OGPSS - future natural gas supplies and Cyprus

This post began as a view on the developments in Cyprus, and I am grateful to Gail for the suggestion, and it is my fault that it morphed a little from that simple original objective.

One of the problems that one faces in marketing natural gas is that there is so much of it coming onto the market that it makes it difficult to set a price for future production. Even when the fields and reserves are estimated to be large, having some confidence in the price that the gas will bring helps provide confidence, in turn, with investors that there will be a positive return on the cost of bring that gas to the market. However, once that initial commitment is made to invest the money, then the need for a return often drives an expeditious program to bring in revenue, even if the market is already reasonably well supplied. Prices may then fall, and the investment becomes a losing one.

The current cold weather in the United Kingdom, and the threat of gas rationing has raised the price some 30% this month and the market appears lucrative. But the UK market, in the short term, can be rescued by 3 tankers of LNG from Qatar with more available if needed. (Provided it is ordered soon.) And then, though there remains a need to refill storage, the crisis will be over for now, and the price will likely fall back. (Although likely not completely since the UK is in process of shutting down coal-fired power stations to comply with EU edicts and natural gas is the replacement fuel of the moment.) Looking further down the road Centrica, a major energy supplier in the UK, has agreed to a 20-year agreement with a US supplier to buy LNG from the US (out of the Sabine Pass terminal). This would take a fifth LNG train, at a facility where the first train is expected to come on line in 2015, and the second in 2016. Each train has a liquefaction capacity of 4.5 million tons pa or 220 bcf of NG, and customers have already been found for the first four trains – again for a 20-year period. The UK supply is therefore not anticipated to start until 2018.

In the meantime Qatar has no plans to increase production in the face of the overall growing glut in supply, although it potentially could. And this availability of alternate supply is not good news for the Big Daddy of natural gas exporters, those in Russia. Russia has already seen Turkmenistan sell its natural gas to China directly, rather than through Russian middlemen. To date this has reached 1.7 tcf with further expansion in the works.

To make the situation more volatile the natural gas discoveries in the eastern end of the Mediterranean over the course of the last five years have been found to be of increasing size, as exploration continues.


Figure 1. Relative location of the gas fields (the green region) being explored in the Eastern Mediterranean (Google Earth)

Three of these fields, Leviathan, Tamar and Dalit are in Israeli waters, while the fourth, Cyprus A, belongs to Cyprus.


Figure 2. The location of the different fields that are being developed by Noble Energy in the Eastern Mediterranean.

In terms of relative size, Cyprus A is at 7 tcf, Leviathan was initially projected at 17 tcf, Tamar at 9 tcf and Dalit is at 0.6 tcf. Since the original projection Leviathan has now been increased to 15 to 21 tcf, with a likely value of 18 tcf.

The Russian natural gas heavyweight, Gazprom has not been neglectful of these developments, occurring as they do in a region where it would not be difficult to challenge their supplies into Southern Europe. Thus Gazprom has been the high bidder in a project to float an LNG plant over the Tamar field and to liquefy that gas so that it can be sold into Asia. The goal for the start of that project is in 2017.

Turning to Leviathan, which is expected to come on line in 2016, with 750 mcfd being supplied to Israel. The interesting question is what to do with the rest. There is talk of a pipeline to run up into Turkey and thence on into Europe. This would have the advantage of further diminishing the European dependence on Gazprom and Russian gas, but there are some political problems. One is that the pipeline would run through the Greek controlled waters off Cyprus, another is that Turkey gets most of its natural gas from Russia and Iran, and they would be displeased. (Though it would help Turkey over the difficult problem of Iranian sanctions).


Figure 3. A pipeline to send the natural gas to Turkey (Mining.com)

When one looks at the Cyprus field, with these ramifications going on in the rest of the global gas market, it becomes a little more evident why Russia has not been willing to dash into the financial scene and bail the Cyprus economy out by buying a future stake in the Cyprus natural gas.

There was an alternative proposal (H/t Gail) for the pipeline to run instead through Cypriot waters and then on up into Europe directly.


Figure 4. An alternate route for the natural gas to reach Europe. (John Galt )

With Cyprus in a financial mess they offered their natural gas to Russia, as part of the security for immediate help. In the end Russia did not bail out the Cypriots. At the same time that Cyprus was talking to the Russians they were also talking with the European Union, and it appears that perhaps the threat of Russian control of Cypriot gas helped expedite an EU rescue move.

