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One gallon of gas = 98 tons (196,000 pounds) of ancient plants = 40 acres of wheat in your gas tank every 20 miles
http://energyskeptic.com/2014/one-gallon-of-gas-98-tons-of-ancient-plants/?fbclid=IwAR1UB9UFYEccfiZhQXuGc3I_gbvic7cXu0EwfgtTW3LsZ2XAaPeMYJGJjUo
The End of An Age
February 28, 2017
Liam
https://liamscheff.com/2017/02/the-end-of-an-age/?fbclid=IwAR2PejGoHumjUIgkOQuBo0lT2eIEF2w38G-VKexkJwlyc0Xim9jAftV-bBg
Low Oil Prices: An Indication of Major Problems Ahead?
Posted on November 28, 2018
by Gail Tverberg
"In recent years, we have heard a great deal about the possibility of Peak Oil, including high oil prices. If the issue we are facing is really prices that are too low for producers, then there seems to be the possibility of a different limits issue, called Collapse. Many early economies seem to have collapsed as they reached resource limits. Collapse seems to be characterized by growing wealth disparity, inadequate wages for non-elite workers, failing governments, debt defaults, resource wars, and epidemics. Eventually, population associated with collapsed economies may fall very low or completely disappear. As Collapse approaches, commodity prices seem to be low, rather than high."
https://ourfiniteworld.com/2018/11/28/low-oil-prices-an-indication-of-major-problems-ahead/?fbclid=IwAR0o5cGKsyjQ8zFjlKwZ7auzwVxKZMHV4Nu-C2q_Vjf2dvQ34SwKm4g2R3E
very interesting.eom
Peak Oil & Drastic Oil Shortages Imminent, Says IEA
November 22nd, 2018 by Guest Contributor
https://cleantechnica.com/2018/11/22/peak-oil-drastic-oil-shortages-imminent-says-iea/?fbclid=IwAR24rEYurcD9KvIza4YMhf2UhkPCwmRAtdXW9e00NaE08c-Kix_S-eU-7CQ
While the IEA got a lot of coverage for its World Energy Outlook 2018 (WEO 18), there might be a little snippet that got way underappreciated.
On page 159 of its Outlook, accessible only behind a payment barrier, the following graph can be found:
It is clear to see that Peak Oil will be hit well before 2020, while demand keeps on rising, unless the world’s Oil Majors and State Owned Oil Companies would massively invest in new exploration, according to the IEA.
However, the Oil Majors did already heavily spend on new oil exploration in the years after 2000, where a fossil fuel hype with an accompanying coal boom lead up to an oil price of over $150 in 2008. While this oil price proved unsustainable for a crashing world economy, this oil exploration boom lead to very little new findings in the big scheme of things:
So what does that mean?
It means that a collapse of oil supply to half of its current size within only six years simply cannot be compensated by new oil findings and certainly not by unconventional oil sources like oil sands and fracking. That the Oil Majors did not pick up with new oil exploration after the oil price rose again to $100 per barrel in the years after 2008 is another sign that the world is already “overexplored,” as geologists put it. Instead the Oil Majors concentrated on a stock buyback, knowing full well that further exploration would be a waste of money while they are sitting on oil that will become very valuable even though the amount of oil they will extract will decline significantly.
In summary, the Oil Majors and State Owned Oil Companies (in this field notably the Initial Public Offering (IPO) of Saudi-Aramco, the world’s biggest oil company, has been scrubbed) are waiting for an oil price bonanza to happen, while the IEA is very concerned about future oil supply.
While the IEA has no credibility left when it comes to renewables (see following graph), because its forecasts historically have all been absurdly wrong, the IEA should possess some knowledge in the oil business and especially concerning the decline rates of existing conventional fields, which have been studied in depths for decades.
Notably the Peak Oil graph from the IEA (first graph in this article) has been unearthed by the Association of Study of Peak Oil and Gas (ASPO), which as an organization has itself published multiple studies on Peak Oil. While ASPO has put Peak Oil sooner than the IEA, in its latest study already at 2011 for conventional crude, it is remarkable that the IEA refuted this claim back then with the statement that Peak Oil would not be reached before 2020. Well, it surely looks like they corrected that statement for themselves now.
So what does that mean for investors in oil and the world economy?
Surely there could a handsome profit be made by riding the coming oil shortages, but one has to keep in mind that while the oil price may go through the roof, the barrels that can be sold also shrink fast and drastically. So there remains the question of how high the profits of the Oil Majors will rise and how much will this be appreciated by the stock price for these clearly dying companies. Furthermore, with these rapid stock swings, you compete with banking supercomputers that act in a millisecond timeframe, so you would have to be alert night and day for the point when the crash will come because of the world economy not being able to take the oil price anymore. As a conservative long term investor, this can only mean to get out of these stocks as soon as possible, while risk-loving investors can try to make a quick buck on the coming stock volatility, with the world economy crashing a couple of times due to ongoing undersupply in oil.
For the climate, this is excellent news, because the adoption of electric vehicles and clean transport in general will get a major boost and surely blow all current predictions out of the water. As an investor this is imho, where your money should be.
About the author: Dr. Harry Brinkmann got a Ph. D. in Physics in the working group “Applied Physics” from the Justus-Liebig-University in Gießen. In his free time he is contributing to working groups of Bündnis90/Die Grünen such as Bundesarbeitsgemeinschaft Energie (Federal working group energy) and likes arguing with people online over energy solutions and a sustainable future. Based in Berlin, he also writes and publishes German novels.
Peak Oil Review: 26 November 2018
By Tom Whipple, Steve Andrews, originally published by Peak-Oil.org
https://www.resilience.org/stories/2018-11-26/peak-oil-review-26-december-2018/
Quotes of the Week
“In my 36 years in this [petroleum] business, I have never seen such a wide differential in sentiment between Canada and the US. I’ve never seen more frustration among our customers and our competitors and in our peer-group companies than right now.” Kevin Neveu, chief executive officer of the oilfield-service company Precision Drilling Corp.
“The assumption that current and future climate conditions will resemble the recent past is no longer valid…With continued growth in [greenhouse gas] emissions at historic rates, annual losses in some economic sectors are projected to reach hundreds of billions of dollars by the end of the century – more than the current gross domestic product (GDP) of many US states,” The Fourth National Climate Assessment Volume II, compiled through combined efforts of 13 US government agencies
1. Oil and the Global Economy
Oil prices slid more than 6 percent on Friday to the lowest levels in more than a year. New York futures closed at $50.42, down almost $26 a barrel since early October, and London closed at $58.80, down more than $27. The reasons for the plunge, which some observers are calling excessive, are well known. Inventories continue to build as US shale oil production increases; there are signs of a weaker global economy ahead; Washington has granted six-month waivers for Iranian oil importers; Moscow is not interested in cutting production; and there are doubts that the Saudis will make a significant cut in production while under pressure from President Trump to keep up production. Trump’s support for Crown Prince bin Salman in the wake of the killing of journalist Jamal Khashoggi is likely to complicate decision-making in Riyadh, to say the least.
