Bohren bis zum Mittelpunkt der Erde (loosely translated as Drilling to the Center of the Earth) reports on Poland’s aspirations for energy independence.

The article includes a description of the activities of Lane Energy, which has taken the lead in drilling for shale gas in Poland.

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The movers and shakers of the global shale gas revolution are now gathered in Berlin, Germany, 6-8 September to review the Prospects for Europe and Emulating the USA’s Success in Capitalizing from Unconventional Gas Reserves.

Over 20 years after the reunification of Germany’s divided city, the dynamic business dynamo, Berlin, arguably the capital of the new Europe, is proving to be an apt choice of venue for discussing how the continent will fulfill its energy needs in the coming decades.

While presenters at the Global Shale Gas Forum noted European mandates in the coming decades to cut emissions in regards to electricity generation, presumably by embracing natural gas, for now, Europe is still highly dependent on imported gas.

One place in which Europe’s natural gas fortunes could change, though, is Ukraine.

Wolfgang Rauball, CEO & Chairman Chief Geologist, Eastern Europe for EuroGas, Inc. spoke about his company’s long-term commitment to the Silurian shale basin in eastern Ukraine which, given the political will, could help that country move towards self-sufficiency.

“Today, Ukraine is not energy self sufficient, but is an energy giant which has not realized its potential,” explained Rauball. “It imports a majority of the oil and gas that it consumes. The awareness to achieve self-sufficiency is not yet there. The present business climate lacks transparency and is one reason you don’t have the major oil companies trying to get concessions in Ukraine – none have been issued to date on this side,” he said (in contrast to Poland).

Pending movement by the Ukrainian government, which froze many business developments following the election of new leadership earlier this year, EuroGas, reported Rauball, will soon choose a European oil and gas major – Total and ENI are in the running – to begin its shale gas drilling operations in Ukraine this year.

For the most part, though, presenters at the Shale Gas Forum offered their enterprises’ experiences in North America and how the know-how gathered there might be transferred to shale gas operations in Europe.

“We’ve learned a great deal in the last few years,” said Talisman Energy’s Unconventional Gas Specialist, New Plays, Basim Faraj PhD, whose speech at the Global Shale Gas Forum was entitled Shale Gas: A Growing North American Reality and Its Global Implications.

“We know the geochemistry is critical,” he said, “and now the argument for gas – ‘where is it going to come from?’ is over, due to the emergence of shale gas.”

Faraj added, “Commitment is needed to make a transfer of the technology from the US.”

Senior Advisor Science & Technology at M-I SWACO, Thomas Geehan Ph.D spoke of the possible impacts on local communities affected by drilling at nearby shale plays in North America. He said, “Barnett shale water usage is equivalent to that of a town with a population of 4,000. The two most sensitive points in Europe are going to be the water usage and the waste disposal.”

Geehan listed the fracking fluid additives that need to be dealt with, like friction reducer, biocide, oxygen scavenger and scale inhibitor (sand), mentioning that this aspect has been generating public concern.

“This is the hysteria that is being generated at the moment, that people’s drinking water is being affected by nearby fracking,” he said.

Still, optimism prevailed. Reflecting upon his company’s experience at the Barnett shale in North America, ENI’s Enrico Cingolani, Senior Vice President of the Italian energy enterprise’s East Europe Program, spoke about the critical factors for realizing margins in European shell gas.

“The development costs will no doubt be high in Europe,” he explained. “The margins in the US are very tight, but in Europe the market makes for a different story. I have no doubt that we will need gas for the future in Europe, and it’s no doubt that it will be an importer in the years to come. If we take into account the sharp decline in gas production, we can have no doubt that the development of shale gas will be utilized.”

Among the crucial questions posed at the summit by Prof. Mike Stephenson, Head of Science, Energy at the British Geological Survey, was, “Can US technology be applied in Europe. Do all of the things developed there work in our shales?”

He answered, “In the longer term what we have to realize is where we are with shale is where we were 30 years with conventional, for example like sandstone. After a while you had to start thinking about sandstones, put more science into it and got more oil out of it.”

“It’s always an exciting time to be at the start of a new adventure. Unconventional gas is particularly new in Europe,” said Andrew Jennings, Unconventional Resource Manager at WesternGeco, who spoke about where surface seismic data can specifically help in reducing risk when it’s designed for shale gas development.