There is, I believe, more in this for the EU than for Russia. The benefit to Russia would come more from controlling a relatively small amount of competitive natural gas, at a time when they are trying to maintain the market for their own. And while they likely did not anticipate the hit that Russian bank deposits are taking, the overall cost to them does not translate into an adequate return on the investment that they would have had to make to keep Cyprus stable.

On the other hand this has benefits for the EU if it can further expand the availability of an alternate source of supply to that from Gazprom, then they can possibly lower future projected prices for natural gas. Set against which is the history of Gazprom sitting on the sidelines waiting for an investment opportunity later in the game, and then stepping in and gaining control for a lower price. It will be interesting to see how this one plays out.

High Speed Rail - Europe and the American Election

It was President Obama who famously said, after the 2008 vote that “Elections have Consequences.” Well two years later that dictum still applies (as it will two years from now). I bring it up since (h/t to Luis) the European Commission has just released a report on High Speed Rail which gives some of the progress that has been achieved on that continent since the first high speed line was inaugurated between Florence and Rome in 1977, though it was not until the service between Paris and Lyon in 1981 that the boom began. And now Europe has 3,861 miles of high-speed lines where trains can travel at faster than 150 mph (the fastest is over 220 mph in commercial service, 350 mph in trials). The inter-continental service is continuing to grow, though to facilitate progress the EU is seeking to develop common technical standards across the network. Unfortunately, after Tuesday, the prognosis is not that favorable to the change in the United States.



It will be a considerable boon in Europe, as expansion continues. Spain, for example, is planning on expanding the network so that 90% of the inhabitants are within 30 miles of a station. The results can be seen with the reduction in travel times between major cities. (And remember that the stations generally lie in the heart of the city, not an hour or so away as many airports now are).


It becomes faster, and more efficient, as well as (speaking personally) less physically tiring, to travel increasingly great distances in Europe by train, in contrast both with air and car. As a result, the report notes:

The advantages of HSLs, in terms of frequent connections (which can easily be modified depending on demand) and flexibility for passengers, have allowed the railways to compete more effectively against other modes of transport. Since 1997, over 6 million passengers a year have been using the Brussels–Paris HSL. As a result, flights have been cut back on this route.

Overall the growth in traffic has been a six-fold increase in usage.

Since high-speed lines were introduced, the number of passengers opting for this mode of transport has constantly increased. The number of passengers on all German, Belgian, Spanish, French, Italian and British lines increased from 15.2 billion passenger-kilometres (bpkm) in 1990 to 92.33 billion in 2008.

In looking at door-to-door travel times, the report chart shows that air becomes faster than conventional rail at a travel distance (in Europe) of around 240 miles, while air does not become faster than high speed lines until a distance of about 500 miles. I start to think about flying instead of driving at a distance of around 300 miles.

At the present time those dealing with the anticipated growth of the network over the next ten years have not, I suspect, taken into consideration the changing fuel availabilities of the next decade. If, as is a reasonable possibility, crude oil pops over $100 in the next year, thereby drawing increasing attention to the coming of Peak Oil, then it is likely that demand for improved rail traffic will likely rise significantly beyond the 25% increase in growth that has been projected. As I have noted before, trains in Europe are becoming increasingly full, at current rates of demand, even in off-peak hours. In the shorter term, as the report notes, train transport may also be helped by the increasing saturation of existing airports with flights. But it also leads to the problems of using rail to transport goods as well as people. These services have different imperatives, and so the report concludes that two separate systems will evolve.

The difference in speed between a (slower) goods train and a high-speed train impacts on rail traffic management for the simple reason that freight trains spend longer on the track and therefore use up more traffic capacity (train paths). This difference in speed may also cause safety problems when these two types of train pass. This makes safeguarding infrastructure availability, while guaranteeing optimum capacity and security, an extremely difficult task. Physically freeing train paths simply means dedicating HSLs solely to passenger traffic and giving freight a higher priority on conventional lines. This is an option being explored by Sweden in particular.

