News Base NRG Issue 20

NRG
NRG
November 2011

Issue 20
! News
NEWSBASE ROUND-UP ! Analysis
! Intelligence

–– GLOBAL –– ! NewsBase
Published by

AFROIL 2 NEWSBASE ROUND-UP GLOBAL
! IEA warns of under-investment in MENA 2

NRG
ASIAELEC 4
! CCS in the balance 4
ASIANOIL 5
! Opportunity knocks for Beach Energy 5
CHINAOIL 7
This is the twentieth issue of the NewsBase Round-
! Chinese shale leads to stalemate with up of Global energy issues.
Russia 7
ENERGO 9
NRG comes to you entirely at our expense, which we
! Pot calling the kettle black? 9
EUROIL 11
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! Italy’s energy future uncertain under
subscribing to NewsBase.
new leadership 11
FSU OGM 12
NRG covers developments from all global energy
! Botas, SOCAR plan gas pipeline regions and sectors, and brings you the “best of the
across Turkey 12
GCEM 13 best” (as selected by our editors) from each of the
! China’s emissions conflict 13 previous month’s weekly Monitors.
GLNG 15
! Offshore Australian project nears The global nature of the energy industry means that
FID moment 15
no episode happens in isolation and we hope that
LATAMOIL 17
NRG will help to tie up events around the world in
! US dilemma over Cuba’s oil 17
DOWNSTREAM MENA 18 one single issue.
! Sadara financing gains momentum 18
MEOG 20 This month, AfrOil assesses an IEA warning about
! IMF report flags up GCC revenue under-investment in MENA, while EurOil assesses
bonanza in 2011 20
NORTHAMOIL 22
Italy’s energy landscape with Berlusconi out of the
! Alberta, Europe and the oil sands fight 22
picture.
REM 24
! North African solar can create an
Please note, it is NOT possible to subscribe to
Arab summer 24 NRG. It is, however, an additional service we
UNCONVENTIONAL OGM 26
provide to our existing subscribers.
! Australian CBM sector faces
growing opposition 26

For analysis and commentary on these and other stories, plus the latest oil and gas developments, see inside…
Copyright © 2011 NewsBase Ltd.
www.newsbase.com Edited by Ian GM Simm
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NRG November 2011, Issue 20 page 2

AfrOil

IEA warns of under-
investment in MENA
There are a host of reasons why investments in the MENA region may fall below the
necessary levels, which poses serious risks to the world’s economy
By Ed Reed
# Reduced investment in MENA’s upstream would increase price volatility
# An oil price of US$150 per barrel in 2016-17 would put the world’s economy in the danger zone
# MENA countries’ revenue and total global investment would be around the same under either outlook
Much of the world’s additional energy In order to meet this objective, spending a possibility that production growth from
requirements up to 2035 will come from in the area needs to average US$100 the MENA region may not come as much
the Middle East and North Africa, but it billion per year from 2011 to 2020 and as consumers would like.”
may not be plain sailing and investments climb to US$115 billion per year from Such a slowing of investment, Birol
are at risk of being sidetracked. In 2021 to 2035. All figures are in 2010 US continued, would be a “pity for the
particular, the International Energy dollars. global economy, a pity for the oil sector
Agency (IEA) has said efforts to preserve The IEA report, though, launched in and, in the long term, a pity for those
stability by diverting cash from energy London last week, said it was “far from [MENA] countries. There is a likelihood
spending into social projects could store certain that all of this investment will be that this could happen but we hope it
up trouble further out. forthcoming, for many different reasons does not.”
affecting some or all of the countries in Under the slower spending case, the
Big bucks the region.” The WEO’s Deferred IEA suggested investments in oil and gas
Investment in global upstream spending Investment Case did not focus on any would be one third below that set out
will rise in 2011 to US$550 billion, specific countries in the region. under the New Policies Scenario in 2011-
according to predictions set out in the A country may choose to slow 15. Then, from 2015-20, spending would
IEA’s World Energy Outlook (WEO). development in its energy industry for a get back on track, matching up with the
However, the report went on to warn that number of reasons, the OECD’s energy baseline projection by 2020.
changes in the MENA region could fall watchdog said. (See text box.)
below expectations in the medium term, The IEA’s head economist, Fatih Birol, Shaking it up
jeopardising the region’s future. said the agency had been “very careful The shortfall in oil production by 2020
The MENA region is to provide 90% not to put in probabilities on such would be around 6 million barrels per
of the world’s growth in oil production alternative scenarios but the fact that we day, which would have a “significant
until 2035, under the IEA’s baseline have made this Deferred Investment impact” on global oil balances and
plan, called the New Policies Scenario. Scenario, in itself, is a signal that we see therefore prices."

Potential causes of reduced investment:
!" Deliberate government policies to develop production capacity more slowly in order to hold back resources for
future generations or to support the oil price in the near term
!" Constraints on capital flows to upstream development because priority is given to spending on other public
programmes
!" Restricted, or higher-cost, access to loans or other forms of capital
!" Delays owing to legal changes or renegotiation of existing agreements
!" Increased political instability and conflicts
!" Economic sanctions imposed by the international community
!" Higher perceived investment risks, whether political or stemming from uncertainties in demand
!" Constraints on inward investment as a result of stronger resource nationalism, particularly in regimes seeking to
pre-empt popular uprisings
!" Delays because of physical damage to infrastructure during conflicts
Source: IEA WEO 2011



