The Oil Drum: Local

Last year I took a look at the question "Should Natural Gas Be Used To Power New Zealand ?", after reading an article from NZ PEPA executive John Pfahlert arguing that New Zealand should be building new gas fired power stations instead of trying to become carbon neutral, and concluded that this seemed a rather risky strategy - depending on continuing offshore exploration success.

The view of the Australian government and gas industry seems to be that our gas supplies are essentially unlimited, with the phrase "more than a century of supplies left" bandied about at every opportunity. Ex-Prime Minister John Howard used to dream of Australia becoming an "energy superpower", with a vastly expanded gas (LNG) export industry being a cornerstone of this vision, based on Western Australian LNG exports from offshore gas fields.

In this post I'll have a look at how much gas Australia has and how long it will last under a variety of scenarios - from an indefinite continuation of the current rate of production to a pell-mell conversion to use gas for all our energy needs combined with a rapid expansion of LNG exports.

This is the talk I was honored to deliver to ASPO Italy on 3rd May 2008 at their annual conference in Turin. 24 slides below the fold plus narrative of what I said on the day. The narrative boxes are below the slides.

An Italian translation of this post is available here. Thanks to Maurizio Moretto for the translation. Thanks are also due to Jean Laherrere of ASPO France for providing his interpretations of Russian and North African gas supplies.

The big business story of the day has been British company BG's takeover offer for Australian gas company Origin Energy - which will be the second largest takeover in Australian history if successful.

The SMH noted that "Australian energy is in hot demand at the moment. Our resources are near the growth economies of Asia and we have the infrastructure to process and transport them cheaply".

BG has only been in the Australian market for a couple of months, initially buying 10 per cent of Queensland Gas and a 20 per cent stake in the Surat Basin coal seam gas fields - then announcing plans to build a 3 to 4 million tonne per year LNG plant at Gladstone in Queensland to export this gas to Singapore and possibly other parts of Asia.

While exporting LNG from Western Australia and the Northern Territory hasn't caused a great deal of concern (bar the WA state government's attempts to reserve 15% of production for the local market), the BG plan is causing more concern as gas supplies in the eastern side of the country are more limited, with coal seam methane being the major source for the future. Diverting gas offshore pushes up the domestic price and makes the longer term supply situation more clouded.

I had thought that the short thread that has run through my last few posts – relating to the imminence of a fuels crisis, and the lack of political perception of the problem, had run out. And then I read the piece from Salon that threadbot had as the top story on Drumbeat on Sunday. Taken with a conversation that I had with the Nurse (who lives in Ottawa) today, it led me to this additional comment. And to put that in context, for those who live further South, while Ottawa might get about 100 inches (250 cm) of snow in a normal winter, this year it has had more than 166 inches (421 cm) and the snows are not over. Part of the reason that I bring this up, in context of the Salon article, was the line in that article that said (and I recognize that I am taking it a little out of context)

And for that only one alternative fuel is even remotely plausible -- carbon-free electricity.

And my tiny mind asks, where, with a 20-inch (50 cm) snowstorm does one find this source to supply a city of 1,148,800 inhabitants in the short term.

A week or so ago I wrote about the power supply debate going on in New England, with the controversy over the wind farm to be sited in the waters off Cape Cod. In that post I commented on the fact that, in response to an energy shortage that had appeared in 2004, the area had ensured additional supplies of LNG, and had converted some power stations so that, instead of relying on natural gas, they could also burn oil. The advantage of oil in this particular case is that it is somewhat more easily stored and thus is accessible when the gas lines are not available.

However I skated around the issue as to what would happen if there were neither oil nor gas available. This is not, unfortunately, a theoretical exercise. Chris Skrebowski has projected a supply shortfall by 2012. Yet already in India power plants are being idled because they cannot get enough LNG. And as for the supplies of oil, the likelihood of us being past peak by 2012 is increasingly real. So, that being the case, where can one look for alternate fuel. As articles in the New York Times and in the Washington Post have noted, for most of the rest of the world the short-term answer would appear to be from coal.

