First we have Shell’s interest in the Australian company Arrow.

Shell Energy Holdings Australia Ltd. (Shell), a subsidiary of Royal Dutch Shell plc, confirmed today it is participating in discussions to acquire Arrow Energy Limited (Arrow), excluding its international assets.

Arrow is a specialist Coal Seam Gas company. They describe themselves as follows:

The company is an emerging global leader in coal seam gas development with an expanding business presence in Australia, China, India, Vietnam and Indonesia.

Australia is where there is most activity in exploration and production of coal bed methane, and so its no surprise that the second story also comes from there.

The Wood Group is setting up a joint venture to focus on coal seam methane.

Wood Group Wagners Pty Ltd, a new joint venture company set up by international energy services company Wood Group and Toowoomba-based Wagners was launched today.

The new company has been established in Brisbane to provide Queensland’s gas producers with a flexible, fit-for-purpose solution for developing Coal Seam Methane (CSM) by combining Wood Group’s global CSM experience with the local supply chain capability of Wagners.

The joint venture can be found here.

All this set me wondering why there is not more being done in Europe to source gas from coal. After all, nearly every country in Europe has coal reserves. So I did a little search, and realised that there was more happening than I was aware of.

The Germans even have a Coal Gas Association.

In France, there is a company called European Gas Limited which focuses on this area.

The strategy of the company is to develop Coal Bed Methane and Coal Mine Methane projects, in particular, in France where the company has major holdings under licence.

In the UK there is also a similar company IGas

IGas was set up to produce and market gas which is found in seams of coal (CBM).

They see big potential.

The CBM industry in the UK is in its infancy, but with the continuing decline in natural gas from the North Sea, it is likely to become an increasingly attractive alternative potential source of gas.

Britain’s gas major BG Group is also working on coal seam gas in its home market following on from projects in Australia.

So it seems that the European gas market could soon see a significant input from locally produced gas. It would be ironic if the solution to dirty coal powered electricity generation, was generators fired by gas, sourced from coal.

• For basic information on coalbed-methane
• For Coal Bed Methane News

Royal Dutch Shell Plc spent $19 billion to build the world’s largest gas-to-liquids project, triple the original estimate. Now, it’s pay-off time.

Thankfully for Shell, the cost differential between Natural Gas and Crude Oil is at record highs, making their overpriced Pearl Project potentially a major success. The problem is that anyone thinking today of making a similar investment cannot be sure that the market will be so much in their favour. They can however be sure that the capital costs will be high. How many other companies can afford almost $20 billion on a single project?

So is GTL just an oddity, that works for Shell in Qatar, but not really anywhere else?
It needs a large scale cheap supply of gas, far from consumers, and an investor with very deep pockets and strong nerves. So what would really change things is if we could make it work on a small scale. Then it would be suitable for smaller stranded reserves, and smaller companies.

That is the logic behind the Compact GTL business model.

Compact’s business and strategy is focussed on providing a unique value creating solution to the costly problem of associated gas disposal in the upstream oil and gas industry. Compact’s proprietary technology solution converts gas into synthetic crude oil, or syncrude.

The company is developing a GTL process that is small enough to be used to convert associated gas, and be installed on floating platforms. The resulting products can then be blended into the crude and transported using existing infrastructure.
This year they will be delivering a pilot plant to Petrobras.

CompactGTL the modular associated gas solution for oil and gas fields, has announced that it is on schedule to deliver a pilot plant to Petróleo Brasileiro S. A. (”Petrobras”) in 2010. The 20 barrel per day pilot plant will be tested onshore in Brazil during the second half of 2010.

Interestingly enough, Petrobras has another option, for an even more compact solution.

Toyo Engineering Corporation and MODEC, Inc., which have been working together since November 2007 on the development of small- and medium-scale GTL, concluded a cooperation agreement with Petroleo Brasileiro S.A. to construct a verification facility.
The technology belongs to a third company, Velocys.

This is how they see themselves:

Velocys, Inc. is commercializing processing systems that provide energy and chemical companies with substantial capital cost savings, improved product yields, and greater energy efficiencies.

Their technology is based on microchannels, which allows very effective miniaturisation.
They have a good overview of potential and the technology involved here.
If these approaches can offer feasible solutions, the importance is huge.