AfrOil
There would be liquids (CTL) production
an impact on gas, would increase.
but the major Importers of energy
shortfall would would be hit by higher
be a reduction in prices in both the
available oil for medium and long term,
the world’s with the total passing
consumers. US$46 trillion – around
Higher-priced 10% higher – but supply
oil would spur would be more
the development diversified.
of resources in China and the US – the
other countries two top oil-dependent
but would not countries – would play
cover the the greatest part in
shortfall. In changes. In the US, fuel
addition, demand would fall. crisis. They were not the main driver but is only lightly taxed, making pump prices
Producers in the MENA region would they did play a role in weakening the extremely sensitive to changes in oil
see greater returns from their output in trade balance of the consuming supply. China, meanwhile, would focus
the short term, though they would not be countries,” Birol said. This year, he on large-scale production of electric
far off gains made under the New continued, the average oil price has been vehicles and greater efficiency.
Policies Scenario. However, looking over US$102 per barrel, “which means that Overall, though, oil still accounts for
the entire period revenues would be global economic recovery is at risk, we 86% of total transport fuel in 2035, close
marginally down, at US$16.7 trillion are in the danger zone at present levels.” to the level under the New Policies
rather than US$17 trillion. Should prices rise to US$150 per Scenario. The greatest winner would be
Total upstream investment would be barrel, “this is definitely a very risky biofuels, which would expand from 1.3
around the same under either scenario, at scenario” for the world’s economy and million bpd in 2010 to 5.5 million bpd by
around US$15.3 trillion. While will have “major consequences.” the end of the period.
production would be lower under the Compensating for the shortfall in
deferred case, the price of extracting the Demand destruction MENA production would be Russia,
energy would be “significantly higher” As a result of the reduced investment, Canada and Brazil. However, increasing
than output from MENA. primary oil demand would reach only 88 the pace of exploitation in non-MENA
The deferred case would spark a short- million bpd in 2015, the WEO said, only states runs down these resources faster
term surge in the oil price, peaking at marginally higher than 2010 and about and their share of output would be lower
US$150 per barrel in 2016-17, when the 3.2 million bpd lower than the New in 2035.
shortfall starts to bite owing to the long Policies Scenario. The peak of the The deferred case set out by the IEA is
lead times of energy projects. Prices demand reduction would be in 2017 – a concern, given the part that high energy
would then fall back into line with the when the price would also peak – at 3.9 prices can play in spurring economic
New Policies Scenario by around 2020, million bpd lower than the figure in the woes.
at around US$120 per barrel. New Policies Scenario. Investment decisions must be taken by
Importantly, though, the Deferred However, the reduction would have a the countries holding resources – and
Investment Case would be “accompanied long-term impact and demand would be they have a duty to meet the needs of
by significantly increased price 1.5 million bpd below the New Policies their citizens. However, contributing to a
volatility.” Scenario number in 2035. global slowdown, such as that which
Birol said the IEA had not calculated The most significant impact would be emerged from the surge in energy prices
the expected impact on the global seen in the near term, as prices rise and in 2008, will not benefit any party
economy should prices rise as high as it the market reacts to the shortfall through involved, including rulers throughout the
has been suggested they will go. energy conservation, mostly through region.
However, as a benchmark, he noted that reduced driving. In the longer term, the However, countries – especially those
oil prices in 2008 had averaged US$100 higher price would encourage switching with autocratic rulers – are likely to
per barrel, which was 5% of global GDP. to alternatives for transportation – such choose between meeting actual short-
“We believe the high prices played a as biofuels – and increasing efficiency. term difficulties over nebulous long-term
crucial role in the run-up to the financial Coal would also benefit, as coal-to- global economic woes."



AsiaElec

CCS in the balance
As Australia’s first commercially viable CCS project goes bankrupt the technology is still
provoking serious argument about the future of energy in the country
By Graham Lees
# The federal- and state-backed Zerogen CCS project failed to find enough private funding
# The project lost US$150 million of public funding as it cost and technical problems
# Green supporters say that commercial energy is moving away from coal towards renewables
With the Australian coal and electricity found its coal gasification plans too an A$10 billion (US$10.18 billion) fund
industries still smarting from a new costly and also suffered from CO2 to finance renewable energy and low
carbon trading law, a taxpayer-backed storage problems. Meanwhile, political emissions power plant technologies.
project to develop the country’s first opponents to the federal and Queensland “The collapse of the Zerogen coal
commercially viable carbon capture and governments, both Labor Party emissions storage project in Queensland
storage (CCS) thermal power plant (TPP) controlled, are calling for an inquiry into shows the commercial world is starting
has gone bankrupt. the loss of taxpayers’ money, while the the transition away from fossil fuels and
The Zerogen project, funded by the Green Party and other environmental towards a clean energy economy,” the
federal and Queensland governments, groups said this should spell the end of Australian Conservation Foundation
was seen as a possible salvation for a fossil-fuelled power in Australia. “There (ACF) said.
power industry still largely dependent on should be an immediate independent “Despite [Zerogen] receiving
coal and facing a swinging tax under a inquiry as to how this [Zerogen] money government subsidies of almost A$160
carbon law going into force next July. has been lost and where it has gone,” said million [US$164 million], we still have
Now Zerogen has ended amid federal parliamentary opposition climate no commercial-scale proof that carbon
recriminations of misspent taxpayers’ change spokesman Greg Hunt. capture and storage actually works,”
money, while the country’s growing anti- Zerogen was a speculative project like ACF economic adviser Simon O’Connor
fossil fuel lobby is calling for the the government’s planned Clean Energy said in a statement last week."
abandonment of further CCS research, at Finance Corporation, Hunt said.
least with taxpayers’ money. The federal government is in the CCS projects in Australia
process of setting up the corporation with Source: CO2CRC
Too costly
Zerogen was established by the
Queensland government in 2006 and
invested over US$100 million. The
federal government added about
US$50 million. The coal industry
had also contributed over US$50
million.
The objective had been to build
and operate a 530-MW coal-fired
commercial TPP by 2015 using CCS
technology, which would remove
90% of CO2. The operators of the
Zerogen project had earlier this year
sought but failed to secure financial
backing from the Japanese giant
Mitsubishi Corporation, although in
a separate area Australia and Japan
are co-operating in CCS technology.
It appears that Zerogen, located
near Rockhampton on the central
Queensland coast north of Brisbane,



