Tech Talk - Thatcher, Putin, Coal and Gas

Back some forty years odd years ago when Edward Heath was Prime Minister of the United Kingdom, and the coal industry was still nationalized, the miner’s union went on strike, just after the Christmas Season. This followed an overtime ban that had started the previous November. The strike began on January 9, 1972 and lasted 7 weeks. Tellingly, just after it began some 17 schools had to close, as they had no heat in their buildings, without coal. Within a month the Government had to declare a state of emergency, and factories began to close due to a lack of power. Sensibly the Government of the day gave in to miners’ demands and they went back to work at the end of February.

Two years later there was a relatively similar series of events, with an overtime ban, followed by a three-day workweek as power cuts and blackouts developed, but this time Edward Heath also called a General Election, assuming he had the national sympathy. He was wrong, he lost.

These lessons were not lost on Margaret Thatcher, who had noted that it was not smart to offend the miners when the nation still relied on coal for much of its power, and when, in the winter, there was not a lot of coal in reserve at the power stations (because of the preceding overtime bans leading into winter). Thus, in 1984 when she, in turn, had to face the wrath of the National Union of Mineworkers (NUM), she had made sure that the situation was much different. Prior to the strike she had arranged for coal stockpiles to be built up over a period of three years. In addition the strike began on March 5th. It started because of the Coal Board decision to close 20 mines (since the earlier strike the number of miners had already fallen from 250,000 to 187,000 and the closures would cut another 20,000 from that number). It crumbled a year later, with a vote to return to work on March 3, 1985. The mining industry never recovered, and by the turn of the century the NUM was down to around 5,000 members.

I was reminded of those days by the latest clash between Gazprom and the Ukrainian government. In the past, when the Russians demanded that Ukraine pay its gas bill, the timing usually took place at the beginning or in the heart of winter. The problem that this gave the Russians was that they were supplying Western Europe through Ukraine, and any shut-off in the supply of natural gas to Ukraine had immediate consequences in Europe, which has become increasingly dependant on that gas. The result of the timing of the disputes was, therefore, generation of considerable diplomatic pressure leading to a relatively rapid resolution, without Russia getting all the deals that it wanted.

This time, however, it may be that Russia has learned, as Margaret Thatcher did, that timing is critical in this type of situation. Instead of waiting to November to call in the bill, Gazprom has presented it in June, when European demand for natural gas is lower. In addition the Nord-Stream gas pipeline is in place. This carries roughly 2 trillion cu. ft. a year of natural gas 760 miles into Germany, without passing through Ukraine. The twin pipes were completed and on line by October 2012.

Figure 1. Nord-Stream (Baltic Sea pipeline) bypassing Ukraine with 55 billion cu m of natural gas a year, (Daily Mail), out of a total sale of 262 billion cu m.(Spiegel)Note a second major pipeline from Yamal goes through Poland.

And while there has been talk about bringing in natural gas through Nabucco, that has slowly faded in the face of reality. Gazprom (as Brenda Shaffer has noted) has done remarkably well in gaining control of the different feeds and pipelines that come out of the East and head west into Europe. For example:

Moscow has taken steps to block the entrance of Iran into European gas markets; in 2006, the Russian company Gazprom bought a pipeline from Iran to Armenia and limited its size to ensure that it could be not be used to carry Iranian gas into Europe.

Consistently supplies have been confined to pipes that are under Russian control. It has a percentage of the Interconnector that carries natural gas into the UK and there has been little regard paid as it stepped in and took interests in other national pipeline companies across Europe.

So Gazprom can now wait while Ukraine exhausts its own reserves. It is reported to have some 13.5 billion cu m on hand, but it needs to have 18-20 billion at the start of the winter, if it is to get through. By stopping the flow now, Russia is having Ukraine burn those reserves between now and winter, while keeping the nations further west supplied. This means that the pressure will become that much more intense on Ukraine as winter starts to approach, and there is no alternate source of supply.

Gazprom has not hesitated to profit from this in the past, and is already in a position to demand whatever price it sees fit.

Ukrainian and Russian officials have been fighting about gas pricing since Yanukovych was ousted. After Russia annexed the Crimean Peninsula, it hiked gas prices for Ukraine 81 percent, from $269 per 1,000 cubic meters of gas to $485. That price was the highest in Europe, and Ukrainian officials refused to pay, calling it politically-motivated retaliation.

Gazprom has since lowered its price demand to $385, broadly in line with prices for other European countries. Ukrainian officials have sought to pay less and have said the way Russia was structuring the deal meant they would remain vulnerable to price hikes if they did anything to displease the Kremlin.

“Any price they offer is in the form of a discount that can be undone at any time,” said Pierre Noel, an energy security expert at the International Institute for Strategic Studies.

Don’t hold your breath waiting for this to be resolved.

Tech Talk - life gets more difficult at Gazprom

There was a time, not that long ago, when if I was short of a topic for a post, I could Google “Gazprom” and there was sure to be a story out there about another expansion, or take over of a national pipeline – or some other sign of the companies growth and power. But in the natural gas industry there has always been a certain volatility. In the United States Chesapeake, the second-largest natural gas producer in the US, is laying off 800 workers as it completes its plans to re-organize by the end of the month. The price for natural gas is around $3.79 per kcf which still falls below the price required to make many wells in tight shale adequately profitable. I have written about gas price problems a number of times in the past, dating back to at least 2009 and though the price is now up over $1 per kcf from those times, as the recent report in the OGJ noted, Chesapeake had, in estimating returns, anticipated it would be up around $7.21.