Saudi Arabia, Moscow, and the OPEC members are considering a compromise plan to cut production that would retain official output targets, first set in 2016, but would imply a quiet production pullback because Saudi Arabia is overproducing by nearly 1 million b/d. While the Saudis could cut a million b/d on their own, a cut of this size combined with the lower oil prices would be a significant blow to their budget and force a dip into their monetary reserves again. With Moscow and Baghdad both talking about increased production next year, the Saudis have a difficult path ahead.
Many observers remain skeptical that the OPEC meeting in Vienna on Dec. 6 will be able to cut oil supplies by enough to push prices significantly higher. There seems to be general agreement that ever-increasing US shale oil production— total US oil production has nearly doubled since the start of 2012—has increased concerns about a global glut of crude.
Concerns are rising about what the $27 a barrel price drop will do to drilling budgets for 2019. As recently as September, North American oil producers had been increasing spending to take advantage of this year’s higher prices. Now with the revenue per barrel down some 27 percent, and even more due to logistical difficulties in the Permian and Canada, there are concerns about the 2019 drilling budgets and the profitability of the shale oil industry. Drillers that were not making money at $75 a barrel are not making money at $50. Rising interest rates are also leading to the the realization by investors and lenders that it may be a long time and much higher prices before shale oil drilling becomes generally profitable.
OPEC: Next week’s OPEC meeting in Vienna has the potential of being a memorable one. It seems likely that there will be a formal agreement that will link Moscow and its oil-producing allies to OPEC. This agreement could morph into a situation where the Saudis (and a few allies) and the Russians (and their former Soviet partners) together call the shots no matter what the interests of the other OPEC states.
An OPEC/non-OPEC monitoring committee co-chaired by Saudi energy minister Khalid al-Falih on November 11 hinted that the coalition would consider production cuts of up to 1.4 million b/d to shore up prices. But that was before President Trump this week voiced his political support for Saudi Arabia, repeatedly calling out the kingdom to keep oil prices low, as it deals with the global fallout from the murder of dissident and journalist Jamal Khashoggi. Many analysts believe that OPEC will find it difficult to go against the wishes of the US administration and make the necessary production cuts.
In a related issue, the US Department of Justice is reviewing antitrust legislation aimed at reining in OPEC’s power over oil markets. The House Judiciary Committee in June approved the “No Oil Producing and Exporting Cartels Act,” or NOPEC bill, which would give the attorney general the authority to file a suit against OPEC for trying to control oil production or to affect crude prices. This would amend the Sherman Antitrust Act of 1890; the law used to break up Rockefeller’s Standard Oil. A similar Senate bill hasn’t seen any action yet. Although past presidents have threatened to use their veto power to prevent similar measures from becoming law, President Trump has repeatedly attacked the cartel over high prices.
US Shale Oil Production: More than a dozen top U.S. energy companies have pledged $100 million toward easing stresses on health care, education and civic infrastructure from the shale oil and gas boom in West Texas and New Mexico. Chevron, EOG Resources, Exxon Mobil and Royal Dutch Shell are among 17 companies backing the Permian Strategic Partnership. The group seeks to address labor and housing shortages, overtaxed health care, and traffic congestion caused by rapidly increasing drilling in the Permian Basin.
The Permian continues to be the most desired area for shale oil drillers, but competition for the most productive regions has intensified, driving land and drilling costs significantly higher. Now some independent and smaller firms are looking to gain access to drilling rights outside of the Permian because this year’s higher oil prices have made other U.S. shale plays profitable – at least until recently.
North Dakota recently reported that its September production hit a new record and that while drilling had been confined mostly to the four most productive counties, it was now expanding in less productive areas of the Bakken. Three-mile-long laterals were now being drilled to get the initial production up to that of the more productive areas. As the report on September production came six weeks into the recent price drop, North Dakota officials already knew that increasing production from the Bakken, which had been going on since June, was unlikely to continue in a period of lower prices and warned of trouble ahead.
Climate: A major scientific report issued by 13 federal agencies last week presents the starkest warnings to date of the consequences of climate change for the United States. The study, which was mandated by Congress and made public reluctantly by the White House, is notable not only for the precision of its calculations and bluntness of its conclusions but also because its findings are directly at odds with President Trump’s agenda of environmental deregulation.
The 1,656-page assessment lays out the devastating effects of a changing climate on the economy, health, and environment, including record wildfires in California, crop failures in the Midwest and crumbling infrastructure in the South. The report finds that US exports and supply chains could be disrupted, agricultural yields could fall to 1980s levels by midcentury, and the fire season could spread to the Southeast.
According to the official figures of the International Energy Agency, the current combined share of solar photovoltaic energy and solar thermal energy, wind and tidal energy, and geothermal energy in global energy production is 1.5 percent. Other non-fossil fuels such as nuclear, hydro, and biofuels bring the non-carbon emitting energy sources to about 14 percent, but these sources of energy are unlikely to grow very much in the coming decades.
2. The Middle East & North Africa
Iran: The status of Tehran’s oil exports remains uncertain after the announcement that Washington was granting partial six-month waivers to regular importers of Iranian oil. Iran’s oil exports in November appear to have dropped by several hundred thousand barrels per day compared to October, as many Iranian customers had not made November purchases amid uncertainty whether they would get US waivers.
China is set to continue importing robust volumes of Iranian crude at least through the end of this year thanks to the US waivers. Although there is no clarity on volumes on Iranian crude that Chinese buyers can ship in under the US waiver, sources said that the waiver would allow some of the key Chinese buyers, such as Sinopec, to honor term contracts they have for Iranian supplies.
The waivers and the likelihood that Iran’s exports will not drop as much as expected has been one factor contributing to the sharp oil price drop in the last two months.
Iraq: After Kurdistan’s independence referendum passed overwhelmingly last year, Baghdad seized the Kirkuk oil fields and stopped exporting some 300,000 b/d of oil through the Kurds’ pipeline to Turkey. After a year of negotiations, an agreement was reached to resume exporting Kirkuk oil through Kurdistan. While the initial flow to the north is only some 50,000-60,000 b/d, this could soon be increased to 400,000 b/d.
This is a significant quantity of oil and is yet another factor in an emerging oil glut and lower prices.
The US granted Baghdad a 45-day exemption from Iranian sanctions, allowing it to keep importing the natural gas used to generate electricity. It is not clear what is to happen after the 45 days, as it will take Iraq much longer to find another source of supply. A reduction in the electricity supply could easily lead to a destabilization of the country.