“The data overall is sparse in the European shale gas plays,” reported Jennings. “There’s limited seismic and limited wells being drilled. The presence of faults and natural fractures need to be understood.”

“We have already begun laying the [Nord Stream] pipeline at the bottom of the Baltic Sea; the next year gas will enter. We will do everything as quickly for South Stream,” Putin said.

He commented that the Nabucco pipeline project, the major rival to South Stream, has little chance of success.

“Nabucco’s major problem is a lack of guaranteed volumes [of raw materials], and no source to fill this system,” Putin said.

“Russia will not deliver anything there, Iranian deposits are not explored, and Azerbaijan’s volumes are small. Moreover, Azerbaijan has signed a delivery contract with Russia,” Putin said.

Putin did not however, completely rule out the realization of Nabucco, especially if massive investment was forthcoming.

Source: RIA Novosti

The mandate letter signed today with the European Investment Bank, European Bank for Reconstruction and Development and the International Finance Corporation, defines the terms of the lender’s review process prior to a final decision being made.

However, the announcement by the Nabucco consortium also brought news of a delay in the project, which was initially was set to begin in late 2011.

“Construction will start 2012,” Nabucco Gas Pipeline International GmbH Managing Director Reinhard Mitschek said at a briefing today in Brussels. “The operation of the pipeline will start 2015.”

The financing plan envisions that the consortium’s shareholders RWE AG,  OMV AG, Mol Nyrt, Bulgargaz EAD, Transgaz SA Medias and Botas, would provide 30 percent of the financing, with balance funded externally from loans. Additional funding will be sought from international export credit agencies and international banks

“Commitments from potential lenders are expected to be sought in 2011,” Nabucco said in the statement.

According to gas chief Werner Auli, OMV will finance its Nabucco investment via its “normal way of financing, out of the cash flow or out of bonds.”  While “it’s not a problem, it’s of course a lot of money.” Other consortium partners have not disclosed plans as to how they plan to finance their proportionate share of the costs.

Financing will be completed in the second half of 2011, Mitschek said.

OMV recently stated that the final investment decision by Nabucco’s backers will be made in the first quarter of next year at the very latest.

Filling the Pipeline

Nabucco still has not signed definite agreements for gas supply.

“We have to synchronize Nabucco first to the gas supply sources,” Mitschek said. Once the gas supply has been secured, the “open season” tender process for transporting gas will begin by the end of the year or in the first quarter of next year, he said.

Both Nabucco and its rival, the Russian led South Stream pipeline project are vying to secure supplies from Azerbaijan and its Shah Deniz fields.

Last week Russia and Azerbaijan signed an agreement will double gas present Azeri exports to Russia in 2011 to two billion cubic metres of gas, with a further increase set in 2012.  Russia is positioning the agreement as evidence that South Stream has an upper hand over Nabucco.

Nabucco shareholder RWE recently entered into an agreement with the Kurdistan Regional Government  to develop and design its domestic and export gas transportation infrastructure and to creating a route to market for Kurdistan’s major gas reserves, however Baghdad is refusing to recognize the contract.

The agreement will double gas present Azeri exports to Russia in 2011 to two billion cubic metres of gas, with a further increase set in 2012.

Demand in Europe, the biggest export market for Russia’s gas monopoly Gazprom, has been on the recent decline. Russia re-exports the gas it buys from Azerbaijan and increasing purchases of Azeri gas means that domestic production will fall proportionately and Gazprom will be negatively impacted.

So, what is the point of securing huge volumes of gas supplies when market dynamics are less than attractive?

Quite simply -  strategy.

“It is much more expensive for Russia to buy gas from Azerbaijan than to produce it domestically, but the more it buys from Azerbaijan, the less others can buy,” said Pavel Sorokin, an oil and gas analyst at Alfa Bank.

Mikhail Korchemkin, head of East European Gas Analysis, says that exporting 2 bcm of Russian gas gives Gazprom about $200 million in profit and brings the state $160 million in customs duties as European consumers pay, on average, 70 percent more for Russian gas than domestic customers do.

