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This Is Just The Beginning Of Europe’s Gas War

This Is Just The Beginning Of Europe’s Gas War

Globe

In a move that should not surprise energy pundits nor even those that follow geopolitical news in Europe, on Thursday Russian gas giant Gazprom said it’s looking to gain an even larger gas market share in Europe following record-high 2018 exports, as it expects a decline in Europe’s gas output combined with rising demand. Last year Gazprom sold more than 200 billion cubic meters (bcm) of natural gas to Europe, including Turkey, while its gas market share in the region rose to more than a third, Reuters said in a report on the matter.

Elena Burmistrova, in charge of the Gazprom’s exports, said the company would be able to offset a production decline in the EU, mainly at the Netherlands’ Groningen, once Europe’s largest natural gas field. “North Sea production is also gradually declining … So, the space for Russian gas is being freed up,” she said on the sidelines of the European Gas conference in Vienna.

Future gas wars

Gazprom’s statement comes as EU gas production is projected to spiral downward over the next 12 years. Regardless of possible development of non-traditional gas resources, production will decline by 43% against the 2013 level, Russia’s National Energy Security Fund (NESF) said recently.  Moreover, the Paris-based International Energy Agency (IEA) forecasts that EU gas production will halve by 2040.

This dwindling production also comes as a number of EU states are poised to break away from over-reliance on both nuclear and coal needed for power generation, leaving opportunities for renewables, particularly solar and wind power, as well as liquefied natural gas (LNG) imports. However, all of these sources will take more time and funding to develop before they can add a more significant percentage of the bloc’s energy mix going forward.

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European oil consumption after North Sea Peak Oil

European oil consumption after North Sea Peak Oil

Hors-d’oeuvre

On the streets of Paris: 24 Nov 2018

Fuel-protests_24Nov2018Fuel price protests on the Champs Elysees

France-price-fuels_2008-2018https://france-inflation.com/prix-carburants.php

Reunion_truck_gilets-jaunes

20 Nov 2018: The “gilets jaunes” have a hard time to convince truck drivers to join their movement
https://www.francetvinfo.fr/economie/transports/prix-des-carburants/gilets-jaunes-les-routiers-divises_3045615.html

They were more successful on the French island of Réunion in the Indian Ocean, where blocked roads and petrol rationing resulted in empty supermarket shelves, highlighting how vulnerable our just-in-time society is.

Reunion_barrages_25Nov201825/11/2018 Road blocks in Réunion
https://www.linfo.re/la-reunion/societe/barrages-le-point-sur-le-reseau-routier

Reunion_fuel-shortage_Nov2018Petrol lines in St Denis, €20 rationing, shops closed, shelves emptying, medical supply disruptions
https://www.francetvinfo.fr/economie/automobile/essence/la-reunion-une-ile-asphyxiee_3048073.html

Oil statistics

European oil production peaked in 2000 at almost 7 mb/d, with a production plateau above 6.8 mb/d lasting for 7 years between 1996 and 2002. 17 years after the peak, production was around half of what it was at peak.

Europe_production_imports_1965-2017Fig 1: Europe oil consumption, net oil imports and production

BP’s definitions are as follows: “Oil production includes crude oil, shale oil, tar sands and NGLs (natural gas liquids – the liquid content of natural gas where this is recovered separately). It excludes liquid fuels from other sources such as biomass and derivatives of coal and natural gas.

Oil consumption is from inland demand plus international aviation and marine bunkers and refinery fuel and loss. Consumption of biogasoline (such as ethanol), biodiesel and derivatives of coal and natural gas are also included.

Notes: Differences between these world consumption figures and world production statistics are accounted for by stock changes, consumption of non-petroleum additives”

In Fig 1 and 3, net oil imports are calculated as the difference between production and consumption.

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North Sea Oil Has Escaped Its Death Spiral

North Sea Oil Has Escaped Its Death Spiral

Oseberg offshore

The oil industry is expected to increase spending in the North Sea and the number of projects that could receive a greenlight is set to rise this year for the first time in half a decade.

An estimated 12 to 16 green-and brown-field projects are expected to be sanctioned in 2018, according to a report from Oil & Gas UK. To put that in context, only 17 projects moved forward between 2014 and 2017, combined.

That would translate into additional spending of about 5 billion pounds and the production of 450 million barrels of oil equivalent over time. As a result, revenues for oilfield service and supply chain companies will rise for the first time in years, the report predicts.

More spending and drilling will ultimately mean more oil and gas production from the UK North Sea over the next two years, although the level of spending and drilling “still falls short of the level required to sustain long-term production at current levels,” Oil & Gas UK said.

“While the project landscape for 2018 is the healthiest the industry has seen since 2013,” the industry will still need “greater exploration success” and will also need to boost production in existing assets in order to avoid decline. For its part, Standard Chartered says that without more gains in spending and the sanctioning of new projects, output will once again head into decline after 2019.

