Bishop Hill BP talking down shale
Jan 17, 2013 Energy: gas BP is still desperately talking down the prospects for shale gas in the EU.
Europe has various problems: environmental concerns, outright bans on fracking, a lack of infrastructure and a long tradition of not minding so much having to import things.
If true, this is probably just as well for BP, who are pinning their hopes on bringing in gas to the UK from Russia. Frankly though, I find it hard to believe that any of these alleged problems need to be game changers. If shale gas starts to flow and the resource is as big as it looks it might be, the economics will start to look like an imperative.
Bishop Hill
Related news at Conservative Home:
“The relative price of coal and gas is crucial to the health of European utilities. At the beginning of November 2012, according to Bloomberg New Energy Finance, a research firm, power utilities in Germany were set, on average, to lose €11.70 when they burned gas to make a megawatt of electricity, but to earn €14.22 per MW when they burned coal.”
Hmm. I wonder which route they will take?
Reader Comments (65)
Interesting Shale article by Nick Grealy a couple of days ago at NoHotAir:
http://nohotair.co.uk/gas-guru-blog/shale-gas-2012/175-current-affairs/2735-california-dreaming-and-european-shale
Apparently, even Le Monde is fretting about European attitudes.
Jan 17, 2013 at 7:21 PM | Mooloo
"In which case I want some evidence that a significant quantity of calculus used to be taught at 5th form, because that's not my understanding.)"
I was born in 1947.
I took (and passed) 'O' levels in "Pure Maths", "Applied Maths" and "Additional Pure Maths" (and six others) in 1963.
"Additional Pure Maths" was entirely the calculus. And it was obviously thought worthwhile to set a separate paper.
At 'A' Level I took (and passed) separate papers in "Pure" and "Applied" Maths, Physics and Chemistry (and History of Art! Having spied out the talent at the Art College!).
I did a boat load more calculus on my Honours Civil & Structural Engineering degree course. But after graduating, never once needed to use any calculus which I hadn't been taught at 'O' level!
Interesting to see Vangel frantically paddling upstream against the torrent of information about tight oil and shale gas.
Interesting also that he approvingly quotes Arthur Berman, without referring to Arthur's doom laden "Peak Oil" predictions which are now plainly revealed as complete nonsense.
Worth a read:-
http://www.foreignaffairs.com/articles/138597/aviezer-tucker/the-new-power-map?page=show
Also interesting that Tinseltown’s latest AgitProp film “The Promised Land”, tries to whip up fears about Shale Gas. The likelihood of the Glitterati’s usual suspects saying anything sensible about energy policy is not ‘Promising’.
The rise and rise of shale gas in the USA is the bright spot in their economy. Gas prices are down 50%, unemployment is down. Cheap, reliable energy encourages re-investment. Meanwhile, the USA reduces CO2 emissions, gas being cleaner and more efficient than coal. No massive subsidies needed.
Since Maggie Thatcher, UK Governments have unquestioningly swallowed the ‘Global Warming’ theory and have also adopted an incompetent Energy Policy, expending Billions every year on solutions that don’t work, to problems that don’t exist. Shale Gas (and eventually, new Nuclear) is now the only affordable and proven alternative to shivering in the dark.
Worth considering who funded this Hollywood ‘Promised Land’ nonsense?
http://uae.dxbwebsite.com/tag/qatar-finances-promised-land/.
The United Arab Emirates? Why are they (and President Putin, of course) anti Shale Gas?
Hmmmm. That's a tough one.
Does Vangel have a clue?
DonB
You say that Poland has significant shale gas potential. I know a geologist who has worked in the Polish shale gas formations and they aren't as great as you might think. The mineralogy and geometry combine to make much of its vast shale formation(s) too challenging for successful fracking.
@Martin Brumby
Interesting to see Vangel frantically paddling upstream against the torrent of information about tight oil and shale gas.
What torrent would that be; SEC 1-Ks that show and explosion of debt and massive shortfalls in cash flows? Or investors turning on CEOs who managed to destroy so much capital by selling shale gas at less than half the cost of production? Or are you simply looking at 'projections' made by supposedly independent authors who publish reports paid for by the industry?
Interesting also that he approvingly quotes Arthur Berman, without referring to Arthur's doom laden "Peak Oil" predictions which are now plainly revealed as complete nonsense.
Nonsense? The EIA and IEA had to increase their depletion estimates by 50% because their optimistic spin was not supported by the actual field by field data. The simple fact is that the production of light sweet crude peaked around 2005 and is now below that level. While unconventional production has gone up it has taken hundreds of billions of new investment and we are still not looking at a substantial increase it total production. The fact that Brent is still over $100 even after that much was invested tells us that the Peak Oil theory is right.
