in the DTel:

Iraq and Iran plot oil revolution in challenge to Saudi Arabia:   Iraq's goal of pumping 9m barrels a day of crude could be a game changer for oil prices

Well yes indeed: there is enough oil in Iraq alone to achieve that.  Whether there are enough competent oil engineers there is another question: I knew loads of the old Iran hands who were sent packing in 1979, and after their departure the mullahs somehow never managed to get the stuff flowing properly again, despite having all the incentive in the world.  It really isn't as easy as it looks, even if the Telegraph is correct when it goes on to say:

BP and Royal Dutch Shell are also poised to benefit from Iraq's ambitious production plans. Both companies are already managing two huge oil fields in southern Iraq which are vital if Baghdad is to achieve its goal.

But that's just the technicalities.  The plentiful Iraqi resources that are widely said to be 'available' with per-barrel production costs less than $10 are probably real enough; but '$10' is before you factor in the need to pay off or repulse every bugger with a stick of semtex for 500 miles.

Now as we know, our old friend Volodya (that's Mr Putin, Sir, when oil is above $100) will be well up a gumtree were the price of oil to plummet.  I don't know what that tells you about the proliferation of semtex in the Middle East but there's probably some kind of inverse relationship to be hypothesised.

One thing the greenie-reds always chime in with at this point is: shale production (gas and oil) is also scuppered by oil prices much below $100.  Maybe, but so what ?  Supply & demand, commodity cycles - stuff happens.  (Sunk costs happen as well and ignorant people are endlessly surprised by how that works out.)  I'm a consumer, I like low prices.  Still, it might mean Putin has a few fellow travellers down his path.

ND

Shale Gas: Phoney War Over

Right from the start the C@W community, above and below the Comments line, have been solidly in favour of the UK exploiting whatever its shale gas resource turns out to be: frack on! say we.  

We also recognised, right from the off, that an abundance of shale would be the death-knell of conventional Green arguments (many of which have been swallowed whole by DECC) for renewables being somehow 'cheaper in the long run' - they'd have to retreat to a purely doctrinaire, faith-based case.  As such, they'd hurl everything they have against the shale industry ever getting off the ground, let alone up from under the ground.  Mendacious anti-shale propaganda is just the soft side of this, but there was bound to be a tougher manifestation. As we said years ago, PC Plod (who sometimes fails to protect entire power stations, complete with security staff and perimeter wire) could therefore find himself fairly well stretched trying to police hundreds of small, dispersed and vulnerable sites the length and breadth of the land.

Finally, while we are in told-you-so mode, we said that the often embarrassingly amateurish Cuadrilla and other tiddlers who were making the running were merely stalking-horses for the big players. 

Some have despaired of the government's resolve in the matter - indeed, we may sometimes have been a bit frustrated too - but hey, once again GDP trumps GHG !  And so it comes to pass.

• government is really working hard - even if clumsily - across all departments clearing obstacles to large-scale exploration
• big players - most notably the French, GdF-Suez and Total, who are banned from shale development in their own country - are buying in
• the LibDems are officially onside, even if some of them can't hide their skepticism
• and yes, even Labour is now formally on board, whilst inevitably registering some qualifications to its support

This is quite a moment for the Anti camp, seeing the Pro forces assembling on the hillside in front of them at last.  The Antis are a heterogeneous bunch.  On the 'green-red' flank, naturally all the air-headed swampies are milling around.  They are often deployed as berserkers in the fray, but the leadership lies elsewhere. Keeping an eye on the No Dash For Gas website since their extraordinary debut at West Burton, it has been clear that there are some heavy-duty professional troublemakers in their ranks, along with academics and genuinely clever people, all highly motivated, whose capacity for mischief will prove to be extensive.  (As part of the joined-up government planning, the police have been tooling up seriously for this match ever since Balcombe, but their native brain-power and intelligence-gathering will be stretched by the smart tacticians they are facing, GCHQ notwithstanding.)

