GLG News by Hans Linhardt

Implications: Australia has taken coal serious by passing the Australian Offshore Petroleum Amendment Bill, regulating carbon dioxide capture and storage (CCS).  Australian Production & Exploration Association (APPEA) has fought for this bill in order to protect the property rights of existing petroleum title holders who allow CO2 geosequestration on their properties.  The legislation applies to land and see and also commits the government to take over the CCS long-term liabilities after closer of CCS related projects.  

Analysis: A fundamental energy and geopolitical goal oft he present and new administration is "Energy Independence" with  reduction of CO2 emissions.

Implications: Oil & Gas Journal reports that Gazprom plans to form a joint venture with Qatar Liquefied Gas Co.,Ltd. and the National Iranian Oil Co. for gas production in the Iranian South Paris field and liquefy the gas in Qatar at the Las Raffan site.  The gas would be piped from Iran across the Persian Gulf to Qatar.  

Analysis:

After threatening the EU to scrap the Nord Stream NG pipeline project and divert the negotiated NG capacity to a Siberian LNG project (GLGNews “Nord Stream Pipe Line Project in Trouble”) Putin moved rapidly to interfere in some LNG alternatives to the EU.  Gazprom now plans to acquire 20% of Repsol in Spain and is trying to form a JV with Iran and Qatar for LNG production at Las Raffan of Iranian gas to be delivered by underwater pipeline from the Iranian South Paris field to Qatar. 

Of course, Gazprom want to get their hands on the advanced Exxon LNG technology developed in Qatar and become a player in the global LNG market. In addition Gazprom has already selected Statoil as a project partner to develop potential LNG plants to be fed by the Shtokman field in the Barents Sea.  Statoil is the Arctic LNG leader as demonstrated with their successful Snohvit LNG project.

The Gazprom, Iran and Qatar JV may also be the first attempt by Putin to develop an Organization of Gas Exporting Countries (“OGEC”).  However, the partners in Qatar’s established LNG projects such as Exxon Qatar Inc., Mitsui, Marubeni, Total and now also CNPC of China may not go along with Gazprom’s ambitions.

From a geopolitical point of view, Putin is trying to encircle and reinforce the gas dependence of the EU even in the face of a strong alliance of Qatar with the US.  Introducing Iranian gas in the equation certainly puts the West on alert and Gazprom may have to invest many more billions of dollars than available in their tight project budgets.  

Implications: The grandiose Nord Stream pipe line project, connecting Russia via two Baltic underwater pipe lines with Germany has been delayed due to increased construction costs, lack of sufficient gas capacity and lack of financing.  Of course, Putin will not admit any Russian problems but puts the blame for delay on the EU.  As a matter of fact, Putin now threatens to scrap the Nord Stream project unless the EU fully support the project, including overcoming objections from Sweden, Finland, Estonia, Latvia, Lithuania and Poland. In case the EU does not fall in line, Putin boasts to divert the scheduled NG capacities to new Russian LNG plants for delivery of LNG to the world market.

Analysis: In face of Putin's threats Chancellor Angela Merkel put the subject matter in the correct light with the statement "we won't insist on the Nord Stream project if it does not make business sense".

Implications: Chesapeake Energy, the largest US unconventional natural gas producer, has sold 32.5% of its shale gas ("SG") assets in the Marcellus shale region in Pennsylvania, West Virginia and New York.  Statoil has agreed to pay $3.38 billion.  $1.25 billion would be in cash and $2.125 billion is to cover Chesapeake's drilling activities.

Analysis: Statoil is a global NG and LNG player.  The decision to invest in the Marcellus shale gas field is a very smart long range decision by Statoil:

Implications: Suzlon of India, the number five wind turbine manufacturer has run into serious technical troubles: a 140 foot long turbine blade just now broke of a wind tower in Illinois, while Suzlon is in the process to replace 1,251 turbine blades due to blade cracks in their US wind turbine fleet.   

Analysis: Suzlon has been the most aggressive wind turbine sales company, trying to obtain maximum market share in the "green" subsidized countries. Lacking advanced technical foundations the company tried to achieve success by acquisition of an advanced gearbox supplier - to one of their main competitors, Vista - Hanson Transmissions and of REpower Systems AG of Germany, a leading advanced turbine designer.  However, Suzlon has not been successful to 100% take over the German company, thus according to German laws has no access to REpower's proprietary blade design technology.  In the present tight credit market Suzlon will face a tough time and may not survive.

