Tuesday, March 28, 2017

GWPF Newsletter: ‘Biggest Oil Discovery In UK Waters This Century’

UK Energy Policy Will Be About Cutting Costs, Not Emissions, Says Government Chief

In this newsletter:

1) ‘Biggest Oil Discovery In UK Waters This Century’
Financial Times, 26 March 2017
2) UK Energy Policy Will Be About Cutting Costs, Not Emissions, Says Government Chief
Newcastle Journal, 23 March 2017
3) Green Light For Shale Gas Test Drilling In Nottinghamshire
City A.M., 22 March 2017
4) U.S. Shale To Feed European Gas Market Battered By Coldest January In Seven Years
Bloomberg, 24 March 2017
5) Shell’s New Permian Shale Play Profitable At $20 A Barrel
Oil Price, 24 March 2017
6) Cheap Energy & New Technology: China Sees A Manufacturing Future — In America
The Wall Street Journal, 21 March 2017

Full details:

1) ‘Biggest Oil Discovery In UK Waters This Century’
Financial Times, 26 March 2017
Andrew Ward and Nathalie Thomas

Find adds to series of wells that may be biggest beneath UK waters this century.

Hurricane Energy has made a further oil discovery west of the Shetland Islands days after Royal Dutch Shell and BP won exploration licences in an area the UK is counting on to breathe new life into its struggling oil and gas industry.

The latest find adds to a series of successful wells drilled by Hurricane in a geological formation that analysts say looks likely to be the biggest new oil discovery beneath UK waters this century.

Shell and BP were last week awarded licenses to drill in nearby exploration blocks in a sign of renewed interest among large oil and gas groups in the west of Shetland region even as they withdraw from more mature parts of the North Sea.

Hurricane is expected to announce that initial data from its Halifax well indicates the presence of a 1km-deep oil column and that, crucially, it appears to be part of “a single large hydrocarbon accumulation” connected to the company’s adjacent Lancaster field.

This would increase confidence behind the London-listed explorer’s claim to be sitting on the largest undeveloped discovery on the UK continental shelf and aid efforts to attract investment in the field from international oil majors.

Full story

2) UK Energy Policy Will Be About Cutting Costs, Not Emissions, Says Government Chief
Newcastle Journal, 23 March 2017
Peter McCusker

Top civil servant says costs to businesses will take higher priority in UK energy policy

The Government’s energy policy will focus on cutting costs to business as a Whitehall official admits it has ‘neglected industry for too long’. Peter McCusker reports.

UK energy policy has been view through the prism of the ‘trilemma’ since Ed Miliband’s 2008 Climate Change Act, but that is changing under Theresa May’s Government.

Nigel Pargiter, acting head of energy supply chains at BEIS (Department of Business, Energy and Industrial Strategy), told a North East audience that the emphasis is now on cutting energy costs to homes and businesses.

In a question and answer session at the annual NOF Energy Conference at the Sage Gateshead, he conceded the Government had ‘neglected industry for a few decades’.

Responding to a question from John Bruijnooge, site director at Teesside industrial giant Sabic, he said Whitehall ‘has had to take a long hard look in the mirror’.

“We have neglected industry for too long and we now have to have a keen focus on costs.”

He went to say the previous energy policies, which focused on balancing a trilemma of reducing energy emissions, cutting costs and delivering energy security, ‘had been the result of tensions’ between two Government departments.

He said: “Under the Coalition, energy policy was split between two different departments, the Department for Business and DECC (Department of Energy and Climate Change), and there were tensions.

“We got stuck on the trilemma. This became a sticking point, there was not one department to think holistically and this resulted in tension.

“Our view now is that decarbonisation has a cost to domestic users and businesses and our focus now is on ‘how much can industry bear before it is too much, and decides to go elsewhere?’”

In his earlier address to the conference he said: “The key challenge for us all is how do we get costs down and away from the subsidy regime. This is the biggest challenge we face and one that can be tackled by Government and industry working together.”

The North East has experienced the pain caused by measures to cut emissions with the introduction of the Carbon Price Floor in 2012 increasing costs at the Alcan aluminium plant by £30m, leading to its subsequent closure with the loss of over 500 jobs. [...]

This emphasis on cutting energy costs comes as further evidence of the UK direction of travel on energy has emerged in the last few weeks.

