No Gas Bonanza for Levant

 

I noted earlier Richard Heinberg’s dim forecasts for expanded fracking in Europe, once the expected venue of a geopolitical revolution sparked by energy. Similar hopes have been held out for the Near East. In 2012, Walter Russell Mead heralded the emergence of Israel as an energy superpower, “a tiny nation whose total energy reserves some experts now think could rival or even surpass the fabled oil wealth of Saudi Arabia.” As these extracts from the Economist show, Israel’s political isolation constitutes a serious obstacle to the exploitation of these reserves. The regional situation is unbelievably tangled, but it is likely, argues the Economist, that the governments of the Levant are fooling their people [and probably deluding themselves] with false promises of an offshore gas bonanza.

The sceptics say that the main brake is a lack of regional co-operation rather than a shortage of oil and gas. The Americans’ official Geological Survey estimates that from Gaza’s coast to southern Turkey the eastern Mediterranean holds 122 trillion cubic feet of gas, comparable to the reserves of Iraq. But Lebanon’s caretaker government lacks the authority to pass the legislation needed to persuade foreign oil companies to start drilling; a heralded auction is again likely to be delayed. America’s effort to mediate over a disputed maritime boundary between Lebanon and Israel is stalling progress. The civil war in Syria is scaring away big oil companies. And drilling off the Lebanese coast has yet to begin.

It has done so off Cyprus, but estimates of the amount of gas and oil to be found there have been inflated, too. Delek Drilling and Avner Oil, two Israeli firms involved in exploration, say that Aphrodite, Cyprus’s only proven gasfield, has reserves of just 4.1 trillion cubic feet—barely enough to meet long-term local demand.

Oil companies, including Italy’s Eni and France’s Total, may find more gas there. If not, Cyprus’s LNG venture will depend on getting it from elsewhere, perhaps from Israel’s Leviathan field. In any case, Turkey and Cyprus both claim some of the same stretches of water. The Israelis, for their part, have prevented the Palestinians from developing Gaza Marine, a field off the coast of Gaza where BG (formerly British Gas) found gas a decade ago.

Israel, alone, is romping along. It has verified finds of 35 trillion cubic feet. Noble, an American company that has so far dominated Israel’s production, says that gas from its Tamar field, which began flowing this year, already supplies 45% of the country’s electricity. But development of the much larger Leviathan field, farther west, is slow. Fearing an outcry over the sale of public assets, Israeli ministers have delayed the timetable.

There are other obstacles. Asian buyers, who tend to pay the highest prices, are reluctant for security reasons to ship Israeli gas through the Suez Canal. Turkey, whose energy needs are soaring, might have been an attractive export market for Israel. Construction of a pipeline on the seabed between Turkey and Israel could prove more profitable than an LNG plant, because upfront costs are lower and Turkish gas prices quite high, says Robin Mills, head of consulting at Manaar Energy, an advisory firm in Dubai. But such a pipeline might have to pass through officially recognised Greek Cyprus and the Turkish-ruled north of the island, so an agreement with both would be needed. That will be tricky. An alternative route, under Syrian and Lebanese waters, would be trickier still.

In any case, Israel is loth to strike an export deal with Turkey at a time when that country’s foreign policy has become unpredictable and its prickly prime minister, Recep Tayyip Erdogan, could turn off the tap whenever he feels piqued. An Israel-Cyprus deal could make matters worse. Egypt’s decision to discard a Mubarak-era agreement to supply 40% of Israel’s gas serves as a warning against doing business amid unresolved conflicts. “Without peace with the Palestinians, we can’t sell our gas to Egypt, Jordan, Turkey and—who knows?—maybe even to the Europeans,” says an Israeli former energy minister, Josef Paritzky.

Tangled in red tape and regional disputes, even oil companies in Israel may flag. Woodside Petroleum, an Australian firm with LNG expertise, is still pondering an ambitious plan to build a floating LNG platform. Noble lacks the capacity to go it alone. Few developers will invest without secure long-term contracts. And buyers in Asia, the best market, are banking on getting an alternative deluge of gas from new finds in the United States. Without exports, regional prospects are less sunny. Ploughing billions of dollars into platforms, rigs, offshore pipelines or costly LNG plants is feasible only if drillers are confident of shipping gas to foreign markets.

 

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“Israel’s and Palestine’s Gas and Oil: Too Optimistic?” The Economist, January 25, 2014.