AsiaElec
The foundation is an independent Europe, the United States and Japan. But ACF president and university
agency made up of academics and The institute has declined to comment science professor Ian Lowe argues that
scientists concerned about climate on the collapse of Zerogen. CCS is not the future.
change and global warming. It calls for “It’s long overdue that we had an
greater government support for Opposing views overall look at the issue of funding
renewable energy projects via the Peter Cook, the chief executive of the research and development into carbon
establishment of a Clean Energy Finance Australian Co-operative Research Centre capture and storage, given that it’s a
Corporation. for Greenhouse Gases, also known as speculative technology that can’t
Some proponents believe the Zerogen CO2CRC, was less reticent. He told the possibly extend to all coal-fired power
collapse is a mere technical setback and Australian broadcaster ABC recently that and that, even if it worked, would
work on CCS should continue elsewhere. he believed work on a viable commercial probably be at least as expensive as
In fact, the federal government continues CCS system would continue because the renewable energy,” Lowe told the ABC.
to fund to the tune of about US$100 world was not about to stop using coal. “I think it’s entirely reasonable for the
million per year the public Global CCS “As long as society chooses to use coal coal industry to do research in this area,
Institute in Canberra. The Zerogen and other fossil fuels there’s no but I think probably too much public
operators say they will hand over all their alternative other than to use carbon money has been spent in this area, given
research to the institute, with which the capture and storage as the way of that it’s likely at best only ever to be a
firm had loose links. mitigating the consequences of that use,” niche application.”
The institute, financed by the federal said Cook, whose centre also studies The battle between Australia’s coal-
government until the end of 2013, CCS technologies and receives funding fuelled power industry and renewable
collates research on CCS technology and from both the state and the Australian energy advocates looks set to continue."
has links with other CCS developers in coal industry.

AsianOil

Opportunity knocks
for Beach Energy
The problems facing coal-bed methane (CBM) projects in Australia could provide an
opportunity for Adelaide-based Beach Energy to exploit
By Andrew Kemp
# Beach is sitting on 8.5 trillion cubic metres of gas-in-place within a portion of unconventional acreage
# The company’s unconventional potential lies within the Nappamerri Trough in the Cooper Basin
# Growing environmental criticism of CBM projects could be a boon to Beach
With an abundance of natural gas and a produced 19.8 million tonnes of LNG in Energy, which is sitting on an estimated
string of liquefied natural gas (LNG) 2010. 300 trillion cubic feet (8.5 trillion cubic
projects in the works, Australia is rapidly Yet Australia’s current crop of coal- metres) of gas-in-place within a portion
becoming one of the world’s most bed methane (CBM)-to-LNG projects of unconventional acreage, the CBM
important natural gas export players. has drawn stinging criticism from sector’s problems could be to its
According to a recent note by environmental groups. This has led to advantage.
investment bank Jefferies, an estimated increased environmental oversight that Speaking to AsianOil, Beach’s
US$180 billion will have been invested could well slow development of the manager for investor relations, Chris
in the current crop of Australian LNG sector, raising questions of feedstock Jamieson, explained how the company’s
projects by 2017, the end result of which supply for several world-class CBM- shale and basin-centred gas play could
should see national output rise by 250%, LNG projects that are currently in the prove to be a game-changer in 2012."
with the country tipped to become the pipeline in Queensland.
largest producer of LNG by 2020. It However, for Adelaide-based Beach