But if that was the end of the matter, the fertile popular ground that revolutionaries always seek would be entirely missing, and the whole affair would be just a glorified Hunt Saboteur affair.  The really interesting factor is that village by village, a serious middle-class Anti movement is gathering.  Partly nimby, partly countryside-idealist, partly soft-green, it already has more traction than the anti-windfarm lobby.  It's quite a network (trust me on this one), and is replete with 'sensible' experts who know how to run effective planning-permission campaigns, as well as the kind of well-heeled, time-on-their-hands, county-class enthusiasts who have real clout.

The front presented by all these Anti forces is by no means monolithic.  In part, that's its strength, but of course it's a vulnerability too: the county types quickly fall out with the rent-a-mobs after a few noisy, dirty days of skirmishing in the lanes and fields.  Also, as every despairing revolutionary knows, the bourgeoisie always disappoints when the going gets truly radical.  It may be, for example, that the current government multi-disciplinary onslaught (which, as well as bundling Labour onside, has already ended the initial knee-jerk Anti attitude in the Beeb, whose coverage is now studiously balanced) seems responsible - and determined - enough to convince a lot of folks that the Man in Whitehall probably knows best, that it's happening whether we like it or not, and that a bit of extra revenue from business rates and local royalties won't go amiss.  (Look at how the water companies are rushing to join forces with the nascent shale industry.)

IMHO there is a simple step the government could take that will be very helpful in defusing the genteel Anti movement which, to repeat myself, is really gathering steam and is underestimated at their peril.  The Environment Agency is truly too feeble to represent a genuine regulatory safeguard on the very real potential environmental aspects.   Osborne, in particular, seems to think it is clever to take short-cuts here. That is very short-sighted: there is no shortage of money in this game to institute an impeccable, world-class regulatory regime that will satisfy all reasonable folk.

In any event, it's game on.  Will this be Poll Tax Riots 2 ?  Miners Strike 2 ?  or a re-run of the Huntingdon Life Sciences nonsense ?  Could get interesting either way.  Let's hope there is actually some gas down there ...

ND

Oil and Troubled Geo-Political Waters

Iran, Russia, Ukraine, Turkey, Saudi, Syria - and back to Iran again

Up and Down

Initial reporting of the Iranian nuclear deal had it that the price of oil had dropped $2 on the news.  It wasn't true and in fact the price of Brent went up, slightly.  Brent has been range-bound, $100 - 120, for a long time now.  Not a tight range, but not headline-setting any more.

Russia, we gather, was one of the major players behind the Iran deal, and they certainly have no interest in a materially softer price of oil.  This DTel piece paints a pretty grim picture, and repeats the received wisdom that Russia needs an oil price of $110 to balance its budget (others have quoted a higher figure).  They remain uncomfortably stuck as a raw materials economy, despite their fervent longings to be a manufacturer: I've recorded here before that they have tried several times to sell gas and oil into the far eastern markets in packages with manufactured goods, 50:50 by value.  You can imagine where the Chinese have told them to stuff their useless trucks; and I read with amusement a couple of weeks ago that their new LNG export deal with South Korea works the other way around.  In this package, the Koreans will build the LNG ships for the Russians.  This is the sort of reality that has Putin tearing at what little hair he has.

But it's not all bad news for Russia.  They must relish the leading role they've taken with Syria and Iran (it's their back door, after all) - and what about the Ukraine !?  Their pulling out of EU accession negotiations must send the expansionist tendency in Brussels ranting up and down their luxurious corridors.  (I could wish the estimable Hatfield Girl was blogging just now; she writes interestingly on these matters.)  When will Turkey decide it's not worth the effort ?  That really would be a turning-point.

Who else is seriously long oil ?  Why, the Saudis, of course, who at the same time are none too chuffed about the Iran deal.  One particularly daft comment suggests that "Riyadh may try to 'rap America’s knuckles' by flooding markets with enough oil to puncture the US shale oil revolution. Production costs at the US Bakken shale field are around $80".  Yes, the USA is long oil as well: but I have a feeling that 'something' would happen long before the price fell that far.  There has long been the theoretical potential for a genuinely significant oil-price reversal: it is the truly epic quantities of oil reserves everyone knows are present in Iraq.  But somehow it never gets developed ...   