Japan's Growing Fossil Fuel Burden

From Platt's Energy Economist, a tally of the sharply growing costs of Japan's fossil fuel imports, a consequence of the near-total shutdown of the nuclear industry after the accident at Fukushima in 2011. For a time in 2012, no nuclear plant was operating in Japan; since then, a few (of the some fifty reactors) have been restarted. The consequences for Japan have proven quite serious.   

It is no surprise that less than three years after Fukushima, the Japanese government is seeking to rehabilitate the nuclear industry’s role in the country’s generation mix as indicated by comments made by Trade and Industry Minister Toshimitsu Motegi in December. Returning the country’s reactors to operation would have a significant impact on the trade balance, Japan’s over-dependence on imported energy commodities, and power prices.

It is a paradox that nuclear power can be described as both cheap and expensive. The cost of new nuclear power has risen over time and new reactor construction is significantly more expensive than in the past. Combined with the high capital cost and other risks involved it is hard to make the case that it is competitive with fossil fuels. But where the capital cost was sunk decades ago and paid down or written off, the ongoing low fuel costs of nuclear mean existing nuclear fleets do provide low cost and low carbon electricity.

 

Japan is the world’s largest importer of LNG, the second biggest importer of coal and the third largest importer of oil. Having minimal production of any of these three key energy commodities, nuclear power has been essential to offsetting the security and economic implications of such a high degree of import dependency. As a result of much reduced nuclear generation, in 2012, Japan spent $289 billion on net imports of fossil fuels, more than any other country in the world, including China and the United States, according to the Institute for Energy Economics Japan. . . .

Fukushima was a disaster not just in human terms, for the nuclear industry or the finances of the Tokyo Electric Power Company, but for the country and economy as a whole. The increase in fossil fuel imports and the money paid to secure them has outweighed economic growth and gains in income. The situation has been exacerbated by depreciation of the Yen, which has made energy commodity price imports, all priced in US dollars, more expensive in local currency terms.

 Spending on net imports of fossil fuels as a ratio of nominal GDP for Japan is thought to have reached 5.3% in 2013, compared with 3.1% for China and 1.5% in the US. According to the IEEJ’s senior economist Akira Yanagisawa, China’s ratio fell because GDP grew more strongly than the increase in net fossil fuel imports, meaning no additional burden on the economy. But for Japan the opposite was the case, while currency depreciation added one percentage point to the increased burden.

 Bringing the country’s reactors back on line is proving a slow and uncertain process, owing to the new regulatory safeguards put in place in the aftermath of Fukushima. But for commodity markets, the impact will fall entirely on oil rather than LNG or coal.

 According to the IEEJ’s medium-case scenario — 16 reactors back in operation for an average of eight months in the year — oil consumption would fall from a projected 241.8 GL in fiscal 2013 to 220.4 GL in fiscal 2014, a drop of 8.6%. In contrast, natural gas use is expected to continue to rise to a record 91.1 mt in fiscal 2014, while coal consumption will increase to 191.1 mt. Even with final energy consumption falling by 0.4%, Japan’s natural gas and coal usage are expected to breach new historic highs. As such, Japan has little choice but to revert to nuclear energy.

 

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Ross McCracken, “The burden that Japan is facing in its higher energy costs,” Platt’s Energy Economist, January 24, 2014. Via Barrel Blog.

Olympic Winter Games at Risk

From Yale Environment 360: 

As few as six of the world's previous 19 Olympic Winter Games sites will likely still be wintry enough to host snow sports at the end of the century, according to a report by Canadian and Austrian researchers. Iconic locales such as Squaw Valley, Utah, and Vancouver, Canada, will likely be too warm by the middle of this century. Even under conservative climate change scenarios, only 11 of the 19 sites would remain climatically stable enough to reliably host the games, the study found. Olympic organizing committees consistently cite poor weather as a major challenge for the winter games, and it's likely to get more challenging: The average February daytime temperature of winter games locations has steadily increased — from 0.4 degrees C at games held in the 1920s to 1950s, to 3.1 degrees C in the 1960s to 1990s, to 7.8 degrees C so far in the 21st century. These sites will likely warm by an additional 2.7 to 4.4 degrees C by the end of the century, according to the report. Technology like snow-making, track refrigeration, and high-resolution weather forecasting can mitigate weather challenges to some extent, but those advances are unlikely to keep pace with climate change, the researchers say. "Despite technological advances, there are limits to what current weather risk management strategies can cope with," said the study's lead author. "The cultural legacy of the world's celebration of winter sport is increasingly at risk."