AsianOil
Digging deep unconventional play can be economic, out there and, unfortunately for the CBM
The company’s unconventional potential and we still have some work to do over players, they were caught off guard and
rests within the Nappamerri Trough in the course of the next calendar year to do could have been more pro-active in
the Cooper Basin, sitting at a depth of that, it will be Beach’s biggest asset and educating the communities in which they
around 3,500 metres. biggest cash generator by a long shot,” operate.”
It was by targeting the deeper areas of he said, adding: “The shale and basin- The opposition to CBM has gained
the basin, Jamieson noted, that the centred gas will dwarf the rest of the enough momentum to prompt LNG
company had been able to unearth such a portfolio.” Beach is expecting to extract project developers to seek out new
large find, with Beach looking at a target around 10-20% of the estimated gas-in- supplies of gas in case they are unable to
section that significantly exceeded initial place in PEL218, with Jamieson pointing secure enough from coal tenements.
expectations. out that in its 40-year lifespan the Cooper Jamieson said: “Initially the Gladstone
Jamieson described the size of the Basin had only produced 6 tcf (169.92 LNG facilities were planned on gas being
target as “quite extraordinary,” adding: bcm) of gas. supplied from CBM acreage. There are,
“Initially we were chasing gas within the “If we can pull 30 tcf [850 bcm] of however, a lot of new challenges being
shale only; however, after coring and sales gas, then that would be more gas faced from both an environmental and
fracture stimulation of the Holdfast-1 than all of the CBM reserves in social perspective.”
well we discovered that we had a gas Queensland.” He pointed to BG Group teaming up
saturated section of around 700 metres This should prove good news for with Drillsearch to explore for and
that could extend to 1,300 metres, Queensland’s raft of CBM-LNG projects, develop the Cooper Basin’s
assuming the deeper Patchawarra section which are facing increased difficulties in unconventional resources, while Santos
is also gas saturated. Even in the best tapping into enough raw gas to keep their has approached Beach in relation to
shale acreages in the US, the target areas projects at full capacity. supplying conventional gas to the
can be around 200 metres.” Only last week, the federal Gladstone facility.
He said the sheer size of the target area government, in a bid to secure support “What we’re seeing is certain LNG
had transformed the potential of the for its Minerals Resource Rent Tax Bill, firms are likely [to be] short [of] gas,
acreage. Yet while upbeat about the bowed to pressure from two independent which could be primarily driven by the
discovery, the executive said next year parliamentary representatives over challenges faced by CBM,” Jamieson
would prove tremendously important for introducing greater environmental added.
the company as it sought to prove the oversight of CBM and large coal
commercial viability of its resources. projects. Open markets
To that end Beach plans to invest A$46 The regulations have drawn complaints Beyond the LNG market, however,
million (US$46.06 million) in the 2012 from the extractive sector, however, Beach is also upbeat about Australia’s
financial year in exploring Cooper’s which fears they could dampen rising domestic demand, with Jamieson
unconventional potential. development of the country’s fledgling noting that around 80% of gas from the
It has already booked 2 tcf (56.64 CBM industry. It is under this scenario Queensland CBM projects is linked to
billion cubic metres) of contingent that Beach finds itself well placed to the offshore LNG market even as
resources from the PEL218 acreage, in capitalise on the CBM industry’s demand on Australia’s eastern seaboard
which it holds a 90% stake and Adelaide difficulties. grows.
Energy holds the remaining 10%. Beach “We see ourselves as possibly being an
is in the final stages of a takeover of CBM woes integral part of future gas supply both for
Adelaide Energy, in which it currently Speaking to AsianOil recently, partner LNG and the domestic market driven by
holds a stake of around 87.3%. and co-head of King & Spalding’s LNG our Cooper Basin reserves and
“After fracture stimulating Holdfast-1 practice, Dan Rogers, noted that the resources,” he said. “The stars are
we had gas flowing at a rate of up to 2 Australian CBM sector had struggled to aligning for us because there’s now
million cubic feet [56,640 cubic metres] counter effectively the opposition’s upward pressure on pricing – a lot of
per day [of gas] and we were expecting message. commentators are talking about A$6-9
100,000-500,000 cubic feet [2,830- “The [CBM] industry has just not done [US$6.08-9.01] per gigajoule for gas. If
14,160 cubic metres],” Jamieson said. a good job of responding; either through prices reach that point it makes all
putting industry-based facts into projects more viable from a commercial
All hail shale circulation or pushing people within the standpoint.”
The size of the resources, if the government to hire independent scientists Beach’s gas resources could
company’s efforts in 2012 prove fruitful, to rebut the misinformation being used completely transform the company’s
will likely transform it into a major gas by opposition groups,” he said. fortunes, potentially turning it into a
supplier. It is a sentiment Jamieson echoed, major supplier to both the domestic and
“If we can prove that the saying: “There’s a lot of misinformation international gas markets."



AsianOil
Despite its enthusiasm for shale, some time to come.” shale gas deposits.
however, the company is not prepared to Aside from the Cooper shale, the Jamieson described the company’s
put all of its “eggs into one basket.” company has a range of shale gas global footprint as “areas which don’t
According to Jamieson, while the interests across Australia, in the cost a lot and don’t take a lot of
Cooper Basin’s unconventional reserves Bonaparte, Otway and Gippsland Basins, management time,” but add a good deal
are set to dominate the company’s focus where it is hoping to enjoy similar of upside for the company.
going forward, Beach has also spread its success to that seen in the Cooper Basin.
risk. Beach’s international presence, Opportunity knocks
meanwhile, also gives the company Beach’s exposure to conventional and
Diverse portfolio access to some promising upstream oil unconventional, foreign and domestic
The company will continue to focus on assets. In Egypt, Beach has a spread of energy plays gives the company a
conventional gas production from its operations ranging from wildcat balanced portfolio to continue the
joint venture with Santos in the Cooper exploration to near-term production. In development of the Cooper Basin’s shale
Basin, as well as its oil production from Tanzania, it holds a 100% stake in the and basin-centred gas potential.
the basin’s Western Flank. Tanganyika South Block, which lies If the recent upsets in the CBM
Jamieson described these operations as along the promising East African Rift, industry are any indication, then tapping
fantastic cash generators and the “engine sharing characteristics with Lake Albert into coal seam gas could prove to be a
room” of the company and said its shale acreage in Uganda that has seen major oil tricky prospect going forward, opening
gas efforts in the Cooper would not discoveries. In the US, the firm’s the door to rich rewards if Beach can
completely replace conventional operations in North Dakota produce harness the Cooper Basin’s huge
operations and the company would minimal net production but have paid potential."
“remain in conventional oil and gas for dividends in terms of learning to tap

ChinaOil

Chinese shale leads to
stalemate with Russia
Sino-Russian gas talks have stalled in part because of pricing issues but also because
Beijing wants to determine the full potential of domestic shale gas reserves
By Sam Wright
# The IEA predicts that global gas demand will hit 4.75 tcm by 2035, while China’s will top 500 bcm
# Gas supply talks with Russia have been prolonged and far from fruitful
# Gazprom has set its sights on supplying Asian LNG demand, but that future is also looking murky
The International Energy Agency (IEA) rely on the success, or lack thereof, of On the surface, the sticking point is
said recently that it expected global efforts to develop China’s enormous simple. Most of the Russian gas giant
natural gas demand to grow by 1.7% per shale gas reserves. Gazprom’s supply contracts are linked to
year until 2035, when it will reach 4.75 crude oil prices, which have soared on
trillion cubic metres. By this point, it is Talked to death the back of increased demand and unrest
estimated that China will be consuming In 2006, Moscow and Beijing entered in the Middle East. For this quarter, some
more than 500 billion cubic metres per discussions over a long-term supply deal. of the company’s European gas contracts
year of gas, up from 110 bcm in 2010. The two sides have been discussing a are being carried out at a price of
That prospect should have Russia plan that would see Russia send 68 bcm US$500 per 1,000 cubic metres – around
rubbing its hands, but all signs seem to per year of gas to China by pipeline over US$100 more than current forward
indicate that country’s gas empire may a period of 30 years. For five years, prices."
be losing its grip. Indeed, much of however, the talks have made little
Russia’s future in the Asian market could progress.



