proct09

www.energyinst.org

Covering the international oil and gas industry from field toforecourt – exploration, production, refining and marketing

OCTOBER 2009

AV IAT ION� The challenge of FAME

GAS� Reduced demand sets

market back by nine years

PROFESS IONALDEVELOPMENT� Nurturing talent and a

guide to getting ahead

OCTOBER 2009 VOLUME 63 NUMBER 753

SINGLE ISSUE £22.00 • SUBSCRIPTIONS (INLAND) £250.00AIRMAIL £420.00

ADVERTISING

PUBLISHER

SUBSCRIPTIONS

ABBREVIATIONS

www.energyinst.org

61 New Cavendish Street, London W1G 7AR, UK

Chief Executive: Louise Kingham FEI

General Enquiries:t: +44 (0)20 7467 7100f: +44 (0)20 7467 1472

The Energy Institute as a body is not responsible either for the statements made or opinions expressed in these pages. Those readerswishing to attend future events advertised are advised to check with the contacts in the organisation listed closer to the date, incase of late changes or cancellations. To view the full conditions of this disclaimer, visit http://www.energyinst.org.uk/disclaimer.pdf

© Energy Institute

Front cover: Jet engine endurance test rigSource: CFMI

Editor: Kim Jackson MEI

Consulting Editor: Chris Skrebowski FEI

Marketing Manager: Emma Parsons MEI

Assistant Editor: Louise Smith

Editorial Assistant: Marc Height GradEI

Editorial enquiries only:t: +44 (0)20 7467 7118f: +44 (0)20 7467 7171e: [email protected]

Advertising Manager: Chris Bean

Ten Alps Publishing10 Savoy Street, London WC2E 7HR

t: +44 (0)20 7878 2415 f: +44 (0)20 7379 6261e: [email protected]

C O N T E N T S

Journal subscriptions: Chris Baker t: +44 (0)20 7467 7114f: +44 (0)20 7255 1472 e: [email protected]

For all membership enquiries please contacte: [email protected] or visitwww.energyinst.org

Printed by Thanet Press Ltd, MargateISSN 0020-3076

MEMBER OF THE AUDIT BUREAU OF CIRCULATION

The following are used throughout Petroleum Review:

mn = million (106) kW = kilowatts (103)bn = billion (109) MW = megawatts (106)tn = trillion (1012) GW = gigawatts (109)cf = cubic feet kWh = kilowatt hourcm = cubic metres km = kilometreboe = barrels of oil sq km = square kilometres

equivalentb/d = barrels/dayt/y = tonnes/year t/d = tonnes/day

No single letter abbreviations are used. Abbreviations gotogether eg. 100mn cf/y = 100 million cubic feet per year.

MEMBERSHIP

N E W S3 U P S T R E A M7 D O W N S T R E A M1 0 I N D U S T RY1 2 G O V E R N M E N T

S P E C I A L F E A T U R E S14 GAS – GLOBAL MARKETS

An unprecendented market18 E N E R G Y I N S T I T U T E – P R E S I D E N T

James Smith – looking to the future20 AV I AT I O N – J E T F U E L Q U A L I T Y

The challenge of FAME22 E U R O P E – E N E R G Y

Energy lobbying is big business at the EU26 E N E R G Y – I N S U R A N C E

When cover flees for cover34 P R O F E S S I O N A L D E V E L O P M E N T – T R A I N I N G

Nurturing industry talent – present and future36 P R O F E S S I O N A L D E V E L O P M E N T – E N E R G Y

I N S T I T U T EA guide to getting ahead

F E A T U R E S24 C A R I B B E A N – E N E R G Y S E C U R I T Y

The Caribbean energy scene28 E & P – D E A B AT E

Is ‘peak oil’ upon us?30 N O RT H S E A – D E C O M M I S S I O N I N G

Environmental countdown to decommissioning32 W P C – P R E V I E W

Energising a future generation40 C R U D E O I L – Q U A L I T Y M E A S U R E M E N T

Loss reduction through technology44 E & P – O F F S H O R E E U R O P E

Energy at a crossroads47 G A S – L N G

LNG and EU energy security

R E G U L A R S2 F R O M T H E E D I T O R

F R O M T H E E D I T O R

2 PETROLEUM REVIEW OCTOBER 2009

After months of depressing eco-nomic news and data the last few

weeks have produced little but goodnews. There is increasing confidencethat recovery from ‘the worst recessionsince the 1930s’ is now underway, withincreasing numbers of ‘green shoots’being spotted almost daily.The oil industry has been producing

its own share of good news. On theexploration front there has been BP’sultra-deep Tiber discovery in the Gulf ofMexico, and Petrobras’ subsalt AbareOeste discovery in the now legendaryBM-S-9 block in the Santos basin, wherethe Carioca, Guara and Iguacu fieldshave been discovered over the last twoyears. Tullow Oil has announced that itsNgassa discovery may be the largestfind to date in the Albert basin inUganda. Meanwhile, offshore SierraLeone, Anadarko appears to be on thepoint of announcing an oil field dis-covery – Venus – following the suc-cessful completion of the Venus B well.Needless to say, the stock market hasloved this proof positive that theindustry can still find oil in large quan-tities and oil company shares have beenmarked notably higher.Similarly good news is being made in

terms of new oil field projects comingonstream. Since June, the Saudis havebrought onstream the AFK fields, theKhurais field, the Nuayyim field and theShaybah field expansion. In Iraq, theNassiriyah field has come onstream,while the Tak Tak and Tawke fields havestarted up in Iraqi Kurdistan. In Angola,the Gimboa and Tombua Landanafields have come onstream. This meansthat in just the last three months OPEChas brought onstream fields with apeak capacity of nearly 2mn b/d. Some18 months ago this would have beenunreservedly good news – now it issomewhat more ambiguous as OPECalready has 5–6mn b/d of sparecapacity.For the non-OPEC suppliers, new

capacity is unambiguously good newsgiven the real struggle most oil compa-nies have been having in order toexpand their production capacity. In theperiod since June, non-OPEC suppliers

have brought onstrean fields with apeak capacity of towards 1.4mn b/d.These include Azurite (Congo, MurphyOil), Frade (Brazil, Chevron), JidongNanpu (China, Petrochina), Mangala(India, Cairn Energy), Parque deConchas (Brazil, Shell), Tengiz expan-sion (Kazakhstan, Chevron), ThunderHawk (Gulf of Mexico, Murphy Oil),Tyrihans North and South (Norway,StatoilHydro) and Vankor (EasternSiberia, Rosneft).It is also notable that companies

seem to be bringing fields onstreamwith fewer delays. Almost certainly theglobal recession has freed up engi-neering and fabrication capacity as wellas deterring key staff from job hopping– all features that make on time com-pletion easier.This means that virtually all the

capacity planned to come onstream in2009 probably will do so. As 2009 is thepeak year for new capacity incrementsthis could add around 6mn* b/d ofgross new capacity, or over 2mn* b/d ofnet new capacity, to the system by theend of the year.It remains to be seen if OPEC is pre-

pared to increase its spare capacity by2mn b/d in order to defend the currentprice level and thereby allow the non-OPEC producers to fully utilise theirnew production capacity. Alternatively,is OPEC willing to allow prices to fall,thereby stimulating economic activity,hoping that this will expand oildemand sufficiently rapidly that itsoverall earnings are maintained?Currently, both the oil and the finan-

cial markets appear reluctant to recog-nise the industry fundamentals – thecontinuing weakness of demand, lack-lustre refinery utilisation rates anddepressed refining margins, high stockson land and at sea of both crude andproducts, and the way that spare pro-duction capacity is more likely to buildthan decline. In addition, we are nowstarting to get the flattering distortionthat one year ago oil demand wasfalling fast. Supply and demand arenow rising slowly. Comparison withyear ago figures are flattering; compar-ison with two years ago are sobering.

One has to be brave or foolish to sug-gest markets are wrong and it is wise toremember one of the financial market’sbetter quotes – ‘Markets can remainirrational for longer than you can staysolvent’. However, even with thesecaveats oil demand needs to revivequickly and rapidly if current pricelevels are to be maintained, never mindincrease as so many seem to expect.Many must be praying for a severewinter.

One of the other great hopes for therecession was that it would blunt orreverse the trend to aggressive resourcenationalism. So far this hope remainsunrealised. Libya now appears to bedemanding that Libyan nationals headup all foreign operations in the country.Coming on top of some of the highestoil taxation in the world, these actionsprovide little incentive to invest.Meanwhile. Brazil has apparently

decided (it has yet to be ratified byCongress) to reserve operatorship of allfuture sub-salt reserve developments toPetrobras and to replace future conces-sions with production sharing agree-ments in which Petrobras will haveoperatorship and at least a 30% share.Foreign companies would win shares onthe basis of how much oil they offer thegovernment.

The Australian government appears tohave set a most interesting precedentin sanctioning the Gorgon LNG projectby accepting the long-term liability forany sequestered and stored carbondioxide subsequently leaking. If the UK,Norwegian or Danish governments didthe same it would open the way forenhanced oil recovery and sequestra-tion of carbon dioxide in depletedNorth Sea oil fields.

*Figures from Peak Oil Consulting

Chris Skrebowski

Time to remember the fundamentals?

EI members receive Petroleum Reviewfree of charge as part of their membership benefits.

Continue receiving your copy by renewing online at: www.energyinst.orgEnjoy the full benefits of EI membership for just £83 per annum.

Join now at w w w . e n e r g y i n s t . o r g

The opinions expressed here areentirely those of the Consulting Editorand do not necessarily reflect the viewof the EI.

BG Group has acquired BP’s entireequity in the Everest, Lomond andArmada fields, increasing its equitystake in these fields to 80.46%, 83.33%and 76.42% respectively, and part ofBP’s equity in the Erskine field, oper-ated by Chevron. In return, BG Grouphas transferred all of its equity interestsin all fields in the southern North Sea toBP. These include the EasingtonCatchment Area (ECA) fields (Apollo,Artemis, Mercury, Minerva andNeptune, which are BG Group-oper-ated, and the BP-operated Wollastonand Whittle fields), and the BG Groupequity in the BP-operated Amethystfield. BG Group has also become oper-ator of the Everest and Lomond fields,and will continue to operate theArmada field.

DONG Energy, Faroe Petroleum andFirst Oil Expro have announced a gasdiscovery in the Glenlivet licence Westof Shetland. DONG Energy is operator,with an 80% interest. The licence islocated close to the Laggan andTormore gas discoveries, where DONGEnergy holds a 20% stake. Glenlivet isthe first well to be operated by DONGEnergy in the UK’s West of Shetlandsector.

Total has entered into agreementswith Mobil North Sea, Marathon Oiland Anadarko to acquire a 43.75%stake in UK licence P967, whichincludes the Tobermory gas discoverylocated in 1,600 metres of water depthsome 175 km north-west of theShetland Isles. Total E&P UK willbecome the operator of the licence.The acquisition is in line with Total’sstrategy of developing its position in

UK

I N B R I E F N E W S upstream

3PETROLEUM REVIEW OCTOBER 2009

Complete news updateThe ‘In Brief’ news items in PetroleumReview represent just a fraction ofthe news we regularly publish on theEI website www.energyinst.org viathe ‘News in Brief Service’ link fromthe Petroleum Review drop-downmenu. Covering all sectors of theinternational oil and gas industry,the News in Brief Service is a fullysearchable news database for EImembers.Why not visit the site to find out

more about the latest developmentsand trends in your industry?

www.energyinst.org

North Sea market feels ‘concertina effect’

Rising North Sea crude prices have beenperiodically capped this year by sales ofoil from floating storage, according toArgus Global Markets. The structurethat regulates this process is the ‘con-tango’ – the discount of prompt deliv-eries to those further out.The North Sea crude forward con-

tango has fluctuated widely since itbecame firmly established in May lastyear. It reached its deepest point at thebeginning of 2009, when front-monthcontracts were more than $6/b belowthose three months ahead. This, com-bined with low freight rates and a glutof new tankers, provided a strong incen-tive to store crude and sell it forward.Around 100mn barrels of crude hadbuilt up in floating storage by mid-May.Rising outright prices and a flatter

contango have encouraged firms to sellsome of their stocks since then, whilereversing the attraction of futures soldas a hedge. Crude in floating storagehas more than halved to 47mn barrels.However, periodic stock releasesdampen the prompt market and re-establish the contango in a trend some-times known as the ‘concertina effect’(see Figure 1).

Trading firm Vitolsold Forties crudefrom the VLCC (verylarge crude carrier)Abqaiq in Scapa Flowin the Orkneys in lateJune, coinciding witha wider sell-off ofstocks held in floatingstorage that helpedpull down outrightprices. The contangohad tightened againby mid-July and priceswere recovering,prompting BP to sellstocks from the VLCCAustralis. The cyclewas repeated when

Vitol sold supplies from the VLCCMaersk Neptune in late August, afterwhich outright prices again subsidedand the contango deepened.Traders have become more willing to

exploit an emerging contango storageplay, even when it does not promisethe same returns as earlier this year.The recent widening of the North Seafront month’s discount to the thirdmonth to $1.50/b in early Septemberfrom less than 50¢/b in mid-July hasencouraged new buying for storage.Total accumulated five 600,000-barrelcargoes of Forties loading on 13–19September, and planned to load twoVLCCs for storage purposes.There is less opportunity in the US,

where benchmark front-month WTI’sdiscount to the third month has nar-rowed to less than $1/b since mid-August. However, the prospect of slowdemand recovery, particularly formiddle distillates – which also have aglut of stocks at sea – means that thecontango concertina is likely to keepplaying in the North Sea.

Visit www.argusmedia.com for moreinformation.

Figure 1: Periodic stock releases dampen the prompt market andre-establish the contango in a trend known as the ‘concertina effect’

Source: Argus Global Markets

OPEC to maintain current production quotasThe 154th OPEC meeting convened inVienna, Austria, on 9 and 10 September2009. The members reviewed currentoil market conditions and futureprospects and observed that, whilstthere are signs that economic recoveryis underway, there remains great con-cern about the magnitude and pace ofthis recovery, especially in the majorindustrialised nations of the OECD.There has been some easing of theoverhang in crude oil stocks but marketfundamentals remain weak, refinery

utilisation rates are low and productinventories have risen considerably.Accordingly, since the market

remains over-supplied and given thedownside risks associated with theextremely fragile recovery, OPEC mem-bers once again agreed to leave currentproduction levels unchanged for thetime being. The organisation plans toreassess the market situation at its155th (Extraordinary) Meeting, to beheld in Luanda, Angola, on 22December 2009.



the West of Shetland basin around itsLaggan and Tormore operated discov-eries. The development studies forthese discoveries are being finalisedand new gas export infrastructure tothe St Fergus gas terminal is planned,which Tobermory could utilise.

Aker Solutions has signed a NKr2.3bn($0.39bn) contract with Eni to deliver asubsea production system to the oper-ator’s Goliat field development in theBarents Sea. Scope of work comprisesengineering, procurement and con-struction (EPC) of a complete subseaproduction system, with deliveriesstarting in 2011.

Marathon Oil (operator, 65%) andpartner Lundin (35%) have producedfirst oil from the Volund field in block24/9 of the Norwegian sector of theNorth Sea. Volund is the second tie-back to the Alvheim floating produc-tion, storage and offloading (FPSO)vessel, following Vilje. Volund isexpected to reach a peak productionof approximately 25,000 b/d, thetiming of which will be subject toavailable processing capacity on theAlvheim FPSO. Marathon holds a 65%operated interest in the Alvheim fieldand associated FPSO, and a 47% out-side-operated interest in Vilje.

Providence Resources’ wholly ownedsubsidiary, EIRGAS, has exercised itsoption to acquire a 40% interest in the100% operated Kinsale Head areacomprising the Kinsale Head, SouthWest Kinsale and Ballycotton gas fieldsfrom Labuan Energy, a wholly ownedsubsidiary of Petronas. Under the deal,EIRGAS has also exercised the optionto acquire a 40% interest in the 86.5%operated adjacent producing SevenHeads gas field. Providence has madean initial cash payment of $3.8mn toPetronas, with the balance due atclosing.

Having come onstream on 21 August,the first 1mn tonnes of crude oil hadbeen produced at Vankor oil and gasfield in the Krasnoyarsk territory ofRussia by mid-September, while dailyoutput at the field increased to 20,000tonnes (146,000 b/d). Production isexpected to grow to 30,000 t/d (220,000b/d) by year end. Total production in2009 is forecast to reach 3mn tonnes(2mn barrels). The field currently hasestimated recoverable reserves of

EUROPE

RUSS IA & CENTRAL AS IA

Latest Latin American discoveriesVenezuelan President Hugo Chavezrecently announced what is claimed tobe Repsol’s largest ever gas find. Repsolis the operator of the Pearl 1 well inthe Cardon IV block, in which it holds a50% stake in consortium with Eni. Inthe development phase, PdVSA willhave a 35% stake, with Repsol and Enikeeping 32.5% each. The field is esti-mated to hold between 7tn and 8tn cfof gas, enough to satisfy Spain’s gasdemand for more than five years.Meanwhile, BG Group (30%) and

partners Petrobras (operator, 45%) andRepsol (25%) have announced anothernew discovery in the Santos basin pre-salt BM-S-9 concession area, offshoreBrazil. The well, 4-SPS-66C (4-BRSA-723C) – known as Abare West – provedthe presence of an accumulation of oiland natural gas in a separate structurewithin the 1-SPS-50 evaluation planarea on block BM-S-9.The evaluation plan area also encom-

passes the separate Iguaçu (4-BRSA-709(4-SPS-60), announced April 2009) andCarioca discoveries (1-BRSA-491-SPS (1-SPS-50), announced September 2007).Abare West is approximately 30 km

from the Iguaçu discovery and 40 kmfrom the Carioca discovery, and lies 50km to the west of the Guara discovery(1-BRSA-494-SPS), also in the BM-S-9concession, announced June 2008.The three partners have also

announced that the Guara discovery inthe Santos basin pre-salt, offshoreBrazil, is now estimated to containrecoverable volumes of 1.1bn to 2bnboe. During its drill stem test, Guaraflowed at 7 200 boe/d. These flow rateswere facilities-constrained, and testdata indicates that a permanent pro-duction well would be capable of pro-ducing initial rates of up to 50 000boe/d, providing further evidence of therobust economics of this pre-salt play.The companies have agreed a

schedule which will prioritise the instal-lation of production facilities on Guara.The development will use a 120,000 b/dfloating production, storage andoffloading vessel (FPSO), targeting firstproduction from 2012. This will followthe 100,000 b/d first phase of the Tupifield, due onstream at the end of 2010(BG Group 25%, operator Petrobras65%, Galp 10%).

Tombua and Landana fields come onstreamTotal’s Tombua and Landana fields offshore Angola, operated by Chevron and inwhich Total owns a 20% interest, started crude oil production on 19 August 2009.The two fields are expected to achieve peak production of 100,000 b/d in 2011.Combined recoverable resources are estimated at 350mn barrels.The Tombua and Landana fields are located in 366 metres of water in block 14.

The $3.8bn project includes 46 wells and comprises a 474-metre high compliantpiled tower and subsea production facilities. The design will prevent any dischargeof produced water and any routine gas flaring. Associated gas will be supplied tothe Angola LNG project currently being constructed in Soyo, in which Total ownsa 13.6% interest.Block 14 is operated by Chevron (31%), partnered by Total (20%), Sonangol P&P

(20%), Eni (20%) and GALP (9%).

Common Data Access (CDA), whichmanages well data collected duringdrilling activity on the UK continentalshelf (UKCS), recently launched itsSeismic DataStore. It is claimed that thenew online service will dramaticallyincrease the efficiency of retrievingand analysing some 4,500 2D and 3Dseismic surveys, enable companies torespond much more quickly and confi-dently to licence applications, and helpensure recovery of the UK’s oil and gasis maximised.The surveys most in demand are

being loaded onto the system first andby the end of this year more than 750of the most relevant will be available.Not only will seismic data be easier to

locate, it will be quality-assured. Whendata is located through the SeismicDataStore online, purchasers have theopportunity to preview it to ensure itsquality is suitable before investing in it,saving unnecessary costs. Those surveyswhich are too big to download imme-diately will be on members’ desktopswithin three days. Companies who arenot members of CDA will still have tosign licences but will benefit byreceiving quality-controlled data,which they have identified as useful,within the three-week guideline set bygovernment.Companies wishing to participate in

the Seismic DataStore should visitwww.cdal.com

New UKCS seismic data store launched

520mn tonnes (3.8bn barrels) of oiland 95bn cm of gas. Crude oil is trans-ported via the 556-km Vankor–Purpeoil pipeline in Yamalo-NenetsAutonomous District, connecting to theTransneft pipeline system. Vankor is anintegral development project for EastSiberia and the Far East. Oil from thefield will be the main input to the EastSiberia–Pacific Ocean pipeline and theprimary feedstock for a petrochemicalcomplex planned for construction inthe Russian Far East.

Eni reports that production has com-menced from its 100% owned andoperated Blacktip gas field offshoreAustralia. The field will deliver gas tothe Northern Territory’s Power WaterCorporation (PWC) over a period of 25years, with supply rising to 18,000boe/d over the life of the contract.

Chevron has made two natural gasdiscoveries in the Carnarvon basin off-shore Western Australia. The Clio-2well (Chevron operator, 66.66%; Shell33.33%) – situated in 3,200 ft (990metres) of water and drilled to a totaldepth of 14,400 ft (4,405 metres) – dis-covered 375 ft (115 metres) of net gaspay. The Kentish Knock-1 well(Chevron operator, 50%; Shell 50%) –drilled in approximately 4,000 ft (1,200metres) of water to a total depth ofapproximately 8,300 ft (2,500 metres) –encountered approximately 110 ft (34metres) of net gas pay.

Cairn Energy has started productionfrom the Mangala field in Rajasthan,India. It is the largest of 25 discoveriesmade by Cairn in the Barmer basin inblock RJ-ON-90/1. First oil was trans-ported via trucks to the Gujarat coastfor onward transport to MRPL, one ofthe government-nominated buyers,using a heated crude oil tanker. Oilproduction is forecast to ramp up to apeak production of 175,000 b/d of oilover the next two years, at whichpoint oil production from Rajasthan oilfields are expected to account for over20% of India’s domestic oil production.

US-Canadian company EnerGulfResources is working with the ChinaNational Administration of ResearchInstitute of Coal Geophysical Explorationto conduct seismic surveys in theDemocratic Republic of Congo (DRC),reports Keith Nuthall. Studies werescheduled for September in EnerGulf's

AFR I CA

AS IA - PAC I F I C



BP announces giant GOM oil discoveryBP announced a giant oil discovery at its Tiber prospect in the deepwater Gulf ofMexico in early September. The well, located in Keathley Canyon block 102, is in 4,132ft (1,259 metres) of water and was drilled to a total depth of approximately 35,055 ft(10,685 metres) – making it one of the deepest wells ever drilled by the oil and gasindustry. The well found oil in multiple Lower Tertiary reservoirs. Appraisal will berequired to determine the size and commerciality of the discovery. Tiber represents BP’ssecond material discovery in the emerging Lower Tertiary play in the Gulf of Mexico,following the company’s 2006 Kaskida discovery, which is currently under appraisal. BPholds a 62% stake in Tiber, partnered by Petrobras (20%) and ConocoPhillips (18%).BP claims to be the largest producer of oil and gas in the Gulf of Mexico, with net

production of over 400,000 boe/d. It is currently progressing nine Gulf of Mexico pro-jects – Atlantis Phase 2, Tubular Bells, Kodiak, Freedom, Kaskida, Isabela, Santa Cruz,Mad Dog tie-backs and Great White. Major BP developments in the deepwater Gulf ofMexico include Pompano (onstream 1994), Marlin (2000), Horn Mountain (2002), NaKika (2003), Holstein (2004),MadDog (2005), Atlantis (2007) and Thunder Horse (2008).