One also reads that the Iran deal is bad, bad news for the Syrian 'opposition'.  Assad-supporters Russia and the Iranians are now riding high and surely command at least several months of goodwill in the West  - so woe unto the enemies of Assad ?  Well maybe: but the perennial enemies of Iran are not appeased.

Sometimes, big-power diplomacy really does put the lid on a boiling pot. Remember North Korea ?  Ah yes, that's right, a few months ago they were threatening a first strike on Seoul and Seattle. It was headlines on every news channel for days and days.  And then suddenly ... nothing.  Oh, to have been a fly on the wall when the Chinese took Fat Boy to one side and read his fortune for him.

However.  When it comes to Iran, those perennial enemies probably have the means to keep the pot boiling for a while yet to come.  Price of oil on 31 December this year ?  Predictions in the comments, please.

ND

Shale: Another Nail in Osborne's Coffin

Balcombe Blame Rests Here

Or rather, the coffin of his reputation as a strategist.

Oh yes, it's been dead awhile, stone dead.  But by my reckoning, his screw-up on shale is almost up there with the fatal boundary-change abortion.

In both cases, Master George the master-strategist seems to have identified clearly enough the paramount significance of a particular issue.  But instead of following through, of giving it the undivided attention and planning and execution it merits (being An Issue Of Paramount Significance, yeah ?), he farts in its general direction and assumes that plaudits are in order for his spotting, and farting at, the obvious.  But a real strategist understands that strategic insight is empty without genuine, unremitting, practical application to the task of figuring out everything that follows, in grinding, boring detail - and actual implementation of the needful.  Whatever it takes.  With no loose ends.  Because, hey, it's of Paramount Significance.

We know how the boundary changes ended: so what happened with shale ?  When the initial Cuadrilla discovery was announced, we wrote here: This Is The Big One.   Others (e.g. Mr Worstall) followed our lead, and soon it was recognised by all and sundry. See, George, it is really obvious (& let me quickly add that C@W was by no means alone in trumpeting the matter).  George duly cottoned on too and started running his own energy policy - hatching tax breaks (unnecessary) and a streamlined permitting regime (stupid, at least in the way it's been done), with a bit of gratuitous green-baiting (Juvenile George's stock-in-trade).

But what else obviously follows from the obvious significance of shale ?  Why yes: every Green and Red and general unwashed malcontent and transgressionist across Europe would realise that shale gas (if actually found here) could be the death-knell of their various stone-age / statist dreams.  Accordingly, they would be out in force to try to prevent drilling, with a lot more chance of drawing the crowds than (say) the rather recondite NoDashForGas sit-in at West Burton.  Oh yes, this too was entirely obvious - we predicted it here last year - and is a major vulnerability of the whole UK shale gas prospect.

With the Battle of Balcombe rumbling on, there is no need to rehearse just how far short of a strategy we are: and I unhesitatingly blame Osborne.  There is nothing good to be had from going abut the job clumsily and pissing off conservative Middle England in the process.

Is all lost ?  Well, if this were Germany we'd be in really big trouble, because their greens (and the old superannuated Atomkraft-Nein-Danke brigade, now in well-heeled retirement with time on their hands and misty recollections of their glory-days to perpetuate) have serious stamina, as witness the very long-running Battle of Stuttgart Station.

But our homegrown greens are a little less committed.  I maintain that the UK shale programme is vulnerable to the antis, but there is certainly an optimistic scenario.  Those with long memories will recall the massive pro-coal-mining demonstrations in the early 1990's, when Michael Heseltine (sic) was at the DTI and allowing large-scale pit closures to take place.  A short moratorium, a general return to the sofa to watch whatever was the compelling soap of the day; and after a couple of months all was forgotten and the pits closed as planned.  Likewise in the first year of the NuLab government, some more pit closures were announced: cue massive popular hostility to the Dash For Gas (yes, even then - and that was technically the second D-F-G; the current one is the third).  And what did young Peter Mandelson do then ? (yep, he was at the DTI in 1997).  Why - another moratorium ! - this time on new gas-fired power plant permits.  And after the usual short interval ... well, you know the rest.