Implications: Putin sent a twelve member delegation to a premature meeting in Alaska, including  Gazprom's chief executive Aleksei Miller and deputy director Aleksandr Golubyev, like Putin a veteran of the KGB. The delegation did not meet with Governor Sarah Palin but with Tom Ivan, the commissioner of the Department of Natural Resources of Alaska.  Charles J. Mulva, CEO of ConocoPhillips apparently arranged the meeting to improve his position with Gazprom in oil and gas projects in Russia by inviting Gazprom for investment in Alaskan gas projects, including a gas pipeline project from Alaska to Canada.

Analysis: Of course the meeting was premature in view of the ongoing elections and the financial world disarray, including Russia's drastic stock market and currency problems.

Implications: Exxon is moving systematically ahead with their PNG LNG project to be located near Port Moresby.  The FEED (Front End Engineering) has been completed and Exxon has shortlisted Bechtel and Chiyoda for bid on the EPC contract.  Construction is to start in 2010, and plant start-up is expected early 2014.

Analysis: Exxon is the best project planner and execute their projects economical and with long range outlook for sustainable business.  Of course, Exxon selects only the best contractors in the field.  Bechtel and Chiyoda  have proven their EPC expertise with Exxon, Bechtel in Angola and Chiyoda in Qatar. Of course, Bechtel is the global leading LNG contractor and Chiyoda has more recently won the largest contracts in Sakhalin and Qatar.

Implications: EU realizes in the face of the global banking crisis and their success in intervention that present carbon-reduction targets may now not be affordable. 

Analysis: It always takes a crisis to have the US get moving on fundamental infrastructure decisions.  Now it becomes clear we need:

Implications: Exxon's offshore LNG terminal, the world's first of it's kind, has been just located in the Adriatic 10 miles off Porto Levante, Italy for supply of  about 10% of Italy's natural gas requirements by 2009.  The design capacity of the terminal is 775 MMcfd of natural and will be delivered to the national gas-grid by an underwater pipeline.  The terminal is owned by ExxonMobil Italiana Gas, Qatar Terminal Limited and Italian Edison.  The Exxon and Qatar Petroleum partnership will deliver the LNG from Qatar's North Field, having 900 trillion cubic feet of proven natural gas.  

Analysis: Exxon is the recognized pioneer in the global LNG industry.  One of the first LNG chain was built in the Mediterranean by Exxon during the sixties from Libya to Italy and Spain. Now Exxon is building one of the world's largest LNG chains from Qatar to Europe and the US.  Exxon has developed the largest liquefaction trains in Qatar and and ordered the largest LNG ships of the 250,000 cubic meter class based on Exxon specifications.  The economy of scale based on advanced technology and superb project execution will make the Exxon LNG chain one of the most economical in the world.   

Implications: According to today's Oil & Gas Journal news, Russian President Dmitry Medvedev received from the Russian Security Council approval for Russia's state policy in the Arctic and a plan for implementation.  Russia considers the Arctic region as strategic resource base to guarantee Russia's energy security for the future.  A network of ports and shipping routes are planned to support the Arctic policy.

Analysis: The present energy bill in Congress does not seriously focus on our large energy resources on the OCS and in particular the Arctic, where large hydrocarbon resources have been identified.  Russia believes about one fourth of the global undeveloped hydrocarbon resources could be contained on the Arctic continental shelf.

Implications: Russian officials had boasted in spring that Gazprom would become the largest publicly traded energy company, surpassing ExxonMobil. However, Gazprom's value is down 58% since May 2008 and debt insurance now rose 1% in a single day, costing  Gazprom additionally about $440 million.

Analysis: The KGB chicken are coming home to roost.  Putin and his sidekick Medvedev do not understand global energy and business realities. Russia is basically dependent on oil and gas commodities and has overplayed its hand:  Shell and Exxon at Sakhalin, TNK-BP, North Stream and South Stream, and of course invasion of Georgia, all actions to use oil and gas as geopolitical power tool to control the EU and muscle the US in the world.

Implications: Norway has always pioneered NG and oil exploration in the rough North Sea.  Now Norway recognizes depleted oil fields and geological structures below as safe locations fro CCS.

Analysis: Now that Obama and McCain all agree on off shore drilling, the way is open for real CCS mapping of future locations for offshore CCS. 

Implications: The significant development of unconventional shale gas is a real success story and needs to be exploited to the fullest to lead us to some independence of the OPEC cartel on crude import.  

Analysis: The PickensPlan is daily advertised on TV.  However item (1) "wind energy" is not for investors but for government subsidies.  Wind should be integrated with the utilities, providing all the back-up power when the wind is not blowing and meeting the utilities obligations to provide certain amounts of renewable power per each state's legislation.  Of course, the utilities can negotiate a realistic rate increase and/or tax credit for unreliable wind power.