Gazprom’s problems however relate more than just to the price of natural gas, and the continuing difficulties in defining future price, although those too still exist. In the agreement that the company signed with China last month, for example, although it says:

All the major terms and conditions of future Russian natural gas supplies to the Chinese market via the eastern route were agreed on, namely, the export volume and starting date, the take-or-pay level, the period of supply buildup, the level of guaranteed payments, the gas delivery point on the border as well as other basic conditions of gas offtake. The price conditions will not be linked to the Henry Hub index.

It turns out that the price has yet to be determined. Gazprom is expected to sell its gas into Europe this winter at around $10.62 per kcf, which is down about 7.5% over last year. Nevertheless the Chinese are hoping to pay no more than $7.10 per kcf. And they have more than a little leverage.

Gazprom had been hoping to market the liquefied natural gas (LNG) from the ExxonMobil fields at Sakhalin Island as well as from their own wells, but that discussion has now fallen through so that this becomes a competitive rather than complimentary source of supply. Concurrently China has just confirmed the increase in purchases of natural gas from Turkmenistan.

Not that many years ago all the exported natural gas from Turkmenistan had to run through Gazprom pipes, and thus the company could charge a hefty premium in carrying the gas to Europe and elsewhere. With the opening of pipelines from Turkmenistan to China, that monopoly disappeared, and now the Chinese have agreed to take some 2.3 trillion cubic feet (Tcf) (65 billion cubic meters) of Turkmen natural gas per year, increasing their take by 882 bcf and requiring an additional pipeline to carry this new volume. Given that the country already supplies over half of Chinese natural gas imports, this will continue to squeeze Gazprom’s ability to control prices in Asia.

This new volume will come from a new field in Turkmenistan, the Galkynysh, which is expected to hold a reserve of 900 Tcf. China is investing $8 billion in the development of the field, and the new pipeline to China.

Figure 1. The location of the Galkynysh field within Turkmenistan (Trend)

And Gazprom’s problems don’t end in Asia. Part of the problem that they ran into at Sakhalin Island is that ExxonMobil is working with Rosneft to build an LNG plant through which to market their product by tanker. This circumvents the pipeline monopoly which has allowed Gazprom to dictate terms in the past. The plant is expected to handle 5 million tons of LNG per year, and is anticipated to come on line in 2018. Initial construction contracts have now been signed.

Roseneft, and Novatek have both now been given permission to export LNG, overturning the Gazprom monopoly, and Novatek has the deposits in the Yamal Peninsula that could be more conveniently marketed to Europe, but with LNG tankers that could also reach Asia and beyond. The natural gas will initially come from the South Tambeyskoye field, which has an anticipated reserve of 17 Tcf, with an expected production of around 1 Tcf per year.

Figure 2. Location of the South Tambeyskoye natural gas field, and the planned site of the LNG plant (Novatek )

The plant will operate three trains, each with a capacity of some 5 – 5.5 mmt. It is perhaps no surprise that China is backing the plan with a 20% investment, for which it anticipates being able to purchase at least 3 million tons of LNG pa. An additional 10% of the funding is likely to come from either Japanese or Indian investors. Total of France also has a 20% investment and presumably will gain a proportionate share of the shipments.

As if these challenges to Gazprom’s dominance were not enough trouble, Gazprom is seeking to have two German companies EON SE and BASF SE pony up another billion dollars because Gazprom has been able to increase the reserves at the Yuzhno-Russkoye field in Siberia.

Figure 3. The Yuzhno-Russkoye gas plant in Siberia that feeds into the Nord Stream pipeline (Nord Stream )

Figure 4. Location of the Yuzhno-Russkoye field (Wikipedia)

And just to rub it in, the European Union is planning on hitting the company with anti-trust charges. Given that the company has been able to dominate natural gas sales into Europe though pipelines, and thus has also been able, in the past, to control prices, this new step could prove expensive to the company, just as it faces greater competition in all its export markets. (This does not even consider the potential for LNG competition out of the United States).

The company is getting its supplies from increasingly expensive locations (hence the need for the cash from the German companies) and the income losses that it has seen in the market due to Turkmen competition are already hurting – but it needs more money if it is to be able to keep up its market share.

Before leaving there is an intriguing graph that Ron Patterson has posted at his site.

Figure 5. Process gain in refineries around the world and in the United States (Peak Oil Barrel )

The plot is at the end of a discussion on the difference between counting all the oil produced in a country and the break-down into crude and other sources that add into the total. One part of this is the gain in volume, process gain, that comes when crude is refined. It therefore acts as a marker of the volume of crude that is running through refineries, and as Ron notes, this has now plateaued for the past few years. Interesting!!!

OGPSS - Cutting back on supply in the presence of optimism

We have reached, I would suppose, a period of complacency in the perception of the coming of Peak Oil. We are in a period where, as recent posts have shown, the promises of bountiful supply are built on increasingly tenuous propositions. Unfortunately the evolving story of the mess that we are heading into is at a point where the critical aspects of the problem rate minor paragraphs in articles that largely talk about something else. And the potential of the fossil fuels that lie within shale have commentators drooling over the benefits that will come from this abundant resource. Unfortunately within this euphoria there are sufficient concerns that need airing, since, overall, the situation has not changed that much since the Hirsch Report was published, just over eight years ago.

One of the points that was made in that report was that it would take some twenty years for new technologies to mitigate the foreseen shortages of liquid fossil fuels, made when gasoline prices averaged some $2 a gallon. Driven by concerns over climate change, there has been a significant effort to find alternate fuel options that can provide a renewable option. And the hopes for these producers lead to predictions of a different future.