Subdued western Gulf of Mexico auctionThe US Minerals Management Service’s(MMS) auction of offshore blocks in thewestern Gulf of Mexico held in Augustwas distinctly low-key, writes JudithGurney. Only 27 companies took part inthe bidding, half the number of compa-nies participating in these auctions overthe past few years. They made totalbids of slightly over $145mn, comparedto the $607mn bid in last year’s westernGulf auction. Their successful bids totalwas $115.5mn, compared to $487.3mnin 2008. Well over half of the bids werefor blocks in water depths rangingbetween 800 and 1,600 metres, as isusually the case in these auctions. Therewas considerably less interest this year,however, in blocks in ultra-deepwaterswhose water depths exceed 2,000metres. Companies offered only $9mnfor blocks in ultra-deepwaters, com-pared to the $135mn ventured for suchblocks in last year’s auction.The major bidders were BP, which

ventured $53mn, followed byConocoPhillips and Chevron, bothrisking $25mn. Petrobras, ExxonMobiland Focus were also active. Smallercompanies, with the exception of Focus,concentrated on blocks in shallow

waters, while major companies focusedmainly on blocks whose water depthsranged from moderate to very deep.BP was the sole bidder on a dozen

deepwater blocks in Keathley Canyon,including an offer of $1.1mn for a blockwith water depths of 3,220 metres, thedeepest block to receive a bid. Thehighest bid in the auction was $28.1mnmade by BP for a Keathley Canyonblock, which beat offers by bothChevron and ConocoPhillips.The auction held last spring for blocks

in the central Gulf region also attractedonly moderate interest. The poorshowing at these auctions reflected con-cerns by companies over tepid demandas a result of recession, continued highcrude inventories and bloated gas sup-plies as a result of the active mining ofgas shale deposits. There also remains athreat of higher taxes and surchargeson offshore acreage made by theObama administration.In addition to the two offshore auc-

tions held this year, the Department ofthe Interior’s Bureau of LandManagement has conducted 21 smallonshore lease sales in different areas,mostly in western states.

Proposed changes to Brazilian oil and gas lawBrazilian President Luiz Inácio Lula daSilva recently announced proposedchanges to the country’s oil and gas reg-ulatory framework that put state-runPetrobras in the driver’s seat for thedevelopment of Brazil’s offshore sub-salt oil reserves. Under sweeping pro-posed reforms, the country’s currentconcession-based oil and gas regulatorysystem is to be scrapped in favour ofone based on production-sharing agree-ments (PSAs), with state oil giantPetrobras poised to play a primary rolein the development of offshore sub-salt

resources, reports market analyst IHSGlobal Insight. The comprehensivechanges to the regulatory frameworkwill not affect previously awarded con-tracts in the sub-salt area, but will applyto all new contracts, with Petrobrasguaranteed at least a 30% stake in allthe remaining blocks in the 149,000 sqkm of sub-salt acreage.Petrobras is set to become the domi-

nant player in Brazil’s drive to developits offshore sub-salt reserves, althoughthe proposed changes still must beapproved by Congress.

Lotshi block concession off the DRC’s 37-km west Africa coastline.

Libya has approved a $9.9bn planunder which state-owned National OilCorporation (NOC), its subsidiaries andcurrent foreign partners will developand upgrade 24 oil fields in thecountry, according to Dow Jones. Aspart of the scheme, Libya, which holdsAfrica’s biggest oil reserves at 43.7bnbarrels, will upgrade its Waha JalouNorth field by 100,000 b/d and itsNafoura-Oujlaa-Khleej field by130,000 b/d. The country is alsolooking at 13 other fields to see if theyshould be included in another project.

Eni reports that gas production hascommenced from the North Bardawilfield in the Mediterranean offshore ofEgypt. Output is expected to peak at2.7mn cm/d. Project partners are Ieoc(Eni’s affiliate in Egypt, 60%) andKUFPEC (40%). The operator is Petrobel,a joint operating company comprisingIeoc and EGPC. The project consists oftwo subsea wells tied back to theexisting Barboni production platform.

East African Exploration (EAX), a BlackMarlin Energy Group company, hasincreased its interest in the Kenyanblock L17/L18 production sharing con-tract (PSC) by 25% to 65% under adeal reached with Aminex. EAX is totransfer its 10% stake in the Nyuniproduction sharing agreement inTanzania to Aminex.

Libya has issued a directive requiringforeign investors to appoint Libyan cit-izens as chief executives of their jointventure (JV) companies in the country,writes IHS Global Insight Middle EastEnergy analyst Samuel Ciszuk. Littledetail is yet known, with no indicationthat international oil companies (IOCs)are excluded. Virtually all foreigninvestment in Libya operates throughJVs – especially within the oil and gasindustry. Oil and gas exploration is100% funded by the foreign JVpartner, and Libya has in recent yearspressed IOCs to transfer their explo-ration and production sharing agree-ments (EPSAs) to its latest EPSA-IVcontractual standard, lowering mostcompanies’ production shares signifi-cantly. This latest measure, only one ina string of resource-nationalistic edicts,is likely to reduce investor control overthe projects even further and be seenas yet another risk and obstacle tobusiness. Earlier this year Libyademanded that investors put a stop tooffshore engineering and move all rel-evant project development and tech-nology to Libya.



Indian gas price dispute – government steps inAlthough the Indian exploration andproduction industry holds great potentialfor all stakeholders, the lack of trans-parent or consistent regulatory guide-lines has left investors skeptical,according to market analystDatamonitor. As a result, the governmenthas been forced to intervene in the latestconflict caused by these market limita-tions, which could have far reaching con-sequences for the activities of domesticand international E&P players.The big news story currently circu-

lating in the Indian energy sector is thenatural gas supply dispute betweenReliance Industries Limited (RIL) andReliance Natural Resources Limited(RNRL). The dispute has resulted in nat-ural gas production rates from theKrishna Godavari (KG) basin beinggreatly below the initial targets, whichin turn has held up projects at variousstages of execution. This has forced theIndian government to intervene andclaim its sovereign rights to the naturalgas assets which belong to the country,in the process reminding companies thatthey are mere operators/contractorsinvolved in bringing gas to the surfaceand supplying it to end customers.In 2005, RNRL signed a memorandum

of understanding (MoU) with RIL for thesupply of 28mn cm/d of gas for a periodof 17 years, at a price of $2.34/mn Btu.This is the same price at which RIL won abid for supplying gas to National ThermalPower Corporation (NTPC) in 2004.However, other fertilizer and power com-panies have to pay the government-reg-ulated price of $4.20/mn Btu for the gasextracted from KG D6 block.Karan Ahuja, Energy Senior Analyst

with Datamonitor explains: ‘The rise offuel prices in the international marketand an increase in operational costs hasnow forced RIL to dishonour its contractswith RNRL and NTPC, stating that it willnot be possible to provide the gas at thepre-established price. RNRL has contestedthis decision and has laid the grounds forwhat is set to be an epic legal scuffle.’All this has led RIL to cut down its tar-

geted production rate from its KG D6block, leading the customers with whichit has already signed gas allocation con-tracts to panic. Delayed and lower pro-duction also means reduced or delayedrevenues for the government. As a result,the Indian government has intervened,stating that gas and oil are nationalassets and that operators are responsibleonly for bringing it to the surface andsupplying it to end users. Furthermore,the government declared the MoUbetween the two parties as null and void.Soumya Sen, Energy Analyst with

Datamonitor believes: ‘Ideally, the oper-

ator and purchaser should sign a contractand establish a price that is either mutu-ally decided or fixed as per the competi-tive pricing mechanism.’ The contractshould also accompany a revision clauseto allow a periodical review of the pricesbased on market rates. The government,meanwhile, should be entitled to earn arevenue/royalty for the gas, based on apredetermined rate as per the productsharing contract. However, the govern-ment should not be party to such con-tracts; it should formulate policies thatprovide a transparent and clear set ofguidelines, but should intervene only incases where policies or contracts are vio-lated. This would reassure internationalE&P operators engaged in India that,while the government is interested in thetimely extraction and delivery of the fuelto its entitled customers, the prices thatcustomers are charged are competitiveand based on free market dynamics.Although some multinational corpora-

tions operating in India may worry aboutthe fact that the government is trying toinvolve itself in the pricing issue and inselecting customers of gas, given that thestakes are high (the KG basin is touted asone of the key solutions to India’s energyneeds), the government’s interventionseems to make sense. The pricing disputebetween RIL and RNRL is jeopardisingproduction from KG blocks and raisingserious doubts about the regulatory poli-cies governing the pricing across fossilfuel blocks in India. This could have farreaching consequences and dampeninvestors’ appetite for investing in Indianfuel assets. Thus, while the government isacting in the best interests of nationalresources, it is also playing the role ofregulator, acting in the best interests ofend users and the players which areinvolved in the natural gas business.The final verdict from the Supreme

Court of India will be a crucial one –upholding the lower price would defi-nitely have a negative impact oninvestors, as it would force them to sellgas at a much lower price than theexisting market price of gas. On theother hand, fixing a price that is nearthe current market price (ie $4.20/mnBtu) would establish a competitivepricing system for the Indian fuel explo-ration and marketing industry. It is alsoimportant that a flexibility clause, whereprices can be reviewed from time totime with the mutual consent of theparties involved based on prevalentmarket conditions, should be intro-duced or strongly recommended. If aflexible pricing clause is written into thecontract, the possibility that gas priceswill reach between $2.34 and $4.20/mnBtu cannot be ruled out.

Simon Storage has secured a newlong-term contract to store and handlethe full range of road fuels at its SealSands terminal on Teesside, UK, forPetroplus Marketing. Simon is pro-viding a fully integrated solution thatincludes 40,000 cm of carbon steeltankage, fully automated road loadingfacilities, integrated bioethanol in-lineinjection systems and batch biodieselblending systems. Simon’s Seal Sandsterminal has the capacity to handle upto 600,000 t/y of road fuel products forPetroplus, and is already assessing fur-ther expansion plans.

A further 2 p/l in fuel duty wasadded by the UK government on1 September 2009, (54.19 p/l to 56.19p/l) plus VAT, equivalent to 2.3 p/loverall. The duty will take the cost offilling the average Briton’s tank to £62– an increase of over 25% since 2007,according to Swinton, the high streetinsurance retailer. Surging oil pricesand rising demand are also forcingpetrol prices up.

Foster Wheeler has been awarded acontract by ZE PAK for the design,supply and erection of a 55 MWe bio-mass-fired circulating fluidised-bed(CFB) boiler island for the Konin powerstation in Poland. Commercial opera-tion of the new steam generator,which will be designed to burn woodbiomass and up to 20% agro biomass,is scheduled for 1Q2012.

Dutch utility Essent expects to see onemillion electric vehicles on the roads inthe Netherlands by 2020, its head ofnew energy recently told Reuters.Alexandra van Huffelen said Essentwas working with other Dutch compa-nies to stimulate the industry, lobbyingthe government to speed up the intro-duction of electric cars and launchingdemonstration projects around thecountry. She expects the first rollout of

EUROPE

UK

I N B R I E F N E W S downstream


Finance and technology are key to successof a climate agreement at CopenhagenThe energy industry is making progresstowards the Copenhagen ClimateConference in December, but not fastenough, according to Danish EnergyMinister Connie Hedegaar, speaking toMarc Height in August. However, shehopes that the widespread political con-sensus surrounding climate change isnow too much for some form of dealnot to be struck in Copenhagen. ‘To bethe country that blocks the deal, thepolitical price is too high,’ she said.

Hedegaard sees the main challengesto striking a deal as getting finance andtechnology to developing countries. ‘Isit fair that developing countries willhave to contribute to the deal?’ sheasked, ‘No – but it’s a fact.’ In this con-text she argues that developed coun-tries need to show leadership and comeup with sustainable solutions. She seesfinancing as the key to opening the dia-logue with developing nations:‘Without pay, there is no agreement.

Truly additional, verifiable finance isneeded,’ she said. ‘We need upfrontfinancing here and now. We can comeup with stimulus packages for thebanks – it is do-able.’ The financingmechanism needs to be one that gener-ates and delivers money annually till2020 – in the order of magnitude of€100bn each year, according toHedegaard. She also regards trans-parency between donors and thosedelivering the money as key.

With China investing a large propor-tion of its economic stimulus packageinto green areas, the new US govern-ment showing leadership in gearing upto the conference and an open dia-logue between the two nations,Hedegaard sees more forces moving inthe right direction. ‘We currently havea window of opportunity,’ she said, ‘wehave to be careful not to miss it – younever know when we will get thechance again.’

Negotiations need to move much faster to deliver strong outcomes on areas suchas adaptation, technology and building skills in developing nations, said UnitedNations Framework Convention on Climate Change (UNFCCC) Executive SecretaryYvo de Boer, at a press briefing on the final day of an informal UNFCCC consulta-tion held in Bonn, Germany, to aid negotiations in the run up to the CopenhagenClimate Conference in December, reportsMarc Height.While there is increasing momentum at a high political level for a strong result

in Copenhagen, a concerted response to climate change is essential to meet theconcerns of developing countries, he added. He also stressed the imperative ofreaching a deal in December, stating: ‘A climate deal in Copenhagen this year isan unequivocal requirement to stop climate change from slipping out of control.’Environmental organisations also saw the Bonn meeting as a missed opportu-

nity to speed up negotiations. Kim Carstensen, the Head of WWF Global ClimateInitiative said: ‘Delegates spent too much time arguing over procedures and tech-nicalities. This is not the way to overcome mistrust between rich and poor nations.Delegates are kept back by political gridlock. The political leaders must nowunblock the process… without commitments on funding, it is impossible to designa solid climate agreement. It is like asking a manager to run a company withouttelling him what his budget is.’

Call for faster climate change negotiations

First sustainable F3 racing car

G K Salter & Associates (gksa), a lowcarbon building services design consul-tant based in Swanley & Bristol, haspartnered with Aaron Steele, who is

racing what is claimed to be the world’sfirst ever sustainable F3 racing car atBrands Hatch on 18 October. Developedby the University of Warwick, the carhas components made from carrots andpotatoes, and runs on biofuels madefrom a range of materials includingchocolate and fermented wine dregs.The sustainable approach includesbodywork that is made of recycledmaterials and features a steering wheelthat is composed of waste from juicedcarrots. The 230 bhp engine is madefrom recycled aluminium.

electric cars on Dutch roads in2010–2011, with more widespreadusage around 2015, when advances inbattery technology are likely to havereduced costs. The one million cars by2020 would include plug-in hybridsand pure electric vehicles, and match afigure the German government wantsto see on its roads by the same date.For more details, visit www.reuters.com/article/GlobalClimateandAlternativeEnergy09

Manitoba is reportedly to become thefirst province in Canada to mandatethe use of biodiesel. From 1 Novemberall diesel fuel sold in the province mustcontain an average of 2% biodiesel.

A new isomerisation unit hasbeen commissioned at Lukoil’sUkhtaneftepererabotka refinery thatwill allow the facility to produce high-octane gasoline components free fromsulphur compounds, benzene and aro-matic substances in accordance withEURO-3 and EURO-4 standards. Therefinery currently has a capacity of3.7mn t/y – however, it is planned todouble capacity following a large-scaleupgrading programme.

Gazprom Neft has acquired a networkof service stations consisting of 40fuelling facilities and two oil depots inthe Chelyabinsk region of Russia. Thefuelling facilities will be managedby Gazpromneft-Chelyabinsk, whichplans to increase the network’s salesvolume by 10% during 2009 comparedwith 2008. Fuel is supplied from theOmsk refinery. Gazprom Neft currentlyoperates 898 working forecourts in 17regions of Russia. At present, the sitesoperate under a number of differentbrands. The company plans to imple-ment a network-wide Gazprom Neftbranding over 2009–2011. Some 230gas filling complexes are scheduled tobe brought in line with the new cor-porate style by year-end 2009.

Shell is to start construction of a majornew lubricants blending plant – report-edly the first to be built by an interna-tional oil company in Russia. The plant,which is being built in Torzhok in theTver region, north-west of Moscow,will have a capacity of 200mn l/y (about180,000 t/y), making it one of thelargest in the Shell networkworldwide.Commercial operation is expected tobegin by the end of 2010.

NORTH AMER I CA

RUSS IA & CENTRAL AS IA



UK hydrogen and fuel cell funding competitionA competition for up to £7.2mn of funding for companies to develop hydrogenand fuel cell technology opened in the UK on 10 September. The competition isbeing funded by the Department of Energy and Climate Change (DECC) and ispart of measures for stimulating low carbon technologies announced in thisyear’s budget.Companies will be able to bid to the Technology Strategy Board, whowill manage

the programme, for a share of the cash to develop and test the technology.Hydrogen and fuel cells have the potential to help drastically reduce carbon emis-

sions because they only emit water and heat as by-products. The energy conversionin fuel cells is more efficient than those of other technologies such as the internalcombustion engine.For more details, visit www.innovateuk.org/deliveringinnovation/forthcoming

competitions.ashx

UK 10:10 Campaign to cut carbon emissionsBritish Gas has pledged its support forthe ‘10:10 Campaign’, a national driveby individuals and organisations in theUK to cut carbon emissions by 10%during 2010. The campaign is describedas the first real opportunity for ordi-nary people to stand up and becounted in the battle to cut carbon.Thousands turned up at the TateModern in London to sign up andpromise to cut their carbon by making

changes in their lifestyle, diet or energyusage. For more information, visitwww.1010uk.orgMeanwhile, British Gas parent

Centrica launched its own carbon-cut-ting campaign in September – a 100-day drive to reduce carbon emissions inUK offices. A similar campaign last yearhelped the company to achieve a year-on-year decrease in UK office energyconsumption of 7.23%.

Lukoil takes stake in TRN refineryLukoil has acquired from Total a 45%share in the Holland-based TotalRaffinaderij Nederland (TRN) refinery.The Russian company will replace DowChemical as Total’s partner in TRN. Therefinery is located in the Vlissingen Oostharbour area in the south-western partof the Netherlands, in one of theworld’s largest oil and oil-producttrading hubs (Amsterdam-Rotterdam-Antwerp) and benefits from access tothe well-established infrastructure,including Maasvlakte Olie terminal, in

which TRN owns a 22% share.The plant has a topping capacity of

158,000 b/d and a hydro-cracking unit,one of the biggest in Europe, with acapacity of approximately 68,000 b/d.The refinery is capable of processingUrals blend crude oil as well as signifi-cant volumes of straight-run fuel oil andvacuum gasoil, which will allow Lukoilto integrate the plant into its productionchain. The company will also be able touse TRN to supply and further developits retail presence in Western Europe.

OMV optimising service station networkEarly in 2009, OMV announced its intention to continue with the optimisation ofits service station network as part of a new network evaluation and to dispose ofan additional 70 OMV and Avanti stations across the country. In 2008 it had sold atotal of 60 sites throughout Austria.Some 30 stations have been sold this year to new acquirers and operators, with

negotiations for the disposal of a further 15 stations currently underway with pri-vate interested parties. However, suitable investors have not been found for theremaining 25 filling stations due to tighter legal and economic conditions in theservice station market. As a result, OMV is evaluating the potential closure of theremaining locations.As noted, to date this year, some 18 OMV and 12 Avanti stations have been sold

to new acquirers and operators. In Carinthia, Styria and Upper Austria a total of13 stations were sold to Annawitt and will operate under the brand A1; ninefilling stations in Burgenland and Lower Austria were acquired by the Vienna-based petroleum wholesale company AWI; in Tirol and Vorarlberg, four stationswere taken over by Gutmann; and in the Federal Province of Salzburg, four sta-tions were sold to Leikermoser.

Engen Petroleum and KenolKobil areunderstood to have signed a sale andpurchase agreement (SPA) to jointlyacquire all the shares in ShellZimbabwe and BP Zimbabwe, whichare currently operated by BP onbehalf of the joint venture which ismarketed under both the BP and Shellbrands in Zimbabwe. Assets includesome 75 service stations, as well asseveral depots.

Chevron is reportedly planning to pullout of India’s lubricants market. It isunderstood that Chevron GlobalLubricants will stop selling its globalbrands including Chevron, Caltex, Deloand Havoline in the country over thenext month.

Aker Solutions has been awarded theproject management consultant (PMC)contract for Staatsolie MaatschappijSuriname refinery expansion project inSuriname. Once completed, the pro-ject will double the refinery’s pro-cessing capacity to 15 000 b/d,producing diesel, gasoline, fuel oil,bitumen and sulphuric acid. Staatsolieis the state oil company of Suriname.The refinery expansion is scheduled tobe completed in spring of 2013.

Australian-based Altona Energy hasbecome a Foundation Member of theGlobal Carbon Capture and StorageInstitute (the Global CCS Institute), aworldwide organisation focused onaccelerating the commercial deploy-ment of carbon capture and storage(CCS) projects and the promotion ofthe global reduction of carbon dioxideemissions. Amongst others, 23national governments including allthe G8 countries are FoundationMembers. Altona’s Arckaringa coal-to-liquids (CTL) and power project hasbeen designed to be ‘CCS ready’ withcarbon capture technology included asan integral feature of its planned spec-ifications. The final stage of the pro-ject’s bankable feasibility study for a10mn b/y CTL plant with a 560-MW co-generation power facility will incorpo-rate extensive development work onthe technical and economic aspects ofCCS, as well as other measures to miti-gate greenhouse gas emissions. Formore information, visit www.globalccsinstitute.com

AS IA - PAC I F I C

WORLD

LAT IN AMER I CA



Desulphurisation technology deal signedSulphCo, a Houston-based technology company with a patented ultrasoundprocess designed to desulphurise crude oil products and crude oil, has enteredinto a letter of intent (LOI) with Laguna Development to move toward the com-mercial installation of SulphCo’s desulphurisation technology.Under the terms of the LOI, Laguna has agreed to evaluate SulphCo’s

Sonocracking™ technology to reduce the sulphur content of the diesel streamproduced at Laguna’s New Mexico trans-mix facility to reach ultra-low sulphurdiesel requirements that Laguna will be required to meet beginning in June 2010.Upon achievement of agreed upon technical requirements to produce ultra-lowsulphur diesel, SulphCo and Laguna intend to enter into a commercial arrange-ment for the installation and operation of a SulphCo Sonocracking™ unit atLaguna’s facilities.Trans-mix is a mixture of gasoline, diesel and jet fuel created during the trans-

portation of such fuels through a shared pipeline. The process for separatingtrans-mix is a distillation process. The trans-mix plant operates 24 hours a day andproduces approximately 50,000 g/d. All diesel that is produced at the trans-mixplant is sold through retail outlets owned by Laguna.The patented Sonocracking™ process employs ultrasound technology to alter

the molecular structure of crude oil and crude oil products. The overall process isdesigned to ‘upgrade’ the quality of crude oil and crude oil products by modifyingand reducing the sulphur and nitrogen content to make those compounds easierto process using conventional techniques, as well as reducing the density and vis-cosity. For more information, visit www.sulphco.com

Over one third of senior executives atEuropean power and utilities firms arehighly confident in their existing riskmanagement processes and are cau-tiously optimistic about the long-lastingeffects of recession, according to newresearch commissioned by Marsh, aleading insurance broker and risk adviser.Marsh’s research reveals that over

36% of participants intimated that theywere ‘very confident’ in their existingrisk management processes, but 45% ofthose surveyed said the downturn hasled to a reduction in risk appetite intheir organisations. Further evidence ofa shift in risk attitudes is also evident inrelation to risk management expendi-ture – 36% of respondents expect bud-gets to increase in the next 18 months,with 40% expecting some of the extraspending to go on insurance, either dueto an expected increase in the cost ofinsurance or on more specialist lines ofcover; investment in risk managementtraining and information systems wasalso ranked as equally important.Despite being less directly affected by

the recession than some other indus-tries, Marsh’s research reveals thatEuropean power and utilities companiesare keenly aware of its effects – 43% ofrespondents identified credit risk as acritical priority for the next 18 months;commodity price volatility is of critical

concern to 18%.Commenting on the research, Mark

Pollard, Head of Industry Practices forEurope, the Middle East and Africa atMarsh, said: ‘The economic downturn hascreated two fundamental and intercon-nected threats for the power and utilitiesindustry – a short-term decline indemand, driven by falling industrialactivity across the region; and a reluc-tance on the part of both lenders andproject developers to invest or to increaseindebtedness in these uncertain times.This may also have a significant bearingon the sector’s ability to meet long-termdemand expectations while meeting effi-ciency and renewable targets.’He continues: ‘Marsh’s research

demonstrates confidence in the sector,which seems well-founded – futuredemand is assured and there is a senseacross the industry that the downturn isa blip in its growth curve. Despite thisoptimism, the research paints a picture ofa cautious industry, with a prudent, long-term view of risk management. Thepower and utilities sector will have a fun-damental role in the return to economicstability, and then to prosperity, duringthe coming months and years, given thatit is essentially a public service industry.Risk management, now more than ever,is a critical element in the sustainabilityof a profitable and stable future.’

Power sector confidence in risk management

Visit the Energy Institute website atwww.energyinst.org

I N B R I E F N E W S industry


BG Group has completed the upstreamand midstream acquisitions under itsalliance with EXCO Resources. It paid$1,127mn for the upstream portion,which consists of $727mn plus $400mnto be paid as a carry of 75% of EXCO’sfuture costs to develop the Haynesvilleshale gas, and $269.2mn for the mid-stream portion. Under the terms of thealliance, BG Group has acquired a 50%interest in 120,000 net acres in EXCO’supstream leases in a defined area ofEast Texas and North Louisiana, whichencompasses the Haynesville shale, theprospective Bossier shale and the CottonValley tight gas sands formations;added 2.6tn cf to BG Group’s net poten-tial resources, with current net produc-tion of 90mn cf/d (forecast 250mn cf/d in2012) net to BG Group; acquired a 50%interest in a new company thatwill holdrelated and complementary EXCO gas-gathering and transportation assets andentered into agreements to support thejoint development of these assets; andentered into a joint development agree-ment with EXCO to cooperate in thedevelopment and production ofonshore shale and tight gas resourcesacross 14 counties and parishes in EastTexas and North Louisiana.