Full post

3) Green Light For Shale Gas Test Drilling In Nottinghamshire
City A.M., 22 March 2017
Courtney Goldsmith

Gas has won approval for a new shale gas exploration project from Nottinghamshire County Council.

The firm, one of Britain’s leading shale explorers, has been granted planning consent to develop a hydrocarbon well site and to drill one exploratory well at the Tinker Lane site in North Nottinghamshire.

IGas, like other onshore operators around the country, is working to find out if the large quantities of shale that exist in Britain are in the right formations to be commercially prospective, said Stephen Bowler, chief executive of IGas.

“The UK is at a critical juncture in the future of our energy mix and supply as we move away from coal towards lower carbon energy sources. We rely significantly on gas in the UK, not just for electricity, but also in heating eight out of 10 homes and as a raw material in the manufacture of many everyday products.”

The council previously gave IGas permission to explore the site at Springs Road to test whether the shale rock was suitable for fracking.

Full story

4) U.S. Shale To Feed European Gas Market Battered By Coldest January In Seven Years
Bloomberg, 24 March 2017

The heart of Europe’s gas market may finally get a helping hand from the American shale revolution as fuel is poised to cross the Atlantic to replenish depleted inventories after the coldest January in seven years.

Northwest Europe, one of the biggest trading regions for the fuel, hasn’t yet attracted any liquefied natural gas cargoes from the U.S., which the shale boom turned into the world’s biggest gas producer. So far, sellers have favored markets in South America and Asia where prices have been higher.

But that may be about to change with spring weather poised to damp demand and prices in the biggest consuming region of Japan and South Korea moving closer to those in the U.K. and the Netherlands. Supplies from the U.S. may arrive in the coming months to help replenish European stocks at their lowest level since 2013, according to Houston-based Cheniere Energy Inc., which is expanding its export plant in Louisiana.

“U.S. gas will find an obvious home in Europe once most other markets are filled up,” Trevor Sikorski, head of natural gas and carbon at Energy Aspects Ltd. in London, said by email. “There should be lots of gas as three trains should be operating for most of summer 2017” at Cheniere, he said.

As Asian demand subsides with milder weather, regional prices will move closer to parity with European rates, according to Energy Aspects.

The arbitrage for U.S. gas to both Europe and Asia is already “wide open,” Citigroup Inc. said in a report emailed Wednesday. Asian LNG prices may slide to below $5 per million British thermal units after May, according to the bank. That’s the price of summer gas in the U.K. on ICE Futures Europe in London.

“We are looking to sell into Europe in April-May as European storage sites start refilling, but we will only sell to Europe if we see it offers a price premium,” Eric Bensaude, Cheniere’s managing director of commercial operations, said by phone from London. “The main reason why we did not sell in Europe in the winter is because other markets were paying a higher price.”

Most U.S. LNG exports have so far gone to Latin America, with cargoes also reaching Asia and the Middle East. Supplies from Cheniere’s Sabine Pass have also arrived in Spain, Portugal, Italy and Turkey at an increasing rate over the past three months, according to London-based consultant Timera Energy, which counts BP Plc to Gazprom PJSC as clients. The company estimates that only 17 percent of U.S. LNG went to Europe since exports started in February 2016.

“After Latin America, Europe is the next cheapest destination for U.S. exports from a shipping cost perspective,” Timera said this month in a report. “As U.S. export volumes grow, significant volumes are likely to land in Europe, or to displace cargoes that flow to Europe from elsewhere.”

Full story

5) Shell’s New Permian Shale Play Profitable At $20 A Barrel
Oil Price, 24 March 2017
Rakesh Upadhyay

OPEC’s worries about the booming U.S. oil production have increased significantly with the big three oil companies’ interest in shale. 2017-19 is likely to see the largest increase in mega projects’ production in history.

Exxon Mobil Corp., Royal Dutch Shell Plc, and Chevron Corp., are planning $10 billion of investments in shale in 2017, a quantum jump compared to previous years. All the naysayers who doubted the longevity of the shale oil industry may have to modify their forecasts.

OPEC lost when they pumped at will as lower oil prices destroyed their finances, and now they are losing their hard-earned market share as a result of cutting production. Shell’s declaration that they can “make money in the Permian with oil at $40 a barrel, with new wells profitable at about $20 a barrel” is an indication that Shell is here to stay, whatever the price of oil.