Saudi Arabia: A combination of the Khashoggi affair and the rapid drop in global oil prices is causing major problems for the Saudi government. For now, President Trump seems ready to ignore any involvement of the crown prince in the assassination plot in return for a promise to keep oil prices low by pumping more oil. According to Energy Minister Khalid Al-Falih, Saudi Arabia currently is producing oil in excess of 10.7 million b/d, considerably more than in recent years.
The recent $26 a barrel price drop likely will force the Saudis to reduce production as the government is again operating at a deficit. International oil prices have fallen to $58 a barrel, far below the $88-a-barrel level that the International Monetary Fund says Saudi Arabia needs to balance its budget.
On Thursday, Khalid al-Falih said that if he sees weak oil demand in January, the kingdom would respond accordingly to cool the global market’s anxiety. Caught between pleasing Washington with policies that won’t lead to price spikes and cutting back the flow of oil to rebalance oversupplied global markets, it appears that OPEC and the Saudis will announce that they are cutting back to the official 2016 targets which imply a cut of nearly 1 million b/d from current production levels for Riyadh.
The cut “would be more discrete,” said an OPEC official, who added the production cut would satisfy the US on oil prices “would be a quid-pro-quo” between the Saudis and Mr. Trump. It also would avoid a confrontation with Russia, which wants to continue increasing production. The situation may become clearer after the OPEC meeting in early December.
Saudi Arabian Oil Co had considered issuing up to $40 billion in bonds to help buy 70 percent of Saudi Basic Industries Corp. However, people familiar with the situation say the government is now worried about the level of disclosure required for a bond issue and whether the uncertain outlook for the oil market might damp demand for debt or increase the cost of borrowing. Aramco executives also have raised concerns that the recent diplomatic fallout from the Khashoggi murder might affect investors’ appetite for Saudi debt.
Libya: The National Oil Corporation will soon resume the Phase 2 development of the offshore natural gas producing Bahr Essalam field. The second phase of development of the field began in July this year and according to Eni will add 400 million cu ft of natural gas to its daily production of 700 million cu ft. Offshore oil and gas production in Libya these days is a much better bet as it is out of reach of the various insurgent groups that are forever trying to interrupt production.
Last week there was news that Libya’s UN-recognized government and the eastern rival government might just be willing to settle their differences and hold elections early next year. While nothing is certain as yet, a settlement between the two government would go a long way towards stabilizing the situation and allowing the country to increase its oil production from the current 1.3 million b/d. Libya probably has the largest oil reserves on the continent, and its oil is relatively easy and cheap to develop if the security situation improves.
3. China
Crude stockpiles in China rose by 29 million barrels last month from September and are likely to continue up, according to S&P Global Platts calculations. The inventory build was a result of rising imports combined with lower refinery activity, which led to the 416 percent surge in October from September. China’s crude oil imports averaged 9.61 million barrels a day last month, the highest on record.
Industrial gas demand in North China is showing signs of a sharp slowdown as small manufacturers shut their doors or buy less gas, unable to cope with a drop-off in export orders and costs related to Beijing’s pollution control measures. The unexpected fall-off in demand from hundreds of small factories from a key industrial region could end up forcing Asian LNG spot prices even lower. One factory manager said he is facing his toughest year in 20 years of business, blaming Beijing’s campaign to switch users from coal to gas – which makes gas prices volatile – falling export orders, and frequent forced shutdowns in response to heavy smog.
Russia’s Gazprom will soon complete the bulk of the work for one its most ambitious projects ever that involves building a natural gas pipeline from Siberia to its border with China. The pipeline will ship 38 billion cubic meters annually of natural gas to China for a 30-year period.
Chinese buyers have returned to buying US crude oil after halting all imports of US grades in August and September. China bought 15 million barrels and 13 million barrels of US crude in June and July, respectively. Official export data for October is not yet available.
The effect that President Trump’s tariffs will have on US LNG exports to China is still unclear. Beijing is the world’s second largest importer of LNG after Japan and has been an important customer for US LNG. This year between January and August, China purchased 1.6 of the 14.9 million tons of US LNG, but September 24th was the start of President Trump’s imposition of tariffs on $200 billion worth of Chinese goods and China’s retaliatory levy of 10 percent on imports of US LNG. Wholesale prices are already near their highest levels in a decade, driven by rising shipping costs, low European gas stocks and Chinese purchases to avoid a recurrence of last winter’s shortages.
4. Russia
Energy Minister Novak said last Monday that the country was planning to sign a partnership agreement with the Organization of the Petroleum Exporting Countries (OPEC) and that it would be discussed at OPEC’s Dec. 6th meeting. A formal alliance between Moscow and OPEC, which in reality means with Riyadh, would mark an important change in global oil policies. Although Russia and the Saudis have many different concerns, they are both dependent on their oil and gas exports to keep solvent. This means keeping prices as high as the markets will bear without reducing the demand for oil.
Construction of the offshore part of the TurkStream pipeline that will carry Russian gas across the Black Sea to Turkey has been completed, Russian gas producer Gazprom said on Monday. TurkStream is part of Moscow’s efforts to bypass Ukraine as a gas transit route to Europe, which imports around a third of its gas needs from Gazprom.
Gazprom has stopped natural gas auctions on its electronic sales platform because all the natural gas available until the end of 2018 has already been sold. Gazprom started its Electronic Sales Platform in August for physical natural gas sales to European consumers. Sales in this manner would be in addition to supplies under existing contracts. Sales via the electronic platform began on September 20, and according to Gazprom Export data, no auctions have been held since last Friday, November 16.
The global demand for natural gas has been increasing quickly as a more environmentally friendly substitute for coal as city after city become burdened with unbreathable air. The LNG industry is growing rapidly but will have trouble keeping up with demand. As Moscow opens new pipelines to China which cannot produce enough gas to meet demand, an increasing number of shortages are likely to develop.
5. Venezuela
PDVSA has reopened a dock at the country’s main oil terminal of Jose that had been closed for almost three months due to a tanker collision. Dozens of tankers waiting to load Venezuelan oil were diverted to other PDVSA’s terminals since Jose port’s South dock was shut in late August, causing delays in deliveries to customers and cutting export revenue. Venezuela’s crude exports fell to 1.06 million b/d last month and is probably below 1 million today.
Talks with shipping firms to set up a second ship-to-ship oil transfer operation off the country’s eastern coast have begun. Earlier this PDVSA year began sea-borne oil transfers off its western coast, to move crude and fuel oil to Asia, after its ports clogged with tankers waiting to load and tanker loads in its Caribbean terminals faced seizure by creditors. Ship to ship transfer of oil at sea is difficult and dangerous. Insurers will only allow certified captains and mooring masters to undertake such operations.