Lloyds Register, Shell and Acergy arethe latest international organisationsto join the National Subsea ResearchInstitute (NSRI) as industry members.They join BP, Subsea 7, Chevron,Technip, Total, Nexen and Talisman,bringing the total number of membersto 10 and moving NSRI towards itstarget of 20 company members by theend of 2009. NSRI was established bySubsea UK, and Aberdeen, Dundeeand Robert Gordon Universities via theNorthern Research Partnership inEngineering, to provide a focus for thedevelopment of subsea technologyand expertise. Newcastle University hasalso joined the Institute as a new acad-emic partner. NSRI aims to ensure, thatby the use of leading edge technology,the UK retains its market-leading posi-tion and captures a significant share ofthe global subsea market worth £25bnat present and estimated to grow toover £40bn by 2011. For more informa-tion, visit www.nsri.org.uk

The Royal Society has published theresults of a one-year study on geo-engineering and is calling on the UKgovernment to spend £10mn/y tostudy the topic further. ‘That’s about10 times what is being spent now andabout 10 times less than what wespend on climate change research,’

UK Gorgon partners agree FIDChevron (operator, 50%*), Shell (25%)and ExxonMobil (25%) have awardedAustralia’s Gorgon LNG export projectits final investment decision (FID). Theproject will include construction of athree-train LNG facility with a capacityof around 15mn t/y on Barrow Island,off Western Australia’s coast. Dueonstream in 2014, plans call for devel-opment of the Greater Gorgon gasfields, beginning with the Gorgon andJansz-Io fields – the largest gas discov-eries to date in Australia – with devel-opment facilities installed directly onthe ocean floor in water up to 1,300metres deep. Two subsea pipelines witha combined length of 240 km will carrythe gas to facilities on Barrow Island.There is also speculation the Gorgonproject could add a further two trainsin the future, taking it to a five-train25mn t/y mega-project.Gorgon is also expected to be a

world leader in capturing the naturallyoccurring carbon dioxide producedalongside natural gas and storing itsafely underground, more than 2 kmbeneath Barrow Island.The FID for the Gorgon project fol-

lows a host of LNG supply agreementsthat have been signed with Asian con-sumers. Chevron has signed a heads ofagreement (HoA) with the Korea GasCorporation (KOGAS) for 1.5mn t/y ofLNG. As part of the arrangement,Chevron and KOGAS have an option toextend the 15-year agreement for afurther five years. The parties are alsodiscussing LNG sales and an equity pur-chase from Chevron’s Wheatstone pro-ject, located in north-west Australia.Three further binding long-term

sales and purchase agreements (SPAs)for Chevron’s share of LNG fromGorgon have also been recentlysigned. The agreements are for a totalsupply of nearly 3mn t/y of LNG toOsaka Gas, Tokyo Gas and GS Caltex.Chevron will supply Osaka Gas with1.375mn t/y of LNG for 25 years.Osaka Gas will also purchase 1.25%equity in the Gorgon project. TokyoGas will be supplied with 1.1mn t/yover 25 years and will purchase a 1%equity stake. Supply from both agree-ments is expected to commence in2H2014. Chevron has also signed sepa-rate agreements with GS Caltex for0.5mn t/y of LNG for up to 20 years.The LNG to GS Caltex will be suppliedfrom the Gorgon project and othergas within the global Chevron port-folio. GS Caltex is 50% owned byChevron.Earlier, ExxonMobil signed SPAs for

the supply of 2.25mn t/y of Gorgon

LNG to PetroChina for 20 years, andwith Petronet LNG for 5mn t/y over 20years (the LNG cargoes to be deliveredto a new terminal under constructionat Kochi in southern India).In November 2008, Shell announced

a long-term supply agreement withPetroChina for LNG from its share ofGorgon. During the 20-year contractterm, Shell will sell up to 2mn t/y ofLNG to PetroChina.According to market analyst IHS

Global Insight, Asian consumers arekeen for supplies from massive projectssuch as Gorgon. First, because it is amuch closer supply source compared toQatar, so transit costs are likely to belower. Second, the massive size of theproject also means it can provide long-term LNG supplies that can help meetdemand over decades from developingeconomies such as China and India.Third, Australia is a relatively securecountry from which to source LNG, incontrast to other regional producerssuch as Indonesia where the govern-ment is increasingly re-orientating gasproduction towards the domesticmarket. Fourth, given that LNG pricesin Asian markets are generally indexedto crude oil prices, producers andbuyers alike in the region have suf-fered from price volatility over the pastyear and are looking for long-termcontracts at stable prices from world-class projects such as Gorgon that willenable them to better manage theirfinances and plan their investments.Fresh memories of the extremely

tight LNG market in mid-2008, whichpushed spot prices up to $20mn Btu,and expectations that the globaleconomy will rebound by 2012 andthus lead to a resurgence in LNGdemand and prices, have encouragedAsian buyers to go out and sign agree-ments for LNG supplies now to protecttheir long-term supply security and totake advantage of the current environ-ment of weak demand and low spotprices to get better value over the longterm, comments IHS. This could havebeen a key motivation behind theworld’s largest single buyer of LNG,KOGAS, signing a preliminary 15-yearagreement for the delivery of 1.5mn t/yof LNG from Gorgon with the optionto extend the deal for five yearsdespite the 30% year-on-year drop inSouth Korea’s LNG imports in Auguston weak demand.

*This will change to 47.75% once rele-vant approvals have been obtained onthe equity agreements with Osaka Gasand Tokyo Gas.

John Shepherd of the University ofSouthampton, who chaired the RSreport, told The Guardian newspaper,‘And it’s only 1% of what we spend onnew energy technology.’

Germany’s key Frankfurt airport hasbecome the first airport to receive certi-fication for carbon reduction effortsunder a new European scheme, writesKeith Nuthall. ‘Airport CarbonAccreditation’ is operated by theEuropean Commission, ECAC (EuropeanCivil Aviation Conference), air traffic con-trol organisation EUROCONTROL andUNEP (UN Environmental Programme).

North American Free Trade Agreement(NAFTA) countries the US, Canada andMexico have agreed a detailed commu-niqué on future cooperation in climatechange, reports Keith Nuthall. Thisincludes working together in reducingoil and gas industry greenhouse gasemissions, (notably cutting flaring),developing ‘comparable’ methods ongreenhouse gas reporting and compat-ible emissions trading systems.

The oil and gas sector should prosperfrom a new India and South Koreatrade deal, reports Keith Nuthall. Thedeal confirms various market accesscommitments, such as supplying oilpipelines and employing South Koreanor Indian oil engineers. It also reducesmutual duties for petroleum oils, LNG,biofuel feedstocks such as palm oil, veg-etable oil, and other industry products.

There were more pirate attacks fromJanuary to June of this year on crudeoil tankers worldwide than in thesame period of any year since 2004,the latest report from theInternational Maritime Bureau (IMB)has shown, writes Keith Nuthall. Itnotes 24 such attacks, compared to 10in January–June 2008, 18 in 2007, fourin 2006, 12 in 2005 and 11 in 2004.Examples of attacks include armedrobbers attacking the Bahamian MTFront Chief off Nigeria with explosivesand automatic weapons, killing theline tug captain. Other violent attackswere noted in the South China Sea,the Gulf of Aden and off Somalia.

EUROPE

NORTH AMER I CA

WORLD

AS IA - PAC I F I C

I N B R I E F N E W S industry


EnCana reorganisation back on trackEnCana’s Board of Directors has unani-mously approved plans to proceed witha corporate reorganisation to splitEnCana into two highly focused energycompanies – one a natural gas com-pany, EnCana (GasCo), with a portfolioof prolific shale and other gas resourceplays across North America; and theother an integrated oil company,Cenovus Energy, which has industry-leading enhanced oil production andtop-performing refineries, as well as anunderlying foundation of reliable oiland gas resource plays. This transaction– expected to close 30 November 2009 –is designed to enhance long-term valuefor the company’s shareholders ‘by cre-ating two sustainable, independent,publicly traded companies, each withan ability to pursue and achieve greatersuccess by employing operationalstrategies best suited to its uniqueassets and business plans’.

The proposed corporate reorganisa-tion was first announced on 11 May2008 and the company was advancingplans for the split last autumnwhen theglobal debt and equity markets experi-enced unprecedented turmoil andvolatility. Given that uncertainty,EnCana announced on 15 October 2008a revision to the original reorganisationschedule and delayed seeking share-holder approval for the transactionuntil clear signs of stability returned tothe financial markets. It is now pro-ceeding with plans to split the companyinto two distinct and independentenergy companies as it believes equityand debt markets have improved signif-icantly with debt financing available atreasonable cost. Furthermore, it statesthat global and national economic indi-cators suggest that the world’seconomies are showing positive signsof recovery.

Latest oil market report from the IEAIn its latest (10 September 2009) OilMarket Report, the InternationalEnergy Agency (IEA) revised up globaloil demand by nearly 0.5mn b/d forboth 2009 and 2010, to 84.4mn b/d and85.7mn b/d respectively, mostly onstronger-than-expected data in OECDNorth America and non-OECD Asia.The global economy is stabilising, butOECD demand is poised to remainweak for the remainder of this year,while seemingly strong non-OECDdemand may be obscured by Chinesestock building.August global oil supply was down

400,000 b/d from July to 84.9mn b/d, onlower non-OPEC output. Total non-OPEC estimates for 2009 and 2010 areunchanged versus the previous month,averaging 51mn b/d in 2009 and51.5mn b/d in 2010. OPEC NGL averages5.2mn b/d and 6.1mn b/d respectively.OPEC crude oil supply in August was

up 55,000 b/d at 28.8mn b/d. OPEC-11output rose by 80,000 b/d to 26.3mnb/d, or 1.4mn b/d over target. The ‘callon OPEC crude and stock change’ is

revised up to 28.3mn b/d for 3Q2009and to 27.9mn b/d in 4Q2009 on themore robust demand forecast.Meanwhile, global refinery crude run

projections for 3Q2009 are also revisedup to 72.1mn b/d, an increase of 0.2mnb/d from the previous month’s report,due to higher demand estimates and alower US hurricane adjustment.Nonetheless, runs remain pressured bypoor refining margins, states the IEA.OECD industry stocks rose by 12.8mn

barrels in July, to 2,778mn barrels,4.6% above last year’s level. Middle dis-tillate increases in all three regions,particularly North America, out-weighed a decrease in both gasolineand fuel oil stocks. End-July forwarddemand cover was unchanged versusJune at 61.8 days.Benchmark crude oil prices rose $7/b

on average in August, to around$71–$73/b. Arguably, prices have testedlimits and trade in a $68–$74/b pricerange for now. Future price directionwill hinge partly on how long the dis-tillate overhang persists, notes the IEA.

Train B of the Qatargas 2 project started producing LNG on 7 September 2009.State-owned Qatar Petroleum holds a 65% stake in Train B, partnered byExxonMobil (18.3%) and Total (16.7%). It is one of the two trains that compose theQatargas 2 project and has a production capacity of 7.8mn t/y. Reportedly the firstintegrated LNG project in the world, Qatargas 2 also comprises the South Hookregasification terminal, located in Milford Haven, South Wales, UK. This terminal,which started operating in 2Q2009, is the largest in Europe for import and LNGregasification, with a capacity of 15.6mn t/y. LNG from Qatargas 2 Train B is pri-marily intended for deliveries in the UK, France and the US.

Qatargas 2 Train B begins producing LNG


I N B R I E F N E W S government

JULY

Latest developments from the EUTurkey – the lynchpin of European Union (EU) efforts to secure energy independencefrom Russia – has started negotiations to join the EU’s Energy Community. The organi-sation currently extends EU energy legislation to non-EU Balkan countries, but thereare plans to add Moldova, Ukraine and Turkey to its membership, writes Keith Nuthall.Once achieved, these countries would be part of the EU’s single market for natural gas(and electricity). On the Turkish talks, EU Energy Commissioner Andris Piebalgs said hehoped the ‘negotiations… could be concluded in the coming months.’

In other oil and gas industry news:l The EU Council of Ministers has now formally approved a new Oils Stocks Directivethat will require member states to maintain reserves of at least 90 days of averagedaily net imports, or 61 days of average daily inland consumption (whichever is thegreater), by January 2013.

l The Council also approved a new Ship-Source Pollution Directive that says EUmemberstates must criminalise reckless or negligent discharges of pollution, with responsiblecompanies and persons subject to ‘effective, proportionate and dissuasive’ punish-ments. This replaces a similar law struck down by the European Court of Justice in2007.

l Oil and gas companies received a positive assessment in a European Commission (EC)report on the EU Health and Safety at Work Directives 92/91/EEC (mineral extractionthrough drilling) and 92/104/EEC (surface and underground mineral extraction). ‘Thelarger companies, especially in the drilling sector, perform relatively well,’ the reportsaid.

l The European Investment Bank (EIB) is planning to lend Spain’s CEPSA (CompañiaEspañola de Petroleos) up to €150mn to finance various technical improvements atits refineries in Algeciras and La Rabida.

l PK Borets, a Russian company making electro-submersible pumps used by the oil andgas sector, is expected to receive a $150mn loan from the European Bank forReconstruction and Development (EBRD).

l The EBRD is also planning to lend $120mn to Azerbaijan’s Azmeco to build and operatea 561,000 t/y methanol plant, possibly including a carbon dioxide capture unit.

l The European Environment Agency says EU greenhouse gas emissions decreased in2008 for the fourth consecutive year, falling 1.3% compared to 2007 for the old 15-member EU, and 1.5% for the expanded 27-state membership.

l The EC has cleared without conditions the proposed acquisition of German naturalgas supplier Kom-Strom by a wholly-owned subsidiary of Danish energy giant DONGEnergy.

l A €8.25mn EU research project has been launched to develop new ways to convertagricultural and forestry waste into liquid biofuels, such as using enzymes. The NEMOproject involves researchers from Belgium, Finland, France, Germany, Italy, theNetherlands, Slovenia, Sweden and Switzerland.

l French President Nicolas Sarkozy has said he will continue to press for the EU to adopta carbon tax penalising imports made while generating plentiful greenhouse gasemissions.

l A new EC quarterly report on EU gas markets has concluded that wholesale gas mar-kets continued to operate robustly in Europe from January to March, despite therecession and the Russia-Ukraine supply crisis. See http://ec.europa.eu/energy/observatory/gas/doc/quarterly_report_on_european_gas_markets_2009-q1.pdf fordetails.

l A report from the European Transport and Environment Group is suggesting vehiclemanufacturers only make reductions to greenhouse gas emissions when ordered bycompulsory legislation. It noted carmakers needing to cut emissions by less than 18%to meet the 2015 target, actually cut their emissions by less than 4% last year.See http://www.transportenvironment.org/Publications/prep_hand_out/lid:549 fordetails.

l The EU is considering reducing planned assistance to developing countries, helpingthem meet global warming commitments expected to be made at December’sCopenhagen climate change conference. Proposals to spend between €13bn and€24bn have been slashed to between €2bn and €15bn, according to a leaked ECreport.

l Sweden and Norway have revived a plan to sell common green electricity certificates– expected to be valid from 2012 onwards.

Bulgaria is to demand economic bene-fits from Russia in order to confirm itscommitment to Russian-backed majorprojects, Bulgarian Economy andEnergy Minister Traicho Traikov hassaid. Traikov was also expected to tellRussian Energy Minister SergeiShmatko at a meeting held last month,that Bulgaria’s participation in Russianprojects should fit inwith the EU’s plansto boost security of supplies.

The US Energy and TreasuryDepartments have announced thefirst round of $3bn in governmentcash grants to companies developingrenewable energy projects, with directedirect payments made in lieu of taxcredits. Meanwhile, a report from theEnvironmental Law Institute claims thatoil, gas and coal received more thantwice the level of subsidies than renew-able energies from the US governmentin 2002–2008.

Masoud Mir-Kazemi, previouslyMinister of Commerce, has beenratified by Iran’s parliament to becomeits next Oil Minister.

Russia is to invest up to 60tn roubles($2tn) in its energy sector by 2030, it hasbeen reported, to boost stagnating oiland gas output. It is thought that Asianmarkets will increase their share ofRussia’s energy export volumes from6% to 25%. Meanwhile, Russia’sNatural Resources Deputy MinisterSergei Donskoi has said that Russiawould like foreign companies to helpdevelop its offshore oil and gas reserves– as domestic firms lack the means todo so alone.

Japan’s new Prime Minister, YukioHatoyama, has promised a 25% reduc-tion in greenhouse gas emissions by2020 compared with 1990 levels. Thegovernment expects the plans to beachieved by introducing emissionstrading, renovating housing, subsi-dising solar panels and introducing low-energy technologies in cars. Hatoyamasaid the plan was dependent on othernations agreeing to targets atDecember’s Copenhagen climate talks.

A S I A - PA C I F I C

R U S S I A & C E N T R A L A S I A

E A S T E R N E U R O P E

M I D D L E E A S T

N O R T H A M E R I C A

Find out more about the supplements offered withPetroleum Review and Energy World at

www.energyinst.org

Since international natural gas mar-kets began to develop in the 1960s,gas has been a tremendously suc-

cessful fuel, with sales growingcontinuously at an average rate of nearly4%/y between 1965 and 2007. Untilabout a year ago, before the currentdeep and lengthy recession, most ana-lysts had predicted that through 2030world gas demand would grow at some2%/y – approximately twice the growthrate of oil. However, the economicdownturn upended even the mostconservative scenarios. Demand forindustrial goods in developed countrieshas dropped precipitously, hitting energyintensive industries particularly hard.Analysts project automobile manufac-turing in Europe to fall by 25% in 2009.Output in the chemical industry, the basisof many industrial value chains, isexpected to drop at a similar rate, whileoutput in the steel industry, anotherlarge energy consumer, is declining by30% or more in North America and theEuropean Union (EU).History shows that demand for natural

gas closely correlates with changes inindustrial output in developed countries.Thus, with deeply negative forecasts for

industrial output in 2009 and, potentially2010, gas demand will be particularlyhard-hit. However, other factors are atplay as well. Industry is only one of themajor consumers of natural gas –demand in power production anddomestic heating will also influence thecourse of the market. Furthermore, therecession may not challenge each regionof the world in the same way.To gauge the potential impact of the

current economic crisis on worldwide gassupply and demand, we analysed twoscenarios. The first was a relativelyoptimistic forecast built from outlookspublished by well-known agenciessuch as the US Energy InformationAdministration (EIA), the InternationalEnergy Agency (IEA) and the Inter-national Monetary Fund (IMF). In thisscenario, world gas demand will fall byapproximately 2% in 2009. Underlyingthis assessment is the belief that whereasdeveloped economies will be badly dam-aged by the crisis, emerging economieswill continue to generate natural gasdemand growth of 2% throughout theyear. These agencies believe that overalldemand for natural gas will begin to riseagain in 2010.

The second scenario was based on thetraditional strong linkage betweenindustrial production and gas demand.This forecast predicts an 8% drop inworldwide gas demand this year, which issubstantially more pessimistic than thefirst scenario. This conclusion is based onan expected decline of 17% in industrialgas demand in developed economies andan equal decline of gas use in power pro-duction, which is also experiencingdemand destruction due to the recession.We assume that demand in emergingeconomies will be down 3%, with somelocal growth offset by reduced demandfor exports from those countries.Although there have been some indica-tions recently that major economies arenot in free fall anymore, under this sce-nario, demand destruction will continueinto 2010, albeit at a slower pace.

A market in oversupplyIndependent of which scenario proves tobe more accurate, a bleak picture isemerging. Worldwide demand for nat-ural gas will be set back by at least two,and perhaps as many as nine years. InBooz & Company’s view, it may take untilafter the middle of the next decade fordemand to reach the level that pre-recession assessments had forecast for2010. By that time, structural demanddestruction of between 101bn and 422bncm will have been built up. This calcula-tion is based on the belief that gasdemandwill, at best, enjoy a growth rateof nearly 2%/y once the recession is over– a pre-economic crisis forecast that, byand large, incorporated changes in gasdemand driven by environmental con-siderations and energy efficiencyimprovements. However, there is a riskthat when economic and gas demandgrowth returns, it may be lower thanwhat we had become accustomed to inperiods of previous normal economicgrowth. Indeed, future economic growthmay be constrained in many of the majoreconomies by the large deficits that havenow been built up in an attempt toreverse the recession and stimulategrowth.On the supply side, because of the

magnitude of the demand uncertainty,and the reduced access to projectfinancing, a substantial number of newgas infrastructure development projectshave been cancelled or delayed untildemand growth returns.If we assume that all projects currently

pre-FID (final investment decision) areput on hold for the foreseeable future,and only those that have taken FID arecompleted, then the worldwide natural

Due to the economic recession, for the first time in the history of

international gas markets significant demand destruction will occur

in 2009 and perhaps also in 2010, setting back the market by up to

nine years, write Booz & Company’s Robert Oushoorn, Otto

Waterlander, Thomas Schlaak and George Sarraf. Combined

with the completion of gas export infrastructure projects currently

under way, the reduced demand could lead to an oversupply in the

market of 5% to 15% until well into the next decade. The

implications for suppliers, buyers and infrastructure companies

cannot be overstated. To reduce the risks of huge oversupply and

concomitant price pressure, large incumbent suppliers have a strong

incentive to manage supply through increased cooperation. Buyers

must review their assumptions to take advantage of the current

buyer’s market – for example, by joining together to access

previously inaccessible sources of gas and spread the risk.

Infrastructure providers may need to rethink their business models

to take advantage of opportunities that may arise from changing

trade flows.

An unprecedented marketA S Global market


G

gas supply–demand balance should facea surplus of 5% to 15%. This surplus,expected to continue until well into thenext decade, will be driven in part byadditional liquefaction plants, exportpipelines and increased production ofgas from unconventional sources inNorth America.The recent huge discoveries of uncon-

ventional gas reserves in the US may addto the pressure of an oversupplied worldmarket. Indeed, up to now, expectationswere that the US would become moreand more dependent on LNG imports tomeet its demand for gas, partially pro-viding the basis for a number of gasliquefaction projects around the world.If, however, the US becomes self-

sufficient in its gas supply, as some ana-lysts now predict, the risk of oversupplyin other regions may be increased evenfurther.

Navigating a difficult landscapeThe global gas market has rapidly shiftedfrom favouring sellers to favouringbuyers. As the speed of this change isunprecedented, we may well see similarlyunprecedented reactions from marketparticipants. The large incumbentexporters, such as Russia, Qatar, Norwayand Algeria, are faced with a stark choice– either compete head-on with eachother and with smaller companies formarket share while demand falls, or sitout the storm, accept the volume and rev-

enue loss, reduceproduction, andstrive to maintainprices and pricingstructures. Theimplications ofhead-to-head com-petition areunappealing – theyinclude severelydepressed pricelevels of some dura-tion and alteredcontract structuresand buyer behav-iour in the longerterm, with gasprices potentiallydecoupling from oilprices.The second option –sitting out the storm– therefore appearsmore appealing.

However, it is unlikely that players willwant to shoulder the burden of reducingsales volume alone. Therefore, the antici-pated oversupply may trigger increasedcoordination among the large exportersto manage world gas supply. The 10largest gas exporters, which control some80% of worldwide gas supply and are ledby the large national oil companies(NOCs), such as Gazprom (Russia),Qatargas (Qatar), StatoilHydro (Norway)and Sonatrach (Algeria), have incentivesto do so given their large market shares.In addition, a structure already exists inwhich the large producers meet and dis-cuss market developments – the GasExporting Countries Forum (GECF). Theinternational oil companies (IOCs), withtheir limited equity shares in national gasproduction, are not in a position togreatly influence decisions by the NOCsand have little choice but to follow along.A further reason to expect the large NOCsto lead the management of global supplyis the entry of a group of new producersinto themarket in the next few years thathave motivations and strategic concernspotentially quite different from those ofthe large incumbent suppliers. Smallerplayers like Angola and Peru are expectedto have export programmes, but with noestablished positions to defend or losethey may well be unwilling to initiate, oreven agree to, production reductions.Today’s global natural gas market envi-

ronment is highly uncertain. Yet withcareful consideration, sellers and buyersmay find that the current situation canalso provide interesting opportunities forcarving out advantageous positions.