The British Department of Energy and Climate Change (DECC) has just released a report on the future of coal-fired power plants in Germany, Spain and the Netherlands. It notes that, although Germany will open more coal-fired power plants this year than at any time within the past twenty years, the future for coal is not that promising. In rough numbers Germany has a peak demand of 85 GW of electricity with coal and lignite capacity of around 47.6 GW in 2011. From then until 2015 an additional 10.7 GW of coal-fired plant will come on line. The DECC report notes that while an additional 2.7 GW of plant are in development they have not advanced and, it is suggested, they will likely be cancelled. Some 22 coal-fired projects have been cancelled, and four postponed in recent years. New plant does not spring, like corn, fresh out of the ground within months of planting. Rather there are years of effort, and millions of investment, before power starts to flow. The report brings these views to the following:

We conclude that further new projects to build coal-fired generation in Germany, the Netherlands, and Spain are all very unlikely.

The three major oil companies each had different technologies on which they hung their hats to ease any fears of the future – including the widespread development of either methane hydrates of the oil shales of Colorado. (Neither of which can be realistically expected to come to pass in the next twenty years). The British National Grid in their view of the future seems to put is faith more in the widespread use of high-efficiency heat pumps.


Figure 1. Projected growth of heat pumps in the UK, under three future scenarios (National Grid)

The also anticipate considerable growth in future sales of electric vehicles, though admitting that their earlier projections for these numbers were overly optimistic.


Figure 2. Projected growth in electric vehicle usage in the UK (National Grid)

As a result they anticipate significant reduction in the needs for fossil fuels, although the least optimistic of the scenarios (the Slow Progress one) means that:

In the Slow Progression scenario developments in renewable and low carbon energy are comparatively slow, and the renewable energy target for 2020 is not met until some time between 2020 and 2025. The carbon reduction target for 2020 is achieved but not the indicative target for 2030.

The concern with these optimistic projections, is that it also impacts the investment strategies of those who will need to supply those fuels in the future. Just as it takes time and money to build a power station, so it also takes time to permit and build a coal mine, or an oil or gas well, and the infrastructure to support it.

The current situation in the United States has proponents of the natural gas boom urging the development of export terminals to ship LNG to a global market at a very competitive price. By last December there were plans for a dozen such terminals in the works.


Figure 3. Proposed new LNG Export terminals in the United States (Oil and Gas Journal)

This additional supply, and the likely impact of cheaper natural gas into the European market, has already caused Gazprom to rethink its strategy for natural gas development over the next few years.

The major Russian current development is taking place in the Yamal Peninsula, where the Bovanenkovo field, which came on stream last October had been projected to yield 4 Tcf by 2017, increasing 5 Tcf in the out years. Other adjacent fields, Kharasaveyskoye, Kruzensternskoye, Tambey and Nonoportskoye, were scheduled to follow in order to meet anticipated demand.

But those plans are now being scaled back. Russia has already lost some of their Chinese natural gas market to Turkmenistan, and now it can see that the US might take some of the European market. It cost $41 billion to develop Bovanenkovo, which made it “one of the most expensive industrial projects in the world.” Gazprom is cutting production by to around 83% of capacity this year, and expects it may have to go lower. The natural follow-on to this will be a slowing of investment and development in Yamal, which also produces oil.

At present Russia is closing in on a record post-Soviet oil production () reaching a level of 10.49 mbd (the Soviet peak was 11.48 mbd in 1987). Rembrandt recently noted that it is going to take a significant and ongoing investment in order to have any hope of sustaining those numbers.

My concern is that, in the current Western euphoria, those who must invest to build the alternative infrastructure that will provide sufficient fuel, if all the current plans and projections for alternative supplies and conservation fail, will not b motivated to make those investments in a timely manner. If they do not, or have not, then we will still need the 20-years that Robert Hirsch and his committee projected, when we run out of that time. (That clock is ticking). Unfortunately those who, like Cassandra, sing this song are less likely to be heard in this interval.

OGPSS - An update on Russian plans and the OPEC MOMR

The Arctic is a less forgiving place than many folk care to recognize. Shell have just moved back the date on which they plan to restart drilling in the Chukchi Sea and won’t be going up there this year. At the same time, last August, Gazprom announced that the development of the Shtokman gas field off the Russian coast and also in the Arctic had been put on an indefinite delay. Yet the region still shows considerable promise. ExxonMobil and Rosneft have agreed to exploration in the Chukchi, Laptev and Kara Seas, with the latter considered as possibly having the highest potential.


Figure 1. Location of the Kara and Laptev Seas. (Google Earth)

The blocks that will be explored are South of the island of Novaya Zemlya, in relatively shallow water. They lie north of the Yamal Peninsula, and the Shtokman field is on the other side of the island.


Figure 2. The locations of the East Prinovozemelsky blocks south of the island of Navoaya Zemlya (Rosneft)

Rosneft estimates that the reserves that are recoverable are 6.2 billion tons of oil, and a total of 20.9 billion tons of oil equivalent when the natural gas content is included. The first wildcat well is scheduled to be drilled in 2015.

While Gazprom and Rosneft share access to these offshore resources, Lukoil has found a site at Khatanga Bay in the Laptev Sea where it believes that it can be successful. Despite the difficulties, the need for Russia to sustain production is forcing the companies offshore into more difficult waters, it is where the future production lies, and the Russian economy needs the income.

The February OPEC Monthly Oil Market Report notes that Chinese demand has now topped 10 mbd on a quarterly average, the highest to date and growing at 6%. The greatest increase has been in the use of gasoline. Global demand is anticipated to top 91 mbd by the end of the year. Russia is anticipated to produce some 10.42 mbd on average this year. OPEC has, however, a few caveats:

The Vankor oil field is expected to average 435 tb/d in 2013, a minor increase from the level of 410 tb/d achieved by the end of 2012. Some operators provided that new technologies will be utilized to stop natural decline. On the other hand, the supply forecast remains associated with a high level of risk, due to technical, political, geological and price factors. On a quarterly basis, Russian oil supply is expected to average 10.43 mb/d, 10.42 mb/d, 10.42 mb/d and 10.42 mb/d, respectively. Preliminary figures indicate that Russian oil production stood at 10.46 mb/d in January, steady from the previous month.

