by Jerome a Paris
Mon Nov 21st, 2005 at 10:02:33 AM EST
From the diaries ~ whataboutbob
The UK will only have enough gas this winter if it's not too cold:
A wholly predictable energy crisis looms
Crisis, what crisis? The Government can hardly be blamed for the weather but it is responsible for the country's energy policy. Having denied for months that we are in danger of running out of gas this winter, there is a sudden sense of panic in the Downing Street air now that the temperature has begun to drop.
click on all graphs for larger versions
New Zealand may lose 25% of its power overnight:
The Maui gas field has been responsible for 25% of New Zealand's electricity generation. When it runs out in a year or two, not only will a multibillion dollar infrastructure become essentially obsolete overnight but New Zealand will have lost 25% of its electricity generation capacity.
Maui Gas: Experience the Depletion Cliff
Production this year was 21.6% less than the 2003. Production in 2004 was 33.5% less than in 2002. In 2002 the Maui natural gas field produced a volume of gas higher than it ever had in its past. This illustrates the depletion issue with such clarity that even a flat-earther should recognise it. The volume of gas produced in the June 2004 year was the lowest level recorded for a year since 1986.
Maui gas production is in free fall. In peak oil terminology we are over the cliff. Within a year, maybe two tops, Maui gas will be gone. We are not the only nation facing natural gas depletion. The great Canadian natural gas fields, which power much of the United States, are on the production plateau. Major blackouts have already plagued the US over the last couple of years caused by peak surges in electricity consumption. As Canadian gas production hits the cliff it is almost certain that the US will experience severe and lasting electricity outages.
The Maui gas field has been responsible for 25% of New Zealand's electricity generation. When it runs out in a year or two, not only will a multibillion dollar infrastructure become essentially obsolete overnight but New Zealand will have lost 25% of it's electricity generation capacity.
In North America:
Gas production is still somewhat stable, but this comes increasingly from new fields that get depleted very quickly:
(from this presentation (pdf) on the Californian power market)
Essentially, more and more wells need to be drilled to maintain production - the industry is running ever faster just to stay in place.
(both images from this transcript of a 1999 Oil&Gas Journal article)
So, in the best case, production is stagnant, while demand keeps on growing:
Note: YTF = yet to find. As shown above, new gas fields are increasing small and drained increasingly quickly, so that hypothesis that production will remain flat overall may be increasingly optimistic with time.
Now, back to the Independent article about the UK:
Those who warned of trouble ahead, such as the CBI's Sir Digby Jones, were accused of being scaremongers. Now we know that Tony Blair was sufficiently concerned to convene a secret meeting with industry representatives nine days ago to discuss just such an eventuality.
Ministers wanted to find out how much big industrial users could cut their consumption by in order to keep the home fires burning and, second, what impact the resulting decline in output would have on the economy.
Consultants have now been hired to crunch the numbers.
The National Grid reckons that in the event of a Siberian-style winter, the like of which Britain experiences only once in every 50 years, industrial consumption would need to halve for the best part of two months. Even a one in ten type winter would require a 30 per cent reduction in demand for 40 days. The Met Office, for its part, reckons there is 65 per cent chance of a colder than average winter this year and a 35 per cent chance of it being a severe one.
So basically, whether the country has to go cold or to stop working will depend on the weather, because there is simply no way to import gas easily.
Gas is an infrastructure business: it can be transported either by pipelines (doable if the gas field and the consumers are at a reasonable distance from each other, and on the same landmass) or by LNG (on sea, but on a cargo by cargo basis, i.e. smaller volumes). LNG trade is slowly beginning to connect what were previously totally separated markets in Europe and the USA, but the volumes in play are still pretty small, and North America currently gets 99% of its gas from North America.
(The graph below, and all others below except the last one were pulled from a BG Group presentation which can be downloaded from here: LNG - the Supply Chain (Ziff's North American Gas Strategies Conference, Calgary) and which I recommend to all)
LNG trade to the UK or to the USA, the only possible source of additional natural gas, depends on the availability of (i) LNG import terminals and (ii) LNG production facilities.
Today, there are 5 terminals in service in North America, and 4 under construction (essentially those that will receive Qatari LNG). Beyond that, a number of projects are under way, but it's not clear whethere they will be permitted and where they will get they LNG from (most of the projects from the countries listed above Qatar in the above graph are still tentative as of today).
So, if all goes well, some volumes of LNG will get to the US market from 2009 or so - not enough to cover the expected shortages then - nor earlier. Higher Henry Hub (HH) prices will attract "spot" LNG to some extent (i.e. uncommitted volumes that some producers have available) but that it never going to be a significant portion of that business which requires very heavy investments (Qatar will have spent 55 billion dollars to bring its LNG export capacity to 9bcf/d in 2010) - and thus long term contracts for most avialable volumes to underpin these investments. But that spot LNG market will drive prices up.
So far, winter has been pretty mild, and thus Henry Hub prices have not gone up further - they are now back at their post-Katrina levels:
But this is unlikely to last if the winter becomes harsher than usual, and some areas may find themselves, like in the UK, with the choice between cutting off residential users or cutting off industrial users. Price mechanisms would likely cut off industrial users, but would create a political backlash as retails prices go through the roof. The other option is rationing. either way, the economic consequences will not be benign.
In recent years, gas-fired power plants have been built in many countries, starting with the USa and the UK, on the basis of plentiful - and cheap (expectations were for 2-4$/mbtu gas prices) natural gas. Suddenly, gas is neither cheap, nor plentiful, and it's going to be a painful experience - call it a grand rehearsal for peak oil...