Implications and opportunitiesWith lower-than-expected production andrevenue, project profitability may be atrisk for NOCs. In addition, buyers will seek


Figure 2: Global gas supply–demand overview, 2005–2015 (in bn cm) – taking demand andsupply developments together, the gas market is expected to have structural overcapacityuntil at least 2015Source: Booz & Company analysis

Figure 1: World gas demand under different scenarios, 2006–2020 (in bn cm)Source: IEA, Booz & Company analysis

to renegotiate contracts, thus puttingprices and pricing structures at risk. NOCsshould assess the implications of reducingproduction and bring their project portfo-lios in line with new forecasts.Opportunities will arise in aggressivelytaking advantage of lower costs for con-tractor services and materials due tooversupply in thosemarkets. Furthermore,this can be the moment to initiate geo-graphic swaps with other players tooptimise logistics costs, to assess integra-tion downstream to secure captivedemand and to expand capabilities bytaking over specialised companies whosevalue has dropped.For the IOCs, many of the implications

and opportunities are similar to thosefaced by the NOCs, because they are usu-ally part of joint ventures. Simply put, theyshould be poised for NOC-induced supplyrestrictions and cost reductions. They needto cut costs and manage working capitalclosely. The opportunity for IOCsmay lie inthe fact that they typically have a portfolioof stakes in different plays across theglobe. They could optimise portfolio ben-efits by accelerating the building ofcross-market connections and capabilities.Demand destruction leads to reduced

revenues, especially for those companies

with large exposure to the industrial seg-ment. Players that are in long-termtake-or-pay (TOP) contracts may experi-ence problems in fulfilling their minimumofftake obligations. Opportunities willarise to renegotiate prices and other con-tract conditions, and chances will appearto take advantage of increased supply onspot markets. Nevertheless, buyers shouldbe cautious not to damage long-term rela-tionships with NOCs – they will need thesealliances in the longer term. This may alsobe a good time to rebuild gas supply port-folios – for example, by partnering withother importers to access new sources ofgas and share risk, or by entering existingupstream plays, taking advantage of thecurrent lower valuations.Clearly, for infrastructure players the

main risks are in reduced project prof-itability and reduced access to projectfinancing. Also, customers whomight oth-erwise be candidates for adding LNGcapacity or other pipeline assets will tendto delay making decisions on projects.Infrastructure companies should be awarethat the value in LNG projects may shiftfrom ‘volume‘ plays, in which a companyseeks baseload positions, to ‘access’ plays,in which the value resides in a company’savailable capacity in multiple locations

and opportunities for optimising arbi-trage. At any rate, infrastructurecompanies should take advantage offalling prices for materials, labour andconstruction services to push project costsdown.

A final wordToday’s global gasmarket is at an unprece-dented juncture. Theworldwide economicdownturn – set off by the credit crunch –has the potential to profoundly changethe behaviour of market participants,prices and pricing structures. To a largeextent, the change that the market willexperience depends on supply decisionsmade by large NOCs. Also, developmentsin the production of unconventional gasin the US based on the recent hugereserves discoveries will play a crucial role,with a potentially shifting position of theUS in the global supply/demand balanceadding to the situation of oversupply.Yet all players along the value chain,

suppliers, buyers and infrastructure com-panies need to carefully assess the currentnew dynamics. Those players who fullyunderstand the implications of the currentmarket conditions and the opportunitiesthey may offer can emerge from this crisisstronger than they went into it. �

A S Global market


G

To find out more visit our website at www.energyinst.org.uk/filtrationt: +44 (0)20 7467 7100 e: [email protected]

www.energyinst.org

Technical training workshop

� Gain practical knowledge of equipment employed

� Discuss individual fuel cleanliness problems with our

expert trainer

� Go through a worked example of methods employed in

applying filtration equipment

Essentials of aviation fuel filtration – based on API/EI 1550An essential guide to fuel filtration monitoring and control – from refinery to aircraft

Dates/locations for 2009:� 10–11 November 2009, Frankfurt, Germany

� 12–13 November 2009, Vienna, Austria

Q. Would you outline how youstarted your business career andgive us some idea of the major

challenges and successes you have hadin the various companies you haveworked for?

A. I went to university intending tostudy chemistry but eventually studiedphysics instead. Once I got my degree Istill wasn’t sure what I wanted to do asa career. I did accountancy because Ibelieved it would give me a marketableskill and a lot of flexibility about whereI could work geographically, and alsothe types of organisation for which Imight work.

I joined Accenture in London in 1978because I thought it would add to myskills, particularly in the application ofcomputer systems to business. I alsoliked the style of the company, whereinnovation and problem solving were ata premium. I don’t think I would haveleft Accenture for any other industry orcompany than Shell. Shell became anAccenture client and I worked as a con-sultant helping Shell develop globalfinancial systems in 1980.

The attraction of the energy industryis just as powerful now as it was when Ijoined it in 1983 as it lies in the impor-tance of energy to modern society. Theindustry faces extraordinary technolog-ical challenges and major long-terminvestments are needed. Delivering inthis environment requires, most of all,teamwork both inside and outside com-panies, and across the widest range ofdisciplines that could be imagined.

The energy industry has always been

exciting, but never more so than todayas we all confront the twin challengesof more energy and less carbon dioxide(CO2).

Q. More recently, what challengeshave you faced as Chairman of ShellUK? What do you regard as your majorachievements at the company to date?

A. The challenges as Chairman ofShell in the UK can be separated intothree main parts. First, within the UK,we have to run safe, highly efficientbusinesses with great customer servicein highly competitive markets. It is avery wide ranging set of businessesfrom the production of oil and gas off-shore through to the full range ofpetroleum products, including a net-work of around 900 service stations.

The second part is about participatingin the important debate about the chal-lenge of meeting growing energydemand and less CO2. Companies likeShell must tackle this energy challengeby delivering some of the technologiesrequired and advocating the policiesthat will best promote rapid and far-reaching change in the energy system.One example of that is where, alongwith another dozen or so people fromthe business, I put my signature to aletter to Rt Hon Tony Blair MP in May2006, urging government to go to thetougher end of the caps they had in

mind for CO2. We did it because webelieved the sooner we got the essen-tial commercial changes into the system,the better business would be able toplan and respond.

The third area is in explaining tomany interested parties Shell’s busi-nesses around the world. People wantto know about Shell’s activities inNigeria, they want to know about oilsands in Canada, they want to knowabout gas projects in Sakhalin Islandand they want to know whether Shell ismeeting expectations under the head-ings of ‘people, planet and profits’.So, I explain that Shell, like othercompanies, works to get the environ-mental and social aspects of its projectsright. For example, the Shell jointventure in Sakhalin has recentlywon awards for environmental andsocial performance.

Q. What do you see as the key chal-lenges facing the international oil, gasand energy sector going forwards, andhow is the Energy Institute (EI) placedto help tackle these issues?

A. The world needs more energy andless CO2. This is a challenge of a factorof 10. By the middle of the century theglobal economy might be five times thesize of what it is today, yet globally, CO2emissions need to be at least halved.That means the overall carbon intensityof carbon energy needs to be one tenthof what it is today.

This is a gigantic challenge, but weshould see it as stimulating rather thandaunting. It will mean huge improve-ments in energy efficiency and hugereductions in the CO2 content of energy.It will be relevant to nations and com-panies, and also relevant tocommunities and individuals. All ofus will have to step up to the energychallenge.

The solutions are within our grasp.What we have to do is muster thecommon will to put those solutions inplace. It will mean nations reaching bigagreements such as in Copenhagenlater this year. It will also mean us asindividuals making less resource inten-sive choices in our daily lives.

The technological solutions arebroad. Fossil fuels have advantages inavailability and energy density. Butcarbon mitigation technologies such ascarbon capture and storage are goingto have to be developed for them.Nuclear has an important role to playand a wide range of alternative ener-gies will have to be scaled up veryrapidly. Shell’s energy scenariosenvisage alternative technologies suchas wind and solar being 40 to 70 timesthe size they are today by the middle ofthe century.

James Smith FEI,

Chairman, Shell UK, who

recently took over as the

Energy Institute’s President,

talked to Petroleum

Review about his career to

date and the challenges

facing both the industry

and the EI in the future.*

James Smith –looking to the future

N E R G Y I N S T I T U T E Pres ident


E


The EI can play to its strengths in step-ping up to the energy challenge. It’s achallenge about all the energies and avery wide range of disciplines. Meetingthe challenge requires a huge scaling upin knowledge and skill. The EI has for along time promoted skills development,promoted high professional standardsand stimulated knowledge transfer. Allthese things are vital if we are to meetthe energy challenge successfully.

In my view, the EI has been ahead ofthe curve over the last few years. It hasforeseen the huge changes needed andthe great demand on talent and knowl-edge that is emerging. It recognises thebreadth of the debate and recognisesthe importance of a professional bodythat can offer objective and straightfor-ward advice to policy makers.

Q. Oil prices are rising again and mostof the world is in economic doldrums –do you think this is an opportunity fora change of direction in internationalenergy policy?

A. I think there are three hard truthswe had better recognise. First, eventhough we are in the midst of a verysevere recession, we can expect energydemand to grow very significantly inthe coming years. Secondly, it’s going tobe hard for conventional sources ofenergy to keep up with surging demandand it’s going to be hard for the newsources of energy to get scaled-upquickly enough to fill the gap. Thirdly,it’s a hard reality that environmentalstresses will continue even against rela-tively optimistic assumptions for gettinglow CO2 technologies scaled-up anddeployed.

But there are perhaps two big posi-tives we should take out of the presenteconomic difficulties. First, perhapssociety as a whole will learn to avertlooming crises rather than hope for thebest and mop up and muddle through.Secondly, getting out of the currenteconomic difficulties is requiringunprecedented international collabora-tion. If we can get that collaborationwell enough embedded, it sets a muchstronger basis for getting the agree-ments necessary internationally totackle climate change.

Q. Although alternative fuels willplay an increasingly important role inthe future energy mix, fossil fuels willremain the primary source of energy formany years to come. How does Shellplan to continue meeting demand, andhow will development of the Canadiantar sands fit into the company’s port-folio?

A. Fossil fuels presently meet about80% of primary energy needs. Thereneed to be huge improvements inenergy efficiency and huge growth in

alternative energies such as wind andsolar. But, even then, fossil fuels couldstill be meeting 60% of energy needs bythe middle of the century. So, the fossilfuels will need to be used in a way thatleads to lower CO2 emissions; and thereare business opportunities in lower CO2sources of primary energy. All of thisspells opportunity if you have the righttechnologies.

The Canadian oil sands are a hugeenergy resource on the doorstep of theworld’s biggest market. They contributeto energy security but, like other formsof fossil fuel, the environmental impactsneed to be mitigated. It should berealised that the environmental impactsare not ‘off the scale’ as is sometimessuggested. On a ‘well to wheels basis’,petrol from oil sands is up to 15% moreCO2 intensive than petrol from conven-tional oil. But it needs to be realisedthat conventional oil is getting heavieranyway, so this gap will narrow. In addi-tion, the mines will be reclaimed toforest and the mineable area is only0.1% of the total boreal forest inCanada. So, the impacts can be miti-gated and they need to be kept inperspective.

In Shell’s long-term energy scenarios,crude oil from unconventional sourcessuch as oil sands and shales amounts toabout 5mn b/d out of a total of around100mn b/d. We believe that CO2 mitiga-tion can take place through things suchas carbon capture and storage and byblending in properly sustainable bio-fuels.

There is a more general point here.Virtually any technology, whether fossilor nuclear or alternative, will have envi-ronmental impacts if it is going to berelevant at scale. In all cases theseimpacts are going to have to be miti-gated sufficiently so that energy can bedelivered while protecting against dan-gerous environmental damage.

Q. There have been reports of Shell inparticular, and some oil majors in gen-eral, ending investment in some partsof the ‘sustainable energy’ sector. Doesthe development of sustainable energyrequire the involvement of oil majors?

A. The newspaper headlines in Marchsaying things like ‘Shell dumps renew-ables’ were not correct. What we weretrying to explain was that we had madesome technology choices from a widerange of technological ‘irons in the fire’.We based our choices on three things.First, by looking at what is needed; sec-ondly, by looking at what fits ourstrategy; and thirdly, by thinking aboutwhere we have competitive advantage.We don’t mass manufacture things likesolar panels. Where our strengths lie isin large-scale engineering processes and

in catalysis. In addition, we haveworked on bio-energy for many yearsand recently we have stepped up ourcapability in this area considerably.

Taking that as background wedecided to focus on two themes. Thefirst is reducing the CO2 emissions fromfossil fuels and the second is on trans-port liquids from bio sources. We havespent several hundred million dollarsover the last 20 years or so developing acoal gasification technology that can bevery useful for carbon capture andstorage. This is a technology whose timemay have come. On biofuels, far fromcutting investment, we have very signif-icantly increased our spend. We havefive pre-commercial joint ventures andresearch projects with seven universitiesaround the world, three of them in theUK. The main aim is to produce biofuelsthat don’t compete with food crops. Webegan this several years ago makingbioethanol from corn stalks. Morerecently we have been working onmarine algae.

So, developing more sustainableenergy definitely involves the oilmajors.

Q. How do you see the EI developingand where do you think it should be inthe next five years; ten years? What doyou see as the main challenges for you,as EI President, in driving the EI for-wards to meet these goals?

A. I think the EI has already demon-strated forward thinking about thehuge energy challenge in front of us. Itis estimated that providing the energythe world needs for the CO2 it canafford, will cost about a trillion dollars ayear. But we should not just focus onthe money. What is also importantare the people with the skills andknowledge to get the job done.Reengineering the energy system is ahuge task, but one that everyoneinvolved with the EI can be excitedabout. The EI is about technical stan-dards, about professional skills andabout knowledge sharing. These arethe things that will underpin a suc-cessful energy future.

I think I am lucky to be EI President atthis time. The Executive Team that runsthe EI is very able and has a strong-shared vision. We also have a verystrong Council with people from a widevariety of backgrounds who bring a lotof insight. It is very important that weremain farsighted and think about allsources of energy. �

This is an abridged version. For thefull Q&A article, please visitwww.energyinst.org ‘About us’,‘Council’.

In January of this year the EI held a tech-nical seminar entitled ‘Preventing jet fuelcontamination by FAME – best practice in

thedistribution system’. The seminar, chairedby Mike Farmery (Shell Aviation) and withmore than150attendees, presented the rea-sons for the introductionof fatty acidmethylester (FAME) in diesel fuel (Harald Schniederof EUROPIA); industry experience gainedfrom controlled trials of jet fuel/biodieselfuel handling (Patrick Viltart, TRAPIL, andMieke Mortier, Chevron); jet fuel specifica-tion limits and aircraft OEM requirements(Jerry Tucker, UKMoD Defence Fuels Group,andRamyaVenkataraman, Rolls-Royce); andan overview of the areas of risk to jet fuelquality (AnthonyKitson-Smith, ExxonMobil).It was highlighted that Defence Standard

91-91 limits the FAME content of jet fuel toless than 5 mg/kg (the limit of FAME detec-tion by the most sensitive analytical methodavailable) and that just one litre cross-contamination by B5 (EN 590 diesel con-taining 5% v/v FAME) in 10,000 litres of jetfuel is sufficient to render the jet fuel off-specification. Speakers at the seminar alsodescribed the stringent fuel handling proce-dures that are currently in use throughoutthe supply chain in order to meet this lowlimit. For background information and han-dling recommendations see Joint InspectionGroup Bulletins 15, 16, 20 and 26 (availableto download from www.jointinspectiongroup.org).

Approval programmeMajor jet fuel suppliers had worked closelywith airframe and engine OEMs (originalequipment manufacturers) to see whatcould be done to mitigate these fuel han-dling challenges without compromising jetfuel quality. Industry stakeholders agreedthat the 5mg/kg FAME limit in jet fuel couldpotentially be increased if an extensivetesting programme showed that a higherlevel of FAME in jet fuel had no adverseimpact on aircraft safety, reliability, mainte-nance requirements, performance oroperability. It was evident that this process,which is followed by industry to confirm theacceptability of new jet fuel additives,would

require significant industry resources and theEI was asked to manage the testing pro-gramme.An EI Joint Industry Project (JIP)was estab-

lished in May 2008, with the objective ofgaining formalOEMacceptanceofup to100mg/kg FAME in jet fuel supplies. So far, atotal of 21 companies/organisations haveprovided funding towards the £1.2mn pro-gramme, as shown in Table 1. The ProjectSteering Group also includes representativesfrom the major airframe and engine OEMs,who have collectively defined the requiredlaboratory testing for the impactof FAMEonaviation fuel properties and larger scaleengine and airframe hardware testing.Representatives of other organisations,

including regulatory authorities, have alsobeen invited to participate to ensure allissues are adequately communicated. Thiscollaboration between aviation industrystakeholders has been critical to the devel-opment of the project to date. Sourcing therequired funding has been a challenge andadditional financial support from othercompanies/organisations would still bemost welcome (please e: [email protected]).The process for approving new jet fuel

additives is documented in ASTM D4054Standard practice for qualification andapproval of new aviation turbine fuels andfuel additives. It requires testing jet fuel con-taining the FAME ‘additive’, in this case amixture of equal amounts of the four mostcommonFAME types (rape, soy, palmoil andtallowmethyl esters) at four times the targetapproval level. The target for completion ofthe required testing is the end of this year,with analysis of results and a decision onapprovals of up to 100 mg/kg FAME in jetfuel anticipated in late 1Q2010.

Test method developmentAt a similar time to initiating the JIP, the EIwas asked to expedite the development ofanalytical testmethods for themeasurementof trace levels of FAME in aviation fuel. Theobjective was to establish a primary refer-ence method, against which futurelaboratory and field methods could then be

compared. Various analytical techniqueswere considered at an EI workshop and thefourmost viablewere subjected toa rugged-ness trial in August/September 2008.Assessment of results at a follow-up work-shop in October led to agreement to thepublication of IP Proposed Method (PM)-DY/09 Determination of fatty acid methylesters (FAME), derived from bio-diesel fuel,in aviation turbine fuel – GC-MS with selec-tive ion monitoring/scan detection methodin December 2008. It was agreed that theGC-MS method should be subjected to aninter-laboratory study (round robin) asquickly as possible, in order to develop apre-cision statement so that it couldbepublishedas a full method.Further development work on the

method in early 2009 included optimisationof the gas chromatography column, SIM ionselection and work on calibration levels. Asthe results for FAME content in the 0 to 5mg/kg range from some instruments werefound to be affected by backgroundnoise/baseline drift, the round robinwas runwith an internal standard (deuterated C17)to evaluate whether or not improvedaccuracy and precision performance wasachievable. The round robinwasundertakenduring the summer, involving14 laboratoriesand 32 samples (including blind duplicates)on a range of instrument types. The resultswere reviewed at an EI workshop inSeptember, and should lead to the publica-tion of the full method with a precisionstatement this month.Another method was prepared at the

same time, based on equipment beingdeveloped by Stanhope-Seta. IP PM-DT/09Determinationof the fattyacidmethyl esterscontent of aviation turbine fuel using flowanalysis by Fourier transform infrared spec-troscopy – Rapid screening method waspublished in April 2009, and uses an integralFTIRand through flowanalysis cell toprocessa 50-ml fuel sample. With a FAME measure-ment range between 30 to 400 mg/kg, thisportable unit is intended to offer a go/no govisual indication within 15 to 30 minutes.Units were supplied by Stanhope-Seta toenable the round robin to take place at thesame time as that for the GC-MS methodabove. This involved nine laboratories andthe testing of 26 samples (including blindduplicates), with the results reviewed inSeptember. The full method with precisionstatement should also be published thismonth.Although industry resources have been

focusedon theGC-MSandSPE-FTIRmethodsabove, it has also been possible, based onexperience gained from the ruggedness trialin 2008, to develop and publish IP PM-DVDetermination of fatty acid methyl esters

The December 2008 issue of Petroleum Review highlighted the

potential risk of cross-contamination of aviation kerosene (jet fuel)

by biodiesel in the fuel distribution system. Throughout 2009 the

EI’s Technical Department has been working with industry

stakeholders on various initiatives to assist the industry in its efforts

to manage this risk. Martin Hunnybun, Technical Team Manager

at the EI, reports.

The challenge of FAMEV I A T I O N Jet fuel qual i ty


A

(FAME), derived from bio-diesel fuel, in avia-tion turbine fuel – HPLC evaporative lightscattering detector method and IP PM-ECDetermination of the fatty acid methyl estercontent of aviation turbine fuel – solid phaseextraction and gas chromatographymethod. Both of these were issued lastmonth. The round robin for the HPLC-ELSDmethod tookplace in September, involvinganumber of laboratories measuring 32 sam-ples (including blind duplicates). It is theintention to publish a full version of thismethod with a precision statement(depending on the outcome of the roundrobin) before the end of 2009. Although theround robin for the SPE-GC method hasbeen defined, at the time of writing it isunclear whether sufficient volunteer labora-tories will be forthcoming to enable it toproceed.The development and management of

the inter-laboratory study has been a majorundertaking during 1H2009, drawing uponfunds provided to the EI TechnicalProgramme from our Technical Partners.With around 1,500 samples this was one ofthe largest programmes ever undertaken bythe EI. With the uncertainty around futurepermissible levels of FAME in jet fuel, andincreasing levels of experience in laboratoryanalysis, it is likely that testmethod develop-mentwill continue in this area for some timeto come.

Maritime cross-contaminationThe EI seminar drew attention to the risk ofcross-contamination during marine ship-ment and, as highlighted in theAugust issueof Petroleum Review, EI HM 50 Guidelinesfor the cleaningof tanksand lines formarinetank vessels carrying petroleum and refinedproductswaspublished inApril this year. Thistitle was prepared by the EI’s Marine

Transportation Committee, with input frommany stakeholders, including the JointInspection Group Product QualityCommittee. It includes recommendationsregarding the carriage of aviation fuels, andfor the cleaning of vessels which have previ-ously carried biodiesel or FAME cargoes. It isavailable to download free of charge fromthe EI publications website www.energyinstpubs.org Printed colour copies can alsobe purchased in bulk from the EI – pleasee: [email protected]

Jet fuel ground handling equipmentPart of the aviation fuel handling industryresponse to the challengeof FAME in jet fuelhas been to assess potential effects onground handling equipment/materialsshould the acceptable specification limit beincreased to 100 mg/kg. In response to arequest fromtheEIAviationEquipment Sub-Committee, the international suppliers ofaviation fuelling hose have confirmed thattheir products are suitable for use with fuelcontaining up to 100 mg/kg FAME.The EI Aviation Fuel Filtration Committee

has also reviewed the potential impact ofFAME on filtration equipment. It is consid-ered that the surfactant additive packagethat is included in the test protocols man-dated by industry for filter/water separators(API/EI 1581 Specifications and qualificationprocedures for aviation jet fuel filter/separators, 5th edition) leads to filters thatare not readily affected by trace levels ofFAME in jet fuel. In support of this, benchscale testing by one EImember company hasconfirmed that exposure to 2,000 mg/kgFAMEduring a 40-hour test did not degradecoalescence performance. Similarly, limitedbench scale testing by another EI membercompany has confirmed that trace levels ofFAME do not adversely affect filter monitor

media water uptake – the key functionprovided by this type of filter.

Microbial spoilage and corrosionThe EI’s Microbiology Committee is currentlyundertaking a laboratory testing exercisethat, although primarily aimed at investi-gating ratesofmicrobial growth inbiodiesel,also includes in the test matrix two differentjet fuel blends containing both 100 mg/kgand 400 mg/kg of the same FAME cocktailbeing used for the approval programme.Results from this study are due to be pre-

sented at the International Association onStability, Handling and Use of Liquid Fuels(IASH) conference this month.

International perspectiveThe industry is currently managing signifi-cant fuel handling challengesbrought aboutby the introduction of FAME in diesel forroad transport, to ensure the continuedintegrity of jet fuel quality and equipmentcompatibility and operability throughoutthe supply chain.What started as an issue ofregional concern has quickly taken on aninternational perspective as biodiesel man-dates have spread worldwide.The EI has demonstrated its ability to

respond rapidly in support of changingindustry requirements, drawing upon theresources of several of its technical commit-tees and soliciting additional contributionsfrom a large number of stakeholders.The challenge of FAME will remain for

some months to come and can only beaddressed through continued collaborativeindustry initiatives.The EI wishes to thank all of the industry

specialists that have assisted in the develop-ment of the materials/projects describedabove,withoutwhose input theworkwouldnot have been possible. �


Air BPAir TOTALCentral Europe Pipeline Management Agency (CEPMA)Chevron Global AviationCONCAWEDefense Energy Support CentreDirection Générale de l’Energie et du Climat/SNOIDIESTER IndustrieENIExxonMobil Research and Engineering CompanyFederal Aviation AdministrationKuwait Petroleum International Aviation CompanyQinetiQ/UK MoD Defence Fuels GroupService des essences des arméesSFDMShell Global SolutionsSociété des Pipelines Méditerannée – Rhône (SPMR)SOFIPROTEOLTRAPILUK Department for TransportUS National Biodiesel Board

AirbusBoeingBombardierCessnaCFMIEmbraerGEHoneywellPratt & WhitneyRolls-RoyceSnecma

Air Transport Association of AmericaCivil Aviation AuthorityEuropean Aviation Safety AgencyInternational Air Transport AssociationJoint Inspection GroupPipeliner Biodiesel Steering Committee (USA)

Table 1: The EI FAME Joint Industry Project Steering Group

JIP funding companies/organisations Major airframe and engine OEMs

Liaison organisations

When we talk about the ‘energylobby’, we refer to an amor-phous and large group of

individuals and organisations united onlyin one goal – to influence EU legislationand policy so that it better reflects theirinterests. As a result, given the complexityof the energy sector, it is no surprise thatthere are a vast number and variety ofBrussels-based European organisations andrepresentatives of major companies, set onbending the ear of EU politicians andofficials.