So there's at least a chance the great unwashed just pack up and go home**.  Therefore, if there is a decent strategist somewhere in Whitehall (and I very much think there is) there is at least the possibility of getting this show back on the road.  There is, after all, no great rush.

If a real strategist takes charge, there is one final optimistic precedent worth noting.  In the first Thatcher government a truly strategic attack on the NUM was being hatched under a properly thought-out, comprehensive plan (which embraced such details as building coal stocks to unprecedented levels, uprating Felixstowe for coal imports, building the A14 to get them to the Midlands by road, and installing an infrastructure for coordinating the Police nationally.  See, George, that's what a real strategy looks like.)  In 1981, before all this was complete the NUM went on strike for a pay rise.  So Thatcher ordered a tactical retreat - looked like a horrible climb-down at the time - reculer pour mieux sauter, until things were good and ready.  Well, you know the rest.

So all is not lost.  But Osborne ... his failings are inexcusable.  Is there really not a better candidate for Chancellor on the coalition benches ?  That's another job where strategy is at a premium, n'est-ce pas ?

ND

** having a few spare hours last week, I monitored the tweeting on events at Balcombe.  Somewhat to my surprise, having been at frenetic and very high-volume levels all week, it fell off dramatically after lunchtime on Friday.  Does this mean all these tossers are tweeting from work ? Watching the cricket ?

Peak Oil, EROEI and the Muffled Drum

An interesting thing happened last month.  The Oil Drum, a well-regarded website + blog, announced it was ceasing operations and archiving itself for posterity.  Well, everything has its day - we can all list blogs that were thriving a few years back but are no longer with us.

Some have suggested it was the extraordinary shale-based renaissance of US gas and oil production that did for the Drum.  Probably not.  But, fairly or unfairly, the Drum was associated with 'peak oil', which at its simplest is a view (or theory or doctrine or whatever) that global oil production - as a function of oil-in-the-ground - is doomed to peak, after which we start 'running out of oil'.  

At its simplest, it is Malthusian hogwash.  Of course, there are more nuanced versions than that, and the Drum shouldn't be tarred with the brush one would use for countering hogwash.  Much more important is the concept of EROEI - energy return on energy invested, which has been another Drum favourite.  And this concept really does bear careful consideration.  Declining EROEI could be the end of civilisation as we know it for, in the immortal words of James Lovelock - "civilisation is energy-intensive".  Better believe it. 

So - no more drum-beat.  But you'll not stop hearing about EROEI.

ND

Interests to Declare

With Peter Lilley increasingly vocal in the public energy debate ** (what's the opposite of mealy-mouthed ?), we have the amusing position of heavyweight vested commercial interests ranged against each other - on the Tory benches.

It's long been a source of ad hominem ammunition against Tim Yeo and "Lord Deben" (Gummer the Bummer, © Jasper Carrott) that they stand to gain materially from the pro-renewables policies they promote so assiduously.  Why, we've even pointed them out on these pages.

But of course Peter Lilley is up to his eyeballs in oil interests, some of which are in distant and none-too-salubrious parts; and fairness dictates we draw attention to these 'n all.

Does it matter ?  As far as we can tell they put their interests into the public domain.  We get the picture: they are unashamedly talking their own book.  And if they are the more knowledgeable for their vested involvement, perhaps it adds to the quality of the debate - capitalists at work ...

What do we think ?  I still can't abide Gummer or Yeo.

ND

** but why is his Spectator piece so badly written ?  that's the real offence.    

Fracktious

In comments the other day, the subject of Gasland flickered briefly and BQ suggested it deserved a post.