Implications: The LNG terminal operators like Freeport LNG Development LNG have invested in their LNG import and regasification terminals to meet forecasted shortages of natural gas (NG) in the order of 10 billion cubic feet per day (bcfd) by 2010.  However, the recent significant play by shale gas and the low NG prices in the US compared with Europe and Asia leave the LNG terminal operators with very little imported LNG, and most do not have a dedicated source of LNG supply.  In order to keep the cooled down terminal operational Freeport LNG has to buy some LNG on the open market at high prices and sell as much boil-off to the US market as possible and export operational required quantities of LNG to the higher priced global market. For this purpose Freeport LNG has applied to the Department of Energy for a blanket authorization of short term LNG exports in the order of 24 billion cubic feet.  

Analysis: The significant development of shale natural gas is putting the US LNG importers and terminal operators in a corner.  We do have a shale gas surplus on the near horizon and have to act now.

Implications: Sound Energy Solutions, subsidiary of Mitsubishi Corp. has diligently worked for the last ten years to bring LNG to Long Beach, having support from ConocoPhillips to take care of heavy hydrocarbons and take off NG for hydrogen production.  Long Beach and the California Coastal Commission rejected their effort.  Now Mitsubishi is looking to Alaska together with Sempra LNG.     

Analysis: Nancy Pelosi, Barbara Boxer, Diane Feinstein and of course the terminator Arnold Schwarzenegger should be put in a dungeon for having California put in the dark ages of energy management, in  particular LNG neglect.  LNG was advanced in California in the last energy crisis with a peak shaving pant in Chula Vista of SDG&E (San Diego Gas & Electric) and plans of Southern California Gas Company for three LNG receiving terminals at Point Conception, Oxnard and Long Beach.   

Implications: US natural gas companies have developed the technology and private investment support to unlock 840 trillion cubic feet of natural gas ("NG") from the Barnett, Haynesville and Marcellus shale plays.  This translates to 25 billion cubic feet of NG for the next hundred years.

Analysis: The independent NG companies have taken the wind out of the PickensPlan. We do not need to install and invest with government subsidies for 180,000 wind turbines to free up 20 billion cubic feet of NG for transportation LNG / CNG developments.

Implications: After Georgian troops entered South Osettia - the brake-away part of Georgia under Russian influence- Russia sent tanks and troops into the region.

Analysis: One has to take a look at the map of Georgia, being situated on the Back Sea and controlling pipe line projects from Georgia under the Black Sea to Turkey and from Iran and Georgia to Turkey.  The latter is also known as the Nabucco gas pipe line in competition to the South Stream Russian project of Gazprom.  The developments are noteworthy:

Implications: The LNG supply will increase next year by over one third of present production with a total estimated supply of over 30 billion cubic feet per day (bcfd).  Qatar gas - a partnership of Qatar Petroleum and ExxonMobil -, Shell in Nigeria, BP in Indonesia, Gazprom from Sakhalin and Total from Yemen are the main LNG contributors to the increased production.  In addition there are significant large unconventional NG projects coming on stream in the US, promising lower NG prices.    

Analysis: T. Boone Pickens ("Pickens") has put LNG from US NG into play for transportation fuel (www.pickensplan.com/theplan/).  What excellent timing when the NG price forecast is for lower prices due to increased US NG (unconventional) production and large increased international LNG production.  Of course, very little LNG will now land in the US due to the dramatic price differential of about $6/MMNTU to $8/MMBTU between Henry Hub NG and LNG prices being paid in Europe and Asia.  But in about ten to fifteen years there will a LNG over-supply and LNG will land in our East Coast and Gulf Coast terminals. 

Implications: High oil and gas prices have rejuvenated Russia under Vladimir Putin.  He is now even emboldened to replay the Khrushchev Cuba game in response to our planned defense shield in European countries adjacent to Russian territories.  Energy is now the weapon, and we should use it forcefully and united. 

Analysis: Energy indecisiveness is the key driver of our economic disappointments. Now, lets take another look at energy from a geopolitical perspective:

Implications: It has been widely reported that TNK-BP CEO Robert Dudley departed just now from Moscow, humiliated and driven out by BP's oligarch partners. Former BP CEO and chairman Lord Browne had his confrontations with the oligarch partners, but believed the formation of TNK-BP (50:50) was worth the risk to have a stake in Russia's vast oil and gas reserves.    

Analysis: Under Lord Browne BP overreached their management capabilities and attention to detail as exhibited by the Texas City refinery explosion, the Alaskan pipeline rupture, propane trading irregularities and now the debacle with TNK-BP.  Oppenheimer & Co. brokerage in New York recommends for BP to sell their stake in TNK-BP according to the Guardian article cited above.