As for the industry federations, there aremany – the European Petroleum IndustryAssociation (Europia); Eurofuel, theheating oil association; and the EuropeanPure Plant Oil Association (EPPOA) areobvious examples. But there is also theInternational Emission Trading Associationand the European Energy Forum (whichinsists that it is not a lobbying group).

Major consumers of oil and gas are also

represented by organisations such as theEuropean Automobile Manufacturers’Association (ACEA) and the EuropeanEngineering Industries Association. TheEuropean Bioethanol Fuel Association alsoplays a significant hand in the debateabout this energy source – and here a nodshould be given to the farmers’ lobby,COPA-COGECA, which for self-evident rea-sons has an interest in biofuelsdevelopment. Also, CEFIC, the EuropeanChemicals Industry Council, a powerfulpresence in EU official corridors, and theAssociation of Petrochemicals Producers inEurope (APPE), are there to represent thisoil-related chemical sub-sector.

Among the oil giants different prioritiesare revealed, although all maintain repre-sentatives in Brussels. BP seeks ambitiouslyto shape Commission regulation drafting.‘Its influence should not be underesti-mated,’ an official said, mentioning thecompany’s rather cheeky claim to have ‘ashared agenda with the EU’. Shell’s priorityis hydrogen, while ExxonMobil’s priority isreturn on investment.

Meanwhile, Russia’s Gazprom is alwayson the prowl in the EU’s corridors.Gazprom hired Brussels-based PR firmGPlus back in 2006 toupdate itsmedia rela-tions. It also signed a separate deal formedia handling and government advocacyin 2007. This move caught the lobbyingindustry by surprise. It was regarded as anaudacious gamble – but the arrangementcontinues without apparent difficulties.

As for western Europe, two French com-panies are never far from any discussionsabout energy policy and are active lobby-ists – namely, Gaz de France (GdF) andElectricité de France (EdF). Think tankswithinfluence on EU energy policy include theCentre for European Energy Strategy(CERES) and also the Society of EuropeanAffairs Professionals (SEAP).

There are also a number of associatedgroups who are interested in influencingenergy policy, but not for the sake ofenergy companies. These include lobbygroups for environment and sustainabledevelopment questions such as theEuropean Federation for Transport andEnvironment, Greenpeace and the Friendsof the Earth. There are broader basedpolicy groups such as the Centre for theNew Europe and more business-mindedlobbyists such as the European EnterpriseInstitute. The American Chamber ofCommerce is influential – and generallyrespected.

Policy prioritiesJulia Harrison, Managing Partner ofBlueprint, which has several energy clients,lists the EU’s current energy policy prioritiesas oil and gas, renewables and technology.This last she says is ‘a bit perilous’ as lob-bying clients because technologies likesolar and wind are in competition. Sheadds to this crowded agenda environ-mental questions and the EU’s approach toenergy security.

However, it is the EU energy market’s lib-eralisation and the moves towards theconstruction of a framework of regulatoryand competition policy which has been atthe heart of policymaking of concern tothe energy sector – and this has been a keyfocus of energy lobbying in recent years,she said. The additional pressure to min-imise carbon dioxide (CO2) emissions andEU renewable energy targets have beenfurther sources of recent energy lobbyingbusiness for her firm.

Given the number of groups and inter-ests in Brussels, it is no surprise that thereare 15,000 lobbyists in the city – an esti-mated figure because by no means all ofthem have signed the voluntary registra-tion system set up by the EuropeanCommission (EC). They are said to spend€750mn/y in their efforts to influence theEU institutions. After Washington, Brusselsis the largest lobbying capital in the world– but one of its weaknesses compared tothe US is that no compulsory declaration offunding sources is yet in place.

It is an important symbol of

the changing focus of the

European Union (EU) that its

energy lobby is today

regarded as an equal to, if

not more important than, the

once feared agriculture lobby

in Brussels, write David

Haworth in Brussels and

Keith Nuthall. Even though

40% of the EU budget is still

spent on agriculture, free

market reforms have clipped

the influence of food groups

at the EU, clearing the way

for energy, whose importance

as an international and

strategic issue becomes ever

more obvious.

Energy lobbying is bigbusiness at the EU

U R O P E Energy


E

Julia Harrison, Blueprint ManagingPartner, which has several energyclients and says oil and gas is still theEU’s top energy policy prioritySource: Blueprint

The EC has responded to this in its ownway by starting four years ago the EuropeanTransparency Initiative. However, even EUofficials admit that its success has so far beenlimited. The voluntary register of lobbyists,announced last year with a flurry byCommissioner Siim Kallas, has produced onlymeager results. Only 593 of some 2,600 lob-bying-based organisations have signed up –that is, a mere 22%. Pressure may increase in

anticipation of the Lisbon Treaty being rati-fied this autumn, which will increase EUpowers, for instance over energy security ofsupply matters.

Four years ago, Friendsof theEarth startedan annual exercise in mockery called the‘Worst EU lobbying Awards’, which last yearwas won by the Malaysian Palm Oil Council,bioethanol producer Abengoa Bioenergyand air industry group IATA. In 2007 theGerman car industry got the gong forallegedly using ‘manipulative tactics whencampaigning against mandatory emissiontargets’. This shows, perhaps a bit flippantly,thatpeopleare starting to takeamuchcloserinterest in corporate lobbying activities inBrussels.

Understandably, the car industry is in thethick of the EU fray, where a huge, thoughslow-moving, battle is beingwagedbetweenthe traditional car manufacturers and thosewho advocate the use of alternative fuelssuch as hydrogen, biofuels and electricvehicles.

Pressure pointsTherearedifferentpressurepoints forenergysubjects that lobbyists must not ignore,Harrison notes. If supply security is the issue,the EU Council of Ministers matters most –but it is almost by definition the least acces-

sible to those who are not EU officials. Also,by the time theCouncil getsholdofa subject,it is too late for the lobbyists to significantlyinfluence affairs, because national govern-ments become their own lobbyists in thedecision-making process.

Far better to influence policy while it isbeing drafted for ministers by the EuropeanCommission, where officials are more acces-sible, and indeed often openly welcomingconsultation. Also, the EU executive is thebest place to reach people if liberalisation ison the agenda, Harrison said; the same withthe internal EUmarket andenergy efficiency.To a degree this also applies to environ-mental questions, but much closer attentionhas to be deployed in the EuropeanParliament. MEPs are notoriously jumpyabout this – the institution has a vociferousGreen membership.

Looking ahead,with energy issues increas-ingly impacting on other policy areas,non-energy lobbyists will gain importance.‘The EU absolutely must join up all the dotson energy questions,’ Harrison asserts. ‘[Forexample,] what is going to happen to theresponsibility for the technical aspects ofenergy; that is, using technology for energyefficiency and smart grid technology?’Lobbyistswill certainly have something to sayabout that. �


EU Energy Commissioner AndrisPiebalgs and his senior officials are keytargets of Brussels lobbyistsSource: European Commission

New publication

www.energyinstpubs.org.uk

Introductory guide toenvironmental damage

In March 2009, the requirements of the Environmental Liabilities Directive were implemented in England andWales as the Environmental Damage Regulations (similar regulations are being developed for Scotland andNorthern Ireland).

A new short guide, commissioned by the Energy Institute’s Soil Waste Groundwater Group, is inpreparation to:

• Explain the main concepts introduced in the Environmental Liabilities Directive• Identify the important components of the Environmental Damage Regulations• Explain what this means to operators of sites, including:• The benefits of gathering existing information on the sensitive species and habitats in thevicinity of a site• A case study to illustrate the value of prior knowledge about a site's environmental setting• How best to deal with damage if it occurs

This guide will be available via the EI publications website www.energyinstpubs.org.uk from November.

More detailed guidance for operators is in preparation by the Energy Institute. This will provide practical approaches to help site managersestablish and maintain baseline condition information for natural habitats and protected species on and around their sites. For moreinformation please contact Jenny Lyn at [email protected]

Only one Caribbean country,Trinidad and Tobago, is self-suffi-cient in the main energy sources

of oil and gas and with a surplus forexport. Even Barbados, Cuba andSuriname (the latter situated on thenorthern coast of South America butregarded as ‘Caribbean’ both politicallyand economically) – all of which are alsooil producers – have to import refinedproducts to make up for shortfalls indomestic supply.

It was little surprise, therefore, that allCaribbean island nations – bar Trinidadand Tobago, and Barbados – latched onso eagerly to Venezuelan President HugoChavez’ offer of supplies of deferred-payment oil on a regular basis when itwas made four years ago.

Through state energy giant PdVSA,Chavez promised enough refined oil andcrude in the case of those countries with

local refineries to meet the varyingenergy needs of 13 states belonging tothe Caribbean Community and CommonMarket (Caricom) group, non-Caricomisland states like Cuba, the DominicanRepublic and Haiti, and the mainlandCentral American nations of Nicaragua,Guatemala and Honduras. The termswere 60% downpayment on every barrelof oil when the price was $50/b or over,but dropping to 50% when the pricereached $100/b. There was a two-yeargrace period for reimbursement of theunpaid portion, which was spread over 25years at a then-unbeatable interest rateof 1%. This was actually converted intoloans, which each beneficiary could usefor development purposes as approved byVenezuela.

In 2008, the then 15 PetroCaribe bene-ficiaries (two others came onboard thisyear) were assigned a quota of 199,200b/d of oil, with Cuba the most favourednation, receiving 92,000 b/d. Chavez evenallowed repayment of the loan portion ofthe oil supplied to be settled in goods andservices rather than cash, such as blackbeans in the case of the DominicanRepublic and doctors in the case of Cuba.

Mounting debtsHowever, the ‘security’ of the PetroCaribearrangement is now being called intoquestion, as the energy debt mounts witheach passing year and the smallCaribbean states find themselves particu-larly vulnerable to the world economicslowdown. They have all lost considerableamounts of tourism income, as well asmuch of the remittances that Caribbeannationals resident in the US, Canada andthe UK send home each year, since thelatter are naturally also affected by therecession in their adopted homelands.

Even those countries who, like Cuba,can easily repay principal and interest toVenezuela in kind instead of cash – bysending doctors, which the CommunistCaribbean nation seems to produce inexportable numbers – are becoming con-cerned at the size of the debt burden theyare incurring. PdVSA has estimated thatas much as 35% of the Caribbean’s

external debt will be owed to Venezuelaby 2015, a situation with which even theInternational Monetary Fund (IMF) isunhappy. Indeed, Jamaica’s PrimeMinister Bruce Golding, whose countryreceives 23,500 b/d of PetroCaribe oil, hasdrawn attention to ‘the huge weight ofmortgage that will be left around theneck of the next generation in theCaribbean’.

While it will slow down the growth ofthe debt –which can only be a good thingfrom the Caribbean perspective – Chavez’recent decision to ask beneficiaries to pay80% of the oil price up front, with only20% as the debt portion, is regarded as abad thing for small states suffering from asharp reduction in the availability of for-eign exchange.

Under the original agreement, 80%payment was only applicable when oilwas priced between $24/b and $30/b,which would have been manageable; butwith oil back up to around $70/b, 80%becomes a severe strain. Even Guyana,where Caricom is headquartered andwhich only receives 5,200 b/d underPetroCaribe, has noted through itsPresident, Bharrat Jagdeo, that ‘thisdevelopment will present grave difficul-ties for us’.

So, perhaps the Caribbean will have tolook elsewhere for true ‘energy security’.It could do worse than refer to theDeclaration all its countries signed, alongwith Central America, South America,Canada and the US, at the end of the fifthsummit of the Americas in Trinidad inApril this year. The first of its kind to be

In a world of unpredictable oil prices and unstable sources

of supply, ‘energy security’ has become a major

preoccupation of oil importing countries around the globe

– and the small island nations of the Caribbean are as

concerned as any in this regard, writes David Renwick.

The Caribbean energy sceneA R I B B E A N Energy security


C

Only one Caribbean country, Trinidadand Tobago, is self-sufficient in themain energy sources of oil and gas andwith a surplus for export. Pictured isBP’s Savonette platform, Trinidad,which has a design capacity of 750mncf/d and is due to produce first gas in4Q2009Source: BP

US President Barack Obama was the‘star’ at the fifth summit of theAmericas in Trinidad held in April

held in the Caribbean – at which the starwas, not surprisingly, new US PresidentBarack Obama – the summit concluded, inits ‘Declaration of Commitment of Port ofSpain’, that energy from renewables was,perhaps, the best way to guarantee secu-rity in the long run, since much of it wasavailable domestically and countries couldexercise greater control over pricing thanthey could in relation to imported oil.

The Declaration noted the determina-tion of the heads of government of theAmericas ‘to encourage, as appropriate,the sustainable development, productionand use of both current and next genera-tion biofuels, with awareness of theirsocial, economic and environmentalimpact’ and to work together to facilitatethe use of such fuels ‘through interna-tional cooperation and the sharing ofexperiences in biofuel technologies andpolicies’.

Biofuels refer to such products asethanol from either sugar cane (as inBrazil) or corn (as in the US), which areincreasingly taking the place of gasoline inmotor vehicles – and several Caribbeanstates have already started along thatroad. Biofuels, of course, are only oneexample of renewable energy and it wasinteresting to see Bolivia’s President EvoMorales enter a caveat about them in theDeclaration. He thought that rapid bio-fuels production could ‘adversely affectand impact upon the availability of foodand raise food prices, increase deforesta-tion, displace populations due to thedemand for land and ultimately aggravatethe food crisis’. This would ‘directly affectlow-income people, especially the pooresteconomies of the developing countries’.

Instead, President Morales thought thehemisphere should pursue more benignsources of renewable energy, such as‘geothermal, solar, wind and small- andmedium-sized hydroelectric plants’.

Uniquely positionedThe Caribbean is, in its way, uniquely posi-tioned to adopt renewables as acomplement to imported oil and an even-tual replacement for some portion of thefossil fuels currently used. The climate issunny all year round, wind resources areadequate in many locations, geothermaldevelopment is possible in some territoriesand there are enough large rivers, espe-cially in Guyana, to create the foundationfor hydroelectric power.

Energy from biomass is also a possibility.Renewable energy expert, David Barrett,whose day job is actually representing anAustralian oil company in the Caribbean,has done the maths and observes that: ‘InBarbados, they were saving 33,000 tonnesof imported fuel a year by using solarwater heaters instead of electric waterheaters when oil was only $25/b. Evenat $25/b, the whole English-speakingCaribbean, with a population of five mil-lion, could shave asmuch as $125mn off itsoil import bill.’

With that bill around $2.7bn in Jamaicaalone in 2008, it is clearly not surprisingthat Jamaica’s Office of Utilities Regulation(OUR) is anxious to increase the share ofrenewables in electricity generation from5.5% today to 10% by 2010, and 15% by2015. There is no guarantee it will getthere, but OUR has sought proposals frominvestors for providing 73 MW from suchsources as wind, solar, biomass and hydro.

Cognisant of the fact that the US’National Petroleum Council has predicted

that oil, natural gas and coal will remain‘indispensable to meeting projectedenergy demand growth in the world to2030’, fossil-fuel deficient Caribbean coun-tries also believe that domestic oil and gasresources can be as much a part of theenergy security equation as renewables.

Several of them are currently engagedin oil exploration efforts, notably Jamaica,Guyana, The Bahamas and Curacao in theNetherlands Antilles. Nine explorationwells have been drilled on- and offshoreJamaica since 1955, none of which havefound any commercial hydrocarbons. Atotal of 12 blocks are currently underlicence to explorers from Australia (Finder,the company that Barrett represents),Canada (Rainville) and Hong Kong(Proteam). The first well is likely to be sunkin 2010.

Jamaica is also returning to the marketin 2010 to offer its remaining 19 offshoreblocks for exploration – the third formalauction of Jamaican acreage since January2005. Dr Raymond Wright, the country’sleading geologist and Special ProjectsManager of the state-owned PetroleumCorporation of Jamaica (PCJ), says that a6,217-line km 2D seismic survey byNorway’s Wavefield Inseis has ‘indicated anumber of interesting prospects’.

Guyana has been trying even longerthan Jamaica to find oil (since 1916),but with an equal lack of success so far.It currently has eight offshore andonshore blocks under licence. BothExxonMobil/Shell and small Canadianindependent CGX Energy have recentlyshot seismic in their Stabroek andCorentyne blocks, respectively. However,exploration is not expected to commenceuntil 2010. �


At the fifth summit, Bolivia’s PresidentEvo Morales suggested the regionshould pursue more benign sources ofrenewable energy than biofuels, suchas ‘geothermal, solar, wind and small-and medium-sized hydroelectric plants’

Venezuelan President Hugo Chavezoffered supplies of deferred-paymentoil on a regular basis to Caribbeancountries four years ago

Jamaica’s Prime Minister Bruce Golding,whose country receives 23,500 b/d ofPetroCaribe oil, has drawn attention to‘the huge weight of mortgage that willbe left around the neck of the nextgeneration in the Caribbean’Source: Jamaica Information Service

The aftermath of every financial crisisseems to grant the insurance and rein-surance sector a ‘get out of jail free’

card. Themarkethas tended toharden in thetwo or three years following a financialmarket collapse. This has meant that pre-miums and, consequently, earnings haverisen. A conservative industry, insurers claimthat their balance sheets are healthier thanthose of bankswhichwere ruined by the lastyears of financial crisis. Thatwas until the col-lapse of the American International Group(AIG), which cost the US taxpayer over$180bn to bail out.AIG has been amajor player in the energy

insurancemarket for decades, but it was alsoa hugewriter of credit default swaps (CDS), a

form of insurance policy against a borrowerdefaulting ondebt. Its notional CDS exposure– the total amount sold – was $372.3bn inSeptember 2008. It also wrote huge amountsof residential mortgage backed securities aswell as insurance policies on banks’ (includingEuropean banks) loan portfolios. Had the USgovernmentnot stepped inwithover $180bnin new capital,much of theUS and Europeanfinancial systems would still be shatteredtoday. AIG was the highest profile insurancecompany whose executives believed wouldprofit by moving into investment banking.TheotherwasZurich-basedSwissReinsuranceCompany, which lost 1.2bn Swiss francs($1.14bn) in the US mortgage securitiesmarket and was bailed out by Wall StreetsageWarrenBuffett,whobought a3%stakein the company for an undisclosed sum.

Opportunity for competitorsAIG’s demise signalled an opportunity formore conventional insurance companies as itheld adominant position in the energy insur-ance sector. In late 2008 the prevailing viewwas that AIG would quit writing propertyandcasualty insurance, and thusopena largechunk of the market to its competitors. So,underwriters went to their boards of direc-tors and asked for more capital in order totakeup theAIGbusiness. This capital increasehappened at the beginning of January 2009.However, AIG didn’t quit the market andmanaged to retain over 90% of its clients.Theonly changewas theexitofkeyAIGexec-utives whowere unhappy at the prospect ofthe US government not just dictating on thesizeof theirbonuses,butwhetherornot theygot a bonus at all.The energy insurancemarketwas in a con-

fused state in early 2009. High commodityprices of previous years had generated addi-tional premium from increased asset valuesjust as competition in the market haddepressed rates. The financial crisis itselfmeant that all insurance companies had tomake up for the shortfall in investmentincome through premium rises. In morebenign economic times insurance companiescovered their underwriting losses through

investment income. This is no longer possibleand insurers have to watch their loss ratiosand balance their underwriting books. Butthese companies had also increased thecapacity of the energy insurance market byabout 5% at a time when the cost of capitalwasbecomingevermoreexpensive.A radicalaccounting solutionwas needed tomaintainprofitability.One such strategywas to rethinktheir exposure to windstorm risks in the Gulfof Mexico given the losses caused byHurricane Ike in 2008.

Gulf of Mexico windstormsThe biggest headache facing insurers whocover risks in the upstream oil sector is thewindstorm risk in the Gulf of Mexico.Hurricane Ike in 2008 was the third largestinsurance loss ever, after Hurricane Katrinaand 9/11. Although the storm was just cate-gory 2 strength when it hit land, it haddestroyed 54 oil platforms and damaged afurther 95 en route (see Tables 1 and 2).However, until this year the Gulf of Mexicogenerated about 25% of the upstreammarket’s insurance premium – a crucial partof an insurer’s portfolio. Energy insurers hadto be careful not to price themselves out of amarket and lose clients. Nevertheless, thethinkingwas that themarket could sustain a30% cut in available capacity for windstormdamage, greater retentions by insurancebuyers, higher premiums and restrictions onsome aspects of available cover. Theseincluded a limit on compensation for thecosts of making wells safe and re-drilling.Some insurers had hoped to increase insur-ance buyers’ retentions up to tenfold.The combination of a near doubling of

premiums, less cover and low oil prices per-suaded rig operators to eschew insurancealtogether and carry their own risks. In somecases, the new insurance terms meant thatthe operators would have to carry about75% of their windstorm exposure them-selves. So, what was the point of buyinginsurance at all? The operators not only scru-tinised insurance costs more closely, but nowclaim that greater government regulationand improved technology reduce the needfor insurance in the first place. Multinationalmajors such as BP have self-insured for manyyears. Now companies such as Transoceanand Diamond Drilling have decided to self-insure this year. Insurance restrictions havealso affected small- to medium-sized opera-tors in other offshore areas such as theNorthSeaandWestAfrica.Once thedarlings of thestock markets, the economic crisis has meantthat these companies have had to delayexpansion plans as well as pay more to pro-tect their existing assets.The consequences of this strategy remain

unclear. The appearance of the El NinoSouthern Oscillation (ENSO) climatic effect

As Hurricane Bill turned east in

August, brushing alongside

Bermuda and New England,

many rig operators in the Gulf

of Mexico breathed a sigh of

relief and felt vindicated.

Spooked by massive rises in

insurance premiums and

deductible levels for windstorm

insurance, many oil companies

had decided to self insure, ie

buy no cover. Energy insurers

and reinsurers are beginning to

regret their decisions earlier this

year to tighten terms for their

clients. Indeed, the future for

energy insurers is looking

gloomy, writes Maria Kielmas.

When cover flees for coverN E R G Y Insurance


E

Hurricane Katrina 68.515 20059/11 23.654 2001Hurricane Ike 15.000 2008Hurricane Ivan 14.115 2004Hurricane Wilma 13.339 2005Hurricane Rita 10.704 2005Hurricane Charley 8.840 2004Winter Storm Lothar 7.223 1999Winter Storm Kyrill 6.097 2007Hurricane Frances 5.650 2004

Table 1: Most expensive insurance losses, 1999–2008 Source: Munich Re, Swiss Re, Willis

Loss Insured loss (2008 $bn) Date

this year implies that hurricane strength inthe Gulf of Mexico and south-eastern UScould be much weaker than in previousyears. But if windstorms later in the seasoncause any significant damage, rig operatorsmaynotbeable tocarryoutnecessary repairsgiven the constraints on both their cash flowand their lackof insurance cover. This, in turn,could impact on the region’s oil and gas pro-duction rates.

More regulationLife is not going to be any easier for theenergy insurers either. About one third ofGulf of Mexico rig operators stopped buying

insurance altogether and many will notreturn unless premiums fall significantly. Thiscould be difficult for the insurers as they findit more expensive to protect their own cashflow.Thereinsuranceandretrocession(wherereinsurers reinsure themselves) markets aredrying up. In addition, the Europeanupcoming Solvency II rules on capital ade-quacywillhaveahugeeffectonthe insurancemarket. More capital will be needed to writevarious lines of business, notably energy, anditwill bedifficult to invest inother than triple-rated government debt. Insurers will have toadjust their liabilities in line with marketchanges and bond yields.