ChinaOil
Despite protests from its customers,
the company has refused to budge.
“Gazprom should not cover the mistakes
in marketing and trading of our
counterparties,” has been the
unambiguous official line.
Unsurprisingly, Gazprom’s stance has
provoked rebellion. Poland, which has a
famously turbulent relationship with its
neighbour and chief gas supplier, has
filed an arbitration suit in a bid to force
the company to cut prices under its
import contract. There are whispers that
others may follow.
Wisely, China has outright rejected
Gazprom’s insistence on using the oil-
linked mechanism. In the face of these
objections, the Russian firm, despite a vastly more than the 2.8 tcm of Yet despite this seemingly strong
string of comments to the contrary, has conventional gas reserves that BP’s position, Beijing has been reluctant to
yet to suggest a viable alternative. Statistical Review of World Energy dismiss the Russian pipeline project out
estimates the country had at the end of of hand. Just two weeks ago, Chinese
Facing the figures 2010. Vice Foreign Minister Cheng Guoping
It is unlikely that this is for a lack of The US trails significantly behind described the negotiations as “in their
effort. After all, Gazprom is in a near China with 24 tcm of shale gas. final stages,” adding that they were
impossible position. However, it has seen its energy market proceeding well.
Recently, the state-owned China Daily, transformed in recent years as a result of
which is widely regarded as a unconventional development projects, Building the future
mouthpiece for the central government with gas output soaring and investment Part of this may be down to the
on policy issues, speculated that even if piling in. challenges that China faces in bringing
the price of gas was set at US$350 per As China’s leaders view it, domestic its shale gas to market. The first –
1,000 cubic metres, the deal with Russia shale gas could be enough to protect the unsurprisingly, given the country’s vast
would cost the country US$714 billion country from Russia’s penchant for using scale – is infrastructure.
over 30 years. its pipelines as a political tool. This In the US, a large number of shale
“If you use [this] as a guide [to] the practice has in the past led Gazprom to plays were discovered near conventional
long-term agreed purchase price that cut supplies to both Ukraine and Belarus. gas fields, providing a ready-made
China gets in the current international “If the strategic goal is energy security pipeline network that drastically cut costs
liquefied natural gas (LNG) market and and you’re now 55% dependent on and sped up development. China’s
the cost of China’s unconventional foreign crude, that undermines the goal reserves, on the other hand, are located in
natural gas exploration, buying gas from of domestic energy security,” Eurasia areas ranging from Sichuan Province to
Russia even at just US$250 per 1,000 Group analyst Damien Ma told the New Inner Mongolia and the Xinjiang
cubic metres makes no sense,” it added. York Times. “A lot of companies want to autonomous region, none of which have
“If Russia gives China a lower price, do more gas.” the level of established infrastructure
how can it face consumers in Europe?” Unluckily for Russia, the proposed needed to facilitate the rapid
It is a fair point, and one that seems to alternative of LNG could well fall by the development of shale gas reserves.
have hit home. On November 13, wayside, too. Earlier this year, For a country of China’s vast
Gazprom chief Alexei Miller, seemed to consultants McKinsey and Company resources, this might not usually be a
acknowledge that the deal had finally hit warned Australian firms – a major source problem. Huge development projects
a dead end. Instead of the pipeline, he of LNG shipments to Asia – that local have come to be the norm, made faster
said during a visit to Honolulu, LNG projects worth US$200 billion could be by cheap labour and the smoothing of
shipments are to be the new focus. at risk if shale gas production in China regulations by state-owned firms.
took off as it has in the US. In total, it Yet shale gas is different from a high-
An unconventional future said, domestic shale production could speed rail or bridge-building project. The
China is estimated to have 36 tcm of provide as much as a quarter of the country’s level of expertise in hydraulic
shale gas, which would give it the country’s total gas demand within four fracturing, or fracking, is well below that
world’s largest reserves. This is also years. of the US."



ChinaOil
In March, PetroChina, which operates prices reach US$350 per 1,000 cubic simply too long, and the expected 30-
the majority of domestic shale licences, metres. The company’s focus, for the year contract unrealistic. China, with
completed its first horizontal shale gas time being at least, is thought to firmly nothing to lose, appears to be holding out
well after 11 months of drilling. Outside be on finding more conventional oil. to see what it can get. A ridiculously low
China, this has been achieved in less than offer from Russia – say, US$250 per
20 days. Looking forward 1,000 cubic metres – may be tempting,
This comparison may be slightly Oil and coal still reign supreme in China. but is extremely unlikely.
unfair. The well, drilled in Sichuan, was Natural gas currently accounts for just Instead, the next decade could mark a
much deeper than those typically found 4% of energy demand, and while the reversal in Russia’s fortunes. Alongside
in the US. Joint ventures, both domestic government is aiming to increase this to China’s plays, huge reserves could begin
and foreign, are likely to provide know- 10-12% by 2020, it is a long way from a production in Poland and France, while
how and technology that can reduce complete transformation of the country’s exploration is rife in other key Gazprom
drilling times drastically in the future. A energy mix. markets such as Ukraine. Poland in
number of major names are already on Despite this, China still needs to particular has repeatedly said that shale
board, including ExxonMobil and US import large quantities of gas in the short will free it from Russian influence, an
shale giant Chesapeake Energy. term. But the short term is precisely that. idea that has been seized on by the Polish
Meanwhile, much responsibility rests Most estimates place the time needed for public.
with PetroChina. Yet the company seems China to begin producing from its shale On November 13, the ever-optimistic
strangely divided. reserves at 10 years, despite all the Russian president, Dmitry Medvedev,
On one hand, it has pledged to drill technical challenges. Once the ball is told journalists that his country expected
220 shale wells in Sichuan over the next rolling, the timeline may well be much to supply as much gas to China in the
four years. On the other, it has quicker. future as it currently supplies to Europe.
complained that domestic gas prices are China may be coy on the subject, but He could well be right, but there is a
too low and that it will only push forward for this reason the Russian pipeline looks good chance that delivery volumes may
with unconventional gas exploration if dead in the water. The turnaround is be nothing to brag about."