As usual it is interesting to compare the OPEC production results for the last few months, based both on the reports obtained from secondary sources, and those numbers that the individual nations provide.


Figure 3. OPEC crude production based on secondary sources (OPEC February MOMR )

It is important to note that Saudi Arabia has dropped its production by around 300 kbd or so for the last couple of months. While I suspect that this to keep markets a little tighter and thus hold prices stable, others might suggest that the may have some slight difficulty sustaining the higher numbers.


Figure 4. OPEC oil production figures as reported by the producing countries. (sources (OPEC February MOMR )

Iran continues to have a disparity of around 1 mbd between the two tables, Iraq still seems to be struggling to get over 3 mbd, and Venezuela has a discrepancy of around 400 kbd. In short, not much new.

Turning back to look for just a moment at Gazprom activities, although they have continued to keep Lukoil out of the Arctic, they have also continued to seek resources abroad. The company has acquired territory in Iraqi Kurdistan and is reported to have an 80% stake in the Halabja project with reserves of around 700 mb. The field lies on the Iranian border in the Kurdish part of the country, and Baghdad objected to the deal going forward. It might, however, help raise Iraqi overall production. Gazprom has two other projects in the region at Garmian and Shakal, and one at Badra which falls under the control of the central government.

And, still in the Middle East, Gazprom is in talks with Israel to buy LNG from the offshore Tamar field and ship it to Asia to serve markets that it cannot easily reach with its pipelines. The intent is to use a floating liquefaction plant that will take gas from both Tamar and Dalit, at the rate of around 3 million tons a year with production starting in 2017.

Gazprom recognizes that, if it is to develop Asian customers it must provide LNG and so it has begun work on an LNG plant in Vladivostock with three trains, each capable of producing 5 million tons of LNG a year, from the Sakhalin, Yakutia and Irkutsk gas fields. With production aimed to begin in 2018, the market will, again, be in the Asia-Pacific region and may be one of the reasons to accelerate production from the Kovyktinskoye field. At the present time Gazprom has brought the Zapolyarnoye up to full production, and they estimate that this will produce 20% of Russian natural gas as the field moves to be the largest producer in the country.

And, while tracking down some of the information for this post, I did find a picture of a polar bear and cub in the region that ExxonMobil is venturing into. It was taken on the island of Novaya Zemlya. Hopefully environmental concerns won't raise the same sort of difficulties in developing these sites that they have in other places further East.


Polar Bear and cub on Novaya Zemlya on the Shores of the Kara Sea (the photo is on Google Earth and was taken at the red arrow in Figure 2 by

Oh, and before I forget the Alaska pipeline continues to run below 600 kbd with an average of 577, 604 bd. for January.

OGPSS - Future Russian production from the Arctic

In the past few weeks I have been looking at the potential for sustainability in oil and gas production in Russia, now producing at a predicted recent peak of 10.36 mbd, when condensate is included. But the question increasingly becomes whether or not Russia can sustain these levels through this decade, as has been assumed by those suggesting that there will be no supply problems in the near future. In order to sustain this level of production, against falling volumes from the current major sources in Western Siberia (estimated as 300 kbd in 2010 ), Russia is so far relying on bringing new fields into production in Eastern Siberia and Timan-Pechora (as well as some increase in condensate as natural gas production continues to increase). However these developing fields, as a broad generalization, are at a size of about 500 mbd each, with an anticipated maximum individual production level of around 150 kbd. (Prirazlomnoye for example, which is coming on line has 526 million barrels in reserves, and will be producing at 132 kbd).

Prirazlomnoye drilling rig representation (Gazprom).

Since the high flow rates will likely not be sustained for long intervals, and declining production in Western Siberia will continue, so Russia will need to continue major programs of development to find further fields to bring on line later in the decade and beyond. In addition the declining production in other fields (which might increase overall decline in existing production to 5% or more, i.e. above 500 kbd) will add further pressure to sustain current levels, particularly given the criticality of oil and gas income to the Russian Government.

With much of the land already surveyed, the potential for large fields lies mainly offshore, and particularly in the various national continental shelves and the disputed underwater territory between them in the Arctic. It is a region where there are multi-national concerns and involvement, with the USGS having previously estimated that it is home to about one-fifth of the world’s undiscovered, but yet recoverable oil and natural gas resources, an estimate, at the time, of 44 billion barrels of oil and 1,670 Tcf of natural gas.

Map of the Arctic showing relative location of some development sites (Google Earth)

From the US perspective the US Bureau of Safety and Environmental Enforcement ((BSEE) seems finally willing to let Shell begin exploratory drilling in the shallow waters of the Chukchi Sea, although there has been a challenge to the recently awarded air Permit from the EPA. At the same time that the USGS is set to issue a new report that projects that shales on the North Slope may hold as much as 80 Tcf of natural gas and 2 billion barrels of oil, with initial drilling to prove the reserves anticipated to start this year. But those developments are on the other end of Russia, to the majority of current developments.

The recent discoveries by Statoil off the Norwegian coast and in the Barents Seas(at Skrugard-Havis, and Aldous Major South, show the potential that still remains in the North. Roughly a third of the world’s largest gas fields lie north of the Arctic Circle with Russia having significant reserves among them.

World’s largest gas fields (can you name the others?) (Shtokman )


Russia is therefore moving toward a planned program of development of the resources off its own continental shelf, where it is expected to be able to produce up to between 0.8 and 1.6 mbd of oil production and 18 to 20 bcf/day of natural gas. Part of the problem, however, is going to be cost. The new program is expected to cost some $216 billion, at a time when the investments in developing the current projects in Yamal and Eastern Siberia are also demanding large investment, if those goals are to be met.