The lack of investment from the last few years will soon start to bite. “Between 2014 and 2017, 33 new fields came on stream. This year, just four to six new field start-ups are expected,” Standard Chartered wrote in a note. “Drilling remains an ongoing concern; exploration, appraisal and development continue to falter.”

The bank says that only 94 wells were drilled in 2017, the lowest figure since 1973.

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The Beginning Of The End For Norwegian Oil

The Beginning Of The End For Norwegian Oil

Norway

The demise of the North Sea doesn’t necessarily mean the end of Norway’s petroleum era—far from it. Still, despite significant reserves in the Barents Sea, Norway is about to embark upon a long period of structural decline as its benchmark fields inch closer to depletion and its reserves taper before our very eyes.

The average Norwegian might not even perceive the difference between an oil-rich Norway and one that is past its prime. The nation’s massive external and fiscal net position, as well as its complete energy independence thanks to hydropower, allows for great flexibility regarding future policies. Yet its oil workers must prepare for a future that is much more Arctic, smaller-scale and gas-based.

There’s ample evidence to conclude that all the sweet spots of Norway’s continental shelf have been found. The latest shelf licensing round (24) elicited a weak response, with only 11 companies applying for production licenses. There was plenty to bid for—102 blocks were up for grabs (never before did the Norwegian Petroleum Directorate offer so much, with an overwhelming majority of them in the Barents Sea), but due to their remoteness from formations deemed to be the most hydrocarbon-rich, bidders were only half as numerous as they were during the previous licensing round in 2015.

Other factors also contributed, including ongoing legal disputes whether drilling in the Arctic breaches Point 112 of Norway’s constitution (“natural resources should be managed based on long-term considerations, safeguarded for future generations”) and questions over the admissibility of drilling in Russia-disputed Svalbard waters (10 blocks) might have scared away an investor or two.

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‘Perfect Storm’ Wreaks Havoc On Europe’s Energy Market

‘Perfect Storm’ Wreaks Havoc On Europe’s Energy Market

Natural Gas

The natural gas market in Europe suddenly got a lot tighter this week, with two unexpected supply outages wreaking havoc across the continent, forcing Italy to declare a state of emergency.

The first incident that made big headlines was the crack in the Forties pipeline in the North Sea, which caused Brent crude oil prices to immediately spike. The outage of the crucial 450,000 bpd pipeline sent a jolt through the oil market and was felt around the world, not only because it interrupted oil flows but also because of the influence the pipeline system has on the Brent futures contract.

But the shuttering of the pipeline system will also affect natural gas.

At least two UK natural gas fields – the Elgin-Franklin and Britannia – were forced to shut down because of the outage at the Forties system. Those two fields produce a combined 20 million cubic meters of natural gas per day (million cu m/d), according to S&P Global Platts. Add in maintenance at the North Morecambe field and the UK is currently down 27 million cu m/d.

Meanwhile, some unrelated problems due to a power outage at the Norwegian Troll field in the North Sea – Europe’s largest offshore natural gas field – knocked an additional 47 million cu m/d offline, although only for a brief period of time. Piling on, the Netherlands had to briefly reduce gas shipments to the UK because of problems with a compression station.

Because the UK doesn’t have nearly as much storage capacity for gas as parts of continental Europe, the disruptions will immediately translate into higher prices. UK natural gas futures for front-month contracts spiked by 23 percent to $9.86/MMBtu, according to Bloomberg. That is the highest price in four years. Wood Mackenzie estimates the UK may have lost the equivalent of about 10 percent of winter demand from the outage at the Forties pipeline system.

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Norway’s Oil Sector Faces Existential Crisis

Norway’s Oil Sector Faces Existential Crisis

Norway

Oil companies have recently focused on frontier exploration drilling in the Barents Sea offshore in Norway, neglecting the powerhouse of the Norwegian oil industry, the North Sea.

Exploration activity in the North Sea—the most mature area of Western Europe’s biggest oil producer—is at an 11-year low this year, which is a concern for the industry’s regulator, the Norwegian Petroleum Directorate (NPD).

“That worries me,” NPD Director General Bente Nyland told Bloomberg in a recent interview, voicing the industry concern that without new oil discoveries, especially in mature areas with well-connected infrastructure, the decline in Norway’s oil production would be even bigger than expected.

Following a continual decline between 2001 and 2013, Norway’s crude oil production rose last year for the third year running, but according to the Norwegian Petroleum Directorate (NPD), oil production this year would be nearly half the volume from the peak in 2000-2001.

Two huge fields discovered in 2010 and 2011, Johan Sverdrup in the North Sea, and Johan Castberg in the Barents Sea, are expected to start operations in 2019 and 2022, respectively, and will lift Norway’s oil production in the early 2020s compared to expected declines in 2018 and 2019.

