2014-03-30 03:33:39 - New Energy research report from Business Monitor International is now available from Fast Market Research
We see only limited upside to the current bearish outlook for domestic oil and gas production in Germany. There are some areas of opportunity, including redevelopment of maturing sites, enhanced oil recovery and the upside from underexplored regions in East Germany. The largest source of upside risk is from unconventional gas development, though the sector remains mired in political and environmental uncertainty. The CDU-SDP coalition agreement to form a new government outlined that the use of hydraulic fracturing remains too high-risk, largely due to potential water contamination. As such, it is unlikely much progress will be made in this area for at least four years.
The main trends and developments in Germany's oil and gas sector are:
* Germany's latest government
has seen a grand coalition formed between the CDU and SPD. In the agreement signed by the two parties it was outlined that hydraulic fracturing technology is considered too high a risk, as it could threaten water quality. With this decision in place, it is now likely that no progress is will be made on Germany's considerable shale gas resources, at least over the next four years.
* Natural gas consumption in Germany continues to be put under pressure from a glut of cheap coal and generous renewable subsidies. Supporting gas demand will be greater utilisation of gas as transport fuel, the phasing out of nuclear and gas-fired power generation as a back-up to intermittent renewables. However, these upside factors will be kept in check by energy efficiency gains which have seen gas consumption fall since the early 2000s, ambitious subsidised renewable projects and government targets, as well as cheap and abundant coal.
* While we see limited upside to conventional gas production, which looks set to continue its downward trend, there is some upside to oil reserves and production from new investments by independents targeting enhanced oil recovery utilising new technologies to recover previously uneconomic reserves. We also see possible gains from exploration of the former East Germany and Bavaria, where a lack of investment had stymied production previously.
* Germany is also thought to have notable unconventional gas potential in the form of coal-bed methane. There is an absence of projects to monetise such resources as part of a wider debate over the environmental costs of unconventional gas production. However, a previous study put potential in-place resources of coal-bed methane (CBM) at 3trn cubic metres (tcm). Unlocking Germany's CBM potential is not just environmentally complicated, but due to the depth of resources, extraction is thought to be technically challenging. Improvements in technology and higher prices could make CBM a more attractive alternative should politics permit.
* In March 2013 the shutdown of operations began at Royal Dutch Shell's 100,000b/d Harburg refinery. The event is an ominous one for the European downstream, which has seen margins tighten under pressure from more efficient foreign producers with cheaper feedstocks. Germany's large refining sector is at risk of further capacity rationalisations as the pressure on Europe's downstream continues.
* Further impacting the downstream woes is the reduction in demand for refined products. Due to improving efficiency from automotive manufacturers and a shrinking population, we forecast refined products consumption to fall consistently though to 2023.
* Due to reduced fuel consumption there has also been a slowdown in demand for biofuels. Germany once produced over 50% of the EU's biodiesel, though this has now fallen to around 27%. Biofuels production has largely matched demand, though growth in this sector currently looks far weaker that was anticipated some years ago.
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