Also interesting that Tinseltown’s latest AgitProp film “The Promised Land”, tries to whip up fears about Shale Gas. The likelihood of the Glitterati’s usual suspects saying anything sensible about energy policy is not ‘Promising’.
What do you expect from the left? They raise mostly unfounded concerns while the essential facts are totally ignored. The danger from shale gas is not fracking but the inability to produce a positive return on the energy invested.
The rise and rise of shale gas in the USA is the bright spot in their economy. Gas prices are down 50%, unemployment is down. Cheap, reliable energy encourages re-investment. Meanwhile, the USA reduces CO2 emissions, gas being cleaner and more efficient than coal. No massive subsidies needed.
Of course there are subsidies. Consumers are subsidized by lenders and investors who enable the production of a product that sells for about half its true production cost. That may be 'positive' for a while but is just another bubble that misallocates and destroys capital over the long term. That is not a positive for anyone who understands real world economics.
Worth considering who funded this Hollywood ‘Promised Land’ nonsense?
http://uae.dxbwebsite.com/tag/qatar-finances-promised-land/.
The United Arab Emirates? Why are they (and President Putin, of course) anti Shale Gas?
Who cares? The film would be just as bad and wrong if it were funded by Aubrey McClendon and Chesapeake.
Hmmmm. That's a tough one.
Does Vangel have a clue?
Of course I have a clue. Unlike you I do not look to Hollywood or the promoters for my information because there are plenty of annual filings in the SEC system to let me know exactly what is happening in the sector. Instead of getting your information from bad films try to read a few of the annual filings from the shale sector.
Vangel
And you would pretend - from my comment - that I get my information from bad films? You appear to have reading comprehension issues.
That would also explain why you still peddle Peak Oil guff.
And loss of private capital is rather different to the wholesale theft of taxpayers' money, as practised by the politicians and the Ruinables gang.
Obviously Putin / The Emir of Qatar don't pay their trolls overtime rates for weekend work.
The Revolution will be Currently Televised.
===========
Obviously Putin / The Emir of Qatar don't pay their trolls overtime rates for weekend work.
Isn't this the approach the AGW frauds keep using when someone points them to the data? They keep asking who it is that pays the skeptics who do not go along with the party line. Well, that does not work any better for investment analysis than it does for climate analysis.
And you would pretend - from my comment - that I get my information from bad films? You appear to have reading comprehension issues.
Since you do not ever bring in any actual data and do not provide any links to the financials of the shale producers I would say that you get your information from narratives rather than empirical studies.
That would also explain why you still peddle Peak Oil guff.
I responded to this before but for some reason it does not seem to have gone through. Let me say it again. The data shows that current production levels for light sweet crude is below that of 2005. The data also shows that the marginal unconventional production is not economic and that depletion rates make production increases on that front unsustainable.
And loss of private capital is rather different to the wholesale theft of taxpayers' money, as practised by the politicians and the Ruinables gang.
Yes it is. But a loss of private capital also means that producers cannot keep selling their product for less than it costs to produce it for very long. While the easy credit policies of the central banks can keep the bubble inflated for a while the balance sheets have to be reconciled with the reported earnings at some time in the near future. At that point you will see massive write-downs that will lead to a fall in drill rigs in the unconventional sources. That will lead to a downturn in production again. When the 'good formations' like Eagle Ford show decline rates of 50% there is little hope that the projections from the EIA and IEA will be any more true than their conventional decline rate projections were. For the record, those estimates had to be increased by around 50% as the skeptics were found to be correct while the IEA and EIA were wrong. Somewhere Berman is laughing.
In the US the mineral rights are owned by the land owner, not the state. There is therefore a financial incentive for US landowners to develop shale gas in the ground below their land. In the UK and Europe this incentive does not exist.
Shale gas development results in an initial very high level of production but this declines rapidly to a low level that can be maintained for many years. To keep a consistently high level of production it is necessary to continuously bring new wells into production.
Each well (in the US) requires a huge fleet of very large trucks with fresh water and sand to perform the fracking operation. With the retrictions on vehicle sizes in the UK and Europe even more trucks will be required giving a greater load on the already busy infrastructure of this part of the world.
Hence, all in all, it's not too surprising that BP and others are playing down the likelihood of a revolution in gas supply by fracking in this part of the world. Russia and Norway will continue supplying gas to Europe from conventional offshore and onshore fields for the foreseeable future.
Tim
But BP and the oil majors have not got involved in the UK shale gas industry. And we all know why. With sunk investments in the North Sea and elsewhere - esp Mexico and Russia for BP and the Arctic for Shell - they are wondering they can afford to branch out. All this has nothing to do with Vangel's vapid posturing. If shale gas is uneconomic, then financial support will stop. His rants - repeated on every internet thread on shale gas, almost as if he is a paid-up denier - do nothing to hasten nor retard that.
http://www.bp.com/assets/bp_internet/globalbp/globalbp_uk_english/reports_and_publications/statistical_energy_review_2011/STAGING/local_assets/pdf/statistical_review_of_world_energy_full_report_2012.pdf
(And, as has been pointed out, BP are worried by Shale Gas. They sure aren't worried by 'Peak Oil' fables.)