It's hardly new: but perhaps it is getting a second wind as drilling for shale gas is set to re-commence around Britain.  We heralded the potential significance of shale to the economy when the first UK discovery was announced (and discussed it many times since), and it is fast becoming a political dividing-line. From a basic C@W standpoint there is the obvious 'what's not to like?' angle, countered by the inevitable CiF chorus of 'gas = hydrocarbon = wicked'.

In fact it has even more dramatic potential than that.  The whole UK / EU decarbonisation policy hinges on the prices of hydrocarbon fuels rising indefinitely: it is, as someone said recently, a gigantic speculative long position.  But hey, prices go down as well as up, and (as we they used to say at Enron) - if in doubt, go short.  A lot of greenies know this and are likely to get very agitated - and if drilling does indeed re-commence on a serious scale, there will be no end of sites at which NoDashForGas can make a serious nuisance of themselves.

Anyhow: you may be seeing Gasland again on a screen near you, and here's what I said in the comments.

Gasland  is a rather well-made piece of pure polemic, quite easy on the eye and very beguiling for people who are in the market for an anti-energy diatribe.  It is very cavalier (and sometimes outright dishonest) in its use of facts, and full of crafty non-sequiturs which any logician would spot, even if they knew nothing of the detail.

Also, it has bugger-all to do with fracking (which is one of its main non-seqs) - it starts on fracking right enough, but about one-third of the way in then seamlessly segues into just an attack on the practices of the US natural gas industry in general.  Somehow, people come away thinking they've seen a devastating case against fracking, but they haven't.

For completeness, let it be said that in some states of the USA there are virtually no environmental regulations at all (or if any, they are not enforced) and so there is a solid body of entirely legitimate attack that can be made on some genuine ongoing life-threatening health-hazards that would not be tolerated anywhere else this side of China.  (If anyone disputes this I invite them to move with their families and live in the environs of the refinery belt at the Houston Ship Channel. No? Thought not)

Gasland's valid hits are scored on this ground - but again, this has very little to do with fracking.

ND

You Against The Professors: A Challenge

Shale gas has greatly discomfited Greens (and Gazproms) everywhere, but their sleepless nights have been fruitful and they have launched a new "argument". If you haven't seen one of these little jolly little fallacies scampering around you probably think I am kidding; but no. Here, for example are Profs David Knight (structural biologist/ biophysicist) and Robert Whitmarsh (ocean and earth science), writing to the Grauniad.

 "The reduction in CO2 emissions resulting from the switch from coal to gas in the US has been entirely offset by the export of the coal saved". 

It gets worse because, carried away with the point they consider themselves to have scored, they go on: 

"A similar argument can be applied to the UK, as North Sea oil saved by burning shale gas in place of gas will not remain in the ground". 

I could just about conjure up a highly improbable scenario in which one or both of these could logically be the case, but I see no prima facie evidence for them. A huge amount of complex empirical analysis would be required to ascertain the truth of them, not to mention wrestling with labyrinthine counterfactuals, none of which has been carried out by them or anyone else - certainly not the flawed Tyndall Centre work they call in aid, which demonstrates nothing of the sort (though it sort of hints in that direction as a possibility they'd like to believe in - and even then, they only suggest that half of the US coal might have been involved in this way).

So here's the challenge. Assume a world where coal-burning emits 2 units of CO2, gas 1 unit, and renewables 0 units. What would need to be the case for the profs' assertions to be true? 

Bonus question: what would they say, do you imagine, about the fossil fuels displaced by renewables - where will they go ?

ND 

Fracking Will Be A Great Game

On the capitalist side of the Great Ideological Divide, everyone is salivating at the prospect of the seemingly limitless quantities of shale gas available right under our own green-and-pleasant noses.  George Osborne has at last got the message that we can't go on for long with the USA enjoying wholesale gas prices less than half of those we pay.  The cry has gone up: we don't want to be dependent on Russian gas! (as if we get any gas from Russia) and the tax-breaks will soon be in full swing.