They do however expect that, if environmental policies are tightened, that rail traffic as a whole might increase to as high as 420 bpkm for the entire network by 2020, from 189 bpkm in 1999. The planned network expansion at present looks to being completed in 2030, at which time it will be at around 20,000 miles of track, and carry 535 bpkm per year, with extensions moving out into Eastern Europe. The initial connection to Russia will be through Finland.


The report even looks at the environmental impact of the change in travel mode, since it recognizes that while the trains are electrically powered, that power does not magically appear in the power lines.


And for those interested in energy efficiency

Although the environmental impact of HSLs can also be reduced by improving the energy efficiency of trains and working on other elements of the vehicle, the carbon foot- print of rail travel is still much smaller than that of air or road travel. In the case of a journey from Paris to Marseilles, CO2 emissions in grams per passenger-kilometre (g/pkm) are just 2.7 g/pkm by HS train, compared with 153.0 g/pkm by air and 115.7 g/pkm by car. From the point of view of energy efficiency, HSTs also perform better, using 12.1 grams of petrol per passenger-kilometre, compared with 17.6 for conventional trains, 18.3 for a coach, 29.9 for a car and 51.5 for an aircraft.

So how does this tie into the first paragraph? Well in the United States, and a part of the Stimulus from the Federal Government, high speed lines had been proposed, with funding from Washington. However, with the election of Republican governors in several states due to receive that money, the plans may have to change. The new governor of Wisconsin, for example, has vowed to kill the high-speed line between Madison and Milwaukee. This was meant to be part of a network that would run from Chicago to Minneapolis, and stopping the project will likely cost the state money and jobs – but as a top campaign issue it is likely something the Governor-elect may have to follow up on.

Similarly in Ohio, the incoming Governor, John Kasich has said that “Passenger rail is dead in Ohio.” In this case he was discussing the $400 million plan to restart passenger service between Cincinnati, Columbus and Cleveland.

Work on the high-speed Florida link has already started, this is expected to carry up to two million folk a year from Tampa to Orlando or back, by 2015. It was not favored by Rick Scott who was just elected Governor of the State, though some of his opposition may come from the investment needed to extend the link from Orlando down to Miami. However the incoming Chair of the House Transportation Committee has already spoken out against it.

On the other hand the fate of the investment in a high-speed link in California has not been changed by the election. The backbone of that system, the 500 miles from LA to San Francisco is planned for completion by 2020. (video here). The discussion is more about where the construction will start.

P49. Pick Points

Sometimes there are situations that don’t know when to quit. So it is with the Ukraine:Russia dispute over gas. Today Prime Minister Putin “harshly accused” Ukraine of threatening the passage of Russian gas west. (He also appears to be ignoring the “President guy”) and said he would cut off gas this Saturday. This whole situation is now starting to threaten Russian credibility. But the demagoguery seems to have worked and Ukraine is coughing up the ready.

Naftogaz on Thursday transferred the final $50 million installment of a $360 million payment for gas consumed in February, the Ukrainian company's spokesman Valentyn Zemlyansky said. Gazprom confirmed that Naftogaz had paid in full for February supplies.

Part of the problem now appears to be a political struggle in Ukraine

Tymoshenko and her allies deny that Naftogaz diverted Russian gas. They claim Yushchenko initiated the search in order to get his hands on the company's profits and hinder the company's dealings with Russia by confiscating vital documents.

The message has spread beyond just government and industry also is now learning about using renewable energy, and conservation.

And speaking of revisiting crises, the Pakistan Chief Minister would like to reassure the country

Qaim Ali Shah said, “A meeting will soon be convened to resolve power outage crisis in which KESC administration, representatives from trade community and local citizens will be invited.”

The Canadians are trying to help but supplies are short, and still the Pakistan Senate is urging that prices be lowered. Imports of fuel oil are up 87% over this time last year. Sadly, and a little along the lines of my Tech Talk on Sunday, some 14 miners were killed and 19 injured in a gas explosion in a coal mine in Pakistan on Thursday.

Regulation of the coal industry has become the intent du jour, the European Commission has now set in place emission rules that will likely, through constriction of sulfur dioxide emissions , threaten to close the deep mines of Britain. The threats of increased regulation have just caused cancellation of another coal-fired power plant, this one a 649 MW plant in Iowa. Wisconsin also recently cancelled expansion of the Nelson Dewey facility. The utility planning the facility is now looking into wind power but, from a statistical point of view

Power producers have canceled more than 90 coal-fired projects totaling more than 55,000 MW of capacity for various reasons, over the past few years, according to data from the Sierra Club. There are still about 70 coal plants under construction or in development in the United States.