Energo

Pot calling the kettle black?
Belarusian criticism of Lithuania’s Visaginas NPP mirrors almost exactly the concerns
voiced by Vilnius over plans for the Astravets plant
By Jennifer Delay
# Minsk’s complaints appear to be largely political in nature
# EU support for the Lithuanian project is likely to remain strong
# If Belarus steps up its campaign, work on the Visaginas station may face more delays
The Belarusian government has environmental impact assessment (EIA) has voiced similar complaints.
expressed serious reservations about for the Visaginas project, despite A ministry representative told Itar-Tass
Lithuania’s plans for building a 3,400- Belarus’ efforts to respond fully and in mid-October that he believed
MW nuclear power plant (NPP) at transparently to questions about its own Lithuania’s critical remarks about the
Visaginas to replace the Soviet-built EIA for a planned 2,400-MW NPP near Astravets project were motivated more
Ignalina facility. Astravets. by politics than by substantive concerns
Mikhail Mikhadyuk, the deputy energy “Lithuania still has not given answers about safety and security.
minister of Belarus, said to reporters in to Belarus about results of the He complained that Lithuania’s efforts
the middle of October that Vilnius had environmental impact assessment of its to drum up support for its project in the
thus far failed to address Minsk’s future NPP,” Mikhadyuk was quoted as European Union and to highlight
concerns about the projects. saying by the Itar-Tass news agency. concerns about the Belarusian scheme
He claimed that Lithuania had not An official in the Belarusian Ministry were evidence of “double standards.”"
answered questions about the of Nature and Environmental Protection



Energo
The official, who was not named, said Lithuanian government’s main foreign Indeed, European energy
that Vilnius’ hypocrisy was evident in its policy concerns is to safeguard the commissioner Guenther Oettinger
expressions of concern about the country’s independence against the offered words of support for the
Astravets plant’s proximity to the border. possibility of Russian recidivism, and Visaginas NPP at a recent energy
“Lithuania protests against the site [in the Belarus has on occasion acted zealously conference in Krakow.
Astravets district], which is only 30 km to promote the interests of Russia, which After receiving information on
from the Belarusian-Lithuanian border. has often (though not always) served as Vilnius’ plan for the construction of the
However, Vilnius plans to build its NPP its main patron. Visaginas NPP from Lithuanian Energy
at the distance of 2.3 km from the border The Kremlin, in turn, has its own Minister Arvydas Sekmokas, Oettinger
with Belarus and believes that it’s OK,” reasons for keeping a close eye on the congratulated Lithuania and the three
Itar-Tass quoted him as saying. Baltic States. On one hand, Estonia, neighbouring states that had signed on to
Latvia and Lithuania are home to the project – Estonia, Latvia and Poland.
Mirror image substantial minority populations of ethnic The partners have “[achieved] a
Not surprisingly, the complaints aired by Russians. On the other hand, they also significant milestone in the project
Mikhadyuk and the unnamed ministry have turned decisively away from implementation and selection of a
official mirror almost exactly concerns Moscow, having gained membership in strategic investor,” he said, according to
voiced earlier by Lithuanian officials. both the North Atlantic Treaty a statement issued by the Ministry of
As noted above, Lithuania was the first Organisation (NATO) and the European Energy.
to express anxiety about the Belarusian Union, and they have generally been cool Now that the plan has been submitted
plant’s proximity to the border between to suggestions for expanding co- to Oettinger according to Article 41 of
the two states. operation with Russia. the European Atomic Energy
Officials in Vilnius have also gone on Lithuania was the first to express Community (Euratom) treaty, Lithuania
record as saying that Minsk has been anxiety about the Belarusian plant’s is in a position to begin co-ordinating
slow to answer their questions about the proximity to the border between the two implementation of the project with EU
EIA for the Astravets plant – and that states institutions, the ministry added.
their own efforts have been designed to The EU, meanwhile, also has political Even so, it may take time for Vilnius to
ensure full disclosure and transparency. interests at stake. It is bound to be more respond to the Belarusian complaints,
Moreover, they have speculated about sympathetic to Lithuania, as a member particularly if they gain in intensity. If so,
the political component of Belarus’ state, than to Belarus, which is the target it runs the risk of seeing work on the
decision to build the NPP in co-operation of sanctions imposed by Brussels. Visaginas station fall behind schedule yet
with Russia. Atomstroyexport, a Its regulations also call for Lithuania to again. Lithuania had said initially that it
subsidiary of Russia’s state atomic cut its carbon emissions and to reduce its hoped to bring the NPP on line in 2015
energy concern Rosatom, has been reliance on fossil fuels, and the Visaginas but pushed its target date back to 2020
awarded a contract for the construction project is in line with these aims. after encountering difficulties in finding
of the Belarusian station. This raises the question of whether funding and a strategic investor.
these political considerations will have Rokas Zilinskas, the chairman of the
Politics any practical impact on the Visaginas Lithuanian parliament’s nuclear energy
Minsk’s decision to follow virtually the project. commission, alleged in late 2010 that
same line of argument against the Russian interference been a factor in
Visaginas NPP that Vilnius has already Support from Brussels these delays.
employed against the Astravets station In all likelihood, they will not affect the He claimed that pressure from Moscow
indicates that the Belarusian position is level of EU support for the project. had led South Korea’s KEPCO to
being driven more by politics withdraw from the first tender for
than by substantive concerns. the Visaginas construction
Indeed, given the symmetry contract, even though it was
between other points, the viewed as the most likely winner
unnamed ministry official’s of the contest. Japan’s Hitachi
mention of Vilnius’ political won the second tender earlier this
considerations is probably year."
evidence of this.
That politics would be a Location of Lithuania’s
factor is hardly surprising. Visaginas NPP
After all, one of the