I have recently been writing about Botswana, and their sudden discovery of vulnerability when they found that their supply of electricity was no longer to be available. There is a passage in Cape Wind, the book by Wendy Williams and Robert Whitcomb, that shows the increasing vulnerability of places such as New England as the balance that exists between available supply and demand narrows. The event occurred in mid January 2004 when there was a sudden cold spell that lasted over a week, and the story is told from the point of view of the Independent System Operator (ISO) that manages the supply for some 14 million folk, and is located in Holyoke, MA.

On January 14th the ISO had assurances that up to 10,000 megawatts would be available from gas-fired power plants as they anticipated demand rising to around 23,000 to 25,000 megawatts, as the temperature was anticipated to drop to minus ten degrees. But by 8:30 am on the first morning of the crisis, this began to change:

A trickle of phone calls began coming in to the Holyoke headquarters, all with pretty much the same bad news. Plant operators who relied on natural gas as their fuel reported that although their plants were in working order, there was no gas available for them to buy. It had all been taken by the companies responsible for providing gas for home heating.

By afternoon the trickle of “no gas” calls became a flood. . . . .During this all-time winter peak, when electricity was essential for the very survival of many New Englanders, roughly 7,200 megawatts of gas-fired generation was now unavailable. . . . .because they couldn’t find enough natural gas to buy.”

In the end crisis was averted by some load shedding, including closing the schools, but it illustrates the coming vulnerabilities that we face as our historic assumption that there will be enough power when we need it, suddenly starts to be significantly challenged. However, in this case, action was taken, and things no longer look as grim.

A recent article in the UK's Sunday Times warns that, although UK natural gas prices are already at historically high levels, they are set to increase by 25% by next winter. Part of the problem is that the UK is increasingly dependent on imports of liquefied natural gas (LNG), and this winter (2007/08) Japan has been paying twice as much for spot LNG cargoes as the UK has. The implications looking forward are that to secure spot LNG cargoes in future, residents of the UK should be prepared to pay much more for their gas. Meanwhile, in its latest weekly podcast, Platts explains why there are essentially three seperate markets for LNG supplies, and media reports suggest that Russia will be soon be hiking its gas prices for exports to Europe. In other words, barring economic meltdown, natural gas prices are set for double digit increases, annually.

Chevron Australia has been in the news this week after announcing plans to develop a new LNG plant on the WA mainland to process gas from its Wheatstone discovery on the north west shelf. Interestingly, as well as feeding gas into the domestic network, they are considering developing a gas-to-liquids facility as part of the plant - which may slightly reassure those who look at both our trade deficit (in which imported liquid fuels are a major factor) and the possible impacts implied by the export land model.

This is the last of the posts that deal with the content of the ASPO Conference last week in Houston. I will have my usual personal closing review tomorrow. As I hope you will gather, it was full of information and somewhat intense. And that did not include talking to folk in the breaks, which expanded a lot on what was being said in the papers. So if you want to think of this as the first commercial for next years meeting (which will be in California) then you’re right again. And just to remind you, the earlier posts were a report on the Workshop day, the first morning report, the rest of Thursday, and then Friday morning. A quick thanks to all, and it was more fun than I had even hoped to meet so many of the TOD folk, as well as so many others – thank you all, and of course, a much bigger thank you to the organizers for putting this on. The result, gentle folk, was well worth the effort.

We rejoin the meeting just as we sat down to lunch, and a talk by Houston Mayor Bill White who has the enviable distinction of having Matt Simmons as the Treasurer of his Campaign Committee. He acknowledged Matt as a prophet (with all that usually brings). He sees the current situation as one that comes down to a race between depletion and technology. It is not possible to give a political speech and create more oil fields. It is not possible by giving a political speech to create a hydrogen economy either immediately or in the practical future. It is not possible by giving a political speech to over-ride the laws of physics.