That's a start.
Then look at all the IEA's stuff.
Then a gazillion other sources.
Then come back and scare us again.
Try http://www.minneapolisfed.org/publications_papers/fedgazette/oil/index.cfm?
Looks like Peak Oil to you?
And, no matter how you dress it up, if private investment capital goes bad, that is part of the market process. A hundred and fifty, two hundred years ago, plenty of people went bust investing in bad coal projects. Coal is still going strong today (apart from in the UK, of course.)
If taxpayers' money is squandered, that's an absolute loss and a lost opportunity and a millstone around the neck of the economy.
High priced energy. Probably the most regressive taxation since the Sheriff of Nottingham was in his prime.
Martin Brumby
http://www.bp.com/assets/bp_internet/globalbp/globalbp_uk_english/reports_and_publications/statistical_energy_review_2011/STAGING/local_assets/pdf/statistical_review_of_world_energy_full_report_2012.pdf
(And, as has been pointed out, BP are worried by Shale Gas. They sure aren't worried by 'Peak Oil' fables.)
But it was BP along with CERA, the EIA and IEA that were pushing the 3.5% depletion for conventional oil not all that long ago. It was only after the skeptics pointed out that the field by field analysis did not support such a view that they admitted to be off by 50%. Why am I supposed to see the most recent Statistical Review as more credible than the previous ones that were off by more than 50%?
That's a start.
Then look at all the IEA's stuff.
Then a gazillion other sources.
Then come back and scare us again.
But that is my point. The IEA, EIA, CERA, and BP were too optimistic and ignored the problems with the data until they were forced to by the skeptics. They were wrong. This is why I like to look at the data rather than trust the narrative coming from government and industry sources.
Try http://www.minneapolisfed.org/publications_papers/fedgazette/oil/index.cfm?
Looks like Peak Oil to you?
Actually yes, it does look like Peak Oil. If there were plenty of oil we would not be trying to develop the bottom of the barrel assets that produce a product that costs more than it can be sold for and provide a negative rate of return for the energy invested just like alternatives do.
And, no matter how you dress it up, if private investment capital goes bad, that is part of the market process. A hundred and fifty, two hundred years ago, plenty of people went bust investing in bad coal projects. Coal is still going strong today (apart from in the UK, of course.)
I agree that it is part of the process. Just like the housing sector was guilty of malinvestment as it took advantage of the Fed's liquidity injections the shale sector is doing the same. Some of the company executives are earning more in a few years than they could have in a lifetime of working and the promoters are making a killing selling worthless assets to the suckers who can't read 10-K statements and understand either financing or economics.
If taxpayers' money is squandered, that's an absolute loss and a lost opportunity and a millstone around the neck of the economy.
Malinvestments do the same thing. When you divert resources to a sector that does not produce an economic profit those resources are lost forever. With a 50% plus depletion rate in the best formations the amount of drilling investment just to stay even is massive. Given the fact that the economics do not work the sector will implode and the bubble will destroy a huge amount of capital.
High priced energy. Probably the most regressive taxation since the Sheriff of Nottingham was in his prime.
Thank the government for that. England can have cheap energy if it used coal and nuclear to produce electricity. But for some reason the voters and politicians have chosen another route. Which is why so much damage is being done and the UK is looking like a failed developing world country as time passes.
The UK Government hasn't put a cracker into Shale Gas. So that won't be a problem.
You won't need to give me a Chinese Burn to get me to admit that BP might 'accidentally' have tweaked their statistical review. I don't greatly trust the IEA, either. Although both are very widely accepted.
So, just for the crack. Let's assume you are 100% right. Everyone else is dead wrong. Nick Grealy and everything in his 'library' and all his links are nonsense. Despite all the myriad falsified doom predictions
http://wattsupwiththat.com/2013/01/19/great-moments-in-failed-predictions/
lets assume Peak Oil is here and we're past it. (Although that doesn't mean we'll likely run out any time soon).
There have been many bubbles before. All eventually burst.
But even if you accept all that (which I don't), I find it very hard indeed to believe that 'unconventional' oil and gas are a worse prospect than windmills and solar panel. At least we know that oil and gas (and coal) work when you need them. And even in your worst case assumption, we would buy enough time to get some nuclear built.
I can't see that we would need to subsidise fossil fuels at current energy prices. Whereas Ruinables are having money thrown at them. Eventually that must stop.
@Martin Brumby
You won't need to give me a Chinese Burn to get me to admit that BP might 'accidentally' have tweaked their statistical review. I don't greatly trust the IEA, either. Although both are very widely accepted.