EurOil

Italy’s energy future uncertain
under new leadership
A shift in focus could come with the exit of Silvio Berlusconi and the arrival of a new
government but right now a great deal of uncertainty surrounds Italy’s energy future
By Christopher Coats
# Events over the past 18 months have left Italy with a variety of energy challenges at home and abroad
# The dynamics of Italy’s foreign relations stand to change in the absence of Berlusconi
# Italy is looking to expand its energy presence in North Africa and elsewhere overseas
Following weeks of political upheaval saw its long-standing government from EU and local political leaders. After
and roller-coaster market instability, Italy collapse as pro-democracy movements being set aside until political pressure
now finds itself with new national led to an armed conflict lasting months, had subsided, the campaign has now lost
leadership. With it comes the promise of resulting in a complete halt in its strongest proponent in Berlusconi,
a technical approach to governance and production. causing further uncertainty about a
the introduction of new financial Despite international pressure, Italy nuclear future in Italy.
measures aimed at calming global had spent the last decade cultivating
worries about the country’s ability to trade and diplomatic relations with Foreign relations
deal with its overwhelming debt. Libya’s former leader, Muammar These events have left Italy and the
The exit of controversial Prime Ghadaffi, through heavy investment in country’s largest energy firms
Minister Silvio Berslusconi and the aid and development, establishing Libya increasingly isolated when it comes to
appointment of Mario Monti to lead the as one of its three main providers of oil their immediate opportunities not only
government to implement a host of new and natural gas alongside Algeria and for growth but also for the country’s
regulations promoted by the European Russia. The armed conflict saw Italy’s immediate oil and gas needs. This
Union (EU) and the International energy imports under threat, as situation may be further exacerbated by
Monetary Fund (IMF) were welcomed by companies such as Eni were forced to the absence of Bersluconi, who
political and market leaders across the remove expatriate staff from the North demonstrated a willingness to seek out
globe. But it is far from clear how this African country. energy partnerships beyond and
new technocratic leadership will work in Meanwhile at home, Italy has seen two sometimes against wider regional
practice, including how it will shape domestic efforts to step up energy sentiment.
Italy’s precarious energy standing. independence curtailed by local protest This approach – leading to close
Although the news of Bersluconi’s exit movements. Offshore drilling projects working and diplomatic relationships
was enough to drive up oil and gas prices were restricted after the Deepwater with Ghadaffi and Russia’s Prime
across the globe – further allowing local Horizon spill in the Gulf of Mexico Minister Vladimir Putin, will not likely
companies such as Eni the spike in inspired calls for new project rules in the be continued under the stewardship of
profits necessary to weather current Mediterranean, leading to a ban on Monti, a much stronger proponent of EU
challenges – it is far less clear how his efforts within 5 nautical miles (9.3 km) market integration and member state
departure will affect the country’s of the Italian coastline. While the new partnerships. Having announced his
broader energy future. regulations have mostly hindered smaller campaign to return to Russia’s highest
operators, such as Mediterranean Oil and office, Putin echoed this sentiment in a
Challenges Gas, new proposals from the EU on speech last week where he derided EU
The last 18 months have left Italy with a offshore drilling could have a further energy policies while praising the
collection of energy challenges, impact on projects in the region. Finally, outgoing Berlusconi as a friend and “one
including issues pertaining to its the government’s push to revive Italy’s of the last of the Mohicans of European
domestic operations and production as long-dormant nuclear power programme politics”, according to the Wall Street
well as overseas exploration and after the events surrounding the tsunami Journal."
production. The country’s most in Japan this year and its impact on
prominent energy trading partner, Libya, nuclear plants sparked a wave of protest



EurOil
Although Putin is favoured to return to have slowed a return to pre-conflict willing or able to pursue such costly
office, the change in leadership in Libya production levels. infrastructure projects in the coming
may offer Italy some relief, as Eni has Elsewhere in North Africa, Italy has year.
returned to production efforts in the sought more exposure to the region’s For now, the country’s energy future
country after embracing the Libyan energy potential, recently moving remains vague, with little allotted for
Transitional National Government forward on a long-delayed pipeline traditional or novel approaches to
(TNG) despite earlier reservations. Eni project linking Algeria, one of its largest meeting domestic energy needs or
has revived production efforts in Libya, energy providers, with the island of expanding its hydrocarbon presence
including its work in the Elephant field Sicily. abroad.
south of Tripoli, but levels remain The move would increase imports into Having announced that it has little to
modest. Fully supported by the EU, the Italy, as well as side-step potentially contribute to Europe’s expanding shale
TNG will provide a greater opportunity unstable transport systems in the extraction marketplace and that it has
for Italy to expand its presence in North transitional political environments of done little to build a government support
Africa in the months ahead, though Tunisia and Libya. However, faced with system for renewables, the country again
infrastructure deficiencies and lingering likely spending cuts and a significant is looking to its traditional providers for
worries concerning regional stability tightening of the belt, Italy may not be an energy answer."