Hopes of an end to the economic crisisand recession could be just an illusion.Joseph Mason, Professor at Philadelphia-based Drexel University Le Bow School ofBusiness, observed in his regular marketcommentary in August that the US adminis-tration’s credit and capital programmeshave provided a vacant subsidy to the finan-cial sector. This thinking also could apply tosubsidies provided by European and othergovernments to theirnational financial insti-tutions. Mason notes that no investor reallybelieves that recent (improved) financialresults are built up on anything other thangovernment subsidies and that those subsi-dies can continue indefinitely. Without realgrowth, investors are largely following gov-ernment money. Even government moneyitself is unstable, he adds, as the bad debtsthat caused the crisis in the first place haveto go somewhere. The present policies ofgovernment financial engineering to reducethe effects of the crisis risks imposing agreater total recessionary effect than other-wise would be the case.In their own efforts to address the causes

of an earnings slump, energy insurers mayhave taken the first steps todestroyingwhatused to be a lucrative market in the Gulf ofMexico. �


Saffir Simpson* Cat 4 Cat 5 Cat 4 Cat 2Hurricane Severity Index* 33 47 42 36Integrated Kinetic Energy* 4.4 5.1 4.3 5.2No of platforms destroyed 7 46 69 54No of platforms damaged 24 20 32 95Commercial market loss $1,250mn $3,000mn $3,500mn $3,000mn

Table 2: Comparison of four major windstorms* The Safir Sampson Hurricane scale defines the strengths of Western Hemisphere tropical cyclones on thebasis of their wind speeds, the Hurricane Strength Index aims to calibrate the intensity and destructivenessof a hurricane given the size of the area affected and not rely solely on wind speeds. Integrated KineticEnergy is a computational process which takes into account the expected damage from windstorms overa given area given the experience from previous storms.

Ivan Katrina Rita Ike

www.energyinst.org.uk/ipweek

Monday 15–Thursday 18 February 2010, London, UKIP Week 2010 will bring together experts from the oil and gas industry to discuss the impact of the financialdownturn on the industry, the twin challenges of economics and environment and the positive advances thathave been made with technology, innovation and future leadership.

International Petroleum Week 2010

Conference topics include:

• Fuelling the recovery

• Russia and CIS

• Focus on Africa

• Upstream

• 23rd Energy Price conference

• Spotlight on the Middle East

• Downstream: Satisfying ever more demanding customers

• Generating growth through effective asset management

• Gas conferencePlus the IP Week Lunch, Dinner and opening nightdrinks reception

Confirmed speakers include:

• Sean Cronin, Editor, Argus Media

• Andrew Gould FEI, Chief Executive, Schlumberger

• Julian Lee, Senior Energy Analyst, CGES

• Gerald Rohan FEI, CEO, Rohan Global Consulting

• Christof Ruehl, Chief Economist, BP

• James Smith FEI, Chairman, Shell UK and President,Energy Institute

• Raphael Vermeir CBE FEI, Vice President, External Affairs –Europe, ConocoPhilips

IP Week 2010 sponsors:

‘Peak oil’ was a term originallycoined in the mid-1950s by MKing Hubbert, a US Shell geol-

ogist, to describe the inflexion point atthe top of a production curve at whichpeak production is achieved and afterwhich the rate of oil extraction inextri-cably declines. Whilst the term couldarguably be applied to individual wellsand fields, it is most commonly used inthe evaluation of prospective sedimen-tary basins, countries and, moreespecially, in geopolitical circles todescribe global production. ‘Hubbert’sPeak’, as it has become known, wassurpassed in the US in 1971 and in thelate 1990s in the North Sea as majorfields discovered in the 1970s entereda phase of terminal decline. However,controversy surrounds whether thebalance and offset between the cumu-lative effect of basin maturity andexploration success in new frontierbasins has already been achieved orwill soon be reached.The following article summarises the

debate on the motion that ‘This housebelieves peak oil is no longer a con-cern’. Whilst David Jenkins, a formerTechnical Director and Board Memberat BP, argued that peak oil is not ofimmediate concern, Jeremy Leggett ofSolarcentury spoke against the motion.Julian Rush, the Chief ScientificCorrespondent at Channel 4 News,moderated the debate and provides apersonal reflection on the issues raisedand the outcome of the debate.A description of the first debate

appeared in last month’s issue ofPetroleum Review. The third and finaldebate on the role and impact thatnational oil companies (NOCs) haveupon our industry will be published inDecember.

For the Motion – David Jenkins‘Historically the concerns about peakoil have focused on the inability ofsupply to meet progressively increasingdemand. The time of peaking relatesto the degree of cumulative produc-tion from the resource base and, onceit is passed, declining production isinevitable. Peak oil concerns areentwined in a wistful recall for thedays when cheap energy underpinnedthe Organisation for EconomicCooperation and Development’s(OECD) rapid economic growth.Those days are now over and will

never return. The world needs tobecome accustomed to expensiveenergy. If the present concerns about

carbon dioxide (CO2) persist, the con-comitant requirement to decarbonisecarbon-based fuels will mean a furthersignificant increase in costs. In fact,rather than the supply peak aroundwhich commentators have fretted,high energy prices could evenengender a demand peak for oil,something which the environmentalmovement would applaud.It is important to recognise that

there is no near-term resource peak foroil, nor gas or coal. That is quite clearfrom the 2005 International EnergyAgency’s (IEA) World Energy Outlook.This gave an assessment of ‘availableoil resources’ at over 3.5tn barrels –and this did not include any con-tribution from gas-to-liquids orcoal-to-liquids technologies, whichcould become significant sources ofliquid petroleum at prices above$100/b.The question of whether or when

we experience peaks in production isfundamentally about market forcesand definitely not related to a resourcepeak, as exemplified in the classic KingHubbert model. We had a productionpeak in 2008. It was caused by a verysharp speculative run up in price andled to the inevitable cut back indemand. Although the price has sincecome back it remains high in historicterms and demand is continuing todecline. Investment though has alsobeen cut back dramatically and we cancertainly expect a supply shortfallsometime in the next four to sevenyears. This shortfall will also not berelated to peak oil, but it will cause afurther spike in price as occurred in2008 and then, as last year, demandwill again drop. The pattern inthe future is likely to be one ofan extended irregular productionplateau, punctuated by abrupt swingsin prices leading to abrupt changes indemand.Although at the moment we rely

almost exclusively on liquid petroleumfor road, marine and air transportfuels, and because mobility is so funda-mental to our way of life and standardof living, we cannot conceive how wecould change. This perceived depen-dence has underpinned our worriesabout global oil supply peaking.Decarbonising energy because of thefear of climate change, however irra-tional that fear may actually prove tobe, would have the effect of forcingsuch change. Moving away from theinternal combustion engine to an elec-

This year’s Petroleum

Geology Conference (PGC)

– organised by the

Geological Society, the

Petroleum Exploration

Society of Great Britain

(PESGB) and the Energy

Institute – was the latest

of seven held over the past

30 years. Held at the QEII

Centre, Westminster, it

included for the first time

three hour-long, lively

lunchtime debates that

were convened under the

theme of topical

‘Geocontroversies’, in

which two expert

protagonists presented

their views for and against

three motions of direct

relevance to the oil

industry. The second of

these debates tackled the

issue of peak oil. John

Underhill, Grant Institute

of Earth Science, The

School of Geosciences,

The University of

Edinburgh, reports.

Is ‘peak oil’ upon us?& P Debate


E

tric drive train, associated with greatlyincreased production of biofuels, issoon to be technically feasible andcould very plausibly produce a scenariothat eliminated further growth inglobal demand for oil. Combine thiswith the production capacity availablefrom the global resource base and afuture world of expensive carbon freeenergy, then peak oil clearly becomesan artefact of a prior economic world.In this somewhat bleak future it willdefinitely not be one of our manyconcerns.’

Against the motion – JeremyLeggett‘“Early peakers” like me fear that theoil industry has lapsed into a culture ofover-exuberance about both theremaining oil reserves and prospects ofoil yet to be discovered, and about theindustry’s ability to deliver capacity tothe market even if enough resourcesexist. In the corporate world, earlypeakers include the recently-formedUK Industry Taskforce on Peak Oil andEnergy Security (ITPOES), members ofwhich include Virgin, Arup, Foster andPartners, Scottish and SouthernEnergy, Solarcentury, Stagecoach andYahoo.The first report of the ITPOES group

of companies, released in November2008 at the London Stock Exchange[see Petroleum Review, February2009], presented evidence that totalglobal oil production will begindeclining early in the next decade. Themain argument is that new capacityflows coming onstream from discov-eries made by the oil industry over thepreceding decade will begin droppingat that time. This problem will be com-pounded by other issues, including theaccelerating depletion of the many oldoil fields that prop up much of globaloil production today, the probableexaggeration by OPEC countries oftheir reserves, and the failure of the“price-mechanism” assumption thathigher prices will lead to increasedexploration and expanding discoveries.In the same week as the ITPOES

report was released, the IEA publishedits latest weighty annual report, theWorld Energy Outlook. In 2008, forthe first time, the IEA conducted anoilfield-by-oilfield study of the world’sexisting oil reserves. It revealed thatthe fields currently in production arerunning out alarmingly fast. Crude oilproduction from all the world’sexisting fields climbs unevenly fromjust below 60mn b/d in 1990 to a peak– more exactly a brief plateau – of justover 70mn b/d between 2005 and2008. In 2009, however, crude produc-tion begins a steep descent, falling

steadily all the way below 30mn b/d by2030. To meet the projected demandfigure by 2030, up to 64mn b/d oftotally new production capacity wouldbe needed onstream within 22 years.That, the IEA points out, is fully sixtimes the production of Saudi Arabiatoday.The oil industry is not discovering

giant oil fields at anything like the rateit did in the 1960s – the peak decadefor discoveries. This is the case evenwith much better equipment forexploration today, and even after fouryears of rising oil prices from 2004 into2008, when exploration was not ham-pered by lack of funds for investment.When the oil companies do make bigdiscoveries, the lead times from dis-covery to first new oil delivered tomarket are long – often more than 10years. In addition, the oil industry hasprofound infrastructure problems, andmajor issues with underskilling andunderinvestment. Many drilling rigs,pipelines, tankers and refineries werebuilt more than 30 years ago, andaccording to some insider experts thephysical state of the global oil infra-structure is a major problem even atcurrent rates of oil production, muchless the significantly higher levelsanticipated in the future. The averageage of personnel in the oil industry is49, with an average retirement age of55 – little less than a human-resourcestime bomb. To add to the challenges,the industry’s overall explorationbudget has actually fallen in real termsin recent years. The ITPOES fears thatthese issues will synergise to com-pound the peak oil crisis, gravelyimpairing society’s collective ability torespond.In conclusion, this debate is all about

the risk of a mighty global industryhaving its asset-assessment systemicallyoverstated, due to an endemic cultureof over-optimism, with potentiallyruinous economic implications.That couldn’t possibly happen could

it?’

Peak oil summary – Julian Rush‘I’m old enough to remember thefurore surrounding The Limits toGrowth from the Club of Rome in theearly 1970s. It was published while Iwas an undergraduate studyingEngineering and Economics, and Irecall it prompted considerabledebate. Much maligned for predictionsit didn’t actually make, not least theinfamous ‘forecast’ that oil would runout in 1992, it did serve to start adebate that continues to this dayabout the way Earth’s growing humanpopulation uses and exploits theplanet’s resources.

The debate is rightly wider now thanthe narrow issue of supply anddemand, as both speakers implicitlyrecognised. It is no longer a debatebased on the assumption thatresources are infinite and demandenduring and inflexible, but onecoloured by the realisation that peakoil must happen; it is a necessary pre-condition for the successful adaptationof humanity to climate change.The issue, then, is not a matter of if,

but when? And the timing is critical,especially if you accept the latest warn-ings from IPCC (IntergovernmentalPanel on Climate Change) scientistsof the need for greenhouse gasemissions cuts way beyond thosecurrently contemplated in interna-tional negotiations.Can peak oil be managed so there is

a smooth transition to replacementtechnologies or fuel sources withurgency but without excessive societaldisruption? Both contributors agreedoil prices will rise in the next few years;the trick for the world’s leaders is toput in place timely policy responses touse such rising prices so they act as adriver to accelerate the switch to alow-carbon economy and infrastruc-ture. Arguably, they have beendismally slow to do so.Or will unfettered market forces

drive up oil prices so quickly, as oilcompanies seek to recover the costs ofextraction from increasingly difficultenvironments like the deep sea or tarsands, that wealthy Western societies,at least, are left with difficult choicesabout unaffordable lifestyles? For thepoliticians, that is a distinctly uncom-fortable scenario, one likely to bemade of their own reluctance to act.The problem is, as both David Jenkinsand Jeremy Leggett make clear, partic-ularly acute when it comes totransport.Then there are the oil companies.

‘Business as usual’ is a superficiallyattractive option for those unwilling orunable to adapt. Already we see manyof the majors retrenching to their corebusinesses. But by adopting strategiesdesigned to delay peak oil in order toprotect their short-term vested inter-ests, they risk not only exacerbatingclimate change – for which they areunlikely to be forgiven – but their verysurvival as well when their bluff iseventually called.’ �

Following a vote by those attending,Jeremy Leggett won the debate – theaudience concluding peak oil was ofconcern, not so much because of itsimpact on the industry, but because ofits importance to the planet.


Cleaning, dismantling and transporta-tion on a massive scale are aninevitable part of any decommis-

sioning process, as are the extensivepreceding preparations and consultations.Although each stage is tightly regulated byboth international and national legislation,the oil and gas industry has effectivelybeen left with the unenviable task of bal-ancing several competing concerns –health and safety, changing technology,cost and, of course, environmental issues.

The effects of E&P activity on the envi-ronment are well understood, throughextensive studies on issues such as pro-duced water, drill cuttings, naturallyoccurring radioactive materials (NORM)and coral formations. Unfortunately, how-ever, this understanding does not yetextend to the impact of the decommis-sioning process on the environment,which, at least insofar as the UK is con-cerned, is still in its infancy.

So, what are the environmental issuessurrounding the decommissioning process?More importantly, what precautions arebeing taken to protect the environment?

The issuesThe starting pointmust be to acknowledgethat decommissioning is not simply reverseconstruction. Much of the infrastructurepresent in the North Sea has been in placesince the 1970s/1980s and, in many cases,the marine environment will have adaptedsignificantly to its presence. In environ-mental terms, this raises awhole new set ofchallenges.

The removal and disposal of hazardoussubstances in the decommissioning process

has proven to be a significant issue for theindustry. For example, the presence ofNORM, a by-product of the processing andrefining of oil and gas extracted frombeneath the North Sea, means decommis-sioning operations will inevitably includethe collection, transportation and disposalof radioactive waste. Polychlorinatedbiphenyls, a family of chemical present inolder oil and gas equipment, must also beidentified, registered, labelled and dis-posed of. Furthermore, having frequentlybeen used to insulate pipe equipment, andfor its fire and heat resistant properties,asbestos is also a common find atmany off-shore installations.

Some methods employed to dislodgeparts of the infrastructure can have seriousenvironmental consequences. The use ofexplosives for underwater cutting anddemolition, for example, may pose aserious threat to some marine mammalswhich rely heavily on sound for findingprey, detecting predators, communicationand navigation.

Cleaning ageing and corroding struc-tures before bringing them back to shoremeans the utilisation of blasting tech-niques, as well as heavy chemicals, andsubsequent contaminative discharges intothe marine environment. There are alsoissues surrounding the level of cleanlinessto be achieved and how far it is necessaryto carry out cleaning activities offshore.

The presence of drill cutting piles at thefoot of platforms has also long been recog-nised as something which must be dealtwith at the point of structure decommis-sioning. Usually the drill cuttings are simplydischarged into the sea close to the foot of

the platform. In the shallower waters ofthe southern North Sea the strong tidalcurrents disperse the cuttings, diluting anyenvironmental impact. Weaker tidal cur-rents in the deeper northern North Sea,however, mean cuttings instead accumu-late at the foot of the platform. It has beenestimated some cutting piles may containas much as 40,000 tonnes of contaminatedsediment.

Likewise, any other debris remainingafter decommissioning – such as scaf-folding dropped during the process or overthe lifetime of the platform – must beremoved, or protected and monitored.

Energy expenditure throughout decom-missioning – including cleaning and, inmostcases, transport back to shore – is also likelyto be high. New docks will likely need to beconstructed and the incineration of mate-rials and subsequent transportation of theby-products are all energy-intensiveprocesses. It has been estimated thatdecommissioning a single large North Seainstallation requires asmuchenergy as a citythe size of Aberdeen consumes in a month.

The world has also changed in the 40years sincemanyUKCSoil andgas structureswere erected. Public concern over the envi-ronment has placed organisations underunprecedented pressure to disclose,account for and improve their environ-mental performance. The Companies Act2006, for example, includes provisionswhich oblige company directors to haveregard to the environmental impacts of thecompany’s operations, while quoted com-panies must include details of any policiesrelating to the environment in their busi-ness reviews.

Decommissioning timetableOf course, the oil and gas industry has beenaware of the increasing importance ofdecommissioning for some time.Predictions in the early 1990s that wide-spread decommissioning was imminentwere scuppered by factors including a dra-matic recovery in the price of oil, improvedproduction methods and favourable taxa-tion. In fact, only 23 installations wereapproved to be decommissioned duringthis period, taking the UKCS decommis-sioning total to a mere 34 facilities.

Another false alarm was triggered by thesharp dip in oil prices in the latter half of2008. A recent announcement from theInternational Energy Agency to the effectthat demand for oil this yearwill be greater

The UK is currently home to approximately 470 offshore oil and gas

installations, primarily located in the northern, central and southern

North Sea. Many of these have now entered their ‘mature’ phase,

with their working lives scheduled to come to an end in the next

decade or so. Preparing for the decommissioning of structures in

the North Sea has, unsurprisingly, been on the industry’s agenda for

quite some time. Here, Pamela Coulthard, a lawyer in the

Planning and Environmental Team at Maclay Murray & Spens, looks

at the environmental issues surrounding this process and the

precautions that are being taken.

Environmental countdownto decommissioning

O R T H S E A Decommiss ioning


N

than previously expected, coupled with thedoubling of the price of oil in the first sixmonths of 2009, is likely to further delaydecommissioning.

Some analysts have estimated theremaining oil reserves in the North Sea atbetween 20bn and 22bn boe. Optimisticestimates put this figure at over 30bn boe.Unsurprisingly, the industry appears to becontinually pursuing ways to extend theproductive life of existing infrastructure.Figure 1 shows the Department of

Energy and Climate Change (DECC) currentestimate of decommissioning dates for theUKCS. The graph appears, however, to becontinually shuffling to the right.

Existing experienceGlobally, most of the decommissioningexperience to date has come from the Gulfof Mexico, where approximately 1,000structures have already been removed.However,most of thesehavebeen removedfrom relatively shallow inshore waters inthe Gulf of Mexico and have limited appli-cation when working in the rather greaterdepths of the northern North Sea.

TheUKdoes, of course, have somehome-grown experience of the decommissioningprocess – the best-known of which isundoubtedly Brent Spar. For 15 years theBrent Spar, a floating structuremade largelyof steel, served as a crude oil storage tankand loading buoy. The 460-ft tall, 14,500-tonne platform was located in the NorthSea, 118 miles off Lerwick in Scotland.When Shell decided in 1991 to decommis-sion the structure, its studies concluded thatthe best practicable environmental optionwas to sink the Spar to the bottom of theNorth Atlantic, rather than bring it ashore,cut it up and use its different parts in newways. The UK government agreed.

However, a protest by Greenpeace in1995 – and the resulting costly boycott ofShell’s products – prompted the company towithdraw its plans to sink the Brent Spar. In1999 the structurewas cut into segments to

make the base of a ferry quay in Mekjarvik,Norway.

OSPAR ConventionThe impact of the controversy surroundingBrent Spar was far reaching. In July 1998,the OSPAR Convention came into force andremains to this day the legal instrumentguiding international cooperation on theprotection of the marine environment ofthe North-East Atlantic. OSPAR Decision98/3 sets out the regime for decommis-sioning disused offshore installations. Thereis a general presumption that structureswillbe completely removed from the marineenvironment at the end of their economicworking life. Only in exceptional cases andfollowing a rigorous assessment and consul-tation procedure may very large and heavyinstallations occasionally be left in situ.

Decisions on such derogations arereached in accordancewith theprinciples ofwaste hierarchy; a conceptual frameworkwhich ranks the options for dealing withwaste in terms of their sustainability, begin-ning with the premise that there should bea reduction in the generation of waste.Where this is not possible, re-use either forthe same or a different purpose should beconsidered ahead of recovering value fromthewaste through recycling.Only if noneofthese offers an acceptable solution shoulddisposal be considered.

Furthermore, all steel installations placedin the maritime area after February 1999must be totally removed. Recent figuressuggest that of the 470 installations on theUKCS, fewer than 10% of them will qualifyfor derogation under OSPAR. As the proce-dure is also far from static, it would also beunwise to presume derogation will be anoption in the future.

In the vast majority of cases where dero-gation under OSPAR Decision 98/3 is not apossibility, a decommissioning programmemust provide for full removal for reuse,recycling or final disposal of the installationon land.

Alternative usesIt is possible that technological advanceswill see at least some ‘mature’ structures inthe North Sea being put to alternative usesin situ. Many installations have an expectedlifespan of some 100 years and aredesigned to withstand the harshest condi-tions of the northern North Sea.

Perhaps one of themost obvious possiblereuses is in the field of offshore windpower. With up to a 20% higher windspeed than onshore sources, in many casesvirtually novisual ornoise impacts, andgen-erally less turbulent wind conditions, thereare clearly significant advantages to har-nessing offshore wind. On the negativeside, it is significantly more costly and mustfeed into the national grid at its fringeswhere transmission capacity is weakest. Ofnote in this respect is the Talisman Beatricewind farm demonstrator project, which iscurrently underway 12 miles east ofHelmsdale off the Caithness coast. This pro-ject, which utilises the world’s firstdeepwater* offshore wind turbines, isproviding 30% of the Beatrice Alpha oilplatform’s energy requirements. The€50mn demonstration project has beenhailed as a crucial step forward in deployingoffshore wind power.

Other possible uses for redundant oil andgas installations include gas or oil storagesites, or for carbon sequestration. Tidal gen-eration from existing infrastructure is also apossibility, by relocating existing infrastruc-ture which then forms part of theconstruction materials for tidal stream tur-bine units.

Going forwardThe UK has in place a strong decommis-sioningmodel, which has been designed tominimise the effects of the decommis-sioning process on the environment and;all actors in the chain must adhere to andacknowledge this.

Going forward, the role of environ-mental issues in decommissioning can onlygrow. The oil and gas industry will increas-ingly be called upon to balance thecomplicated and often competing factorswhich make up the process as a whole.There is no room for error. In the environ-mental context at least, very few mistakeswill be tolerated. �

*Deepwater in this context means waterdepths of 50 metres. The project is part ofDOWNViND (Distant Offshore Windfarmswith No Visual Impact in Deepwater) –claimed to be Europe’s largest renewableenergy research and technology develop-ment programme. The purpose of thedemonstrator project is to test the tech-nologies and to develop a solution that willmake full-scale development economicallyviable in deeper water distant from theshore while minimising the visual impact ofwind power generation.


Figure 1: Estimated decommissioning dates for the UKCSSource: UK Department of Energy and Climate Change (DECC)

From 18–21 November 2009, around1,000 young professionals, stu-dents, academics, thought leaders,

industry experts and non-governmentalorganisation representatives (NGOs)will gather for three days in Paris forthe next World Petroleum CongressYouth Forum, which has been named‘EnergiseYourFuture’.EnergiseYourFuture is an initiative to

promote discussion and debate betweenyoung professionals and existing leadersand influencers about the challenges andopportunities facing the energy industry,and how to determine the roadmaptowards a sustainable future.For several years, the World Petroleum

Council (WPC) has been committed tosupporting young professionals underthe age of 35 in their career paths. Thisfocus led to the creation of a youth com-mittee gathering representatives of 17countries, and the organisation of the

first Youth Forum, which took place inBeijing in 2004. In view of its success andthe strategic importance of such events,the WPC decided to host a Youth Forumbetween each World PetroleumCongress, which is held every three years.This year’s Forum, organised by the

French National Committee of the WPC,has secured the support of key industryplayers with sponsors includingGdF Suez,Schlumberger and Total. Other majorindustry companies supporting the eventinclude CGGVeritas, GEP, IFP, INPEX,Maersk Oil, ONGC, Qatar Petroleum andSonangol.

Paris 2009More than just an event,EnergiseYourFuture is a three-phaseinitiative with young people at its heartfrom start to finish, from developing pro-grammes to fostering debate with theirpeers, academics and leaders:� Phase 1 is already active with morethan 700 young professionals sharingideas and information about keyindustry challenges and opportunities,launching new debates, and buildingthe event programme on ‘Energise MyNetwork’ – a participative online toolto develop a genuine network of pro-fessionals across the world.

� Phase 2 brings the network together inParis in November.

� Phase 3 creates a genuine communityto overcome tomorrow’s challengesand publicises a roadmap of the keyresolutions that emerge from the con-ference.The event will be structured around

three key themes:� A reality check on tomorrow’s energy

landscape.� An ethical and sustainable industry –making it happen.