I believe I heard someone comment recently that all the wind and power installed in the U.S. to date would be the equivalent of one medium coal-fired power plant, just to put this in perspective.

Regardless, the pressure is on coal operators to find solutions but what might get lost in the shuffle is that, whether in Europe or the United States, if we shot the old, before the new can carry the load, life could go downhill really quickly. To counter that the IEA suggests that the US should consider new gas and diesel taxes, and open up offshore areas for drilling.


More stories can be found at The Energy Bulletin and Drumbeat at The Oil Drum.

P39. Pick Points

Half-a-dozen or so stories of interest:

China is going to need a lot of oil, and to ensure it gets it, it has just loaned the Russian oil companies Rosneft and Transneft (who runs the pipelines) $25 billion, and for this they get an annual delivery of 15 million tons of oil (300,000 bd) for 20 years. Of the sum Rosneft will get $15 billion. The first pipeline heading that way will carry up to 0.6 mbd, but needs a spur to carry the oil to China. The oil will likely come from the Vankor field in the Tyumen region of Siberia, with the pipeline running from Taishet in Siberia to Skovorodino, a town of about 10,000 people, on the border, and in Amur province. Overflying part of the route on Google Earth, it doesn’t look quite as uncivilized as the articles make out. There is a Youtube video of the town of Tynda, for example.

Despite the problems that they are having with the California budget, customers of the Southern California Gas Company are getting a 20% drop in their heating bill. The average winter bill of 75 therms per month is expected to be in the $70-80 range. However there is a drive to change the gas hot water heaters to solar heating, given that about 38% of the home power goes to heating water. Unfortunately I suspect that the $250 million price tag will be too much for the state right now, even though it would be through rebates. Oddly Government support for such a move in Australia is meeting some opposition from Greenpeace, on the odd argument that they don’t generate electricity. It was only last week that tentative agreements were signed for solar-thermal power for Southern California Edison, with Brightsource Energy building 7 plants for a total of 1,300 megawatts over the next seven years. though the first 100 MW unit, in the Mojave Desert won’t be ready until 2013. SCE states that it now gets 16% of its energy from renewables. (Though by next year the state target is 20%).

BrightSource CEO John Woolard said the 400-MW Ivanpah project will create about 1,700 full-time jobs in construction and another 3,500 jobs to last the 40-year life of the plants.

The technology uses the tower approach rather than the trough shaped collector idea used by Acciona in Nevada. Israel contrarily has just approved the connection of a photo-voltaic power station to their national grid, though it will take 4 years to install the connection.

Perhaps the money put into the stimulus package for high-speed rail might head toward maglev. China is looking to start a new project next month although there is already one system in operation in Shanghai, that uses German technology. Plans for high speed rail systems in California are being debated even though no-one knows where the stimulus money is going yet.

While recent talk has focused on a gas pipeline from Iran to Pakistan and on to India, and recent reports have been either favorable or discouraging, Bangladesh remains strapped for energy, and so there is now talk of a pipeline from Myanmar, through Bangladesh to India.. However economic reality, and the fact that coal is indigenous to many in the region is causing the countries of South Asia to seriously consider switching to coal. India, for example, is now seeing a gap of some 5.7% between available supply and demand and needed the pipelines that had been planned, since even now gas can only meet 60% of industrial demand.

There have been concerns in the past over the ability of wind turbines to operate in cold climates, but with turbines now working successfully in Alaska those days may be over. It may still take about 17 years to pay for the installation, however, on an expected life of 20-25 years. Yet with that promise there is still uncertainty over the future of wind in Canada. In the UK permission was given to install ten new wind farms around Scotland. Britain currently generates some 3 GW from wind, and these farms may add double that amount.

And the EU has just released the Market Observatory for Energy report looking at energy generation in the EU. However since the range of oil prices assumed go from $61 to $100 per barrel for oil in 2020 it may still be a little unrealistic – but I will take a look!

More stories can be found at The Energy Bulletin and Drumbeat at The Oil Drum.