Europe Holding Hydrocarbons Off Energy Agenda is an Omission
The Riga Conference 2014 attracted many high-level EU policy-makers and energy experts highlighted EU energy security issues in the light of the Russian retaliatory embargo and the urgency of alternative energy supplies. With an emphasis on the necessity to expedite transatlantic energy cooperation, Peter A. Ragauss, Senior VP and CFO of Baker Hughes, spoke to Natural Gas Europe on European energy issues from a US energy businessman’s prospective.
Amidst the Ukraine crisis, we're seeing an increase in talks on a transatlantic energy community, which means to many seeing the US shale gas and LNG flowing to Europe as the alternative to Gazprom. How realistic are these plans?
It’s really not too early to speak of that kind of community now. The United States has plenty of gas and the first LNG export facility is under construction, and the significant amount of LNG that will come out from it is destined for Europe. Some of it is destined for Japan. So that’s the reality we’re seeing. Also, importantly, there are plenty of qualified high-critic quality buyers in Europe with a track record of honoring the commitments ant taking their shipments and so on. Europe’s been at the game for quite some time now. There’s a number of big companies in Europe. You’ve got BP, you’ve got BG, Repsol and Espinosa and I can go on.
Shipping LNG into Europe is not a new idea. This is a normal business for many already.
Europe is maybe a little bit less attractive than the Asian markets- the Asians are willing to pay more-but as long as Europeans are willing to pay enough money to cover the costs and, plus give a good return on the capital for the facilities that are being built on the Gulf coast, then why not. There’s plenty of suppliers lining up on the Gulf coast, looking for buyers. They are not always to find the best buyers, but they are going to find buyers that are good enough and comfortable in signing long-term agreements with.
What is the status of US LNG export legislation to get the natural gas across the Atlantic?
It has already happened with the first US LNG exports facility. But it’s slower than we all would like, but is already occurring. There’s dozens of projects that already have been submitted to the agencies in the United States. And now they have to go through the review process, and it takes some time. But the good news is the US Government is accepting the applications, not rejecting them. So I think it will happen. I really don’t think that is the Government’s the only risk. Some others have to do with the financing, the quality of buyers, the location and, finally, the experience of the operators. So tersely, the US permitting is just one of many risks going for building such big facilities each costing several billion dollars.
The way we see it can work best is if we can take an individual LNG facility one at a time down the list. As I said, there’s one under construction and there’s one that is very close to having a final financial investment decision. And there’s many more waiting that already have submitted their applications and waiting the review to occur.
What are your comments on defusing the cautiousness on exports to Europe? How feasible are they?
I think it’s more dependent on the customer- which customers really desire the US shale gas versus the alternatives they already have. If you can get a collective group of customers- sometimes customers and countries are the same thing- to submit a proposal for purchasing natural gas from a big supplier and you can aggregate demand, you probably have a better chance of enticing a seller to participate with you.
What are your comments on the astonishingly different stances on hydrocarbons exploration and drilling bids within Europe itself?
Indeed, there’re big differences on the issue out there. France has long ago banned the procedure known as hydraulic fracturing. I understand from various sources that Germany has not approved hydraulic fracturing. Obviously, there’s there plenty of opposition because of what is fear, I think unfounded fear about what I think is a very safe practice, which is hydraulic fracturing. In the US, I’d say we drill around 30,000 wells per year. The majority of those wells have some sort of hydraulic fracturing, and the safety record on those wells is very high. We’re not contaminating anything, we’re not creating geological problems, and it works just fine. Somehow in the media in Europe a fear has been created on what we do on a daily basis. And, sure, there’s the big divide between us.
Is only the media to blame for the fear?
I don’t know who is to blame for it. I’m not into the blame game. I’m just a businessman.
Perhaps you have heard of the EU striving to speak in a single energy voice on the core energy issues. For example, regarding alternatives for EU energy supplies. What impact will the continent’s inability to work out a single stance on the shale issue have?
I’m aware of the differences in the European policies which are more focused on renewable and sustainable technologies for energy, like wind power, solar or bio-fuels. That’s obviously the current thinking in Europe and it is behind the legislation. But I’m a little surprised that domestic production is off the agenda because of the hydrocarbons. I guess I shouldn’t be surprised but I think it’s an omission, but it doesn’t help to exclude proper energy sources.
How would you briefly counter-argue the Russian media’s claims that the US with its LNG and shale gas Europe-bound exports aim to undermine Russia’s core energy interests in the region?
As a businessman, I won’t comment on undermining any energy policy. The US has abundant sources of natural gas and the natural gas now is for sale. I believe it’s not a question of Russian policy or the US policy, or Japanese policy. I think it is a commercial transaction. Only. And if the commercial transactions can happen, then it’s great.
From an American perspective, what do you see as the most likely course of unconventional energy resources development in Europe?
Obviously, there’s the thing that Europeans seems not to know everything about their geology. Certainly, all know that shale exists, that’s primary. And we believe there’s gas in place and maybe some oil in place, depending on where you might find it. But it depends on where it exists- if it’s deep or not so deep, et cetera. It depends on many things whether we can get it out commercially. I think it is still the very early days for that in Europe. You’ve got in all Europe only 55 drilling rigs operating today, meanwhile in the United States there are 1,900 rings being operated today. There has been done much exploration done on European soil, but it’s better to find out what you have there than not to find out.
Regarding the Chevron pullout from Lithuania - Do you believe the US energy giant’s departure could potentially undermine the Baltic country’s security in light of what is happening in Russia and Ukraine?
I don’t think it is a security question. My information is that many of the international oil companies are looking at the portfolios and what they are finding is probably a better use of capital to drill into known areas of unconventional resources back in the United States and Canada. You get there better returns, all the regulatory regimes are better and there’s just a question where you put your money. I think some of the smaller players could replace them, but, again, I don’t think that it undermines anyone’s security. It is just a question of economics where you can find the best return for a limited amount of capital you have. In the United States we are discovering more and more shale possibilities- often better possibilities- than in place like the Baltics where it is very expensive and takes long time to explore. In fact, in the US, you don’t have even to explore- you know the resource exist next to the well and you drill it the day before. So it’s a much more expensive preposition upfront to drill here (in Europe) than it is in known fields.
I understand the shale issue is still pretty new in Europe. The technologies we used in the early days in the United States, around ten years ago to be exact, have proven themselves and become more productive. And in the last five years, we started applying the technology to shale oil, which is more interesting, by the way. You can sell shale oil for cash, and you have to burn shale gas in a facility, because you can move oil around the world and that is harder with shale gas. I think it’s been to many a very disruptive market force for producers of conventional gas, so it’s been a threat. It changed the market dynamics. The US today is producing more oil than it ever produced in the last 28 years. And it changed many of the markets there. It has created quite of commotion all oil business. Some rather would have not let it happen.