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“Future Olympic Winter Games At Risk as Climate Warms,Researchers Warn,” Yale e360 digest, January 24, 2014.

Fracking in Europe

Richard Heinberg is an author we’ve cited many times on Energy Predicament. In a recent interview with Selma Franssen talking about his new book, Snake Oil: How Fracking’s False Promise of Plenty Imperials Our Future, Heinberg has very interesting things to say about the prospects for fracking in Europe. These new technologies and the vision of energy abundance associated with them have often been seen as heralding a geopolitical revolution—with Poland, for instance, eliminating its dependence on Russia and becoming an energy superpower. Heinberg comments not only on the radical scaling back of the estimates for Poland but also notes the persistence of safety issues in the United States. He also offers an intriguing set of reasons for thinking that fracking faces a much more contentious environment in Europe than in the United States, including the dependence of the technique on a huge number of wells drilled, Europe’s greater population density, and mineral rights that are publicly owned in Europe (as against private ownership in the United States), making for a very different structure of incentives.  

Until test wells are drilled, it’s very difficult to know what the actual shale gas and oil production potential is for Europe. All sorts of numbers have been cited, but they are simply guesses. Back in 2011, the US Energy Information Administration estimated that Poland’s shale gas reserves were 187 trillion cubic feet, but a little on-the-ground exploration led the Polish Geological Institute to downgrade that figure to a mere 27 TCF—a number that may still be overly optimistic. My institute’s research suggests that US future production of shale oil and gas has been wildly over-estimated too. So, without attempting to put a specific number to it, I think it would be wise to assume that Europe’s actual reserves are much, much smaller than the drilling companies are saying. We do know that the geology in Europe is not as favorable as it is in some of the US formations, so even in cases where gas or oil is present, production potential may be low—that is, it may not be possible to get much of that resource out of the ground profitably. That being the case, governments should undertake a realistic cost-risk-benefit analysis using very conservative assumptions about likely production potential. . . .

The petroleum industry has certainly been trying to clean up its act, and it’s true that progress has been made in improving operational safety. However it’s also true that the industry has systematically hidden evidence of pollution, and of environmental and human health impacts. The industry has often claimed that there are no documented instances of such impacts, and that’s arrant nonsense. Where environmental and health harms are clear, the industry typically offers a cash payment to the parties affected, but that is tied to a non-disclosure agreement, so that no one else will ever find out what happened. The industry also points to studies showing low methane emissions and no groundwater contamination. These studies tend to describe operations where everything is working perfectly, with no mistakes or malfunctions. But of course in the real world well casings fail, equipment breaks, pipes leak, and operators cut corners or make simple human errors. Take a look at regions of the US where fracking is happening right now, presumably with state-of-the-art equipment: have all the bugs really been worked out? Evidently not, because there is still a steady stream of reports of bad water and bad air. . . .

There are at least three important factors that might limit fracking socially and politically in the European context. First is the number of wells needed. Because production rates in shale gas and tight oil wells tend to decline very rapidly, petroleum companies have to drill many wells in order to keep overall production levels up. In the US, the current total is over 80,000 horizontal wells drilled and fracked. If Europe says yes to shale gas, prepare for an onslaught of drilling.  

The second factor is population density: Europe, of course, has a much higher population density than the US. So taking these first two factors into account, Europeans face a significant likelihood of living in close proximity to one of these future shale gas or oil wells.

The third factor is the legal status of ownership of subsurface mineral rights. In most of the US, landowners control mineral rights; therefore if a company wants to drill on your land, it must obtain your agreement, pay you an initial fee, and also pay a subsequent royalty for the oil or gas actually extracted. (Gas and oil companies actually avoid paying royalties in many instances, but that’s another story.) As a result, citizens have a financial stake in resource extraction, and they therefore have an incentive to overlook or even help cover up environmental and health impacts from fracking. This is especially true in poor communities, where a little lease or royalty money can go a long way. In Europe, national governments control mineral rights. Therefore there is no incentive for local citizens to take the industry’s side if there are disputes over pollution. There has been a strong citizen backlash to fracking in the US; in Europe it is likely to be overwhelming.

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This is from Heinberg’s January 2014 MuseLetter: Shale Gas, Peak Oil, and Our Future