Definitions of regions offshore (pertinent in future debates over who owns what in the Arctic) (Extended Continental Shelf Project)

TNK-BP are spending $12 billion to develop the Russkoe, Suzunskoe, Tagulskoe, Russko-Rechenskoe, and Messoyakhskoe fields in the Yamal region, with the hope that these can contribute at the end of this decade, and into the next, at a total level of around 300 kbd. Suzunskoye is targeted to begin production in 2016, running at around 100 kbd once on line. Russkoye is projected to start in 2017, and produce 150 kbd of a heavier oil. Tagulskoye and Russko-Rechenskoe will come on line in 2019. Messoyakhskoe is a joint project with Gazprom and (at $17.3 billion cost) will not come on stream until 2024, at 320 kbd. These fields will, however, feed into the pipelines that head East, to China, Japan and Korea.

Closer to Murmansk Exxon Mobil and Rosneft are exploring blocks in the Kara Sea anticipating that it may ultimately cost $500 billion to develop reservoirs in the difficult conditions with moving icebergs but for now expect that initial exploration and development will cost in the $10’s of billions.

Perhaps, of these fields it is the Shtokman natural gas field, which lies under the Barents Sea, 550 km north of the Kola Peninsula which has drawn most attention. Currently expected to start production in 2016, costs may well run over $15 billion.

Location of the Shtokman field (Shtokman Project)

Shtokman was discovered in 1988 (the name comes from Professor Shtokman who gave his name to the research vessel that found the field and contains an estimated 85 Tcf of natural gas, as well as around 400 million barrels of concentrate. It lies under 1,000 ft of water, with the interesting occasional problem of visiting icebergs that can weigh up to 4 million tons apiece. Planned to come on line in with an average production of 2.3 bcf/day, the supply (as the above map shows) half the supply is anticipated to feed into the Nord Stream pipeline for shipment to Western Europe, while the rest is converted to LNG and will be shipped out by tanker. Gazprom has recently increased the area of its license rights for the field, with a new date for commitment set for this month.

The current intent is to use a series of buoyed risers to connect from the wells to the surface, so that, should an extra-large iceberg appear the Floating Production Unit (FPU) can detach and move out of the way – should tugs not be able to divert it.

Artist’s concept of the layout for development of the Shtokman field (Shtokman Project)

The pipeline shipments are planned to begin in 2016, but the LNG shipments (some 7.5 million tonnes a year) will not start until 2017. The project is a joint venture between OAO Gazprom, Total S.A., and Statoil A.S.A.

The USGS has noted that there are considerable regions in the Arctic that have, as yet, been poorly explored. In 2005 they produced this map of the then state-of-knowledge:

Status of oil and natural gas evaluations around the Arctic (USGS)

From this they produced two maps showing the location of possible undiscovered deposits. The potential undiscovered oil deposits are shown below:

Potential oil discoveries and size remaining in the Arctic. (USGS)

The point however, is not that there is going to be no more oil, it is just, as the production schedules above illustrate, that it is going to be slow and expensive to develop that which remains. Over the next decade Russia will have to bring three or four new fields on line each year at around 100 – 150 kbd each, if it is to sustain production at current levels. It is somewhat difficult to see them being able to hold to that schedule, even for a year or two.

OGPSS - Russian natural gas production

It has been bitterly cold in parts of Europe over the past few weeks, and this has had an impact on power with Russia seeing the highest demand yet for electricity at 156.96 Gigawatts, while, at the same time, having to reduce the volumes of natural gas that it is supplying to Europe. To put the Russian power level in perspective, while there has been an increase in power generated from natural gas in the United States the capacity to generate more than 1,000 GW. still relies considerably on coal and nuclear power although renewable sources are becoming more prominent.

Sources of Electrical Power in the United States (EIA)

The above plot, however, shows capacity rather than actual contribution, and I am grateful to Gail who took the time to develop a plot of actual use, which shows how the different sources actually contribute. I am putting in both since each addresses a different point in comparison with Russian production.

U.S. Electricity as supplied, by source (Gail Tverberg)

In contrast to the US, in Russia some 56.2% of the electrical energy comes from natural gas, oil produces some 18.3% coal 14.4% nuclear power is 5.3% and hydropower is at 5.6%. This high demand for natural gas, is compounded by the sales which Russia makes to Europe where it provides about 25% of the market supply, down from the 27% levels of a couple of years ago. And Gazprom is marketing its product further to India (through LNG sales) as well as to China, where it will now be in competition with natural gas being piped from Turkmenistan (which used to have Gazprom as its only customer).

Russian natural gas production, consumption and exports (Energy Export Databrowser )

Natural gas is more often supplied on demand, rather than from large storage facilities, and so when local demand in Russia recently rose due to the severe cold spell, there was less available for Europe, and supply fell, for example, by 30% in Italy, though having been that route before, European nations have learned to keep some reserve available for these situations. Gazprom has also seen the need for more storage and now plans on investing some 2-300 million euros to double the volume available in gas reservoirs around Europe. During the peak cold spell Europe was using around 17 bcf per day up 20% from the average demand during 2011.

The problems that Gazprom faces are two-fold, the first is to produce the gas, and then the second is to ensure that the customer has enough available when needed. And at the moment (to address the latter problem first) one of the critical issues is that the gas must pass through Ukraine.