6. The Briefs (date of article in Peak Oil News is in parentheses)
The global LNG market could move into a state of undersupply earlier than expected, the head of industry body GIIGNL warned Thursday. Jean-Marie Dauger said the LNG market was “covered” for the next few years given the expected startup of several new supply projects. But a shortage of final investment decisions for new supply trains in the past few years has left the market potentially undersupplied “in the early 2020s, not the mid-2020s.” (11/23)
Offshore UK: Oil giants like BP have turned their attention to the region west of the Shetland Islands—a remote North Sea archipelago—where the company’s newest project is located. Once thought too difficult to develop, it’s now a key area of growth for the U.K. For instance, the Clair Ridge development is part of a field that was first discovered in 1977—an estimated 7-billion-barrel whale that for years proved too challenging and costly to exploit. (11/23)
France’s energy plan for the coming decade to be presented by President Emmanuel Macron November 27 will set more ambitious targets to cut fossil-fuels by 2030—by 40% instead of the 30% cut specified in 2015—despite major fuel tax protests, energy minister Francois de Rugy said Friday. Also, the share of electricity to come from renewable energy will be doubled. (11/24)
In Paris, police fired tear gas and used water cannon to disperse several hundred protesters who are angry over rising fuel costs and President Emmanuel Macron’s economic policies, the second weekend of “yellow vest” protests that have caused disruption across France. (11/24)
India’s crude imports surged to 5 million b/d in October to register the highest monthly inflows in more than seven years as refiners rushed to ship in cargoes amid doubts on whether New Delhi would win a waiver on Iran. But with India having secured temporary waivers from Washington, analysts and market sources said that the urgency to bring in cargoes had subsided, meaning overall imports from November onwards could ease. (11/23)
South Korea’s oil products demand fell 8.5 percent year on year in October due to higher retail prices and a domestic economic slowdown. The country consumed 73.35 million barrels, or an average of 2.37 million b/d, of oil products in October, down from 80.15 million barrels a year earlier. It was the fourth consecutive month of decline in demand since July. (11/23)
South Korea is continuing to hold its dominant position in tanker delivery of liquefied natural gas (LNG) by winning major large-scale tanker building orders. The 50 tankers, due for delivery over the next three years, are valued at more than $9 billion. It’s all part of an economic sector expected to see substantial growth as LNG becomes an attractive power source for several global markets. These new ships are expected to increase the global LNG fleet by around 10 percent. (11/22)
In South Sudan, Russia’s Gazprom Neft has signed a memorandum of understanding to explore four oil blocks, South Sudan’s petroleum minister said. Other foreign firms active in South Sudan’s oil industry include China National Petroleum Corporation, Malaysia’s Petronas and India’s Oil and Natural Gas Corporation. The minister said the country’s oil production had risen to 135,000 b/d from 130,000 b/d in August. South Sudan wants to push production back up to 350,000 b/d, the level achieved in 2011 when the country secured independence from Sudan and before it slid into civil conflict. (11/23)
Argentina will be joining the ranks of exporters of liquefied natural gas (LNG) next year when it stars exporting gas from its Vaca Muerta shale play, one of the few shale gas plays in production outside the US. Belgian energy shipping company Exmar will deploy a floating LNG unit (FLNG) to the Port of Bahía Blanca in the second quarter of 2019. Argentina will then become an LNG exporting nation, with an initial plan to export 500,000 tons of LNG per year to overseas markets. (11/22)
Canadian crisis: While the US oil industry has hit a speed bump with the recent $20 drop in oil prices in New York, producers in Canada are in a full-blown crisis. Heavy Canadian crude has been on a downward spiral since mid-May, with prices plummeting by more than 60 percent as an onslaught of new production from the oil-sands overwhelms the nation’s pipelines. The result is the worst pricing environment in the Canadian oil industry’s history and a disaster for a sector that accounts for about a 10th of the nation’s economy and a fifth of its exports. The crisis is threatening oil producers’ profits, causing deep divisions within the industry and putting pressure on Justin Trudeau’s government to act. (11/22)
Canada’s oil on rails: Canada’s oil industry is facing record-low prices for its exports, a glaring lack of infrastructure to bring its product to market, and an uncertain long-term outlook. And as one pipeline project after another fails to launch, the industry is relying more heavily than ever to ship its oil by rail—up to 20,000 rail carloads in August 2018. The volume of oil on Canada’s railroads has soared by 64.6 percent in just the past year. And in the past seven years, the number of rail cars carrying oil across Canada has quadrupled. (11/23)
Train fix nix? Justin Trudeau’s government is unlikely to heed Alberta’s plea for new trains to alleviate the country’s oil crisis, federal officials say. Buying new locomotives and rail cars isn’t a short-term fix to the glut that has sent prices plunging because it would take at least a year to get the new trains in place. (11/23)
Alberta’s oil producers are facing an extraordinary challenge caused by pipeline bottlenecks combined with growing production, Scotiabank Economics said in a report released this week. The bottlenecks could pressure the industry’s 2019 earnings by as much as US$11.33-29.45 billion, and government revenues could suffer a loss of between US$1.13 billion and US3.1 billion. This scenario, the bank said, factored in all other relevant circumstances remaining equal, with the only variable being pipeline capacity. (11/23)
The US oil rig count declined by three rigs to 885, the Baker Hughes firm said on Wednesday. After the rig additions stalled at five during the third quarter, drillers have added 22 rigs so far this quarter. Baker Hughes released the weekly report two days early due to the US Thanksgiving Day holiday. (11/22)
Alaska rule rollback: The Trump administration is moving to expand the territory open for oil exploration in Alaska’s National Petroleum Reserve, a process that could shift drilling rigs closer to herds of caribou and flocks of threatened birds. With a notice Tuesday, the Interior Department is taking the first formal step toward rewriting a five-year-old Obama administration management plan that put roughly half of the 22.1-million-acre reserve off limits. (11/21)
GOM oil spill blowback: The federal government issued an ultimatum to an energy company to stop an oil spill that has been leaking thousands of gallons into the Gulf of Mexico every day for more than 14 years. In an order issued by the US Coast Guard, Taylor Energy Co. was told to “institute a system to capture, contain, or remove oil” from the site or face a $40,000 per day fine for failing to comply. (11/21)
In Florida, the US Federal Energy Regulatory Commission has granted Eagle LNG Partners a draft environmental impact statement (DEIS) for their Jacksonville Export Project. The small-scale project would be capable of processing 1.5 million gallons of LNG per day and storing 12 million gallons of LNG on-site. The developers claim it will be the lowest cost source of LNG available for marine bunkering and for small-scale LNG projects in the Caribbean. (11/22)
Biofuels dance: The US EPA granted oil major Chevron Corp a 2017 hardship waiver from US biofuel laws for its Utah refinery earlier this year. Chevron becomes the largest known company to be awarded a hardship waiver from the Renewable Fuel Standard, which requires refiners to blend biofuels like ethanol into their fuel pool or buy compliance credits from competitors that do. The waivers, which have grown significantly under the Trump administration, have angered corn-belt farmers who say it hurts demand for ethanol and other biofuels. (11/21)
R&D plane: MIT researchers have demonstrated that an aircraft with a 5-meter wingspan can sustain steady-level flight using ionic-wind propulsion. The aircraft has no moving parts, does not depend on fossil fuels to fly, and is completely silent. The researchers describe their proof of concept for electroaerodynamic (EAD) airplane propulsion in a paper in the journal Nature.