� Tomorrow’s leadership – matchingindustry skills to the challenges.Each theme will offer three levels of

discussion – keynote plenary sessions forstrategic thinking; workshops for anin-depth view of the overall themes; anda networking and knowledge sharingarea – the ‘Knowledge Café’ – in whichthe Energy Institute will also beinvolved. It is hoped the café will facili-tate further discussion and interactionbetween future leaders and the broadrange of industry experts present.Key speakers will include Christophe

de Margerie, Chief Executive, Total;Randy Gossen, WPC President; GérardMestrallet, Chief Executive Officer,GdF Suez; and Paal Kibsgaard,President, Schlumberger ReservoirCharacterisation. �

EnergiseYourFuture is open to everyyoung professional or student.Participating in the Forum will giveattendees the opportunity to extendtheir network and gain further under-standing on key energy issues. For moreinformation and to register visit

P C Y O U T H F O R U M Preview


W

Energising a future generationYoung professionals – the

industry’s future leaders –

from across the world will

come together to debate

whether a sustainable

future is within our grasp,

when the World Petroleum

Council’s Youth Forum

meets in Paris next month.

The next WPC Youth Forum will be heldin Paris next month

If anything, the process industry is atmore of a disadvantage than mostdue to the skills drain caused by baby

boomer retirements and the lack of newyoung talent coming in. This emphasises

the need to invest not only in currentindustry talent but also in potentialrecruits, attracting new skilled labour tothe sector through as many channels aspossible. Honeywell has long recognised

the need to develop its current andfuture employees. This article willexamine a number of initiatives thecompany has in place – designed notonly to strengthen the organisation, butto ensure that those who make up theHoneywell workforce become advo-cates for Honeywell and the industry asa whole.

Automation CollegeOne of the most effective ways to investin employees is training. Honeywell cur-rently operates in over 100 countriesworldwide, so it is important that anytraining initiatives are as far reaching aspossible whilst also remaining accessibleand, most of all, relevant to the localaudience.

Accordingly, Honeywell launched itsAutomation Colleges 20 years ago, andthere are now 27 located in 21 countriesaround the globe. Each local collegedraws from a curriculum of over 275standard and custom courses, with full-time, certified instructors available allyear round, delivering courses in mul-tiple languages. In order to beresponsive to local needs while alsoensuring quality and consistency, thesecolleges are part of local service organi-sations, but are coordinated by theGlobal Automation College organisa-tion. For those who cannot attend thecolleges in person, certified instructorsare also available to deliver trainingeither at customer sites or at other con-venient locations.

The Automation College also offers aremote training service. This servicehas an archive of over 700 technicaltraining modules delivered via theHoneywell Intranet and supported byan extensive web-based testingprogramme. In addition, the Auto-mation College supports a continuingseries of webinars – live and recorded –led by internal experts, with newcontent added on a regular basis.

Since 2002, the College has also man-aged a programme of qualifications andcertification for projects and servicesfield employees. These programmescombine web-based and classroom-based training, testing and verifiedexperience on specific products.

Expansion and evolutionTo meet the ever increasing demand

A key objective for any successful organisation is to be

represented by employees who know their business and

products inside out, understand their customers’ needs and

enthusiastically advocate solutions that can help both

parties achieve their business objectives. However, this does

not happen overnight, and unless organisations are

prepared to make the necessary investment in the

development of their most valuable asset – their people –

this can often be little more than a pipe dream. The process

industry is no different to any other in this respect, as

Honeywell’s Michel Jennes, EMEA Automation College

Manager, and David Gillespie, Senior Manager – Technical

Training, explain.

Nurturing industry talent –present and future

R O F E S S I O N A L D E V E L O P M E N T Training


P

Honeywell’s student competition is aimed at those with an interest in pursuing atechnical career. Winners of last year’s competition presented their proposals at theHoneywell Users Group EMEA 2008 Source: Honeywell

for technological training, Honeywell isconstantly looking for ways to expandthe Automation College programme.The latest Europe/Middle East/Africa (EMEA) training facility wasopened last year in Brussels withbrand new equipment and resources intop of the range facilities. The Brusselsfacility is also the EMEA coordinationcentre, responsible for trainingactivities at all EMEA AutomationColleges throughout the region. AllEMEA centres are also aligned with theGlobal Automation College pro-gramme to ensure consistency and topresent a unified experience tocustomers.

Furthermore, the EMEA AutomationCollege programme has also investedin a new online training managementsystem for both Honeywell employeesand customers, which provides real-time access to the entire EMEA trainingschedule through the internet or evenvia a mobile phone, and simplifies thecourse booking process.

Honeywell regularly evaluates waysin which it can improve and evolve itstraining experience. In recent years, thecombination of a rapid growth inHoneywell solutions, baby boomerretirements and travel restrictions hasled customers to request an even moreflexible training system. Drawing onexperience with shorter recorded andreal-time remote training, and the useof virtual machines, AutomationCollege developers and instructorshave built and piloted a new genera-tion of full-length, remote ‘blended’ or‘hybrid’ courses. These typically includereal-time daily introductions and Q&Asessions with the instructor, recordedlectures, ‘how-to’ movies, labs, quizzesand on-demand access to instructorsfor assistance with lab issues. Followingsuccessful pilot tests in 2008 and 2009,

the Automation College will roll outadditional remote classes in late-2009and 2010.

Nurturing young talentIn addition to investing in currentemployees, it is important to look to thefuture of the industry as well. The JuniorEngineering Talent programme (JETPro)in EMEA is a new Honeywell initiativedesigned to nurture the next genera-tion of process professionals. Launchedthis year, the programme – which is runin partnership with a number of univer-sities – provides a tailored learningopportunity that is beneficial to allgroups involved. For young engineers, itprovides the opportunity to work withan industry leading organisation todevelop skills and put them to practicaluse in real life scenarios. For Honeywell,the programme operates as an ongoingrecruitment strategy that producesyoung engineers with extensive experi-ence and relevant skills, trained to anexacting standard based on the latestindustry requirements.

The year-long programme is driven bytop Honeywell executives and combineson-the-job and classroom-basedlearning at both a local and EMEA level.Much of the programme is run in con-junction with the Automation Collegein order to ensure consistency and eachparticipant in the programme receivesone-to-one mentoring for the durationof the course from local, experiencedHoneywell engineers. At the end of the12 months, many of the participants willhave the chance to join Honeywelland put their newly acquired skills tothe test.

Programmes such as JETPro exemplifyhow organisations can drive theindustry forward. Not only does the ini-tiative help overcome the currentshortage of engineering graduates, it

also equips new engineers with the skillsneeded to meet the current and futurerequirements of the industry.

Alongside the JETPro initiative,Honeywell also works closely withuniversities, colleges and schoolsthroughout EMEA at a grass roots level,to encourage interest in the industryfrom a young age. In 2008, the companylaunched an annual student competi-tion aimed at those with an interest inpursuing technical careers such as engi-neering – but who are not yet in aposition to apply for more advancedprogrammes such as JETPro. The compe-tition challenges entrants to deviseinnovative solutions to issues currentlybeing faced by the industry, with thewinners being invited to present theirideas to industry figures at theannual Honeywell Users Group EMEASymposium. Following a successful firstyear, the recently announced 2009competition focuses on how thecurrent economic and cost pressuresare shaping the control room of thefuture. More information on thisyear’s competition can be found atwww.honeywell.com/ps/hug

The future is in our handsThis article presents a number of ways inwhich Honeywell is working hard toinvest in the future. The initiatives arenot complex in nature, but have beenplanned and developed over time toensure maximum effectiveness withinthe audience at which they are aimed.Whether it is investing in the currentworkforce to optimise its efficiency andvalue, encouraging talented youngengineers to fulfil their full potential orsimply planting the seeds of inspirationin the minds of the next generation,now is the time to plan for the future ofboth your own company and theprocess industry as a whole. �


The latest of Honeywell’s Automation Colleges was opened in Brussels last year (left); students on Honeywell’s new JETProinitiative, which is run in partnership with universities and designed to provide a ‘tailored’ learning opportunity (right)Source: Honeywell

Professional development can some-times seem overwhelming – but itcan be started with a few simple

steps.

‘I don’t know where to start’Think about what you want to achieve inthe next six months or a year. Do youwant to get a new job, learn a new skill orget better at something you already do?Set yourself two or three attainable goalsthat clearly state what you want toachieve. Then think about some activitiesyou can do to achieve your goals.The most important thing is to decide

what you want to achieve and plan howyou are going to get there. Your plannedactivities will give you a good start andhaving goals clear in your mind will helpyou recognise other relevant professionaldevelopment opportunities that comeup. When you get used to the patternof planning, doing and reflecting (seeFigure 1), youmaywant to consider a fewlonger-term goals to work towards.Otherwise stick to working in six- or

12-month blocks.‘I don’t have time’Professional development doesn’t haveto be ‘extra’ to your work activities.Taking on a new project, new responsibil-ities or just learning something new is stilla form of development. Anything thatyou learn or develop from counts – evenif this is a regular part of your work. If youcan set aside 30 or 60 minutes each weekto concentrate on development activitiesthen this will soon add up. Use this timeto read a journal, conduct some researchor talk to a colleague that can help youlearn something new.

‘I can’t afford training’Professional development doesn’t haveto be all about formal training courses. Ifthe goals you have decided to worktowards are compatible with your workobjectives then you may be able to getyour company to support some develop-ment activities for you. However, if thereis no budget available there are still otheractivities that can be done. Consider shad-owing a colleague, conducting your ownresearch through books or the internet,or taking part in free activities – such asEnergy Institute (EI) branch events.

‘I don’t get any support’Carrying out professional development isalways easier if your company is able tosupport you. Think about how your pro-fessional development goals will benefityou in your current role and explain thisto your line manager. The company willbenefit from having better skilled staff,so it is in their interest to help you. Evenif they cannot support you financially,your manager may be able to help youtake part in appropriate activities at workthat will help you achieve your goals.You can alsomake use of other support

networks. The EI will provide support andguidance on professional development,and you can meet energy sector col-leagues at EI events. If there are otherpeople at your work in a similar position,then help each other by discussing yourplans and sharing information.

‘I don’t need to do professionaldevelopment’Everyone needs to do professional devel-opment. Even if you have been doingyour job for years then you can alwaysbenefit from trying or learning some-thing new. Even if you are totallyconfident that you are 100% up-to-datewith what is going on in the sector andyou could not improve your own skilllevels at all, then you may want to con-

sider learning something different. Thiswill ensure that you continue to chal-lenge yourself and it will make your jobmore interesting.

The EI and youThe EI is committed to helping memberscarry out professional developmentthrough a variety of activities. In 2008,the EI published the results of its skillssurvey. This compiled views from a largenumber of respondents and addressedthe skills shortage issues in the industry. Italso offered recommendations for solvingthese issues and developing a sustainablerecruitment strategy. The EI continuouslycarries out research into skills topics andthe latest research will examine the high-level skills shortage in the energy sector.The EI assists candidates to record their

professional development in a simplewaythat maximises their learning withoutbeing overly onerous. The online profes-sional development system providescandidates with an easy-to-use system forlogging their professional developmentagainst the membership competencies.After candidates have achieved a mem-bership grade then a small sample will beasked to submit a continuing professionaldevelopment (CPD) return each year.In continuing to promote professional

development as best practice, the EIencourages individual members to takepart. The EI also wishes to remindemployers of the value of staff profes-sional development and encouragesthem to support their employees inundertaking development activities. TheCPD objectives are developed in a waythat should complement the individual’scareer and business goals and be of equalvalue to both the employer and theemployee.

Most people are familiar with

the term professional

development but people often

think that it isn’t something

relevant to them. Or perhaps

they know it’s something they

should be doing – but they are

unsure how to begin. There is

always a reason not to do

professional development and it

is easy to put off this part of

your career as day-to-day

activities take priority, but if

fitting it into your work life is

too difficult – then maybe it’s

time to rethink your own views

about professional

development. Kate Dunk,

Professional Development

Manager, Energy Institute,

explains.

A guide to getting aheadROFE S S IONAL DEVE LOPMENT Energy Inst i tute


P

continued on p38 ...

Figure 1: Following the pattern ofprofessional development

The EI can help suggest activities formembers to do as part of their CPD and,where possible, CPD opportunities at EIevents and activities are provided – suchas giving presentations at events,attending accreditation visits and servingon committees.

EI technical trainingThe EI is committed to expanding therange of CPD opportunities provided forits members and closely monitors the out-comes of the skills research to developnew initiatives needed by the sector. The2008 Skills Needs report discovered thatalmost four out of five respondentsbelieved that technical skills were a keyshortage area. In response to this, the EIhas launched a new training strand basedon technical publications.This training will build on two EI

strengths – its position as a key training

provider for the energy sector, and thewealth of technical knowledge held bythe organisation. Initial topics will focuson the most popular EI publications andwill continue to ensure that energy staffare working to the highest safety andcompetency standards.The first technical training course was

piloted earlier in 2009 and was based onthe API/EI 1550 International Standardshandbook, Essentials of Aviation FuelFiltration. This interactive workshop wasattended by experts in the field andextensive feedbackwas collected tomakesure that all aspects of the content wouldmeet the needs of potential delegates.This workshop is now running as an opencourse with the first dates taking place inFrankfurt and Vienna in November.Market research is currently being con-

ducted into several other areas of the EI’stechnical expertise to determine whichtopics should be prioritised for the devel-

opment of training courses.As well as classroom-based courses the

EI is also looking into making suitabletraining courses and events availableonline. This will make EI services acces-sible for people that are not able to travelto attend events. The EI library has alsointroduced Knovel, a new service formembers allowing online access to arange of reference books on energyrelated subjects.If you need any support or guidance on

carrying out professional developmentthen EI staff are always on hand to advise.This may be about development activitiesin general or working towards a profes-sional membership grade. �

Information, including a list of approvedtraining and professional developmentproviders, can be found on the main EIwebsite atwww.energyinst.org or theEI’s careers and education website

ROFE S S IONAL DEVE LOPM E N T Energy Inst i tute


P

August 2009 saw the start of the annualSTEM In The Pipeline project run by char-itable organisation TechFest-SetPoint.This oil and gas industry project forteams of school pupils was originallydeveloped with a team of BP young pro-fessionals in 2006. This year, 15 teams of17-year olds from secondary schools inthe Aberdeen area are taking part in theprogramme.STEM In The Pipeline is split into three

parts – an introductory day in August, aproject to produce a field developmentplan between August and Novemberand finally, in December, a presentationday.At the recent introductory day, hosted

by the University of Aberdeen, youngindustry professionals from BP, Chevronand ConocoPhillips gave pupils an insightinto the sector with talks on geology,drilling and reservoir, finance andprocessing. TechFest-SetPoint organiserVivien Ellins believes it is the enthusiasmand energy of the young professionalsthat makes the project so successful.‘They recognise the opportunity toinspire the next generation. They knowwhat influenced them at the same age.They also get a chance to practice theirown presentation skills.’A spokesman from Chevron believes:

‘It’s also good for our young employeesto engage with pupils just a few yearstheir junior, to demonstrate their enthu-siasm for the industry and share theirreasons for their career choices and theirexperience so far.’The young professionals continue to

mentor the school teams throughout thesubsequent weeks as the school teams

complete their work. The field develop-ment plan is challenging for the pupils,the tasks cover evaluating seismic chartsto calculate STOIIP (stock tank oil initiallyin place), production profiling, separatordesign and calculating carbon emissions.Finally, at the presentation day, theteams exhibit and present their projectsto a panel of senior industry profes-sionals. The winning teams are awardedprizes and all participants are presentedwith a British Science Association SilverCREST Award.Over the course of STEM In The

Pipeline, the pupils undergo significantdevelopment of their personal and teamskills. The project also opens their eyes tothe range of careers in the sector. Stuart,a pupil from Banff Academy, says: ‘Thisproject has influenced me into following

a career in the oil industry and given mea lot of knowledge and experience totake into that career.’Stem In The Pipeline can often help

pupils finalise choices for further study bygiving them an insight into a realisticindustry activity. Kathy, a pupil fromInverurie Academy, says: ‘It has made memore confident that I do want topursue a career in chemical engineeringby letting me see and experience what itis like.’Chevron believes: ‘The value of a pro-

gramme like STEM is that it providessome practical context for the subjectstaught in schools, and helps these youngadults understand the relevance ofmaths and science in the world of workat a timewhen they are considering theirown futures.’ �

Growing with STEM – introducing the industry to a brand new generation

... continued from p36

Measurement of oil comprises bothquantity and quality. Custodytransfer valuation is based on the

‘useable’ oil, sobothmeasures are significantto trade and integrity. Internationally recog-nised standards exist for crude oil qualitymeasurement during custody transfer, pri-marily for water content and density.Quality measurement system design and

laboratory equipment, handling techniquesand analysis methods have improvedsignificantly over the last 20 years.Simultaneously, suppliers and users haveworked together to develop/validate andimprovemeasurement performance. One ofthe most significant steps in achieving thishas been the collation and evaluation ofwater injection ‘proving’ tests. This large(often independently validated) and rapidlygrowing data set enables a comparativeevaluation of the performance of custodytransfer sampling/online measurement sys-tems. Proving the accuracy of an installed

quality measurement system is a challenge,even more so than proving a meteringsystem. It requires adjustment of a physicalproperty (in this casewater content) and val-idating that the system accurately measuresthat change. However, unless an installedsystem has been proved and certified ascompliant with the standards, its use to arbi-trate claims or for custody transfer becomesquestionable.Over the last 20 years, the in-situ proving

of quality measurement equipment, such assamplers, in accordance with the standardshasbecomecommonpractice. The standardsdefine the process and acceptable perfor-mance limits for a sampling system whencomparing laboratory results for a baselinesample with those containing a knowninjected water quantity. Preferably, thisprocess should be independently witnessedto ensure that the procedures are followedrigorously and the results properly docu-mented. In some countries, proving tests are

conducted annually and witnessed by thelocal authorities to certify systems for importduty. In addition to certifying equipmentperformance, the data from these tests pro-vides a wealth of comparative informationabout the relative performance of differentsystem types.

Proving processThe process of proving a sampling system isbriefly outlined below. It involves theinjectionof ameteredquantityofwater intoa measured flowing pipeline. It is a pre-requisite to successful testing that the base-line (background) water content of the oildoes not change significantly during theprocess and this requires due care and vali-dation using pre- and post-test baselinesamples. (See Figure 2).The pre-, post- and water injection

proving samples are analysed in the labora-tory. Each test generally comprises two runsand the results are used to calculate thesystem performance. These are evaluatedagainst the pass/fail criteria in the standards.There is a variance between themethodolo-gies and tolerances in the current standards,which it is hoped will be resolved shortly asthe EI and API are developing a single jointstandardunder thePhoenixAgreement. Thewater injection proving process validates notonly the measurement system but also theinstallation, laboratory and operating proce-dures used during the test (ie the completecustody transfer sampling process).Ideally, comparative data would comprise

a largenumberof repeated testsof the samesystem. However, as this is not practical, thecollated proving results of over 200 differentsampling systems from various custodytransfer locations worldwide can be used toreveal interesting trends.Historically, crude oil was a relatively

cheap commodity and sampling systemdesigns were primitive, with little attentionpaid to the homogeneity of thewater in theoil (ie mixing). However, mixing has nowbeen recognised as the weakest element inthe quality measurement chain. This is nor-mally addressed by adding a ‘mixingelement’ such as piping (ie an expansionloop, etc) or a static or power mixer toensure that the pipeline contents are suffi-ciently mixed. It has been thought for sometime that there is a relationship between thesize of the sample off-take opening, waterdroplet sizes and sampler performance, butuntil now there was very little data to sup-port this. (See Figure 3).There are two fundamental designs of

With crude oil prices stabilising at over $60/b, loss control is high

on the agenda of many companies. The Energy Institute’s HMC-4(A)

Marine Oil Transportation Database Committee has been collecting

and analysing world crude oil shipping data for over 20 years. Its

annual report, published last month in Petroleum Review, shows a

continued reduction in crude oil losses (see Figure 1). This is, in

part, due to the modernisation of the fleet and better operating

procedures, but it is mainly due to the improvements made in

loading and receipt terminal quality measurement systems, write

Jon Moreau and Mark Jiskoot of Cameron Measurement Systems.

Loss reduction throughtechnology

R U D E O I L Qual ity measurement


C

Figure 1: HMC-4(A) 2008 marine loss data

sampling/quality measurement system,regardless of the technology used tohomogenise the pipeline contents:

An in-line sampling system – where aninsertion probe is installed directly into thepipeline to extract grab samples which arethen discharged into a sample receiver,mounted in a housing located near to thesample probe (see Figure 4).

A bypass (fast) loop sampling system –where a grab sampler is mounted in apumped bypass loop which takes flow from

the centre of the main pipeline. Grab sam-ples are extracted from the loop anddischarged into the receiver, which is

mounted in a housing through which thefast loop passes (see Figure 5).One of the major differences between

these technologies is that the fast loopsystemallows theuseof a larger sample inletsize. This, in theory, enables a more repre-sentative sample to be extracted.Collating the data from proving tests by

type of measurement system gives a betterinsight into this relationship. For validity, theonly data shown here are for sampling sys-tems that have been certified for custodytransfer. The accuracy/measurement error ofa system that has not been proved and certi-fied could be significantly higher than thefigures shown. The water injection provingdata enables us to look at the performanceof these two types of system independentlyto evaluate any performance differencebetween these technologies. Thebasis of theproving tests is absolute water content andthe accuracies shown in this article havebeen calculated to be relative to the actualwater content.Looking at the performance for inline

systems, two things are evident. Firstly, the


Figure 4: In-line sampling system

Figure 2: Water injection proving process

Figure 3: There is a relationship betweenthe size of the sample off-take opening,water droplet sizes and samplerperformance

Figure 6: In-line sampling system accuracy

Figure 5: Fast-loop sampling system

average (mean) accuracy for these systemsshows a clear systematic bias, with themean lying at –0.0318% (ie an averageunder-reading of water). Secondly, theaccuracy (95% confidence) for an inlinesystem is +0.05%/–0.113%, with a clear biastowards a negative reading (see Figure 6).When looking at fast (bypass) loop sys-

tems, the larger inlet size of this type ofsystemdelivers not only a reduction inmea-surement uncertainty, but also reduces thesystematic negative bias to almost zerowith the mean of –0.0003% and anaccuracy of +/–0.078% (95% confidence)(see Figure 7).Some designs of sampling system per-

form consistently better than others; how-ever, this doesn’t mean that any design ofsampling system could not pass a waterinjection proving test. It does outline theimportance of proving and certifyingwhat-ever equipment is used in accordance withthe international standards. Quality mea-surement technology has moved alongsignificantly in the last 25 years. It is notenough to simply suggest that samplingsystems meet standards, it must now beproved.These results show that well designed

fast loop sampling systems generally havelower uncertainties and reduced systematicbias than conventional inline systems. As aresult, this technology is being increasinglydeployed and the better measurementit provides will continue to drive some ofthe future improvements and reductionin losses that the HMC-4(A) Committeestrives towards. �

R U D E Qual ity measurement


C

www.energyinst.org.uk/events

Oil supply andenergy securityOne-day conferenceThursday 26 November 2009, Energy Institute, 61 New Cavendish Street, London

Fifty years of oil depletionDr Roger Bentley MEI, Visiting Research Fellow,Department of Cybernetics, University of Reading

‘Megaprojects’ oil projects analysisChris Skrebowski FEI, Consulting Editor, Petroleum Review

Achieving UK energy securityChris Barton, Head of International Energy Security,Department of Energy and Climate Change

Medium Term Oil Report 2009David Fyfe, Head of Division, and Editor – Oil MarketReport, IEA

Energy supply challengesJohn Hemming MP, Chair, APPGOPO

The UKERC review of global oil depletionSteve Sorrell, Senior Fellow, Sussex Energy Group,University of Sussex

Update on 2008 ‘Oil Crunch’ reportSimon Roberts, Associate Director, ARUP

Oil auditSimon Snowden, Lecturer in Operations and Supply ChainManagement, University of Liverpool Management School

Overlap between climate change and energy supply issuesDr Jeremy Leggett FEI, Executive Chairman, Solarcentury

Impact of natural gas depletion on oil productionRobert MD Howard, Senior Commodities Risk Consultant,Advanced Commodities Global Consulting

To register your interest or for further information please contact:Gemma Wilkinson, Events Organiser, Energy Institute t: +44 (0)20 7467 7174 e: [email protected]

The Energy Institute’s annual one-day conference examining the issue of oil depletion will this year consider data and calculationsindicating the imminence of a peaking of oil flows and investigate the challenges lying ahead. Speakers from both government andindustry will discuss findings from recent key reports, and ample time is scheduled for questions and discussion of these issues.

Chaired by Professor Martin Fry FEI. Confirmed topics and speakers include:

DisclaimerThe EI as a body is neither responsiblefor the statements or opinions pre-sented in this article nor does itnecessarily endorse the technicalviews expressed.

