Fuel for Thought – Nov 18th

18 Nov, 2011

Spanish may slash renewable subsidies: A likely victory for a new centre-right government in Spain may see aggressive cuts to support for renewable energy as the Spanish economy comes under increasing pressure from the country’s debt burden.   It is likely that support for renewables across Europe will be tested as a renewed economic downturn coincides with fierce austerity measures to reign in fiscal deficits.  However the damage to renewable support may be mitigated if the downturn leads to a fall in commodity prices an associated reduction in consumer energy bills, given that funding is mostly achieved through cost pass through to energy customers.

Shale gas earthquake: The admission this month by Cuadrilla Resources, one of the UK’s most promising shale gas developers, that hydraulic fracking has caused minor earthquakes is a substantial blow for shale gas in the UK.  There is a compelling story behind shale gas in the UK given the size and location of resource at a time when gas security of supply is high on the political agenda.  But this incident highlights the technological, environmental and PR challenges that the shale gas industry faces in its relative infancy.

LNG exporters concerned about demand: Barely six months after the Fukushima earthquake triggered a dramatic tightening in the Asian LNG market, concerns over a downturn in global gas demand are set to be the focus of discussion as LNG exporters meet in Qatar.  Memories of 2008 are fresh and there is little that suppliers can do to mitigate the price impact from a rapid decline in demand.  For the last six months in this column we have emphasised the threat to global gas prices from a renewed economic downturn.  The tightening of the Asian LNG market has been prominent in its impact on prices and perception in 2011, but it has not alleviated the underlying conditions of the global gas supply glut that followed the onset of the financial crisis.

WTI/Brent spread reconverges: Physical constraints on moving oil out of the physical delivery point for WTI crude in Cushing Oklahoma, have driven a sharp divergence between WTI and the North Sea Brent crude benchmark over the last year.  These constraints are set to ease after an announcement this week that the operators of the Seaway pipeline, running from the Gulf coast to Cushing, will allow reverse flow.  This is an important step towards WTI/Brent re-convergence, although the damage to the credibility of WTI is done, with Brent likely to build on its dominant position as a global pricing benchmark.

Picture of the week:

Construction of the Thornton Bank offshore wind farm in Belgium. The first 30 MW phase of Thornton Bank commenced operation in 2009 and is one of Europe’s pioneering offshore wind projects. Although the construction is impressive, it is also a relatively simple project from an engineering perspective given water depths are only around 20 meters and the windfarm is only 30km offshore.  Developers of the large windfarms planned for the North Sea face a much greater challenge.