In the UK, power station operator Drax is partnering with the Smart Green Shipping Alliance, leading dry bulk cargo transporter Ultrabulk, and Humphreys Yacht Design to examine the potential of fitting the innovative sail technology Fastrig onto Ultrabulk ships. The sailing ships would be used for importing biomass into the UK and would cut carbon emissions and costs. The shipping industry emits roughly 3 percent of global CO 2 and other greenhouse gas emissions. (11/22)
Fossil fuel-driven particulate air pollution cuts global average life expectancy by 1.8 years per person, according to a new pollution index and accompanying report produced by the Energy Policy Institute at the University of Chicago. The Air Quality Life Index establishes particulate pollution as the single greatest threat to human health globally. (11/21)
Concentrations of key gases in the atmosphere that are driving up global temperatures reached a new high in 2017. In their annual greenhouse gas bulletin, the World Meteorological Organization (WMO) says there is no sign of a reversal in this rising trend. Carbon dioxide levels reached 405 parts per million (ppm) in 2017, a level not seen in 3-5 million years. (11/22)
In Brazil, deforestation of the Amazon rainforest has hit its highest rate in a decade. About 7,900 sq. km (3,050 sq. miles) of the world’s largest rainforest was destroyed between August 2017 and July 2018 – an area larger than Delaware. Environment Minister Edson Duarte said illegal logging was to blame. The figures come amid concerns about the policies of Brazil’s newly elected president, Jair Bolsonaro. During the 2018 election campaign, Mr. Bolsonaro pledged to limit fines for damaging forestry and to weaken the influence of the environmental agency. (11/24)
A New source of ice melt: A new study suggests there’s a big source of geothermal heat underneath East Antarctica that hasn’t yet factored into calculations. Ice in this area appears to be melting from the bottom up, according to radar readings taken by an aircraft flying over the frozen continent. Thanks to new radar technology, the team of experts thinks radioactive rocks and hot water spurting from inside Earth’s crust is contributing to this additional melt. (11/23)
7. Book Review of Oil, Power, and War: A Dark History by Matthieu Auzanneau
What follows is a review of an English translation of an important book covering the history of the oil age which initially appeared in French three years ago. The English language version was published earlier this month and has been updated to include developments in the world oil industry through the early part of 2018. The review’s author is Jean Laherrère, a noted French geologist-geophysicist who was one of the first to recognize that world oil production will peak in our lifetime. The review incorporates Laherrère’s latest assessment of the global oil situation and prospects for oil in the coming decades. The book is available in hardcover and Kindle editions from Amazon.com.
Thoughts on the Future of World Oil Production
By Jean Laherrère, with Richard Heinberg
I have spent my professional career as a geologist-geophysicist involved in oil and gas exploration on every continent and have been an active participant in the peak oil debate during the past quarter century (petroleum geologist Colin Campbell and I were instrumental in initiating that debate via our article, “The End of Cheap Oil” published in Scientific American, March 1998). The story of oil is in my blood. I would like to state a few observations that came to mind as I was reading Matthieu Auzanneau’s excellent new book, Oil, Power, and War: A Dark History.
Oil and economic growth
Auzanneau reminds us that the story of oil is also the story of the modern industrial era, in which politicians of every stripe have enshrined economic growth as the goal of policy. Every government promises economic growth, without saying where it will come from. Growth is assumed to be GDP growth, and for a long time GDP was supposed to come from capital and labor. But economists Reiner Kummel and Robert Ayres have shown that energy consumption, in particular oil, is the main force behind GDP growth. These economists conclude that our consumer society is based on cheap energy. And the close historic correlation between growth in energy, especially oil, and growth in the global economy supports their conclusion.
The “thirty glorious years,” as it is called in France, covered the period 1945-1973—from the end of the Second World War to the first oil shock—when world oil production growth averaged 7.5 percent per year. Compare that to 1.1 percent average growth (excluding extra-heavy oil) for the period 1983-2017, which could be called the “thirty laborious years.” GDP growth has become harder to achieve, and economists now fret over what they call “secular stagnation,” often without any understanding of the underlying shifts in the oil industry. The maintenance of growth has become highly dependent on quantitative easing, low-interest rates, and tax cuts, all of which are problematic over the long run.
The United States as an energy, economic, and military superpower
Auzanneau tells the story of how, since its beginning, the global petroleum industry has been dominated by the United States; his book also recalls and explains the turbulent dynamics resulting from a continuous fight between the oil companies and oil-producing countries—especially between the “seven sisters” oil companies (six American and one British) and the members of OPEC.
The United States’ continued dominance of the industry is demonstrated by the fact that world oil is still mainly priced in US dollars per barrel (an antiquated volumetric unit defined as “42 US gallons”). Every energy investor knows the current oil price in dollars per barrel, but few know it in dollars per ton or in rubles per ton. Further, while every non-US country (except Liberia and Myanmar) uses the International Unit System (called SI or the metric system), many oil companies use US units and symbols. For example, Rosneft, a Russian oil company, follows the US custom of using mm or MM for million instead of M (short for “mega-” as used in the world computer business in reference to frequency, as in MHz or megahertz), because Rosneft is listed on the US stock exchanges and is therefore required to follow SEC rules.
The US also has the largest number of oil-producing companies with over 18,000 upstream firms (IPAA 2017) against one in Saudi Arabia and three main oil producers in Russia.
The power of the US oil industry is somewhat explained by the fact that the United States’ share of historic world oil production is the highest of all countries. US cumulative crude oil production to date represents 16 percent of all oil ever produced (for Russia, the figure is 13 percent; for Saudi Arabia, 11 percent). Of course, the United States’ share of world production has evolved over time. As of 2017, the US was responsible for 13 percent of total world crude oil production, while Russia provided 13 percent and Saudi Arabia 13 percent.
Finally, despite generally falling production in the years 1972-2011, the US has seen its production recover in recent years due to light tight oil (LTO) produced by horizontal drilling and hydrofracturing (“fracking”), which I’ll discuss at greater length below. As a result of this resurgence, since roughly 2010, American LTO has been the key factor preventing a stagnation or decline in overall world oil production.
Unreliable data
Before delving further into the subject of fracking, it’s important to note that there are some big problems with the reliability of oil data. The first problem is that there are several definitions of “oil,” including crude oil; crude oil plus condensate; crude oil plus natural gas liquids; and crude oil plus other liquids, refinery gain, and biofuels. In 2016 the Energy Information Administration (EIA) at the US Department of Energy listed average world oil production as 80.6 million barrels per day (Mb/d) for crude only, and 97.2 Mb/d for all liquids, implying a 20 percent uncertainty when “oil” is not explicitly defined.
