The Power of Natural Gas Exploration Rights, Cyprus

As many of you may already be aware of, the small island country of Cyprus is currently in financial ruins and seeking a bailout plan.  While there is a pending bailout offer from the EU, many citizens are outraged by the contingents of it and are seeking another plan.  Amidst the outrage, sources have reported that the Russian energy company Gazprom has extended to Cyprus a bailout offer of their own.

 

Gazprom is the largest natural gas company in the world and is responsible for nearly 10% of Russia’s GDP (New York Times).  In other words, the company has billions and billions of dollars worth of revenue, which it is looking to invest into the further expansion of their natural gas business. 

 

Meanwhile, Cyprus’ neighbor to the Southeast, Israel, just discovered one of the largest offshore gas fields in the past decade, the Leviathan natural gas field.  After this discovery, exploration for natural gas in this Mediterranean region is rampant and Cyprus is likely to withhold the mining rights to a great amount of natural gas.  Thus, a natural gas giant such as Gazprom would be eager to obtain exclusive exploration and mining rights of Cyprus’ natural gas fields, exactly what Gazprom’s bailout plan entails.

 

Gazprom’s reported proposal to Cyprus entails a bailout option in which Cyprus would concede exclusive rights of it’s natural gas fields to Gazprom.  In turn, Gazprom would single handedly bail out the country of Cyprus, who would need around 10 billion Euros to re-stabilize its economy.

 

While this may initially seem like an easy and reasonable solution to Cyprus’ troubled economic state, there are many underlying affects and motives.  Gazprom effectively has a monopoly on the natural gas market in Europe, providing it with about 40% of its imported gas.  The bailout of Cyprus’ would give the country the means to sell rights of its natural gas reserves to be mined by different gas companies.  In theory, Cyprus would have the power to create its own gas industry, which if productive enough, could become and export business to the likes of many European nations.

 

If Cyprus were to create its own gas industry and export to Europe, Gazprom would be undercut and be potentially forced to lower their prices and loosen their grasp on the European market.  This occurrence would be very detrimental to the revenues of Gazprom.

 

As it stands now, Gazprom has not made a release stating its offer to Cyprus, nor has Cyprus given any definitive evidence suggesting consideration of the proposal.  This example however, shows how powerful the rights to natural gas exploration are and to what lengths some companies will go to claim those rights.

LNG, What’s the big deal?

LNG is the key piece in making natural gas an internationally traded commodity, without it, supply and demand of the resource would be far out of balance.  Beyond this, LNG is important in the growing natural gas industry because it allows for the extraction from tough to reach reserves; it can be shipped efficiently and safely, and a has potentially great upside for exporting countries.

The largest benefit of LNG is that it opens up natural gas to world trade.  Prior to the technology which allows us to transform natural gas into its liquid state, natural gas could only be distributed regionally through gas pipelines.  This not only restricted the trade of natural gas, it also restricted the markets ability to grow.  For instance, Australia is currently producing two times more gas than what it consumes.  If it were to have no way to ship this excess over seas, the country would have no incentive to produce its maximum capacity of natural gas and their abundant supply would be a waste since it can’t get to countries who need the energy.

Top 6 exporters of LNG in 2011:

Thankfully however, we now have the ability to super cool natural gas to -162 degrees C, at which point the gas turns into its liquid state. Once in its liquid state, natural gas is 1/600 that of its gaseous volume, meaning that we can transport natural gas on tankers at and economic cost.

With the ability to ship LNG globally comes the ability to import and export natural gas.  Thus, countries such as Qatar and Australia have incentive to produce as much LNG as possible for export.  This benefits both the exporting countries economically and the importing countries because they now have the supply to meet their consumption, The Economist.

While LNG is the key to the international trade of natural gas, it is also important because we now have the ability to tap large natural gas reserves that were once considered inaccessible.  Prior to LNG, we were unable to tap any reserves that were much more than a few miles off any coast because the amount of pipeline that had to be laid under the ocean was unfeasible.  With LNG and LNG specific tankers, we are now able to pump what is extracted from these reserves directly into these ships for super cooling and transport.

By pumping extracted natural gas at sea directly onto the ships, not only are time and money being saved but the detrimental impact on the environment is being reduced.  When LNG is stored, it is put under no pressure and therefore is not explosive.  The ships that transport LNG are some of the most high tech on the sea with double hulls and massive amounts of insulation to prevent any sort of leak.  Even though a spill is not of great fear considering the quality of these ships, the impacts of and LNG spill would be minimal in that LNG is insoluble in water and would all evaporate in a matter of minutes.

The inside membrane of a LNG tanker, Chevron:

LNG has opened the world to natural gas trade providing import opportunities for countries lacking the resource, and export opportunities for countries fortunate enough to have excess.  It has allowed for the market to expand to new heights and with continued exploration by the worlds gas companies, the outlook is only bright for LNG.

Natural Gas Reserves Around the World Bridging Future and Current Energy Sources

As the info-graphic shows there is a substantial amount of Natural Gas reserves in the world today. As extraction techniques continue to improve and ground penetrating radar allows us to discover new reserves of Natural Gas we see an energy that has many applications and availability for the future.

TEDx had a speaker that provided some evidence of how the further development can impact America. We neither support nor dispute what the presenter has said, but believe it is a lecture worth hearing to further develop the linkage of Natural Gas as a future energy source.