It is currently estimated that 150-170 billion cubic metres (bcm) of natural gas per year are currently flared or vented globally from upstream petroleum operations.

That is 150 billion cubic metres of hydrocarbons which could be used rather than lost. That number also ignores the gas that is re-injected or used sub optimally just to avoid flaring.
Velocys calculates that a barrel of syncrude can be manufactured from about 185 cubic metres of gas. Based on this, a theoretical 1.5 million barrels per day of syncrude could be produced.

There are other imperfect options for capturing value from associated gas. This one separates the LPG out, LPG being relatively easy to transport.

The gas can be used to produce electricity, using turbines, great if you need the power, not so much if you don’t.

FLNG will be used in the future where the volumes allow it.

However, none of these have the comprehensive potential that small scale GTL does. If these companies can succeed in commercialising their technology, the problem of flaring or venting will turn into a big opportunity, and oil fields with significant volumes of associated gas will gain in value.

It goes to show once again how human ingenuity can increase the availability of natural resources.

Canada’s Talisman is the latest.

San Leon Energy PLC is pleased to announce that its decision to enter into the Baltic Gas Shale play in Poland has today culminated in this exciting farm in announcement with Talisman Energy Inc. . Talisman is a diversified, global, upstream oil & gas company, based in Canada, currently piloting and developing a number of shale plays in North America. Talisman has signed a farm in agreement with San Leon that covers the Company’s two existing Baltic Basin concessions (Braniewo & Gdansk W) and also extends to a 3rd pending concession application in the Gdansk area.

This comes just days after Chevron increased its interest.

Chevron, the second-largest U.S. oil company, confirmed that it has secured exploration rights for an additional Polish shale gas concession, although the size of the acreage was not divulged.

Poland is now playing host to Conoco, Exxon and Marathon among others.

It would be a great development if Poland were to be able to bring significant production on stream, helping diversify European supplies. Poland is not the only game in town either, Ukraine is another potentially large source of shale gas. If both turn out to be worth anything Russia will sure be happy it is building South & North Streams.

They have a new LNG train up and running.

Ras Laffan Liquefied Natural Gas Company Limited (3) (Ras Laffan 3) today announced the completion and start-up of Train 7 at Ras Laffan Industrial City, Qatar.

They also have news of new production.

Qatar Petroleum and Exxon Mobil Corporation today announced the Al Khaleej Gas-Phase 2 (AKG-2) project, with 1,250 million cubic feet per day (mcfd) of sales gas capacity, initiated operations in December 2009.

An eye opening fact about the LNG business is this one.

Ras Laffan 3 Train 7 is the fourth 7.8 million tons per year LNG plant brought online by Qatar Petroleum and ExxonMobil joint ventures within the past 12 months.

We can see where the market is going can’t we? So can the CEO of Oil Search, an Australian company also in the LNG business.

Although Botten conceded there was a risk of LNG oversupply, he said he was confident PNG LNG would have little trouble securing additional buyers.

Whilst everyone is confident of their projects, they admit that on a macro scale, we have a problem. What we need is for natural gas to replace more coal and oil. By happy coincidence, this might just be part of the solution.

With Bloom’s fuel cell, air and fuel — such as natural gas, ethanol or biogas — are fed into the cell. The oxygen ions react with the fuel to produce electricity. There’s no burning, so the fuel cell is two-thirds cleaner than coal-fired plants, Bloom says.

An affordable fuel cell, could be the catalyst that creates distributed power generation, which would massively boost the use of natural gas. Its not the only possible solution, but if gas prices remain low, it would certainly help such alternatives to take off.

Schlumberger Ltd and Smith International, Inc. jointly announced today that their Boards of Directors have unanimously approved a definitive merger agreement in which the companies would combine in a stock-for-stock transaction.

As the knowledge side of the industry grows in importance, so the major players are growing in size.

Schlumberger is of course the biggest of the big boys:

Schlumberger is the world’s leading supplier of technology, integrated project management and information solutions to customers working in the oil and gas industry worldwide.

Whilst Smith, though not quite in the same league is hardly a minnow.

Smith International, Inc. is a leading supplier of premium products and services to the oil and gas exploration and production industry. The Company employs over 21,000 full-time personnel and operates in over 80 countries around the world.

Together they can create big synergies.