For US oil production, that uncertainty is even greater. In 2017, US production according to EIA was 9.4 Mb/d for crude, and 13.1 Mb/d for crude plus natural liquids; adding refinery gain (1.1) and biofuels (1.2) we arrive at a figure for all liquids of 15.4 Mb/d, which is 6 Mb/d more than for crude alone!
The energy content of oil is variable, but despite the importance of this fact (oil, after all, is used primarily as an energy source and it is the world’s foremost single source of energy), official agencies pay little attention to it. The energy content of LTO, which is often inaccurately called “shale oil,” per volumetric unit is less than that of conventional crude oil; so, as LTO has come to take up a larger proportion of overall US oil production, the overall energy value of the country’s oil production has grown less than its volumetric increase would suggest.
The monthly quantity of crude oil produced in the US comes from EIA estimates. These estimates change over time but are finalized two years after the oil was first drilled. That’s because, in Texas, operators can wait two years before reporting precise values, due to a confidentiality clause in the reporting rules.
Further, production reports from some other countries are often unreliable (though frequently specified down to four decimal points, despite their discrepancies). OPEC’s monthly oil market report from July 2018 gives OPEC members’ oil production in Table 5-9 based on secondary sources, where Nigeria in 2017 has produced 1.658 Mb/d; whereas in table 5-10, based on direct communication, Nigeria claims to have produced 1.536 Mb/d—or 7.5 percent less. For Venezuela in 2016 the difference between self-reported production and secondary reports was 9 percent. In general, direct communication from OPEC reports higher production values than secondary sources. In effect, this means that OPEC members lie about their production.
They also exaggerate their reserves. Since the 1986 oil price counter-shock (when oil prices collapsed), OPEC member production has been subject to quotas, which are based primarily on oil reserves (this is not the case for condensate or natural gas liquids). Between 1985 and 1989 OPEC members added 300 Mb of oil reserves, presumably as a way of each separately increasing their production quotas. In 2007, at the London Oil and Money conference, Sadad al-Husseini, former vice president of Aramco, described these as “speculative resources.”
In sum, everybody in the oil industry is lying, reporting wrong data or no data, except for a few countries like the United Kingdom and Norway that report precise field production and reserves. As a result of these data problems, it is difficult even for energy analysts, much less the general public, to understand current and future trends in the industry.
When “peak oil” peaked
The final chapter of Oil, Power, and War is titled “Winter, Tomorrow?” and describes the arrival of both peak oil (the point when the rate of world oil production reaches its maximum and begins to decline) and the fracking revolution. As noted above, US tight oil has changed everything. Certainly, it served to torpedo the peak oil discussion.
When Colin Campbell and I wrote “The End of Cheap Oil” in 1998, the price of West Texas Intermediate-grade crude (WTI) stood at $11 per barrel. The price then declined to $8 per barrel in January 1999; at that time, the title of our article appeared foolish. In 2000 Colin introduced the term “peak oil” and with Kjell Aleklett (of Uppsala University) created the Association for the Study of Peak Oil and Gas, or ASPO. We began organizing ASPO conferences in Europe. Meanwhile, the price of oil rebounded. As oil prices soared, so did interest in peak oil.
At the 2007 ASPO conference in Cork, it was decided to allow the creation of national ASPO chapters. Many countries soon created nonprofit organizations to study oil depletion, including Argentina, Australia, Belgium, China, France, Germany, Ireland, Israel, Italy, the Netherlands, New Zealand, Portugal, South Africa, Spain, Sweden, Switzerland, and the US (only ASPO USA had a permanent staff).
Colin Campbell issued 100 ASPO monthly newsletters from January 2001 to April 2009, writing in many of them about the geology, historical production, and future prospects of individual oil-producing countries. These country-by-country profiles were collected and republished in his book, The Essence of Oil & Gas Depletion.
At the Cork conference, the former US Energy secretary James Schlesinger said, “The debate on peak oil is over; the peakists have won.” Schlesinger repeated his message in October 2010 at the ASPO USA conference in Washington D.C., telling the audience, “The peak oil debate is over.” In fact, the debate was about to shift decidedly against us peakists.
The last ASPO international conferences took place in Brussels in 2011 and Vienna in 2012. In 2011, thanks to horizontal drilling and hydrofracturing, US tight oil production had risen to over 1 Mb/d. In 2015, US LTO production rates reached 4.7 Mb/d but declined to a low of 4.1 Mb/d in 2016 due to low oil prices. Production is presently a little over 6 Mb/d.
In 2017 Kjell Aleklett retired from the University of Uppsala. By this time ASPO had become inactive in many nations, including the US. Today only ASPO France is active and growing (with three meetings per year and a website that continues to publish new papers). It is clear that ASPO (and the peak oil discussion generally) peaked around 2010 and has been in decline ever since.
In 2007, when the notion of peak oil was becoming generally accepted, and the public started to respond with efforts to conserve oil, the sport utility vehicle (SUV) became an object of scorn—at least in some circles. At the time, SUVs represented only 8 percent of car sales in China and 5 percent in France. In 2017, with oil considered plentiful again as a result of the US fracking industry, SUVs represented 42 percent of light vehicle sales in China and 31 percent of those in France.
Now many energy commentators argue that oil is abundant and that any decline in world oil production should be interpreted as a peak in demand and not a geology-driven peak in supply. But this interpretation ignores the fact that for each deal where oil is sold, price is dependent on both supply and demand, and the price is often confidential. Commentators are also confused because oil is also sold in futures contracts, which change hands many times. For me, geology is still the key, and the debate on peak demand versus peak supply is mostly wrong-headed.
There are only a few countries that have not yet reached their peak of production, namely Brazil, Canada (with its oil sands), Iraq, Kazakhstan, Malaysia, UAE, and Venezuela. In the cases of Saudi Arabia and the US, crude oil may be presently peaking. For the US, natural gas liquids production was 40 percent of crude oil production in 2017, when it was only 33 percent in 2000 and 9 percent in 1950. It is important to check whether “oil” is crude oil or crude plus natural gas liquids because values and trends are quite different.
Before being produced, oil has to be found—so exploration is the first chapter of the story. Discovery of oil has been declining since the 1960s. Discoveries in 2017 were the lowest since the 1940s. For this reason alone, the oil industry is in trouble over the long term.
US tight oil—the last domino to fall?
The big question is when the production of LTO in the US will peak. Within the US, the Permian Basin in Texas will likely turn the tide. As of 2006, that region had already produced up to 32 billion barrels (Gb) of conventional oil; then, from 2007 to 2017, an additional 5.5 Gb of conventional and unconventional oil was extracted. Of the LTO plays in the country, the Permian is currently seeing the highest rate of growth in production and will probably be the last to peak.