In order for Natural Gas to make a true impact on the world countries must develop their exporting abilities.When exports were plotted on the graph they were so minuscule that they did not even appear compared to their reserves.  This shows how small the interconnection of Natural Gas supplies and demands between world economies. If there is to be a switch over to Natural Gas as a global energy source countries must begin exporting and importing different types of Natural Gas between each other.

This could be of particular benefit to Russia and its economy. As shown in the graph Russia by far has the largest amount of Natural Gas reserves in the world. If it were to harness that immense resource, its exports alone could power the world for  many years.

In comparison the United States has already taken steps towards becoming a net exporter of natural gas. It has begun converting current facilities made for Natural Gas imports and reforming them to be able to fill shipping transports and export Natural Gas.

China has seen the huge benefit Natural Gas provides to the countries that are able to develop it and has begun developing its own Natural Gas reserves. However, China faces many problems in the implementation of its extraction process. Firstly, China has a very different terrain compared to the United States. This difference in terrain has caused a huge a delay in the technology transfer of  the current facking technology developed in America.

In order for the Chinese to access their current reserves of Natural Gas they will need to develop a system allowing them to extract their reserves in an efficient manner and be cost sustaining.

Many United States companies have descended on China forming partnerships to help develop the Chinese’s Natural Gas Reserves. Companies like RMI have begun major developments in China. Hopping that the development of Natural Gas and renewables will help address the growing problems of contamination, pollution and climate change.

As this resource develops further we will see huge economies of scale continue to lower the costs of Natural Gas. Additionally, as renewable energy sources begin to take over the traditional role of fossil fuels natural gas will be able to power solely keep sectors and become much more widely available. While this process of conversion begins to occur, we will be able to give even cheaper energy to the rest of the world that cannot afford the new renewable technologies during their industrialization. This way Natural Gas can be both a bridge fuel for the industrial countries now and then for developing countries in the future.

 

Weekly Recap

Why is Liquefied Natural Gas (LNG) so important?

For starters, LNG is a key ingredient in making natural gas an internationally traded commodity, without this resource in use, the supply and demand for natural gas as a whole would dwindle. Not only that, but new developments have made the transportation of LNG across boarders easier and safer, which makes exporting and importing this resource more attractive.

In order to make LNG and other natural gas resources a globally traded commodity, countries with high reserves need to start exporting the natural gas to those countries with little to no reserves in natural gas.

For example, Russia has the largest number of natural gas reserves in the world; so much in fact that if they decided to export all of their reserves, they could power the entire world for several years alone.

On the other hand the United States has already taken steps towards becoming a net exporter of natural gas. There are plans to create a pipeline from the North Alaskan Coast inland. This project would not only provide many jobs for the unemployed, but also huge revenue for the state of Alaska. 2021 is the target year to have the pipeline fully up and running.

Now that natural gas is becoming a more popular use of energy, it would be a smart investment for countries to export their reserves into the global market. The use of natural gas has come a long way in the past couple years and it is projected to be the energy of the future.

This is from a 3-D animation tutorial of how the natural gas companies (Shell) turn natural gas into a liquid.

Australia, the new frontier for natural gas?

Australia is the new frontier or exploration in the global natural gas industry.  The endless pursuit for a natural gas producing region resembling the United States has lead many of the worlds largest gas companies to the shores of Australia.  The countries combination of abundant gas, low population density, efficient transport methods, and hungry market are that factors that make any gas company go falling head over heals for a piece of land.

THE STATS

Australia has approximately 390 Trillion cubic feet of natural gas reserves, which equates to about 45% that of the United States reserves, according to Forbes.  However, while this is only 45% of the quantity of natural gas that the U.S has, it needs only to serve 7% of the population that the U.S has.  Thus, Australia will have a plethora of natural gas to export.

THE FACTS

One of the largest appeals of natural gas exploration in Australia is the geographic location of its gas reserves.  The vast majority of Australian reserves lay on vacant or sparsely populated land, meaning that there will be much less resistance from environmentalists about the fraccing method used to extract the natural gas from the deposits below.  Less resistance is very appealing to all natural gas companies because it means time saved, money saved, and public image saved by staying out of the papers.

Offshore exploration is another significant upside about natural gas in Australia.  There are many medium-large sized reserves located just off of the coast but they have long been considered useless due to the fact that drilling machinery could not reach the depths at which the reserves lay.  In addition, it would be a monumental task to install the piping needed to get the extracted natural gas to the shore.  However, with the recent discovery of super chilled natural gas and an increased capacity to drill deeper water, these open sea reserves are all of a sudden quite easily trappable.  By super chilling the extracted gas, the volume of the material is condensed to 600 times smaller than what it is in its natural state, making for easy offloads to tankers which can then deliver the gas to the global markets.

As pointed out before, Australia’s natural gas reserves far outnumber what the local market demands for consumption, thus it will have a surplus of natural gas to export and profit from.  With Australia’s relatively close proximity to energy hungry Asian markets such as China and Japan, the demand for Australia’s easily accessible natural gas will be very high.

THE BELIEVERS

Many of the world’s gas giants agree that Australia is the next big place for natural gas exploration and they are showing it through their recent investments into Australian projects.  For instance, Shell has dished out an approximate U.S $12 billion for their FLNG plant off of the northwest coast of Australia.  Exxon was quick to follow and just recently applied for permits to build a similar and slightly larger FLNG vessel also off of the western coast of Australia, Forbes.  Another gas giant, Chevron, made proactive moves in Australia by acquiring two permits to mine 810,000 acres of Australian land, costing the company an estimated U.S $349 million, Forbes.

Australia has the key components to make it the new frontier in the ever increasingly competitive of natural gas exploration and extraction market.