“Russia is purposefully missing out on $360 million a year by paying market prices for Azeri gas. The idea is to prevent Europe from buying the gas so it cannot diversity its supplies away from Russia,” Korchemkin said.

Russia’s deal with the Azeri’s and its willingness to take much higher gas volumes for its South Stream pipeline project are steps taken to strengthen its hold on the European gas market and to attempt to impede the progress of South Stream’s competitor, the EU backed Nabucco pipeline..

“Our contract has no upper limit on the volume of gas supplies from Azerbaijan,” said Gazprom chief Alexei Miller.

“This [contract] means that Azerbaijan is giving priority to Gazprom for the expansion of natural gas exports to Russia,” Miller said, citing Russia’s territorial proximity and existing gas pipelines.

Nabucco, which plans to transport up to 31 bcm of gas a year from the Caspian region to an Austrian gas hub via Bulgaria, Romania, Turkey and Hungary in hopes of reducing Europe’s reliance on Russian gas, has been not been about to secure supply contracts to date.

Russia hopes that its recent move will mean continued difficulties for Nabucco.

$360 million annually is a drop in the bucket when a much larger game is in play.

On August 31st, Japan’s third- largest trading company agreed to pay Rex Energy Corp. $140 million for a 30 percent stake in a joint venture in the Marcellus Shale region in Pennsylvania. This was the company’s second shale-gas investment after an initial foray into the Barnett Shale Gas project in Texas.

Tadashi Kobayashi, general manager of Sumitomo’s energy division, said the company plans to increase investments in energy assets by 50 percent over a five year period, to 150 billion yen.  The investments will mostly be in shale gas, oil and liquefied natural gas projects.

“Shale gas is very attractive” because drilling and equipments costs are cheaper than for those of conventional gases, Kobayashi said. “We expect to expand our shale gas business to Europe and Asian countries such as India, China, and Australia as we get more experience.”

Mitsubishi Corp., Japan’s largest trading house, last month signed a C$250 million ($237 million) deal to buy a stake in the Cordova shale-gas project in Canada from Penn West Energy Trust.

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Enhancements in technology and the resulting impact on energy supply and energy security in the United States has brought unconventional gas to the energy forefront worldwide.

China is widely viewed to be the next big market for unconventional-gas development.

According to the National Plan, unconventional gas is expected to meet 15 percent of forecasted domestic demand by 2020. In order to achieve the determined target, the government has issued incentives to support technology and equipment innovation.

State owned China National Petroleum Corporation (CNPC) estimates the country could have 30 trillion cubic metres (cm) of shale-gas reserves.  Consultancy Wood Mackenzie believes that coal-bed methane production in China will account for one-third of unconventional supply by 2030; making it the second-largest source of unconventional gas in the country, after shale.

China is putting in place domestic initiatives to source and produce unconventional gas in order to meet its increasing demand for energy.

It recently created a shale-gas research centre in a bid to develop unconventional gas production and CNPC has signed a deal with shale-gas expert EnCana Corporation to develop reserves in Canada, a move designed to bring unconventional-gas know-how back to China.

CNPC and Shell have signed a deal for the exploration to search for tight gas, it has also entered into an agreement with PetroChina to develop shale-gas reserves in Sichuan.  Statoil is amongst those who have recently expressed an interest in shale gas in China.

It is with the background of this dynamic activity that Unconventional Gas China 2010 is to be held on November 18-19 in Ordos, Inner Mongolia.

The conference will bring together government officials, industry leaders, solution providers, project developers and experts from China’s unconventional gas industries to discuss new governmental support policies and legislation, examine new technologies as well as provide a detailed overview of project developments across China.

In order to foster the most productive networking environment possible, at the event provides face-to-face meetings with key buyers actively seeking technological solutions for their existing and future projects. The conference bring together interested parties and pre-qualified industry leaders, with the opportunity to create new partnerships and alliances and showcase new technologies and applications to a targeted audience of decision makers.

Unconventional Gas 2010 is organized by Noppen, one of the leading producers of business conferences and professional trainings in Asia.