Major routes of gas pipelines feeding Europe from West Siberia (RIANovosti)

Unfortunately Ukraine and Russia have an uncomfortable history in regard to the passage of natural gas through the country, and this year, because of the cold, is no different, with disputes over volumes contracted for and used still continuing. However the Nord Stream pipeline has now completed the first pipeline to Germany, bypassing Ukraine, with the second lacking only one section, which will be installed this year. The twin pipelines will carry the equivalent of 5.3 bcf/day into Lubmin in Northern Germany, with delivery from Portovaya Bay in Russia, already flowing through the first pipeline, starting last November 8th.

Nord Stream pipeline path through the Baltic, showing remaining construction (Nord-Stream )

Landfall operations in Germany (Nord-stream November 2011 newsletter)

On the Russian end of the pipeline, it connects into the Gryazovets-Vyborg pipeline which brings the gas from the producing fields.

The Gryazovets-Vyborg pipeline bringing natural gas from Western Siberia (Gazprom)


The gas that is coming through the pipeline comes from Novy Urengoy in Western Siberia, which is where, at present, some 74% of Russian natural gas is being produced. This is where the Yuzhno-Russkoye gas field is located, with current estimated reserves of 21 Tcf of natural gas. The gas is currently coming from some 142 wells spread over an area of 424 sq miles, with the field producing 2.6 bcf a day. It takes 10 days for the gas to make the trip. The gas field came on line in 2007.

Fields feeding into the supply pipeline to Germany (Gazprom)

It should be noted that the pipelines going up into the Yamal Pensinsula are still being developed and the gas fields of that region are not therefore fully available, though drilling is taking place.

Drilling at 70deg00’01.85” N 70deg00’02.05”E (kim46 at Google Earth)

There are a number of fields in the Peninsula, including Bovanenkovo, that are still to be fully developed, and which will provide some of the reserves that Russia will need as their current main producing fields start to run down. There has been some considerable progress, however, since the last time that I tried to find evidence of activity in the field.

It is one of 11 natural gas and 15 oil and gas condensate fields in the Peninsula, with aggregate reserves, for just the three largest fields (Bovanenkovo, Kharasavey and Novoportovskoye) of 208 Tcf of natural gas, 730 million barrels of condensate, and 1.6 billion barrels of oil. At present the first 1.5 bcf/day production is scheduled to begin operation in the 3rd quarter of this year. A railroad is being connected into the region in order to maintain supplies and provide equipment for further construction.

Current Gas flaring at 71deg03’32.30” N 67deg25’23.41 E (DDS7 at Google Earth)

New construction at Bovanenkovo (Gazprom)

With the growing prospects of additional natural gas from Yamal, and with further facilities being built in Europe to allow storage to get through inclement weather, it does appear that Russia will be able to supply Western Europe with natural gas for at least the next 30-years that they are predicting – although should demand rise, (as it well might with the closure of nuclear and coal-fired power stations) then the reserves will be drawn down considerably faster. At present the current storage has only been run down by about 48% of that available according to Gas Infrastructure Europe.

Natural gas stored in the UK (on 19 Feb 2012) (Gas Infrastructure Europe) (as an example).

This is while Russia is still flaring considerable volumes of natural gas that cannot be otherwise used. And while the trend is going down (by about 15%) it still has a way to go. There just aren’t that many folk in Siberia that appreciate the slightly warmer air that is being generated. And while that part of the news is good, the failure to date of the Polish trials to find commercial reserves of natural gas in domestic shale deposits may mean that Gazprom’s market will continue, since the presence of as much as 187 Tcf of natural gas in the Polish shales does not do anyone any good if it cannot be viably recovered.

Global gas flaring volumes (The World Bank)

British future energy supply - some problems with the numbers

As I travel around the UK there are the odd sign of the coming General Election. Relative to the activities that one would see in the USA they are, however, indeed relatively muted, and the signs, even on the motorway, are no larger or long lasting than those that have, on occasion, decorated our front yard. But with the slurring remark about a voter by the current Prime Minister the entire MSM has become convulsed about the story. Having, in my distant youth, worn a live mike to the bathroom, I am entirely sympathetic with the poor politician, though he should be experienced enough to know better. But it does drive items, of what are really more important news, much deeper into the papers.

Even without that issue taking the space it now does, I had to meander back to page 40 to catch what should be, in reality, a much greater concern for the British public.

Britain could be forced to close 14 power stations if a proposed European directive becomes law, a move that would drastically cut power supplies and endanger energy security, the Confederation of British Industry has warned.

The timeframe is 2016, and the issue is to do with compliance with EU regulations on power station emissions, or closure. Those arguing for compliance with the anticipated regulation see no real problem, and expect the demand can be made up with supply from renewable sources. As a Greenpeace spokesman noted:

"Britain is gearing up for a six-fold increase in the amount of energy we get from clean sources in the next decade, so these CBI scare stories show that the French and German energy monopolies they represent are now seriously worried that the clean tech industry will effectively squeeze out dirty coal power in this country."

And here, of course is the rub. The CBI would have you believe that a quarter of the UK's electric generating capacity is threatened. While GreenPeace argues that increasing renewables negates the concern.


For a little check on these statements the UK Department of Energy and Climate Change (DECC) has issued projections for the generation mix that the UK can anticipate in coming years. Clicking through on Table D, the generation mix table, one finds:

Source Dept of Energy and Climate Change)

There are a couple of things that become obvious from this table. Firstly the current UK Government recognize and buy into the need to reduce overall current traditional power sources. There is the recognized roughly 25% reduction on coal power use (note that by 2017 it is too early to expect any impact from CCS). However it is also remarkable that the supply of natural gas to be used in power stations is anticipated to rise 42% by 2017, something which neither of these two debaters have brough to public attention. At the same time nuclear power generation is anticipated to drop by almost 50%, while renewables only increase by 46%, which is a whole lot less than the 600% that Greenpeace is stating.