Smith’s drilling technologies, other products and expertise complement our own, while the geographical footprint of Schlumberger means we can extend our joint offerings worldwide.

By taking Smith’s expertise and offering it to a greater number of customers, it will create new value generation. At least that’s the theory. It doesn’t always work like that.

Exxon, as usual is sitting pretty.

Exxon Mobil Corporation announced today that additions to its proved reserves in 2009 totaled 2.0 billion oil-equivalent barrels, replacing 133 percent of production.

And its not just the big boys, the smaller integrated companies can manage it as well.

Marathon Oil Corporation (NYSE: MRO) announced that during 2009, the Company added net proved liquid hydrocarbon and natural gas reserves of 674 million barrels of oil equivalent (mmboe), excluding dispositions of 41 mmboe, while producing 149 mmboe, and thereby increasing proved reserves by over 40 percent from 1,195 mmboe at year end 2008 to 1,679 mmboe at year end 2009.

The independents are not too bad either.

Apache ended 2009 with proved reserves of 2.37 billion barrels of oil equivalent. The company added 216 million barrels of oil equivalent (MMboe) through discoveries, extensions and acquisitions but excluding price-related downward revisions. Apache’s 2009 production was 213 MMboe.

So what does this show?

First, not very much, because even Exxon, the biggest sister of all is insignificant in global terms.

Secondly however, I think it might give us a clue into why we are in the position where global reserves are falling. State Ownership. Private companies are punished by investors if they fail to replace reserves, whereas state owned companies have every incentive to run reserves down, ansd spend the money today. Global oil supply would be much more secure if politicians got out of the way.

Saudi Arabia must be “very serious” about any possible peak in oil demand, which is an “alarm” for OPEC’s biggest exporter to diversify its economy, a Saudi Oil Ministry adviser said.

He doesn’t say if he agrees that demand is peaking, but only that the view should be taking as a serious risk. He sees it as a wake up call for oil producers.

My view is that the only thing that could create a plateau in demand is very high prices, which would most likely have a significant braking effect on the global economy. As long as enough oil is available at reasonable prices, which has always been the long term goal of the Saudis, then growing car ownership will drive oil demand in emerging economies. Stagnant demand in the OECD is not a new phenomena, and is basically irrelevant.

Consumption of oil in developed nations of the Organization for Economic Cooperation and Development will decline by 0.02 percent this year, while non-OECD usage will grow 4 percent, allowing total world demand to expand 1.8 percent to 86.5 million barrels a day, according to the Paris-based International Energy Agency.

As long as Chinese & Indian consumers dream of buying their first car, the future of oil demand is secure.

As we reach maximum oil extraction rates, the era of cheap oil is behind us. We must plan for a world in which oil prices are likely to be both higher and more volatile and where oil price shocks have the potential to destabilise economic, political and social activity.

It sounds like a doomsday scenario. In fact they continue in this vein, painting a bleak picture.

we face a situation during the term of the next government where fuel price unrest could lead to shortages in consumer products and the UK’s energy security will be significantly compromised.

How realistic is this view of the oil market?

It rests on the idea that oil demand will continue to increase, whilst supply will be unable to keep up. This view is underpinned by the following ideas.

1. The worlds biggest oil fields have been discovered, and are drying up
2. Demand for energy is increasing
3. Finding and producing new oil is more expensive.

Whilst I don’t dispute these points, I do find issue with some of their conclusions.

The underlying problem that I have with all of these is they ignore many of the feedback loops that exist. They also have their own preferred solutions, which creates more problems. If you think that solar is the solution, you might panic, even as the country is covered in wind turbines.

Other commentators have very different outlooks on the market. CERA, is a well known optimist. They see the end of demand growth in the OECD as very significant.

As the world moves from recession to growth, oil demand will grow once again. However, all of the demand lost in the developed world (countries in the OECD) is unlikely to return, even over the long term, and 2005 could be the peak year of OECD oil demand.

Now this is extremely important, and has a conclusion which seems to be in complete contrast with the peak oil task force.
Compare

• There is no reason to believe that the strong emerging economies of the developing world cannot live with oil prices in excess of $120/b (POG)
• As the oil intensity of OECD economies declines, economic growth will be more insulated from the impact of oil price swings. (CERA)

CERA believe that OECD economies can live with higher oil prices, whilst the peak oil group thinks the opposite. Whilst the emerging markets may seem unstoppable as viewed from the stagnant developed world, their energy intensity is much higher than their richer counterparts. A comparison is given in the table below.