Soaring US tight oil production was largely responsible for a fall in global oil prices in 2015; with lower prices, LTO production was unprofitable, and drilling was scaled back, which in turn led to a fall in production. But as oil prices have gradually recovered, so have drilling and production.
Official forecasts of LTO future production are based on a certain number of wells multiplied by the estimated ultimate recovery per well, without bothering to check whether there is enough room to drill all the wells needed. LTO is often described as a continuous petroleum accumulation covering an entire geological region, when in fact only small parts of the region are economically productive; those parts are typically called the “sweet spots.” In the Bakken and Eagle Ford plays, the sweet spots have been almost completely drilled. The Permian basin, with several sub-basins and many reservoirs, is less drilled. Production during the first month increases when operators drill longer lateral well segments, and when they inject more sand (a record amount of 22,000 tons was injected in one well in Louisiana) to prop open the rock fractures. However, with these technological “improvements” it appears that the ultimate recovery per well may decrease and that new wells diminish the production from surrounding wells.
Reserves estimates for LTO that are made using the same approach as for conventional oil are completely unreliable. The best approach for forecasting future production is the extrapolation of past production (called Hubbert linearization). For Eagle Ford, the trend can be extrapolated toward an ultimate quantity of 3 Gb. This is more than double the 2016 proven remaining reserves plus cumulative production. Extrapolation of past US LTO production leads me to guess that LTO will peak again soon and decline definitively so that production will be negligible by 2040, though this is admittedly at odds with what some other analysts are saying.
I am even more pessimistic about LTO production outside the US. In June 2013 the EIA published a report written by the consulting firm ARI, “Technically Recoverable Shale Oil and Shale Gas Resources: An Assessment of 137 Shale Formations in 41 Countries Outside the United States.” The authors estimated there to be 287 billion barrels of global shale oil “unproved resources,” of which 75 Gb is in Russia, 58 Gb in the US, 32 Gb in China, 27 Gb in Argentina, 26 Gb in Libya, 18 Gb in Australia, 13 Gb in Venezuela, 13.1 Gb in Mexico, 4.7 Gb in France, and 3.3 Gb in Poland.
From the perspective of a few years later it is obvious that this report was mainly wishful thinking. Russia has the world’s largest shale play with the Bazhenov. In the 1960s the government set off three underground nuclear explosions there to free oil from the tight rocks in which it is embedded; this extreme intervention met with no success: the reservoir was vitrified, and natural gas that was subsequently extracted was radioactive. More recently, Gazprom has launched a Bazhenov fracking project, hoping for commercial oil production in 2025. One has to wonder: why is this taking so long, if the existence of the oil has been known for decades? It appears that Gazprom has not yet found the sweet spots (if they exist)!
Shale oil exploration in Poland was a failure, and the operators left. In Argentina the Vaca Muerta is mainly a shale gas play; China has drilled hundreds of wells there, but production levels are well below target (one trillion cubic feet by 2020). This is also the case for the UK, where Cuadrilla has drilled two shale gas wells in England but has not yet fracked them (the practice is now forbidden in Scotland, Wales, and Northern Ireland). Approval for fracking the Cuadrilla wells was finally granted on 24 July 2018.
The main problem with LTO globally is that the US cannot be taken as an example for the rest of the world. This is first because the US is the only country where underground mineral rights (including oil) often belong to owners of the land. Landowners thus receive a huge bonus for signing a deal with an oil operator, plus royalties on the production. LTO drilling, fracking, and producing causes many nuisances (including several hundred truck trips for one fracking job) as well as pollution. Landowners accept these nuisances in the US, but in the rest of the world, landowners have only the nuisances and no money; it is why the NIMBY (not in my backyard) reaction is so strong elsewhere. Many places, including France and even the US state of New York, have forbidden shale oil and shale gas activities. It appears that US LTO production will decline soon while significant production of tight oil in the rest of the world has not yet started—and may never really get off the ground.
The end of an era
Meanwhile, more nations are reaching their peaks and going into decline: Algeria 2015, Angola 2016, Australia 2000, Azerbaijan 2009, Canada crude oil 2014, China 2015, Ecuador 2014, Equatorial Guinea 2005, Indonesia 2016, Mexico 2013, Netherlands 1987, Oman 2016. Only Brazil, Canadian oil sands, Iraq, Kazakhstan, UAE, and Venezuela’s Orinoco have not yet reached a peak. Many countries will decline at an annual rate of 5 percent, as Algeria has done since 2015, Australia since 2000, and the Netherlands since 1987.
It is likely that in the coming years world oil production will decline (at around 5 percent per year) and that LTO will decline more sharply. This will come as a shock because it is contrary to the official forecasts, which see oil production rising to 2040.
Nature is complex and human behavior is irrational; only the past explains the future. Matthieu Auzanneau’s book, Oil, Power, and War: A Dark History, helps us understand the oil industry’s past, which in turn helps us envision the future of not only petroleum but also the global industrial economy.
Jean Laherrère is an exploration geologist-geophysicist. He is the co-founder and an active member of the Association for the Study of Peak Oil and Gas, is President of ASPO France, and continues to contribute detailed analyses and projections of the future of world energy production.
For Whom is Peak Oil Coming? If you own a Diesel Car, it is Coming for you!
Saturday, November 24, 2018
Ugo Bardi's blog
At the beginning, the idea of "peak oil" seemed to be relatively uncomplicated: we would climb from one side and then go down on the other side. But no, the story turned out to be devilishly complex. For one thing, there is no such a thing as "oil" intended as a combustible liquid -- there are tens, perhaps hundreds, of varieties of the stuff: light, heavy, sour, sweet, shale, tight, dumbbell, and more. And each variety has its story, its peculiarities, its trajectory over time. Eventually, all the oil curves have to end to zero but, in the meantime, there is a lot of wiggling up and down that continues to take us by surprise. Mostly, we didn't realize how rabidly the system would deny the physical reality of depletion, much preferring to "legislate scarcity" on the basis of pollution.
Here, Antonio Turiel writes a fascinating post telling us how the peak is coming "from below," affecting first the heavy fraction of crude oil: diesel and fuel oil. That's already causing enormous problems for the world's transportation system, as well as for the owners of diesel cars, and the situation will become much more difficult in the near future. The light fraction, the one that produces gasoline, seems to be still immune from peaking, but that will come, too.(U.B.)
https://cassandralegacy.blogspot.com/2018/11/for-whom-peak-oil-is-coming-if-you-own.html?fbclid=IwAR0rYZhrf9QhMG-cTsQObImBYZ2b51NJf7SMZyz2utldgCKfVYM_nb61Rhg
Heavy oil shock
11 24 2018
For all the talk about electric cars and renewable electricity, global oil production rose above 100 million barrels a day last month. For all the policy pronouncements to the contrary, the stark reality remains that our insatiable demand for oil, the products of oil, and all of the stuff that we transport with oil continues to drive up demand.