The primary question becomes one as to whether or not the UK will be able to get enough natural gas to meet its demands and keep the pressure off renewables. At present there is a lot of complacency, given in part by agreements with Qatar over the supply of LNG. The agreement with Qatar will supply, though the Milford Haven terminal, some 20% of the UK need , which will then be re-gasified and fed into the national grid. But 20% of the national need still requires that the other 80% come from somewhere, since the volume will not even cover the rise in demand to meet the DECC projections.

One of the things I did today was to visit the Lancaster Maritime Museum (in the UK), and they have an exhibition on the gas that comes to the UK from off the coast here. Because of that supply natural gas has been the greatest supplier of energy to the county. In 2006, the latest year with figures available, the supply was for 13,669 GWh of natural gas, 12,545 GWh of petroleum products, 585 GWh of coal and 423 GWh of renewables. (no nuclear). Since 2006 the supply had grown relative to UK demand, now supplying 10% of the national need at a level that is expected to be sustainable for 40 years. What I found interesting was that this NG was coal based, rather than the conventional petroleum (i.e. algae) based origin of the majority of the natural gas in the North Sea. But that is still only 10%.

Now Rune, Euan not to mention Jerome and Rembrandt have posted regularly on the problems that Europe is going to face on natural gas supply. The doubts about the Russian ability to get Yamal and Shtokman into production on time continue. At present Shtokman is being pushed further back while Yamal is given greater priority. The Stern Report quoted the 2007 Gazprom report in seeing a steady increase in Russian supply.

Anticipated future Russian natural gas production.

But notice where the majority of the gas will have to come from after this year - Yamal. And is the investment being made to produce that gas, and won’t an increasing percentage be consumed by the growing Russian economy? There have been some questions over this past year as to whether the necessary investment has been made. And if not, given the quantities of Turkmen gas, and that of other adjacent states that may be heading to China rather than Europe, then additional supplies might not be available in a timely manner.

Which brings us back to the overall question. If there is not enough importable supply of natural gas to offset the decline in nuclear and coal –fired electric power production, then the increase in renewable energy sources that the British Government (as opposed to Greenpeace) anticipate will not be sufficient to meet the demand for power, within the likely term (if normal) of the next Parliament.

There is a widespread pessimistic anticipation in the UK, that the first thing that any new Government, regardless of party, will have to do is to carry out a drastic budget cut. With those cuts, and the lack of investment that they will also likely mandate, then that little page 40 story might get enough legs to move to page 1 before too awful long.

Oh, and why am I in Lancaster – well here is a 53-year old photo that might help explain it. And that may feed into another post, but we’ll just have to see about that.

Smithy House, St. John's Town of Dalry, 1956/7?

It has to do with the school uniform of the kid on the right.

A grudging admission of error, but the world remains unaware

Very gradually the underpinnings to the “hysterical” side of the Global Warming debate are being eroded. I mentioned at the time, that Secretary of Energy Chu still waves the Mann “hockey stick” curve as a justification for spending more time worrying about future global warming, than the shorter term shortages of petroleum products for the United States consumer. There have been a number of revelations that have cast increasing doubt on that particular curve, favored though it is of politicians.

There have been increasing questions on the data that went into generating the “blade” of the hockey stick, which I discussed in an earlier post after it was revealed that the paper that Keith Briffa wrote that led to the generation of the blade, relied on a very small range of trees, including only one that showed the dramatic uptick of the hockey stick. Briffa recently commented

we noted that the final years of the Yamal ring-width chronology (Briffa, 2000; Briffa et al., 2008) should be used cautiously on the basis that the values for the most recent part of this chronology are based on relatively few individual measurement series and this smaller available sample emphasises the faster growing trees.

Given the subsequent history of the use of that data (vide the movie An Inconvenient Truth inter alia) it can hardly be said that those words of caution were heeded, or even recognized.

Questions on the validity of using that particular data continue, and correlations are now being made with actual local temperature measurements in the same regions as the tree data came from. What emerges from that correlation is

“Warmist” tree ring proxy temperature evidence is falsified directly by local thermometer records.

The data analysis is somewhat intense but well worth working through to understand exactly why that statement is justified.

And there has just been a new paper on this subject published by Devi et al. which argues for the consideration of ecotone movement in the analysis of the tree ring data, and shows that there was a change in the way in which the trees grow, a change which correlates with temperature, that can be traced back to early in the 20th century. (Thanks bender). But it blows another leg out from under the support of the shape of the hockey stick at the more immediate end of the line.

Meanwhile, if one travels back to the other end of the line, and the estimation of what the temperatures were like in the Medieval Warming Period, one has to remember that, prior to publication of the Hockey Stick, curve the IPCC did recognize the existence of those warmer temperatures.

Medieval Warming Period (IPCC 1996) and the curve generated from borehole temperature proxies by Huang and Pollack in 1997.

The difference between the IPCC curve, and that proposed by Mann was highlighted in a review of the borehole data, and can be seen in this curve:

Comparison of Mann’s plot (blue) with that of the earlier IPCC prediction (red), and the plot from Moberg (black). (Source )

Now it turns out that there were some significant questions about the data upon which Dr Mann generated those predictions of Medieval temperature. There exist a large number of scientific papers (which I have referred to in earlier posts) that show that the period did exist. (The very first paper that I looked at when I got curious about this subject showed its existence in the Sargasso Sea, for example). However the curve was itself underpinned among others by data from tree ring cores taken from bristlecone pine trees in the Western United States.

Bristlecone pine tree allowing historic temperature data acquisition.

The validity of using those tree rings has been questioned by experts in forestry and other contemporary evaluations have shown the Medieval warming period that Mann’s graphs did not.