The greenie-left is also looking forward to renewed fracking with much glee.  They have every intention of using it as a delightfully emotive rallying-point against the wicked Tories, and will be developing it into a form of large-scale outdoor relief for the youthful unemployed masses.  If they can cause a week's worth of trouble at a major new gas-fired power plant project under the relatively obscure cry of 'no dash for gas', how much more difficulty can they create for a series of small, isolated drilling sites ?

Yes, the antis are relatively well organised.  It is clear from the little nuggets of sophistry on their website that there are 'intellectuals' involved, and we may expect some well-coordinated rentamob stuff, with academics and lawyers and clever media campaigns, the whole works.  The malicious left has long hankered after harnessing the summer-of-2011 lumpen-nihilism; and as a commenter on these pages suggested some months ago, from the ranks of the unemployed graduates may arise an officer class. Oh, how leftist intellectuals love egging others on to violence.

And on the other side ? How much enthusiasm does PC Plod have for stopping them ?  In the past it would have been the appealing twin prospects of massive overtime plus cracking a few swampie skulls, and and let joy be unconfined. In 2013 I am not so sure.

We should also recognize that Cuadrilla and all the other would-be UK drillas have been truly amateur in their PR efforts to date.  They are of course being used as front-runners by the majors, who will keep well away until the minnows have proven up the geology and the reserves.  Who wants to see their corporate image tarnished ?

Finally, has anyone seen any signs of resolve from our great coalition ?  The nous to parlay dismay at rising heating costs into cheaper energy as a populist cause ?

Because that's what it needs to be.  But I can easily see them blowing it over the next year or so, then bottling it for the election.

At least the gas won't be evaporating any time soon ...

ND 

Cat Among Pigeons: Worm Turning ?

Well at least a couple of Cameron's reshuffle appointments raise a smile: John Hayes to DECC and Owen Paterson to Environment, ha ha !

The wit and wisdom of Mr Hayes apparently includes deep skepticism about the claims of wind turbines:

' ... quoted as saying wind farms are a “terrible intrusion” and “renewable energy needs to pass the twin tests of environmental and economic sustainability and wind power fails on both counts”.'

They seem both to be hostile to subsidised schemes in general, and appropriately open minded to the potential of shale gas.

Cue apoplexy, (hopefully fatal) in all the usual quarters: is Mr P a CC-skeptic ?   Will Mr H put a stop to the subsidy-wallahs' gravy train ?

It is greatly to be hoped he will (though holding one's breath is not advised). Likewise a serious shale gas programme.  Time for this lethargic government worm to turn.

ND

   

We Must All Make Our Way In The World

...  and Gazprom, this includes you.

Our favourite Russian gas monolith tends to think of itself as occupying a charmed and undisputed No.1 position in the global energy market.  Not difficult to be pleased with your lot when you have a near- monopsony / monopoly on the world's largest (conventional) gas reserves; and when deputations of craven western oil companies unceasingly make their way to your offices to kow-tow.  And when you discover to your chagrin that some technical matters are beyond you, it's a simple matter to parlay all this grovelling into technology-transfer and soft financing.

But not everything turns out quite as planned.  Gazprom is of course the epitome of an onshore, pipeline-based gas supplier, and several years ago they realised that deep offshore production and LNG export were going to be very big parts of the future of the industry.  But neither deep offshore nor LNG were in their repertoire.

The strategy for rectifying this was a sensible one, given the commercial dynamics mentioned above: (1) sucker some big western companies in to developing and financing production and LNG liquefaction facilities for exporting gas from Sakhalin 2 in Eastern Siberia, and the vast Shtokman in the Barents sea; and (2) during the inevitably lengthy development periods this would involve, get into pure LNG trading in a big way, to build a market for its future LNG production.

Both phases of this plan started promisingly enough. The Sakhalin 2 gas project was initially granted to a consortium of Shell, Mitsui and Mitsubishi; then Gazprom manoeuvred its way into a controlling share by the usual Russian expedient of declaring the project in breach of environmental regulations.  

