Update on UK gas supplies/prices - Libya and Japan effects

Just a very quick note here to update the earlier post I did about UK gas supply in the 2011/12 winter. A story on Bloomberg about daily price movements in the UK gas markets noted that:

Goldman Sachs Group Inc. said in a report yesterday that the continuing 30 million cubic meters a day of missing supply from Libya and an increase of 18 million cubic meters a day in liquefied natural gas demand from Japan following the earthquake on March 11 "have the potential to eliminate the supply overhang in the global LNG market, bringing it to balance." full story

This puts some numbers on the issues I brought up in the earlier post, and makes it clear that UK gas prices are going to be staying high for some time...

Mike

Click here to read the rest of this post.

Saudi budget implies sustained high oil price

When the UK needs to balance it's budget we have to make cuts, but when Saudi Arabia needs to do it, it prefers to have a high oil price instead. An article in the FT says:

The break-even oil price the Gulf kingdom requires to balance its budget will jump from $68 last year to $88 this and then $110 in 2015, according to new estimates by the Institute of International Finance, a leading industry group.

Only a decade ago Saudi Arabia was able to balance its budget with oil prices averaging $20-$25 a barrel.

Given that Saudi Arabia exports about 7-8 million barrels a day, out of total net exports globally of just under 50 mbpd (source), it has a strong influence on price. The country is increasing spending to try and placate the masses, fearing an uprising similar to that in Egypt or Libya, but the money has to come from somewhere, and for Saudi Arabia that can only mean oil.

If Saudi needs a high oil price, we will get a high oil price, end of story.

Mike

Click here to read the rest of this post.

Winter 2011/12 gas supply in the UK

I know it's strange to be thinking about winter when it's April and over 20C, but there's some interesting bits of news out recently.

First, there's a story from Reuters, saying:

Gas for Monday fell ... but prices for next winter and beyond rose on expectations that Japan will gobble up more of the internationally traded fuel when Britain needs it most.

"Banks are buying the back, thinking winter will be tighter with LNG diverted to Japan," one European gas analyst at a utility said, adding that a German government meeting to discuss the future of nuclear power in Europe's largest economy was supporting UK gas price in the far future.

There's several factors at play here:

1. The disaster in Japan means that they are importing a lot more LNG than they normally do, burning it to generate electricity. Given recent reports that it's going to take nine months to bring the Fukushima reactors to a cold shutdown, and the fact that the six reactors at that site are now offline for good, these elevated LNG imports are going to continue for some time to come.
2. Although Germany doesn't have many gas fired power stations right now, they are pretty quick to build, and as it's going off nuclear in a big way, there could be some new demand coming over the next couple of years for gas.
3. Libya used to export gas to Europe, via Italy. Clearly it isn't any more...
4. High oil prices drag gas prices higher, due to links in the energy markets.
5. According to statistics from DECC, UK gas production from the North Sea is falling at 8-9% a year.

Although problems tend not to arise until winter comes, it's interesting to note that wholesale gas prices (which you can look up here) in the past couple of weeks have been around 2p/kWh, compared to around 1.1p/kWh a year ago, so the above factors are clearly having an impact - expect more gas bill increases in the pipeline (pun fully intended ;-) ).

The other bit of news is that the National Grid published its 2011 Summer Outlook this week. Page eight starts a section on fuel prices, and says:

Recent developments in Japan, Libya and Australia show how volatile energy markets can be and how unforeseen events can impact energy prices on a global basis. As the UK now imports more than half of its primary energy, notably through gas and oil, these events feed through to UK energy prices and can change the short term view.

Good to see that at least some people realise that a tsunami in Japan, a civil war in Libya and floods (affecting coal mines) in Australia all have an impact on what we pay for energy here... Their Figure F1 shows what's happened to prices of electricity, coal, oil, gas and carbon over the past year, though I find the future predictions a tad optimistic:

Looking at the relative increases of gas and coal, it's not surprising that more coal is now being burned for electricity generation, especially as the carbon price hasn't increased over the period.

But finally, to come back to the main point of this post, page 17 of the National Grid's outlook report has an interesting graph showing where our gas comes from:

UKCS means UK Continental Shelf, i.e. the gas that comes from the North Sea and other offshore areas. As you can see, it's only going one way - there was a blimp from 2009-10, but that's because 2008-9 was a record drop, as DECC itself acknowledges.

So what can you do about it? Well, you can insulate your walls and loft, install solar water heating and look for non-gas forms of space heating (links are all to what we've done to our own house).

Mike

Click here to read the rest of this post.

Saudi Arabia did not make up for Libyan oil

A very interesting post on The Oil Drum:

We can put the situation almost entirely down to two things: the fact that Libyan production has plummeted, and that Saudi Arabia has made no significant move to compensate. In fact, Saudi Arabia slowed down production increases that it had been making in prior months.

...

So the world has abruptly lost something like 1.3mbd of oil production between mid February and March.

Read the full story on TOD.

Click here to read the rest of this post.

Delays to raising oil output from Kazakhstan

The Telegraph writes:

Kazakhstan is planning a three-year halt to work on the main phase of the super-giant Kashagan oil field development, as international oil companies Royal Dutch Shell and Exxon Mobil fight to convince the country's oil ministry to back a simplified design, which would slash costs by $18bn (£11bn) to $50bn.
...
The Kazakhs are considering shelving the new simplified design, and keeping the field producing at its initial rate of 375,000 barrels per day (bpd) for at least three years, after which the NCOC consortium could use a greater understanding of the geology to produce a better design for the second phase, when production is expected to hit 1.5m bpd. full story

Well, there's another 1m+ barrels per day that's not coming on line when it should have done... Of course, this helps reduce the steepness of the post-peak-oil decline (as this oil will stay in the ground for use later on), but it does bring the start of that decline closer.

Mike

Click here to read the rest of this post.