However the curve was also based on other proxy data (i.e. other physical phenomena changes that can be correlated with temperature change). It is interesting to note that Dr Mann is now changing the basis on which his curve was produced though all the while arguing that the basic shape remains unchanged.

Mann’s latest plot of historic global temperatures.

Now given that this does not show any decline in temperature between 1940 and 1970, something clearly shown in the record, the accuracy of this plot, as with earlier ones, is up for grabs, but seems to indicate that the consistent valid criticism leveled at the paper by Steve McIntyre has yet to be completely addressed.

The controversy has moved on to the use of lakebed sediments from Lake Korttajarvi in Finland, which were cored by Mia Tiljander as part of a doctoral dissertation (hence the name Tiljander sediments). Analysis of the use of the data by others has recently led Kaufman to admit he made a mistake in the use of the data while reasserting that the correction merely strengthens his original argument.

That a correction that re-inverts the data strengthens a correlation seems to be odd to me, but then this whole basic argument over the data and its interpretation has been redolent with somewhat dishonest and manipulative practices on behalf of those generating the information that is used by the IPCC and our Secretary of Energy.

When one realizes that much of this manipulation comes from folk that work in the government and are supposed to be disinterested in the results it becomes more irritating. But then one must recognize that their funding and jobs do, to a significant extent, depend on Global Warming being real and man-made.

I would recommend reading the review of all this at the Skeptical Climate Science Primer since this story is told there with many more graphs and details than I can put in the posts that I produce.

A Tale of three trees

When we bought our house, there were three trees at the end of the driveway, planted when the house was built. Over the years the central tree died, and I planted a vegetable garden behind the trees. As a result of the reduced competition the tree on the right of the trio grew dramatically relative to the other.

Two trees in our drive, planted at the same time. (Note the difference in size of trunk)

I mention this series of events since it helps illustrate a very significant problem that appears to have arisen over the credibility of the data used to generate many of the curves predicting serious global warming over the next century. In order to determine temperature over the past thousand years climate scientists have relied on the quality of the rings laid down within the tree structure each year, with the assumption that, among other things, the local temperature controls the quality of the tree ring for that year. However, if the tree on the right in my driveway had been cored to look at its rings, then it would have shown a significant uptick in growth when the competing tree beside it died. It would now get more light and nutrition, and as a result may very well exhibit a growth rate that produced successive ring widths that went like this (units are 0.01 mm):

200; 350; 240; 210; 280; 350; 280; 390; 610; 740; 970

This would be in marked contrast to the poor tree sitting in its shadow, which remains shaded and does not increase the tree ring widths at all. Then consider that the first tree, because of all the extra sunlight and nutrition grows increasingly faster than the other tree, so that it now protrudes considerably above it and the surrounding canopy of trees (as you can see in the photo which I took in the last hour). It therefore in the more recent stages of its life (it is now around 40 years old) gets sunlight over a longer time period each day, and so its ring widths may go up even more markedly perhaps to:

710: 840; 900; 1090; 1220; 1600; 2020; 1150; 1020; 1920; 2120; 2500

These patterns of differential growth are, according to those who know forestry ( here and here) to be expected for individual trees in the forest, when local neighbors die, allowing both additional exposure to sunlight from the survivor, and also some additional nutrient from the corpse of the victim.

What makes this particularly germane at the moment is that such a tree record turns out to have played a very significant part in the development of the “hockey stick” curve that was made so much of in the 2004 IPCC report, and in subsequent reconstructions of temperatures over the past miilennium.

The numbers that I quoted above actually came from a tree that was found in the Yamal Peninsula (yes the home of much of Russia's future production of oil and gas) is known as YAD06 and its record was used by Keith Briffa in determining the rise in temperatures over the past century. If you look at the data for that tree, you can see (with the vertical scale normalized) that it shows a very strong increase in ring sizes since 1900.

Yamal tree ring growth (after Steve McIntyre)

Now one tree, obviously doesn’t create a viable record on its own, and in the original work Briffa and co-authors had used a dozen trees to generate the trend. And, when the data from them is examined, it does appear (although our tree is much more sensitive than the others) that there is some form of trend in the data.

Tree ring (and hence temperature) data for the 12 trees used by Briffa as a foundation to Mann’s hockey stick curve. (Source after Steve McIntyre)

However, what has not been clear until this week (there is a long story of efforts to block publication of the information which has been described by Bishop Hill and Ross McKitrick) is that there was a significantly larger body of data from which the above 12 tree chronologies were selected. When that larger body of data is examined it turns out that the trees that were not selected (of which there were a greater number) did not show this upward trend.

Tree ring (and hence temperature) measurements after being normalized, that were not included in the Briffa choice for his paper. (after Steve McIntyre)

It might be surmised after looking at this comparison that it would be more appropriate to use a more average value for the data from the region, rather than the smaller data set with the peculiarity of including our friendly example tree. But when one does that then hockey stick disappears. Briffa’s data was used extensively by other climate scientists in the past decade, and one might have thought that there would be some concern now that there is question on the validity of the underlying information used by the community.

Unfortunately the response to date at Real Climate seems to indicate, as has become increasingly obvious, that this is not about a search for truth, but rather part of the propaganda play in a political struggle. It is a curious statement that spends its time excoriating those that note the differences between the data selected and that admitted, rather than the meaning of the wider data set to the interpretation of how climate is changing. (I am however amused to see that we do see some evidence of a Medieval Warming Period now beginning to creep back into their posts).

Sadly I don't think that this is going to change the climate debate at all. Papers such as the Guardian are apparently blocking all attempts to blog about the topic on their Website (and a Google search of their site showed no hits) . and I imagine that the hope of the alarmists is that it will just go away. And in about a year they will come back with a "oh, yes we addressed that issue at the time" - citing their current post - and refuse to debate it further. It has worked for them before.