The Oil Drum: Australia/New Zealand

This was posted in May 2007 and is worth reposting today given the new context of tense relations with Russia and worries/suspicion/empty talk about "energy weapons." The original post is built as a discussion an an Economist article about Russian gas (A bear at the throat) published in April 2007. Back then, "it took legitimate (if often poorly informed) worries about Russia's sometimes blustering behavior on the energy markets to peddle the usual insane crap that market liberalisation is the only solution to promote energy security." Today, the focus seems to be more on the geopolitical threat the Russia represents, but the conclusion is still, of course, about the incompetence and failure of continental Europe - this time not to liberalize, but rather to 'stand up' to Russia's bullying. Below, the original post, with some additional comments written today in italics and [between brackets]).

[Last year] I spoke at a debate on Gazprom at IFRI, a French think tank. That conference was organised after the publication of two quite different articles about Gazprom:

Gazprom as a Predictable Partner. Another Reading of the Russian-Ukrainian and Russian-Belarusian Energy Crises by Jérôme Guillet
Gazprom, the Fastest Way to Energy Suicide by Christophe-Alexandre Paillard

The titles give a hint that the papers start from pretty different positions - as you can see in the executive summaries of each that I am posting below, [but they in fact reach fairly similar conclusions, which are still relevant today]

_{Annual rates of total drilling for and production of oil and gas in the US, 1949-2005 (R² of the two = 0.005; source: U.S. EIA and N. D. Gagnon). Since drilling and other exploration activities are energy intensive, other things being equal EROI is lower when drilling rates are high.}

As oil prices increase and the presidential campaigns heat up there is a lot of discussion about increased drilling for oil. In economic theory higher prices will give market signals to increase exploration and exploitation of resources and hence deliver more to society, although at a higher price. Will this in fact occur with oil for the United States? Of course we will not know until we do it, but we can look to the past for hints. The enclosed figure represents the history of drilling and production for oil and gas in the United States. The answer seems inescapable: the rate of drilling for oil in the United States has been unrelated to finding or producing oil and gas, which is determined principally by geology. Mother nature, not market theory, determines resource availability, at least in this case and probably many more. (Source: Hall, Powers and Schoenberg (in press))

[With Centrica and EDF announcing hefty retail gas price increases in the UK this week, I thought it was worth reposting this story that was first published in December 2007. The follow on story Daddy will the lights be on at Christmas?, is perhaps more pertinent this year than last.]

OECD European gas production looks set to peak in 2008. After that, falling production combined with rising demand will see OECD European gas imports wanting to rise from current 197 BCM per annum to 442 BCM per annum by 2020. Where will this gas come from and how will rising European imports affect N America and the rest of the world?

Figure 1 OECD Europe gas production and conceptual forecast. Click all charts to enlarge

An explosion at Apache's Varanus Island gas plant in Western Australia on June 3 cut off 30 per cent of the state's domestic gas supply. Supplies to mines and industry in the Pilbara region (the heartland of Australian iron ore mining) fell by 45 per cent.

The supply disruption was exacerbated by an inability to start alternative forms of power generation - the coal fired Collie power station, for example, had damaged turbine blades and could not immediately return to service.

This has had a large impact on the local economy (the WA Chamber of Commerce and Industry estimates the crisis will have cost the state $6.7 billion, assuming energy supplies are fully restored by December) and makes an interesting case study of the effects of a sudden reduction in energy supplies.

This is a guest post from Rune Likvern (nrgyman2000 on The Oil Drum). Rune is an independent energy and financial analyst from Norway who has decades of experience from holding various positions within several international oil companies and also runs a blog called "Kveldssong for Hydrokarbonar". When Rune posts on The Oil Drum we usually pay attention to what he has to say.

This post presents the development of the energy mix for UK, how UK in less than a decade went from being a substantial energy exporter to a substantial net energy importer. A more detailed look on what to expect for UK natural gas prices in the near term and a brief discussion on the real options available for future UK energy consumption.

The UK development in energy consumption and energy mix for the years 1965 - 2007 in MTOE. Click to enlarge.
(MTOE; Million Ton Oil Equivalents; 1 MTOE approximates 20 000 bbl/d (oil))

This is a Guest Post by Bob Everett. Bob is Lecturer in Renewable Energy at the Open University in Milton Keynes, UK.

Domestic energy is getting expensive, but what does that mean compared to the situation in our parents' or grandparents' days? Should we grumble?

OECD European gas production looks set to peak in 2008. After that, falling production combined with rising demand will see OECD European gas imports wanting to rise from current 197 BCM per annum to 442 BCM per annum by 2020. Where will this gas come from and how will rising European imports affect N America and the rest of the world?

Figure 1 OECD Europe gas production and conceptual forecast. Click all charts to enlarge

This is a guest post by Kiashu.

Recently Victorians got a taste of what the future holds for us with the dangerous combination of peak fossil fuels and climate change.

My natural gas company SimplyEnergy added a "Gas Congestion Charge" of $3.51 (a tenth of my normal bill, more or less) to my natural gas bill today. They say:

Gas usage is typically higher throughout winter due to the use of heating and hot water systems, however winter 2007 saw a combination of particularly cold days and the effects of the drought on power generation which led to extraordinary peak demand.

Ondoing drought conditions have reduced the availability of water for hydro power generation which resulted in a greater reliance on gas-fired power production. During particularly cold winter days when the demand for gas increased, the gas market was further constrained by gas-fired power generators creating periods of demand that exceeded the available supply.

When this demand occurred, VENCorp [the co-ordinating company for Victoria's electricity and natural gas supplies] arranged for additional gas to be injected into the gas pipelines at a premium in order to maintain safe gas operational pressure levels and meet Victoria's gas requirements. [...] Congestion charges were applied to pay for these unexpected injections of gas which were required at short notice from gas reserves.

[...] this instance of gas congestion was unprecedented and resulted from a combination of several contributing factors. It has never occurred in the past and we hope it will not occur again.

Cross posted from Peak Energy.

I seem to have spent half of this week criticising various energy articles in the local media, however there seems to be an endless supply of them coming down the pipeline.

NZ Petroleum Exploration and Production Association executive officer John Pfahlert had an opinion piece in the NZ Herald this week ("Minister out of whack on importance of gas") arguing that New Zealand should be building new gas fired power stations instead of trying to become carbon neutral.

This is an update to an article of mine that was originally published in The Age back in March this year.

On the 15th March, the Esso/BHP Billiton Bass Strait joint venture asked the Minister for Planning whether a new gas conditioning plant at Longford requires an Environmental Effects Statement. The State Government's new guidelines for assessing projects with significant carbon dioxide (CO2) emissions were about to get their first big test.

The gas conditioning plant is required to treat new production from the Kipper gas field. The downside is that it would emit a million tonnes of CO2 every year. While not quite in the same league as a coal-fired power station, this is not the right approach to achieving urgent CO2 reductions.