Figure 7: Fast loop sampling system accuracy

The biennial event held last monthin Aberdeen, attracted oil and gassector professionals from all over

the world, to meet, discuss and view atfirst hand the latest technology andsolutions available to the industry. Thetheme of Offshore Europe 2009 (OE09),‘Energy at a crossroads’, provided anideal platform to debate the matters ofthe moment – where do we go fromhere to tackle the twin goals of energysecurity and climate change? Heraldingthe official start of OE09, Tuesdaymorning’s plenary session saw speakersfrom industry and government addressthis main theme.

Connie Hedegaard, the DanishClimate Change Minister and organiserof this December’s United Nations cli-mate change conference, called on theindustry to raise its game and helpdevelop a decent energy infrastructureas quickly as possible. Oil and gas com-panies that embrace the Copenhagenagenda first will be first to prosper, shenoted. The industry’s technical know-how and engineering skills should beharnessed to win a share of new off-shore renewables markets, Hedegaard

told delegates at the conference. Thereis a window of opportunity for a lowcarbon future – but it is now. A deal inDecember cannot be postponed, shewarned.

Lord Hunt, UK Minister of Energy andSustained Development, followedHedegaard to say that the transition toa low carbon economy is a necessity,and that the oil and gas industry are notat odds to it – they must co-existtogether, as hydrocarbons have a crit-ical role to play as the mainstay energysource of the near future. He urgedcompanies to take advantage of theinevitable transition. Hunt also con-firmed the launch of a new UK offshorelicensing round in early 2010.

John Manzoni, President and CEO,Talisman Energy, said there was anappropriate role for government butthey must step up to it, and whereverpossible use a global integratedapproach. These lessons are applicableto both energy and climate change. Hesaid that business must respond to bothgovernment and constituents regardingcarbon management. He cautionedthat the carbon price, if applied, would

cause older fields to be shut-in withrecoverable, but no longer economical,oil still in place. He also said that policy-makers should be looking at technolo-gies like carbon capture and storagethat can be implemented quickly.

Andrew Gould, Chairman and CEO ofSchlumberger, questioned whether theoil and gas industries had the correct skillsets to pursue renewable energy sources– but did admit the industry would havesome contributions to make. Looking atclimate issues, Gould said it wasn’t just aquestion of technology, but also one ofinfrastructure. The key is to acknowl-edge that governments have a criticalrole – for the industry to innovate, thegovernment must make an appropriateframework, he stated.

The busy conference programme alsoincluded over 100 technical sessions,short courses and a number of topicallunches taking place throughout theweek. Speaking at one such lunch,Christophe de Margerie, ChiefExecutive of Total, told delegates thatgovernments needed to ‘be careful’with carbon. ‘We are all concernedabout the environment, but we need toknow what will be the price,’ he said.He also expressed concerns that theCopenhagen conference would seeEuropean states imposing the toughesttargets on themselves – while othercountries got off more lightly.

Life in the old girl yetSpeaking at a business breakfastmeeting, the Energy Institute’s ChiefExecutive, Louise Kingham FEI,explained how the North Sea still hasmany advantages over other regions –and still has a lot to offer: ‘The UKCS is40 years old and accompanying middleage is the inevitable mid-life crisis, butwhat we forget in our youth obsessedtime is that with maturity comes experi-ence.’ The industry’s maturity bringswith it a skilled workforce as well as thesystems, standards and working prac-tices that have been built up over thelast 40 years, she said.

However, one of the major challengesfaced by the UKCS is how to attract newfunding and maintain current invest-ment in the industry. Investment in theNorth Sea has declined for the thirdsuccessive year in 2009. ‘The casualtiesof low investment include R&D intonew and exciting technologies. This isabsolutely necessary for the industry tomaintain a competitive edge and alsohelp manage the costs associated withNorth Sea activity,’ Kingham stated.

Attracting 49,000 people to the European oil capital

Aberdeen, this year’s Offshore Europe was – once again –

bigger than it had ever been before. Louise Smith reports.

Energy at a crossroads& P Offshore Europe


E

The next generation of subsea engineers? Dave Peter, GE Oil & Gas Engineering andTechnology Manager – Training, explains the purpose of a subsea tree to pupils fromRobert Gordon’s College and Aberdeen Grammar school (see p46). GE had launchedits SVXT subsea tree (pictured) at the exhibition earlier in the weekSource: GE Oil & Gas

Energy excellenceUK Trade & Investment (UKTI) held a UKEnergy Excellence seminar at OE09, tocoincide with the launch of its updatedwebsite –www.ukenergyexcellence.com

UK Energy Excellence is a cross-industry, cross-government initiative ledby the UKTI and senior members of theenergy industry, which aims to link upthe wide and varied elements of the UKenergy industry (partner organisationsinclude the EI), and provide a singlevoice to communicate the best of UKenergy engineering to the rest of theworld. The website is a way for overseascompanies to understand, learn andaccess the UK industry, and for UK com-panies to get in touch with potentialcustomers and partners.

The UK has always been a ‘quietachiever’, Lord Browne, former BP ChiefExecutive and President of the RoyalAcademy of Engineering, said at theseminar. Now it is time to fly the flag forUK excellence and show the rest of theworld what we can do, he said.

New technology round-upIn 22,620 sq metres of exhibition space,there were over 1,500 companies ondisplay. Many exhibitors used OE09 asthe ideal global stage to launch newproducts and services for the industry.

GE Oil and Gas (www.geoilandgas.com) launched the VetcoGray SVXTS-Series subsea tree, which merges hori-zontal and vertical tree technology –reducing weight by 20%, decreasingheight and also delivering functionalityin a pre-engineered, pre-configured‘modular’ way. The tree – designed andmanufactured in Aberdeen and aimedfor use predominantly in the North Sea –achieves low-cost installation by enablingdeployment using standard offshorejack-up drilling rigs without the need formajor modifications. Its features includesmaller tree and fisher-friendly wellheadprotection structures, as well as a barrierapproach that removes the need for aseparate tree cap.

Schlumberger announced the releaseof the TuffTRAC cased hole servicestractor (www.slb.com). It is claimed thatthis new tractor is the industry’sshortest, and the only tractor with fullreverse and active traction control capa-bilities. TuffTRAC delivers more than40% efficiency over conventional trac-tors resulting in more pushing powerdownhole, the company says. Itsreversing capability reduces fishing riskand its modular design makes it easy todeploy in short rig-up situations.

Non-destructive testing (NDT) specialistApplus RTD (www.applusrtd.com) show-cased what is claimed to be a ‘world first’subsea inspection system. Designed to

ensure operational suitability and pro-long the life of vital assets, Applus RTDhas developedwhat it says is the first fullycustomisable NDT phased array solutionby combining and integrating ultrasonicphased array and time of flight diffrac-tion techniques with alternating currentfield measurement.

Autodesk (www.autodesk.com/autocadplant3d) – a specialist in 2Dand 3D design and engineering soft-ware – unveiled AutoCAD Plant 3D2010, a new software product purpose-built for the design, modelling and doc-umentation of process plants. AutoCADPlant 3D’s specification-driven tech-nology and modern interface simplifiesmodelling and editing of piping, equip-ment, support structures and otherplant components, allowing projectteams of all sizes to increase produc-tivity and improve accuracy and coordi-nation of shared information.

A comprehensive product range for

minimising potential leak pathsin process instrumentation wasunveiled by the instrumentationproducts division of Parker Hannifin(www.parker.com), a specialist inmotion and control technologies.Solutions for all standard connectivityand functional requirements from theprocess line to the instrument areavailable in Parker’s range, a founda-tion of which is the elimination ofleak-prone taper thread connectionsand with it any need for PTFE tape oranaerobic sealant.

A new development in swellable elas-tomers was also launched at OE09 byRubberatkins (www.rubberatkins.com).The company has developed a shortswellable sealing system which is capableof holding pressures of up to 10,000 psiand temperatures of 120°C. At only onefoot in length, current swellable tech-nologies can be up to 30-ft long. Thenew product is designed to provide a


Aber-greenScottish First Minister Alex Salmond chose OE09 to unveil plans to secureScotland’s position as a global energy hub. Announcing the new Scottish EnergyAdvisory Board, Salmond said he intends to make sure Scotland – and Aberdeenin particular – is able to expand its position as an oil and gas hub to encompassrenewable energy as part of the shift towards a greener future.

Meanwhille, an ambitious public-private partnership designed to createthe world’s greatest concentration of energy technology companies, housingand leisure facilities – named ‘Energetica’ – along a 30-mile coastal stripbetween Aberdeen and Peterhead, was also launched at the show. AberdeenCouncil, Aberdeen City Council and Scottish Enterprise developed theidea, joining together to form ACSEF (Aberdeen City and Shire Economic Future,www.acsef.co.uk). The aim is to create a high energy, low carbonlifestyle destination that will attract people and businesses from around theworld. It was announced that Energetica is now an integral part of theregion’s strategic development plans, approved by the Scottishgovernment. Tom Smith, Chairman of ACSEF, is pictured at the launch.

Local Aberdeen firm FMC Technologies (www.fmctechnologies.com) unveiledits Greenshoots Fund at OE09, with Jim Mather, Scottish Minister for Enterprise,Energy and Tourism, present at the launch. Greenshoots is designed to partiallymitigate the environmental impact resulting from the manufacture, saleand distribution of the company’s core product – subsea trees. The fund willhelp local projects reduce carbon emissions and deliver economic benefits to thecommunity.

more manageable solution for annularsealing in the presence of oil or water.

Belzona Polymerics, a company whichdesigns and manufactures industrialprotective coatings and polymerrepair composites (www.belzona.com),unveiled Belzona 5841, part of a rangeof coatings for the repair and protectionof metal surfaces suffering from CUI(corrosion under insulation). Thesolvent-free coating can be applieddirectly to surfaces operating between30°C and 80°C, with minimal surfacepreparation.

Meanwhile, the ITF (www.oil-itf.com), the oil industry technologyfacilitator, issued two fresh calls for pro-posals at OE09 – it is looking specificallyfor technological solutions to eliminatethe need for production logs andretrofit technology in wells that havebeen installed without gauges; and forproposals for improving the operatinglimitations associated with light weightintervention vessels (LWIV) abandon-ment. Celebrating its 10-year anniver-sary at the show – the organisation hassuccessfully delivered to the market over137 collaborative oil field technologyprojects since it was formed in 1999.

The Cromarty Firth Port Authority(www.cfpa.co.uk) also exhibited. ThePort, which is situated in north-eastScotland, offers a range of services to theoffshore industry and is now one of theUK’s premier inspection, repair and main-tenance (IRM) facilities. In the last 30years, over 600 rigs have visited the Firthto undertake IRM works and take advan-tage of the Port’s sheltered anchorage.Up to 18 rigs at anchor can be accommo-dated, as well as providing a leading ser-vice base for the subsea industry. As NorthSea day rates drop, more and more rigsare expected at the Port, Port ManagerCaptain Ken Gray said at the exhibition.Subsea activity has also declined but isexpected to pick up in 2H2010.

A Hoy!Olympic cycling hero Sir Chris Hoy joinedLloyd’s Register at OE09 to drive hometo the oil and gas industry the winningformula for success and achievement.Lloyd’s Register provides asset safetyand integrity services for challengingand complex assets across the energysupply chain, often in remote areas ofthe world. Iain Light, Group EnergyDirector, Lloyd’s Register, said: ‘Chris is afantastic example of a committed anddedicated athlete whose focus on win-ning has seen him not only become anOlympic champion, but a record-beatingone at that. He embodies the Lloyd’sRegister’s ethos of ‘life matters’ as he isfocused, prepared and determined to bethe best.’ Delegates picked up cyclingtips from the Olympic champion, andwere able to test their cycling skills overa 0.5 km timed sprint.

Enter the dragonOil & Gas UK held a Dragon’s Den-stylebreakfast briefing on Wednesday, whichchallenged young oil and gas profes-sionals to find ways to improve the cur-rent strategy for attracting, developingand retaining the ‘next generation’ ofworkers. Proposals were heard anddebated by four ‘dragons’ – Bob Keiller,Chief Executive of PSN and Oil & Gas UKCo-Chair; Deidre Michie, Supply ChainManager, Shell; Jonathon Roger, ChiefOperating Officer, Venture; and ThomasThune Andersen, Chief Executive,MaerskOil and OE09 Chairman.

The first proposal, a branding exercise,aimed to address concern that the poolof young professionals from which theindustry can recruit may be restrictedbecause the sector does not market itselfand the exciting opportunities it has tooffer to a wide enough audience. The

second proposal, the launch of a nextgeneration Code of Practice and accom-panying award system, was developed inresponse to the belief that fostering abetter understanding and acting on theneeds, expectations and aspirations ofthe next generation will increase theirattraction and help maximise retentionand productivity across the workforce.‘The outcome from the conference pro-vides us with a template for how the oiland gas industry canmeet its future chal-lenges and opportunities, inspired by theviews and ideas of the next generation,’Andersen said.

School’s outOn the closing day of OE09, OPITO – TheOil & Gas Academy invited young peopleto explore the diverse range of careersthe industry has to offer by staging itsflagship interactive careers and lifestyleevent. ‘Energise Your Future’ gave oil andgas organisations direct access to thosealready studying the key science, tech-nology, engineering and maths subjectsneeded to fill the industry skills gap in thefuture.

More than 30 companies including BP,Shell, ExxonMobil, Schlumberger, Total,Technip, Cameron and Maersk Oil tookpart, each providing a interactive activityto raise awareness of the wide variety ofcareers open to young people in theindustry. Around 350 pupils aged 15–17from schools across Aberdeen City andShire got to try out a range of hands-onactivities such as testing their skills on acrane simulator, exploring the innerworkings of a Christmas tree, piloting amodel helicopter and discovering whatlife is like on an offshore oil platform. �

The next Offshore Europe will be heldat the AECC on 6–8 September 2011.

& P Offshore Europe


E

Sarah Butcher, a Task Group member who faced the ‘dragons’ at Oil & Gas UK’sbreakfast meeting. Sarah presented the first proposal, which called for the industryto be rebranded to entice a new generation of industry professionalsSource: Oil & Gas UK

Sir Chris Hoy at the Lloyd’s Register standSource: Lloyd’s Register

The LNG market has traditionallycentred on Asia, led by the highdemand in Japan (39%) and South

Korea (16%). The US represents a lim-ited but rapidly growing market, withthe Energy Information Administration(EIA) predicting US LNG imports toincrease by 110% in 2008–2010.[However, more recently, US LNGimports have fallen sharply, downaround 25% in the last three to sixmonths alone on low US prices. In fact,2008 LNG imports into the US, at 9.94bncm, were 54.4% down on 2007 importsof 21.82bn cm – Consulting Editor]In Europe, the European Union (EU)

has been urging its member states toimprove their access to LNG in order tobreak Russia’s stranglehold on EUpipeline gas supplies. LNG is seen asdiversifying the EU’s natural gas sup-pliers, bringing greater flexibility andsecurity to its energy market. Europe iswell positioned to receive LNG fromWest Africa and the Mediterranean, andhas a geographical advantage over theUS but not the Asian markets for LNGfrom the Middle East. [Despite LNG’sattractiveness in terms of supply securityit has to be cost-competitive if it is togain market share from pipeline sup-pliers – Consulting Editor]

Current investment plansEurope accounts for 27% (24.4% in2008) of the global LNG demand.Worldwide trade in LNG increased at arate of 7.7%/y between 1996 and 2006,while LNG trade to the EU grew evenfaster over the same period, at a rate of10.6%, according to an LNG discussion

paper by DG-TREN (EU Commission’sDirectorate-General Energy andTransport). A 2009 study by the EUCommission’s Joint Research Centre (JRC)predicts that by 2030 Europe’s share ofglobal LNG trade will rise to 35%. Someseven more regasification terminals arebeing added to the existing 13, whichwill increase Europe’s send-out capacityfrom 96bn cm/y (78mn t/y) by 61bn cm/y(50mn t/y). The UK will have 42% of thenew capacity. The South Hook plant inWales that will begin operations at yearend will be Europe’s largest.LNG currently constitutes 15% of EU

gas imports. The main suppliers areAlgeria 34%, Nigeria 18% and Egypt15%. Spain, the world’s third largestmarket for LNG, is Europe’s number oneconsumer.

Cost comparisonThe European market for LNG is devel-oping at a time when the global LNGmarket is changing markedly, makingLNG less likely to be the panacea toEurope’s energy security needs than theCommission may have envisioned. TheLNG chain is far more capital intensivethan the pipeline link, with liquefactionaccounting for the bulk of the costs. Since2005, costs along the whole LNG chainhave been increasing, with liquefactioncosts reported to have tripled. Althoughconstruction costs for regasification(regas) terminals have also risen, theyare relatively cheaper to build – conse-quently, regas capacity exceedsliquefaction capacity in the LNG market.The DG TREN paper puts total global LNGproduction capacity at 268bn cm/y, totalproduction in 2007 at 235bn cm and theworldwide total send-out capacity atregasification terminals at 588bn cm/y.According to the JRC report, the tight

supply situation over the period of itsstudy had led to higher prices, which thereport says casts into question theaffordability of LNG and its security ofsupply value. In Europe, the lower com-parative gas prices will furtherundermine LNG’s ability to competewithpipeline gas. However, judging from thecost comparison provided by Table 1 for14 countries around the world, con-sumers in a country like Spain, which isalready heavily reliant on LNG, has perkWh costs that compare favourably withmost other European countries that relyon pipeline gas. [More recently, over thelast year, the situation has changed con-siderably, with both the LNG andpipelinemarkets becomingwell suppliedand lower priced – Consulting Editor]Producers have been reconsidering

their export strategies to focus on supplyside management in order to maximiseprofits. In the case of Europe, the diffi-culties in gauging gas demand as a result


LNG and EUenergy security

A S LNGG

World LNG production and export are concentrated

within a handful of countries. The Middle East is where

the fastest growth in production and exports is taking

place, with Qatar alone expected to account for 25% of

global LNG supply by 2015. The EU receives all of its LNG

from the Gas Exporting Countries Forum (GECF), eight of

whose 15 members are OPEC oil producers. With the

exception of Egypt, Norway and Trinidad, all the other

GECF members who supplied Europe with LNG in 2007

were OPEC members. Mojgan Djamarani reports.

1 1 Denmark 7.437 +0.302 3 Sweden 4.519 –3.653 2 Germany 4.320 –11.704 4 South Africa 4.186 +5.355 5 Italy 3.828 –1.556 6 Netherlands 3.799 +9.307 7 France 3.017 –4.588 10 Belgium 2.574 –7.559 8 UK 2.569 –9.6310 11 Finland 2.455 –1.1511 12 Spain 2.454 +2.7512 9 US 2.252 –16.4313 13 Canada 2.211 –4.1014 14 Australia 1.871 +2.40

Table 1: Gas cost comparison (in cents/kWh) for 14 countries around the worldSource: Reuters – Gas price comparisons for industrial consumers by 14 countries by ConsultingGroup NUS Deutschland

Rank Country Cost Y-on-yin 2007 In 2006 (cents/kWh) %age change

of accessibility of pipeline gas is anotherfactor that has led to a very substantialpart of the new regas capacity beingacquired by upstream LNG producerssuch as Qatar Petroleum, Sonatrach,Petronas and BG. By the end of 2008,more than one third of the regas capacityin north-west Europe was estimated tobe under the control of LNG producersfor their own sole trading purposes.Another recent development in the

LNG market is the shift away from long-term contracts towards short-term andspot sales facilitated by declining LNGtransport costs. Colin Lyle, Gas CommitteeChairman of the European Federation ofEnergy Traders, in a presentation at LNG2009 held last March in London, claimedthat of new gas supplies becoming oper-ational worldwide in 2008–2009, nearly40% can be considered as flexible as pro-ducers seek out the highest possiblemargins. More than half of this flexibleLNG is situated in the Middle East, whichis within easy access of all LNG markets.Particularly important to the EU isSonatrach’s declaration last year that itwill no longer contract LNG beyond fiveyears and will engage in cargo by cargosales on the spot market. The DG TRENpaper reports that the share of short-term trading in global LNG salesincreased to 20% in 2007, compared to16% a year earlier.The reduced share of long-term con-

tracts means that Europe will have tocompete with the US and Asia on price.For LNG producers to find Europe anattractive destination, a report by MVVConsultancy for the EU Commission statesthat spot prices would have to be abovethe current average level of contractualpipeline gas prices in Europe. The actualunit cost of supplying pipeline gas tomostEuropean markets is lower than LNGsupply unit cost. Most geographically andeconomically attractive gas bearingregions are also located within pipelineaccessibility of the EU. So, pipeline gas islikely to remain the basis of the EU gaspolicy for long-term supplies. [However,there is great uncertainty in the marketgoing forwards. Just over a year ago itlooked like there would be significantgrowth in the LNG sector, with many newprojects planned. The economic slow-down has led to a number of projectsbeing cancelled or shelved, so there is aquestion as to whether LNG will secure alarge share of themarket within the time-frame originally considered possible bythe market analysts – Consulting Editor]

Third party accessTo prevent capacity hording and facilitateaccess to LNG terminals, the EuropeanDirective 2003/55/EC on gas market liber-alisation, provides for third party accessto terminals, with the national regulator

setting the tariff conditions. However,given the large, long-term investmentsrequired for LNG terminals and the com-petition from pipeline gas in the EU gasmarket, in 2003 the EU Commission intro-duced Article 22 that grants temporaryexemptions to the LSOs (LNG systemoperators) from the third party accessrule. With the exception of Spain, whereshort-term capacity is made available tothird parties through regulated accesswithout any Article 22 exemptions, writesThiery Trouve, CEO of Elengy, in the LNGJournal, exemption has become ‘thequasi-general rule in Europe for new LNGterminals’, with more than 80% of thenew terminals having requested anexemption. So far, nine exemptions havebeen granted and another three arepending. The reason for the growingrecourse to the exemption, Trouve writes,is the ‘de facto’ competition betweenEuropean LNG terminals.The Commission does not see the coex-

istence of regulated and exemptedterminals as a problem. As more LNG ter-minals are built, the argument goes,the two regimes will converge. Accordingto the DG TREN paper, what theCommission regards asmore important increating a level playing field for terminalaccess and investment in terminals is ‘theinterface between TSOs and LSOs’.Independence of the TSOs (transmissionsystem operators) of supply interests is ofutmost importance, the paper says, andthe requirements to ensure effectiveunbundling under the third energypackage legislation are expected toachieve this and to apply to terminaloperators’ principles that are alreadyapplied to TSOs.

In order for LNG to contribute to EUenergy security an internal gas marketneeds to be created first. Interconnectorsneed to be built to facilitate interoper-

ability of LNG facilities and their connec-tion to an EU-wide grid. According toArianna Checchi of the Centre forEuropean Policy Studies, there are cur-rently over 60 connection points withinthe EU that allow cross-border gas trans-mission, but they are not always locatedwhere – from a security of supply point ofview – they are most needed, ie EasternEuropean countries, the Baltic regionand, to a lesser extent, the IberianPeninsula. These regions rely on importpipelines for their integration into theEuropean gas market. However, as a firststep, she writes: ‘The distinction betweengas interconnectors, import pipelines andexport pipelines which play the role ofinterconnections must be clarified.’

Trade offThe aims of any EU energy policy shouldbe to deliver the benefits that accrue fromencouraging LNG imports whilst min-imising the disadvantages. Lookingahead, there is a need for a careful calcu-lation to be made by Europeangovernments, possibly the EU itself, andthose wishing to supply the Europeanmarket – ie what is the trade off between:� investing now in regasification plantsand an associated distribution systemto improve security of supply, butleading to almost certain short- tomedium-term increase in the gas costs,compared with

� a policy of continued reliance on pipedgas, which is currently cheaper but thenface the possibility, say after 2020, thatthe price of this supply of gas isincreased by those wishing to takeadvantage of Europe’s captive market,or, worse still,

� find that after 2020 the existingsuppliers of pipeline gas are unablerather than unwilling to satisfy EU gasdemand. �

G A S LNG


Fos Cavou LNG France 8.25 2009 GdF Suez 69.7%, Total30.3%

Offshore North Italy 8 2009 Qatar 45%, ExxonMobilAdriatic 45%, Edison 10%

Gate LNG Netherlands 12 2011 Dong Energy, E.on,OMV, Essent 5% each;Royal Vopak, Gasunie,the remainder

El Musel LNG Spain 7 2010/2011 Qatar Petroleum 67.5%,ExxonMobil 24.15%,Total 8.35%

Dragon LNG UK 6 2009 BG 50%, Petronas 30%,4gas 20%

Grain LNG 2 UK 9 (to reach 2008 National Grid20bn by 2010)

Table 2: LNG Terminals in Europe

LNG terminal Country Capacity Due Developers(in bn cm) onstream

Documents

proct09