In parallel, a demeaning beauty-parade for potential Shtokman 'partners' was organised, and Gazprom took great pleasure in humiliating the US and Japanese entrants, declaring Total and Statoil the 'winners' (God help them.  For once, BP and BG wisely stayed away, despite strong Russian urgings for them to come to the party.  Shell couldn't help themselves and had a crack at it, but didn't make the shortlist.)  Thus, Gazprom has its second "Russian project that uses and benefits from international expertise and investment".

Gazprom commenced LNG trading in 2005, four years before it had any actual Sakhalin LNG production, building up a healthy sales portfolio.  And this is where reality hits home, even for swaggering Russians.

Firstly, Drew's First Law of Projects kicks in: big projects always slip. Gazprom has customers for LNG but not enough supplies: Shtokman is behind schedule and Sakhalin isn't producing enough.  So they are in the market for big quantities: Russian sources suggest they will be buying from Brunei to make up the difference.

Well, hey, that's trade, and nothing wrong with meeting your obligations from whatever source comes to hand: it's what makes the world goes round.  But it's not at all how Gazprom likes to be seen: the fabled 'reliable supplier' likes to pooh-pooh traded markets as being peripheral, unreliable and distinctly inferior to direct supplies.

They also don't much enjoy being forced to compete for sales, either - though since the advent of shale gas it is their fate to be just one supplier among many in an over-supplied market.  The Chinese have told them what they can do with their oil-indexed pipeline gas: and even the Israelis don't scruple to tell the world they can do without Gazprom's LNG.

Don't fret, дру́же, you'll soon learn how market forces work.

ND

Energy: Pigs on the Wing, Straws in the Wind

Some interesting developments in the public Energy space in the past few days, starting with the 2 Chris's:

Chris Smith Says Yes To Fracking - and in his latest guise he is chairman of the Environment Agency.  Slowly but surely, shale gas is going mainstream.

Pity he had to spoil it all by saying that the gas should only be used in power plants fitted with Carbon Capture 'n Storage.  What about my gas cooker, eh Smith ?

Chris Huhne says some Moderately Sensible Things.  There's something I never thought I'd say.  Obviously, his comments are topped and tailed by silly greenite sloganeering, because naturally he is making a pitch for leadership of some green-oriented anti-Clegg faction in the LibDems.  But, ho-hum, at least he evidently knows the truth - this, for example: 

"We can hope, of course, that new resources will gradually substitute for old as prices rise. The most promising candidate is shale gas"

A Hilarious Rider to a Massive Wind-farm Approval.  There's no stopping these subsidy-farms, but at least someone has a sense of humour, appending the following condition to the approval: 

"Precautions will also be taken to protect potential coal deposits under the site". 

There's hedging your bets for you ...

ND

Supply, Demand, Manipulation ... Gas, Oil & Gold

Starting gun for the battle royal over UK shale gas seems to have been fired. Timmy, (who first picked up on this from C@W), lost no time in firing an inflammatory salvo - no smooth-talking PR man he, but his original battle-cry was the right one: "a political battle that we must win".

Yes, the supply fundamentals for gas are looking good. But oil ? Cnut Obama is at it again, asserting that it's all the work of the wicked speculators.

The US cannot afford to let speculators artificially drive up the price of oil, the US President said on Tuesday, revealing plans to boost supervision of the market and tackle manipulation. "Rising gas [petrol] prices means a rough ride for a lot of families," President Obama said. "It's like an additional tax that comes right out of your pocket." The measures from the White House include an "at least six-fold" increase in the number of staff who scrutinise the trading of oil futures contracts at US market watchdog the Commodity Futures Trading Commission (CFTC).

Well, we can't object to scrutiny, though it may prove an expensive waste of time. But hey, while they are in the CFTC, how about looking into the manipulation of precious metals ? You don't need to be a conspiracy-loon to raise your eyebrows over this kind of thing - latest in a very long series (almost weekly, in fact) of strange, strange goings-on.

It's "an additional tax" of another kind, Mr President. Go take a look at that one, eh ?

ND


UPDATE - if anyone's interested, more on the bullion shenanigans of this week