I was born in 1969 into a world that was thrilled with a much less significant event (at least for me). Neil Armstrong strode down the lunar surface with his enigmatic words “it’s just a small …” – well, you know the drill.
Man is capable of astonishing feats. We build vessels that are bigger than many large buildings and steer them over the seas, we erect monumental buildings as high as small mountains, we reach the deepest points of our oceans and steer space probes over billions of miles through the vast reaches of space in order to precisely swing into orbit around a planet that looks like a microbe seen from earth.
All those astonishing feats are the result of engineers and scientists pushing the boundaries of what is possible. And we are capable of so much more.
Pushing the boundaries of the possible is a worthy goal in science, in the arts, even in lifestyle. But in business, there is a clear limit to what should be done. As there is a factor that permeates everything – the final objective to cut a profit. Plus, this profit can always be expressed in figures on an account.
My father always taught me that if an affair is to be judged a success, one must earn more than one spends on it. That should be simple enough. However, there is something else. One should always use the simpler, cheaper method if the result is about equivalent.
And exactly this second rule is being kicked in the face at every turn as soon as LNG is part of the deal. As if just thinking about LNG annihilates the very last neuron in us.
I have already hinted at it in my Shtokman blogpost. Europe banked on Shtokman would be saving the day while they knew well that the Russian legacy gas fields were already past their peak and there were no real mega scale new developments. Because mega scale – one needs – in order to patch the widening gap between cheaply available gas supply from Russia and the real needs of Europe and we should not forget freezing Russians themselves.
Shtokman is a mega-scale project and if it ever went online, it would certainly put significant volumes into the system. However, Shtokman is not cheap. This is super expensive gas for reasons enumerated in another post.
Shtokman would be our lunar Strawberries. What is the cheaper option then? Well, shale gas in Europe certainly will not be the rock star it is in the US but it has the potential to put a mighty dent into the current European supply picture. However, even if shale in Europe costs double the same resource would cost in the US, it would still be a steal compared to gas from Shtokman.
Or indeed LNG supplies. Term LNG currently goes for oil parity, possibly higher on the premium wielding Asian marketplace. If Europe wants to make LNG a significant option, it would have to be willing to pay up for it. However, it cannot as gas market prices are too low to compete for cool gas. Therefore, Europe stays hooked to piped gas – which by the way is not a bad thing.
Let us look at something else. The bioMethane world is going through a transformation itself. The way I look at it will leave many current bioMethane producers bankrupt but what is coming in the field is exciting.
Shale gas developers have knocked a zero off the development cost of one shale gas well over less than a decade. Is there anyone who will tell me that this cannot be repeated in BioMethane? I think that the combined effect of some of the most exciting R&D efforts of this decade in energy plus the application of business principles (instead of subsidy principles) to the business will work wonders. We will see the results in less than a decade from now.
Back to Shtokman (or any other frontier gas resource – I just picked this one a one itsy bitsy example). It will take a decade or so to develop this field – if ever someone takes the hit on developing it. It will, therefore, come up no earlier than when the combined effect of a bioMethane revolution with possibly the first large-scale commercial methane hydrates supplies plus even more shale from the US and from Europe will hit us.
How will it fare then? From here on you are on slippery ground.
We should concentrate on the strawberries in our backyard rather than look at ever more exotic ways to cover our energy needs. Local, renewable and cheap supply is making ever more of an impact in many other economic domains. Shale gas has proven the superiority of local energy supplies to the global option. It has shattered hundreds of billions worth of energy projects in North America and will no doubt shatter way more.
Energy is a local play (or at least it should be) and the only reason it has gone global is because most of the easy oil is located far away from the places where it is being consumed. At least it was. But the biggest planetary fuel guzzler is quickly becoming one of the biggest producers killing the rationale of delivering anything flammable to North America from outside it for the foreseeable future and the genie is clearly out of the bottle.
Now, energy independence has become a buzzword in any developed country. Only the means to get there are different. North America pins its fortunes on shale (not to say that the renewable business would be dead there – it is not). Europe goes mainly for wind and solar and Japan puts serious efforts into making Methane Hydrates work for them. They are all looking at the strawberries in their backyard.
Some developing nations are big oil exporters (lets better say they still are) and their backyard strawberries can sometimes look pretty alien to us. However, they might even be alien to them as geographic situation is not everything. Lifting deep sea or pre-salt oil or gas is no cheap affair and requires exotic technologies. I just picked two arbitrary examples. Their strawberries might look as if it is still the backyard when in fact you are strolling lunar premises here.
The end of easy and cheap oil has just put the emphasis back on the things we can do ourselves. The oil price seems to be high for good. However, this higher price level also raised the bar for what makes economic sense – or not.
This higher price level is the incentive for many of the lunar strawberries developments but it has also put a lot of oomph into anything that rather comes out of our own vegetable garden. This, in turn, brings the issue back with a vengeance. If you bank on sky high markets for a long time, you just incentivize another shale gas miracle and then all your lunar strawberries are worthless.
The rise of the internet was predicted to entrench English as the dominant language of the planet when in fact it gave small local languages a new lease of life. This very thing happens to energy now-
Do take my words for it – just look at the Aussie LNG projects and tell me how sexy they look right now. And this is just one example.