The arrival of the big three oil companies with their loaded balance sheets is good news for the longevity of the shale industry.

The oil crash, which started in 2014, pushed more than 100 shale oil companies into bankruptcy, causing default on at least $70 billion of debt, according to The Economist. Even the ones that survived haven’t been very profitable, according to Bloomberg, which said that the top 60 listed E&P firms have “burned up cash for 34 of the last 40 quarters”.

Therefore, during the downturn, the smaller players had to slow down their operations, but this will not be the case with the big three.

“Big Oil is cash-flow positive, so they can take a longer-term view,’’ said Bryan Sheffield, the billionaire third-generation oilman who heads Parsley Energy Inc. “You’re going to see them investing more in shale,” reports Bloomberg.

The majors are attempting to further improve the economics of operation. Shell said that its cost per well has been reduced to $5.5 million, a 60 percent drop from 2013. Instead of drilling a single well per pad, which was the norm, Shell is now drilling five wells per pad, 20 feet apart, which saves money previously spent on moving rigs from site to site.

Shell is not the only one—Chevron expects its shale production to increase 30% every year for the next decade. Similarly, Exxon plans to allocate one-third of its drilling budget this year to shale, and it expects to quadruple its shale output by 2025.

A little known miner has gained access to the world’s most valuable copper land package which could soon turn this company into the next big thing for investors.
“The arrival of Big Oil is very significant for shale,” said Deborah Byers, U.S. energy leader at consultant Ernst & Young in Houston. “It marries a great geological resource with a very strong balance sheet.”  [...]

“2017-19 is likely to see the largest increase in mega projects’ production in history, as the record 2011-13 capex commitment yields fruit,” the U.S. investment bank said in a research note on Tuesday, reports Reuters.

Full post

6) Cheap Energy & New Technology: China Sees A Manufacturing Future — In America
The Wall Street Journal, 21 March 2017
Andrew Browne

DONGGUAN, China—Glen Lin is struggling to keep his shoe company competitive on the world’s factory floor in southern China. Wages are shooting up 15% each year. Taxes are high. Shipping is exorbitant, and slow. So, as fast as he can he’s automating production, while planning an escape to his largest market—the U.S.

The vice general manager of Dongguan Winwin Industrial, a Taiwan-owned company, is scouting for a location in America to move his newest machinery that turns out high-quality sneakers and casual shoes. Most likely, he’ll end up near one of his main customers: Skechers, based in California, Crocs in Colorado, or Nike in Portland, Ore

In global manufacturing, fortunes are starting to shift in America’s favor.
That’s despite Donald Trump’s angry election rhetoric about China “raping” the U.S., and his threats to forcibly bring home manufacturing jobs by slapping across-the-board tariffs of 45% on Chinese imports.

The trends were clear well before Mr. Trump started rallying his blue-collar base with alarmist messages of protectionism. In fact, China’s trade challenge peaked years ago: Exports to the U.S. surged in the immediate aftermath of the country joining the World Trade Organization in 2001, throwing several million U.S. assembly workers out of a job, but they have since flattened out.

Nowadays, the exit of U.S. factory jobs from the country is roughly matched by posts coming in, according to the nonprofit Reshoring Initiative, which encourages companies to bring production back to the U.S.

Job-creating investment from China is booming in particular. Last year, it tripled to $45.6 billion from a year earlier, according to the Rhodium Group.

Chinese social-media sites were abuzz last year when the auto-glass tycoon Cao Dewang announced he was moving part of his production empire to Ohio. Some commentators denounced him for “running away.” He insisted he could make more money producing for the U.S. market from Ohio than China.

Although U.S. wages are still higher than those in China, the gap is rapidly narrowing. Andy Gu, vice president of international business for Midea, a massive home-appliance maker also based in southern China, says a competent engineer now demands up to $50,000 a year. Ordinary workers get about $600 a month, with food and lodging on top.

Moreover, industrial land in the U.S. is often cheaper than in Chinese coastal cities. The shale-gas revolution has dramatically lowered U.S. energy costs.
But the real key is technology: Advanced manufacturing is leveling the playing field.

Full story

The London-based Global Warming Policy Forum is a world leading think tank on global warming policy issues. The GWPF newsletter is prepared by Director Dr Benny Peiser - for more information, please visit the website at

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