They should not be accepted because of the methodology. The way the reports used to be done is to forecast demand for crude and assume that the demand would be met by various producing nations without bothering to look at the field by field data that would show if the assumptions were viable. The IEA and BP assume that shale will produce as much oil as they say because they need the demand to be filled by some source. Given the fact that many countries have provided field data that disqualify them as producers of the incremental increases the 'analysts' choose the producing areas and sectors that have the least data available. This is why you get overestimates for Iran, Iraq, deep water Brazil, or the shale sector.
I do not care much for analysis of that type and prefer the bottoms up approach that includes looking at the filed producer financials. On that front the 10-Ks show nothing to be excited about and plenty to be worried about. And when you include the field depletion data panic should be starting to set in. Note that the production increases are not that new for horizontal drilling and fracking. We saw a similar exponential increase in Montana when its own Bakken field, the Elm Coulee, attracted a large amount of investment starting around 2000. That investment activity caused a huge increase of production in a short period of time. But the problem was depletion. It caught up with drilling activity and by 2006 the peak could be seen in the rear view mirror. Production activity is still falling at around 1% per month.
http://i.bnet.com/blogs/laherrere-montana-oil-production.jpg
But that is not all. The Canadian side of the Bakken did not fare much better. Shale production in Saskatchewan peaked in 2008 and is now falling. And note that even the EIA was not all that positive not that long ago. It was projecting only a 1.3 mbpd increase by around 2030, hardly a game changer that many are predicting. Of course, the noise from the industry is huge and people like Yergin and his pals at IHS and CERA tend to keep muddying the waters as they shamelessly promote a narrative that they must know cannot be true, particularly so soon after they were exposed to have underestimated conventional depletion rates.
So, just for the crack. Let's assume you are 100% right. Everyone else is dead wrong. Nick Grealy and everything in his 'library' and all his links are nonsense.
Who says that my opinion is that different than 'everyone else?' This is just like the AGW promoters telling skeptics that all the knowledgeable scientists agree about CO2's effect when that is not the case. The geologists and analysts that I talk to and read are much more likely to call the tight oil and gas from shale promotion as BS and a bubble than to agree that it is a game changer.
Despite all the myriad falsified doom predictions
http://wattsupwiththat.com/2013/01/19/great-moments-in-failed-predictions/
lets assume Peak Oil is here and we're past it. (Although that doesn't mean we'll likely run out any time soon).
The Peak Oil argument does not say that we will run out. It does not even say that we are about to run into peak fossil fuel production. All it says is that the production of oil will peak some time between 2005 and 2015. (The reason for the range has to do with the fact that many countries do not provide field by field data. At one point the data that we had was pointing to 1996-2000 but with more transparency the numbers are indicating that 2005-2007 was the time that light sweet peaked. But even there we have trouble with the 'classification' issue which tends to hide the true picture as NGLs and refinery gains are counted along with the production of light sweet and 'improve' the production numbers because they were not counted the same way previously.)
There have been many bubbles before. All eventually burst.
Yes they do. That is why we have to look at the actual data and try to understand reality as it is rather than follow narratives that play on what we would like reality to be like. And let me point out that all bubbles are destroyers of capital. Shale gas and oil will be no different.
But even if you accept all that (which I don't), I find it very hard indeed to believe that 'unconventional' oil and gas are a worse prospect than windmills and solar panel.
I have never said that unconventional oil is a worse prospect. In fact, I like some of the heavy oil plays that can provide positive returns on the energy invested. I would even invest in specific shale wells in promising areas if I were willing to take some of the risks because some wells can be very profitable. My argument is against shale oil and gas as a category because there is no evidence that there is a positive return on the energy invested to be had. That means that only the gamblers should play in the sector and that they should not hang around too long if they want to reduce their risks.
At least we know that oil and gas (and coal) work when you need them. And even in your worst case assumption, we would buy enough time to get some nuclear built.
I love nuclear and would be strongly in favour of it. I still like coal and am always on the lookout for decent companies to invest in. I also think that methane hydrates can have some promise and think that there is no reason why the major national companies would not look for conventional gas supplies in most OPEC nations. Geology tells us that the gas should be there and should be plentiful. The reason why we never bothered drilling for it before had to do with the economics of stranded markets, not the inability to find it. In my portfolio I hold a company that has a gas and oil royalty claim in the Mackenzie Delta. The royalties have no value because there is no pipeline to take the product that we know is there to market. But eventually reality will intervene and that royalty, which was picked up for a few million, could wind up being worth billions after a pipeline is approved.
I have no trouble with unconventional fossil fuels and have time for arguments for alternatives but only if they make economic sense. Right now they do not. And unless we can get to using reason and data rather than emotion and narrative, we are not going to go very far.