But after 2025, production and activity are expected to significantly drop off unless there are new discoveries, according to oil major Statoil.

Related: Trump’s China Trip To Reap Billions In Energy Deals

Norway’s Ministry of Petroleum and Energy, and NPD say:

“Production from new fields that come on stream will compensate for the decline in production from ageing fields. However, in the longer term, the level of production will depend on new discoveries being made, the development of discoveries, and the implementation of improved recovery projects on existing fields.”

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The North Sea Oil Recovery Is Dead In The Water

The North Sea Oil Recovery Is Dead In The Water

North Sea

The oil majors issued a vote of confidence for the North Sea in recent days, citing precipitous declines in the cost of production, which they say will revive the region’s oil and gas production.

At an oil industry conference in the North Sea’s oil capital, Aberdeen, the chief executives of BP and Royal Dutch Shell both offered bullish assessments for the turnaround underway off the coast of Scotland. BP’s Bob Dudley said the North Sea is “back to growth,” according to the FT.

The North Sea has long been a costly place to produce oil. And as the aging oilfields in the North Sea suffer from declining output – a decline underway since the late 1990s – investing in a high-cost basin for the oil majors has slipped down on the priority list, especially when shale has emerged as an alternative in an uncertain market.

Even when oil prices were high, production was falling. When prices started to crash in 2014, the North Sea looked like a dead man walking.

But things are looking a little better than they were a few years ago. The oil majors say they have overhauled their cost structures in the region, making production profitable in today’s $50 market, even when the region struggled to be profitable with a $100 oil price a few years back. BP says costs of halved to just $15 per barrel.

Shell’s CEO Ben van Beurden told the FT on the sidelines of the conference that the industry managed to avoid the “death spiral” that they were facing in 2014. At the time, a growing number of key pieces of infrastructure looked like they might have to shut down.

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UK Oil Industry At The “Edge Of A Chasm”

UK Oil Industry At The “Edge Of A Chasm”

Oil & Gas UK, an industry trade group, said in a new report that the North Sea is entering a period of “super maturity.” The North Sea has been a source of sizable oil production for decades, but it is long past its prime.

The UK’s offshore sector is already a shadow of its former self. Consider this: three decades ago the UK produced twice as much oil from its offshore sector than it does today, and that oil came from one quarter of the number of fields. That was possible because the fields of yesteryear were large – on average five times the size of new discoveries today. The industry is now merely picking over the remaining scraps of the North Sea, most of which comes at great expense.

Maturing and high-cost oil fields had significant challenges before the oil price downturn. But at current prices, half of the UK’s North Sea oil fields are not recovering even their operating costs. The number of fields expected to be shut down between 2015 and 2020 increased by 20 percent since last year. The worrying thing from the industry’s perspective is that as fields cease production, the cost of maintaining infrastructure – often shared among producers – stays the same, raising the costs for the remaining players. That could lead to a “domino effect” that spread to other companies. In 2015, 21 oil fields shut down because of low oil prices.

If companies are not able to even cover their operating costs, investing in new fields makes no sense at all. Oil & Gas UK estimate in their report that the sector will see less than £1 billion in investment in 2016.

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Bitter economic winds hasten oil industry’s retreat from the North Sea

Bitter economic winds hasten oil industry’s retreat from the North Sea

Shell’s decision to begin dismantling operations in the famous Brent field is a striking example of the global impact of falling oil prices

For one oil industry veteran, the dismantling of the Brent oil field in the North Sea prompts mixed feelings. There is gratitude for the livelihood earned from Britain’s post-war energy boom. And relief that it means farewell to “hell on Earth”.

“Brent kept me and my family in gainful employment, so I have something to be grateful for, but these platforms are from an era long gone,” says Jake Molloy, 55, who was a production assistant on the Brent Delta platform.

Describing the structure, which Shell plans to remove from the North Sea, Molloy adds: “Putting people down platform legs [which store pumps and vessels] is really bad. You could climb down thousands of steps to the bottom with 40 pounds of breathing apparatus on your back only for the alarms to go off and you had to go all the way back again. It was the worst working environment – horrendous, hell on earth.”

Shell’s announcement that it plans to remove the platform was just one of many symbolic retreats staged by the oil industry last week. A day after the Brent proposals, Shell’s rival BP said it was taking a $4.5bn (£3bn) hit in its quarterly accounts to pay for the cost of bringing forward the closure of some unprofitable UK fields, partly due to lower oil prices.

Situated 115 miles east of the Shetland Islands, Brent is estimated to have produced 10% of all North Sea oil and gas while generating £20bn of tax revenues since it opened in 1976.

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Olduvai IV: Courage
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Olduvai II: Exodus
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