FSU OGM

Botas, SOCAR plan gas
pipeline across Turkey
The unveiling of a new scheme to move Shah Deniz Stage 2 production to Europe appears
to have made a situation that was already complicated even more so
By Charles Coe
# SOCAR is already considering delivery proposals from Nabucco, ITGI and TAP
# However, it appears to have doubts about all three pipelines
# The proposed link across Turkey could feed gas into BP’s proposed South-East Europe pipeline
Elshad Nasirov, the vice president of the bcm per year Nabucco gas pipeline, the mooted the SEEP pipeline plan because
State Oil Company of Azerbaijan 10 bcm per year Interconnector-Turkey- it views the Nabucco, ITGI and TAP
(SOCAR), stated last week that his firm Greece-Italy (ITGI) pipeline or the 10-20 consortia as unreliable partners for a
would team up with Botas, Turkey’s state bcm per year Trans Adriatic Pipeline variety of reasons. The plan cannot
pipeline operator, to form a consortium (TAP). succeed, though, without help.
to build a new pipeline to pump As such, the move by SOCAR and
Azerbaijani natural gas across Turkey to Complications Botas is seen as a necessary preliminary,
Europe. Nasirov’s announcement appears to have in that it is designed to establish
The pipeline is to have a capacity of no made a situation that was already infrastructure that can reliably move 10
less than 16 billion cubic metres per year, complicated even more so. bcm per year of gas through Turkey.
Nasirov said. That is the volume of gas This is partly because it follows a This cannot be done with Turkey’s
that Shah Deniz Stage 2 (SD2) is move by BP, the operator of the Shah existing gas pipeline network, which is
expected to produce when it comes on Deniz field, to unveil a proposal for considered to be too disjointed to provide
stream in 2017. putting a consortium together to carry 10 a clear transit route across the country.
Some 6 bcm per year of the total has bcm per year of SD2 gas from Turkey’s It is not clear whether BP will
already been promised to Turkey, while western border into Central Europe. BP participate in the construction of this new
the remaining 10 bcm per year will be calls its plan the South-East Europe pipeline across Turkey."
contracted to shippers using one of Pipeline (SEEP).
several proposed pipeline projects: the 31 The multinational is believed to have



FSU OGM
According to press reports, though, the Turkmenistan, with which the European on how to transit SD2 gas through
consortium that SOCAR and Botas Union is discussing the construction of a Turkey would be taken in mid-2012.
intend to put together is expected to gas pipeline across the Caspian Sea.) “The gas transportation system from
include other Shah Deniz partners. In an attempt to make itself more Baku to European markets consists not
attractive to Caspian gas producers, only of one pipeline, but of the whole
Gas deal Nabucco has proposed extending its combination of several pipelines,”
SOCAR’s move also coincides with a pipeline from eastern Turkey to Baku, Nasirov was quoted by Azerbaijan
new gas deal between Turkey and where it could theoretically connect with Business Centre as saying. These, he
Azerbaijan. the long-discussed Trans-Caspian Gas said, include routes “from Baku to the
After years of haggling, Ankara and Pipeline (TCGP). Turkish border, from eastern Turkey to
Baku inked several agreements in late Speaking in Baku on November 5, western Turkey and further to the
October. The documents not only set the SOCAR’s president, Rovnag European markets or in the southwest or
price for delivery of SD2 gas to Turkey Abdullayev, said the Shah Deniz northwards direction.”
for domestic consumption and for consortium would decide within a year He added: “The transit agreement
shipment to Europe but also provided for on which route to choose for the export [between Baku and Ankara] was signed
the upgrade of Botas’ existing network or of gas to Europe. He also asserted that for the option of [expanding] the existing
for the construction of a new pipeline. the unveiling of a different pipeline infrastructure in Turkey. In this
This may have far-reaching project would not prevent the connection, a consortium will be set up
consequences, as it appears to pave the implementation of the Southern Corridor to consider a new pipeline construction
way for SOCAR and Botas to cut the pipeline projects, those being Nabucco, option.”
Nabucco project out of the picture. ITGI and TAP. Nasirov further remarked that the
Like ITGI and TAP, Nabucco Abdullayev was quoted by Trend news decision on how to award the contract for
submitted to Shah Deniz shareholders its agency as saying that Turkey’s existing deliveries of SD2 gas was a complex
bid to transport the gas to Europe by the pipeline infrastructure was complex. For one.
October 1 deadline. While the contracts that reason, he said, SOCAR has decided “The route from the western border of
are probably months away from being to explore the prospects for constructing Turkey and sales of gas to Europe is one
awarded, the Nabucco group hopes to a new gas pipeline across the country. part of the project; passage through
win, despite the fact that the 10 bcm per Turkey is another project, and delivery of
year of SD2 gas would account for less Complex decision gas from Baku to Turkey is one more
than half of its full capacity. (The The SOCAR chief’s words were echoed project,” he said."
consortium is looking to also transport by Nasirov, who said during a conference
gas from northern Iraq and from in Baku on November 5 that a decision

GCEM

China’s emissions conflict
While the Chinese government hails falling carbon intensity levels, new research predicts
rising coal consumption as economic growth continues
By Graham Lees
# Research from Tsinghua University says annual coal consumption will reach 4.6 billion tonnes by 2015
# Beijing wants provincial authorities to take the lead in promoting low-carbon energy and cutting emissions
# Beijing has announced tentative plans for voluntary emissions cuts and a carbon trading system
# Provincial governments’ desire to expand their economies limits their ability to cut emissions
Rising coal consumption in China published as the central government also made a number of confusing
threatens to undermine central trumpeted that the country’s carbon announcements about plans to tackle
government targets for reducing CO2 intensity levels – emissions per unit of greenhouse gas (GHG) emissions
emissions by 2015. That is the verdict of economic growth – had fallen in 2010. nationally."
a study by a leading Chinese university The study was published as Beijing


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