Country	Energy Intensity (BTU/$)
G7
Canada	16.486
United States	8.841
France	7.767
Germany	7.260
Italy	6.913
United Kingdom	5.810
Japan	4.467
BRICs
Russia	80.923
China	34.931
India	24.616
Brazil	12.561

Source: IEA

The UK, is not only the G7 member with the second lowest energy intensity, but has an energy intensity of just 17% of China, or 24% of India. It seems like the wrong people might be worrying about oil prices.

The biggest reason to be sceptical of the doom merchants is the global natural gas glut. It means that for many uses, there is an alternative, a factor that will impact very heavily on future fuel oil & heating oil demand. Heating is still a major use for oil.

If we take a look at the suggestions that are made, we get into even worse territory.

Continue measures to improve energy efficiency and wean transport from its dependence
on oil. These include promoting technological developments such as hybrid engines, vehicle electrification and weight reduction

If we are to use oil at all, then it should be as a vehicle fuel. The energy density of gasoline and diesel far exceed that of the alternatives, particularly electric cars. The alternatives are also significantly more expensive. It is unfortunate that so much focus is placed on transportation, when

1. The effect of high excise duties has already had a massive impact here, and will continue to do so.
2. These duties seriously reduce the impact of higher oil prices on consumers
3. There is so much low hanging fruit elsewhere.

Take this simple statistic.
Share of transportation in global oil consumption in 2006 was 50%, expectations for 2030 is 56%. We are wasting nearly half of the world’s oil in areas where there are better alternatives, whilst trying to replace it in the one area where it is the best option.

The whole report sounds like special pleading to me, companies that could benefit from the reports conclusions are those that have prepared it.

Throughout there is a sense that they are trying to have it both ways. Oil prices will rise, but that will not put the expensive unconventionals in play. Natural gas is cheap and abundant, but that will not cause switching from more expensive oil. Most of all, traditional fuels are going to get expensive, so let spend money on even more expensive alternatives.

I have no doubt that there is much that governments might need to do to enhance energy security, but I don’t think that trying to have it both ways will work. The best way forward would be carbon taxes, and storage investments combined with much greater support for research to speed up the commercialisation of new technology. In many countries, though not the UK, much greater use of natural gas is called for. Above all, if we really believe that CO2 is a problem, then we need to embrace higher energy prices, yet they same wets that bleat incessantly about emissions are always the first to complain about high oil prices.

OPEC’s compliance with record supply cuts announced in 2008 slipped to 58 percent in January, from 61 percent the previous month, according to the International Energy Agency.

In the circumstances, its not too surprising. After many months of creep, the crude oil price still remains at relatively high levels. Interestingly, OPEC is happy with the unofficial increases.

OPEC will meet next on March 17 in Vienna. The group’s Secretary-General Abdalla El-Badri said on Feb. 2 that if market conditions change little and prices stay in their current range, then ministers will be “reluctant” to alter their production target at next month’s gathering.

So cheating is being rewarded.

The original cuts were 4 million barrels per day, and the actual cuts have now fallen to only 2.2 million.

This all has a significant impact on the oil market this year. We can comfortably expect that rising prices will be met by increased production, and so expectations of flat oil prices seem reasonable. What is more difficult to understand, is why this slippage, is not yet impacting significantly on heavy crude differentials.

Russia’s gas export monopoly Gazprom said on Friday it had agreed with Total and Statoil to delay the giant Shtokman gas field by 3 years due to major changes in the global gas markets.

The reason is that the USA, which was to be a major customer, is swimming with Natural gas.

In typical Gazprom style, their press release is obscure to those who do not have previous knowledge of the project.

The FID on pipeline gas is planed to be taken in March 2011, and the FID on LNG before the end of 2011. According to the shareholders’ opinion this will allow for pipeline gas production start up in 2016 and LNG in 2017.

It is only when one compares and contrasts earlier statements, that the difference is noticed.

Deliveries of pipeline gas are expected to commence in 2013 and the first LNG will be delivered in 2014.

In the battle for gas market share, this is something of a setback for Gazprom, though they have been working hard to replace their own gas with that coming through Russia from other countries.