Source: Noppen

For more information please contact:

Catriona Scanlon, Communications Manager

Email: catrionas@noppen.com.cn

Website : www.noppen.com.cn

PGNiG states that Naftogaz Ukrainy has advised that reasons for the discontinuation of supplies include “changes to Ukraine’s internal regulations, pursuant to which all the natural gas coming from Ukraine’s domestic production should be used exclusively to meet Ukraine’s own needs, which according to our Ukrainian partners prevents them from supplying gas to Poland. “

PGNiG says it “does not agree with the Ukrainian partners’ argumentation concerning the basis for the discontinuation of supplies and will demand continued performance of the agreement, which remains binding until the end of December 2020.”

“Negotiations on this matter are currently under way. PGNiG SA is hoping for their positive conclusion.”

Despite the discontinuation of gas supplies, PGNiG said all customers in Hrubieszów have been receiving gas from reserves. The gas supplied to Hrubieszów accounted for about 0.6 per mille of Poland’s total gas consumption.

Poland has collected 9 million cubic meters of gas per year through Hrubieszów.  Poland consumes about 14 bcm of gas a year of which it imports 70% of the total.

Ukraine produces about 20 bcm of gas a year of which approximated 90% of which is to serve domestic requirements.

Source: PGNiG

Azerbaijan President convinces Russian President not to torpedo Nabucco

Russian President Dmitriy Medvedev after negotiations with Azerbaijan President Ilham Aliyev has changed approaches to project of construction of  Nabucco gas pipeline.

“The Russian position always consisted that we cannot and should not impede any projects. It is an inadmissible thing. We should show privileges of joint cooperation,” D. Medvedev declared at a news conference in Baku.

Russia has alternative to Nabucco project of South Stream gas pipeline.

“Let those projects will win which are interesting for our partners. We impose nothing  to nobody, but it should be economically reasonable projects. We proceed exactly from this, establishing  our economic relations. All of us should regard attentively our economic interests and remember that there are interests of the parties which always have pragmatic character. The power is where we earn money. It is normal. But it is natural, it is necessary to measure our possibilities and our desires,” D. Medvedev said.

For his part, Azerbaijan President I. Aliyev declared that gas in his country will be enough for many decades forward: explored gas reserves in Azerbaijan make about 2 trillion cu m  cubic meter, and potential – about 5 trillion.

“We do not  consider our activity in gas sphere as possibility for groundless competition. We proceed not from political considerations, and from existing economic practice,” I. Aliyev said.

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Ukraine’s government wants Russia to review the “extremely unfavorable agreement,” it charges for natural gas supplies.

The governments are seeking to create the venture between their respective gas monopolies, Naftogaz Ukrainy and Gazprom, by year-end, Azarov said.

The proposed venture would allow Russia to upgrade the pipeline that supplies the Balkan region, eliminating the need for the proposed South Stream project to bypass Ukraine.

Upgrading the southern pipeline link to the Balkan region “is a very promising project,” Azarov said. This “will allow Russia to transit fuel reliably to Bulgaria and to implement the South Stream project, only on our territory,” he said.

The project would be “mutually profitable” and provide Ukraine with “transit guarantees.”  Transit guarantees are critical for Ukraine, which ships about 80 percent of Russia’s gas exports to Europe through its pipelines. Russia is planning several pipelines bypassing Ukraine, including Nord Stream, which is being built across the Baltic Sea, and South Stream across the Black Sea. The links may lower volumes crossing Ukraine.

Azarov declined to provide specifics on how joint control of the pipeline would work or what access to Russian gas would mean for Ukraine because the negotiations are continuing. The joint venture should involve renegotiating the formula used to price Russian gas shipments to Ukraine, he said.

In April, Russia agreed to provide Ukraine a 30 percent discount of the gas price. In return for the deal valued at $40 billion, Ukraine agreed to extend Russia’s lease on a naval base in the Black Sea.

Even after the discount, fuel costs are squeezing the Ukrainian economy.

The government is raising the gas price for households by 50 percent to 725 hryvnia ($91.88) beginning Aug. 1 and plans to increase it by another 50 percent from April 1st. The increases are to help trim a budget deficit and qualify for future payments from a $15.2 billion loan program that the International Monetary Fund approved last month.

Russia has said it would drastically reduce its export gas price for Ukraine, if Gazprom were allowed to merge with Naftogaz Ukrayiny.

Source: Bloomberg, NGFE Archives