The Unconventional Outlook from the Foggy Streets of London
TJ is one of those functionaries in the British Foreign Office (FO) who tend to keep their heads down and out of the line of fire. He has been my liaison for several years now.
Usually, he only opens his mouth to answer questions or give me the latest revision in my schedule.
So it was a bit unusual to hear him to express his opinions so vividly yesterday. Clearly, he was frustrated.
Then again, these are unusual times in Whitehall – the collective term for the British government taken from the street that snakes among official offices between Trafalgar Square and Parliament.
TJ met Marina and I on the other side of customs at Heathrow Airport where our official car and driver were waiting.
But only a few minutes from Terminal 1, TJ began to fill me in on the political mine field that was developing around unconventional oil and gas in the UK.
What he told me was a bit troubling…
The View on Fracking in Whitehall
Of course, some of what TJ was saying I already knew.
The administration of Prime Minister David Cameron had recently approved fracking in the UK, as the potential for shale gas became more obvious over the past 18 months.
But since then, there has been no consensus on how to move next, while the environmental and political attacks have been relentless and fierce.
In this case, Cameron has to contend with leading a coalition government that has been sinking in the public opinion polls, while the Labour Party opposition is already poised for the next election fight.
As an FO officer, TJ is usually concerned about developments elsewhere. His special emphasis is North Africa and the Middle East. We first met there over oil policy almost five years ago.
However, the domestic British political environment he spoke of is impeding a range of broader opportunities. And the foreign agenda that usually comprises what TJ does for a living is coming under pressure from the growing domestic disagreements over unconventional drilling in the UK.
In fact as it stands, no projects are anticipated for at least a year.
Unfortunately, this firestorm of opposition to fracking is also casting a pall over everything I am likely to be doing over course of the next week.
On the Frontlines of the Global Shale Revolution
As you know, I’m in London to give a critical briefing to the assembled ambassadorial, ministerial, and corporate leaders next Tuesday on U.S. energy developments that in part revolve around fracking. The briefing is centered on unconventional oil/gas and the rise of North American liquefied natural gas (LNG) exports into the global market.
However, the meetings that start today will center on two other highly promising parallel interests.
One involves the need to coordinate the technology, expertise, and equipment in what is rapidly becoming an international shale revolution. This coordination will initially require heavy usage of Canadian and American experience. North American operators are already some eight years ahead of the rest of the world when it comes to these types of basins.
It might not sound like much, but in this business it’s a generation.
One of the dimensions that will emerge in my meetings over the next week is an initial determination of which of these U.S. companies are likely to be in demand in Europe and Asia as the shale era expands.
This is certainly going to have a direct impact on how we are going to play this accelerating need for American knowhow in the future.
But it is also moving in another direction. There are currently just three dominant providers: Halliburton (NYSE: HAL), who owns the patent on the most used fracking approach; global oil services leader Schlumberger (NYSE: SLB); and Baker Hughes (NYSE: BHI). Baker Hughes is notable since it has made the first field moves into China, where the world’s largest shale gas reserves are located.
Each of these three companies provide “one stop shopping,” offering a complete package to foreign drillers.
However, more of the companies coming onto the shale scene in other countries would prefer to set up their own arrangements.
And the fact that my meetings in London will include Chinese, Polish, German, Argentinian, and other national representatives in addition to the Brits, stands as a clear indication of the massive new markets emerging for a wide range of service providers already in “the oil and gas patch” back home.
The Changing Face of Finance
The other subject for these sessions, finance, is even more striking.
These meetings will focus on the significant changes in how both conventional and unconventional field projects are going to be financed in the future.
As I have noted before, London is now the place of choice when it comes raising funds for oil and gas projects globally. Years ago it displaced New York, Frankfurt, and even Dubai. Companies and financiers come from all over the map now to London to strike deals.
Here as well, though, the terrain is changing. New models are being fashioned to deal with the ever changing credit and liquidity concerns arising internationally. In these sessions, I have some detailed suggestions to make. It is why I have been invited.
As is our custom, all of these discussions will take place under Chatham House rules.
The approach was developed early in the last century to allow frank conversations among nations. The rules provide that the conclusions and themes in these meetings can be made public, but no particular position can be associated with any specifically named participant.
The anonymity is not only useful. In most cases, it is essential. Of course, I intend to fill you in on everything that the rules allow. The individuals providing the keys can certainly remain nameless.
Because what I learn from these meetings will allow us to make some serious money on the companies and projects involved in the next stage of international oil and gas.
That is, if the paralysis descending on Whitehall can be avoided.
What I can tell you so far is that one aspect of this trip is very clear: I need to be particularly careful. It has taken some time to bring all these folks together.
Now we need to get something from the effort.
I promise I’ll have more on these developments in the next issue of OEI.