Heavy fuel production
Diesel fuel production
http://consciousnessofsheep.co.uk/2018/11/24/heavy-oil-shock/?fbclid=IwAR1nvFtuUhXdd4Cs0AmXAASdoU7iyQcqipy2HETp6jsJGC0e82e7qwnhsdM
Peak Oil Review 19 November 2018
By Tom Whipple, Steve Andrews, originally published by Peak-Oil.org
https://www.resilience.org/stories/2018-11-19/peak-oil-review-19-november-2018/
Quote of the Week
“It is likely that in the coming years world oil production will decline (at around 5 percent per year) and that LTO [light tight oil] will decline more sharply. This will come as a shock because it is contrary to the official forecasts, which see oil production rising up to 2040.” Jean Laherrère, retired geologist-geophysicist involved in oil and gas exploration worldwide; from “Thoughts on the Future of World Oil Production,” 11/18
1. Oil and the Global Economy
The $20 a barrel price plunge, which began in early October, continued last week with New York futures closing at $56.46 and London at $66.76. Behind the drop is weaker demand; Washington’s issuance of waivers that would allow Iran to keep exporting at least some of its production for the next six months; increasing production of US shale oil; and the rapid buildup of US crude inventories. The EIA reported last week that the US crude stockpile climbed by 10.3 million barrels during the week before last to 442.1 million barrels, the highest level since early December 2017. The EIA also reported that US crude production climbed by 100,000 b/d to 11.7 million b/d, the highest on record.
One reason behind the large buildup of the US crude inventory is that in response to the Sino/US trade war, China has stopped buying US crude. Earlier this year Beijing was importing at around 500,000 b/d. The very light crude that comes from shale oil deposits is not suitable for use in many US refineries which were designed to process heavier grades. As there is a limited market for shale oil in the US, it winds up in storage unless it can be exported. Another aspect of the shale oil boom is that global oil markets are increasingly over-supplied with light distillates, such as gasoline, while there are not enough middle distillates, such as diesel. To keep meeting the demand for distillates, refiners are processing high volumes of crude and creating a glut of gasoline. U.S. gasoline prices for delivery in June 2019 are trading just $7 per barrel above benchmark Brent futures for the same month, compared with a premium of $18 per barrel for low-sulfur distillate fuel oil.
Until the recent price drop, major oil companies were doing well, yet there was no surge in the money they were spending on large offshore projects that will produce the oil needed in the mid-2020s. Instead, several major oil companies have been investing in shale oil projects which can provide returns in months, provided they can use their expertise to keep costs under control. Wood Mac’s analysts are forecasting that in the next 12 years, large oil companies would need to add 16 million b/d to their combined daily production to be able to respond to demand and replace depleted deposits. This means several hundred new projects that cannot all be in the Permian Basin.
OPEC: The cartel and its allies have all but decided to cut oil production in 2019 to shore up what they see as a weak market ahead. Getting agreement among the 25 members of the OPEC/non-OPEC coalition with their competing agendas, domestic considerations, and geopolitical rivalries will not be an easy task. The group next meets December 6-7 in Vienna, and discussions have already begun on those particulars, delegates say, with talk that between 1 million and 1.4 million b/d may need to be slashed.
OPEC is a different organization than it was two years ago, the last time it agreed to output cuts. Some members have boosted production, others have shrunk. Libya and Nigeria, suffering from internal disruptions, were not given quotas when the coalition instituted 1.8 million b/d in cuts starting January 2017, while Iran was given a cap slightly above its production level at the time. Production from Libya has risen 580,000 b/d from the October 2016 baseline on which the cuts were based, and Nigerian output has risen 120,000 b/d. Venezuelan production has dropped precipitously and may be close to complete collapse.
Some OPEC members are saying that Saudi Arabia and Russia, both of whom have boosted their crude output in recent months, were responsible for a $20 a barrel drop in the price of oil and “should cut at least 1 million b/d instantly.” The two countries, the largest producers in the OPEC/non-OPEC coalition, needed to “get back the loss that they caused” to the rest of the coalition, one OPEC delegate said on condition of anonymity. Moscow is already saying it is not interested in participating in a production cut at this time.
US Shale Oil Production: US crude oil output from the seven major shale basins is expected to hit a record of 7.94 million b/d in December, according to the monthly EIA forecast released last week. The total oil output from the seven basins is forecast to rise by 113,000 b/d from November to December, driven largely by increases in the Permian Basin of Texas and New Mexico, where output was forecast to climb by 63,000 b/d to about 3.7 million b/d in December. Output was also expected to rise in each of the other basins, except for the Haynesville, where it would remain unchanged at 43,000 b/d. US natural gas production, meanwhile, was projected to increase to a record 75.1 billion cubic feet.
Up in North Dakota, state officials announced that oil production for September averaged nearly 1.36 million b/d, up about 66,800 b/d from August and a new record for monthly output. While September marked the fourth straight month for record-breaking oil output in North Dakota, this growth could soon stall due to pipeline congestion, a global supply glut, and potentially major changes in flaring regulation according to state officials. September marked the first time in at least three years that oil increased more rapidly than gas as operators shifted out of core drilling areas in the state where the gas to oil ratios are relatively high, to new wells in Divide, Mountrail and Burke counties in northwest North Dakota. “Those areas had gone for several years without any drilling activity, and now with the advent of the three-mile-long laterals and new completion techniques they’re much, much more economical.”
The announcement that some drilling in the Bakken is moving away from the “core” areas to less productive counties marks a major shift in the history of the Bakken. Whether drillers can compensate for “poorer rock” with three-mile laterals, more sand, and more water remains to be seen. The Bakken may have reached a tipping point.
Optimism about the future of US shale oil production continues to run rampant in the ranks of the official and unofficial forecasters. According to the IEA, “The shale revolution continues to shake up oil and gas supply, enabling the US to pull away from the rest of the field as the world’s largest oil and gas producer. By 2025, nearly every fifth barrel of oil and every fourth cubic meter of gas in the world come from the United States.” The Wall Street Journal adds that the use of hydraulic fracturing to drill for oil in shale rock—known as fracking—has dramatically reshaped the global oil industry over the past decade, and it has allowed the US to rival the Organization of the Petroleum Exporting Countries for market share.
The US will be the biggest contributor to global oil production growth in the period to 2040, accounting for 75 percent of the total, the International Energy Agency said in its latest World Energy Outlook. However, the IEA notes that this would require a lot more investment than what is currently being made in production expansion. “Without such a pick-up in investment, US shale production, which has already been expanding at a record pace, would have to add more than 10 million b/d from today to 2025, the equivalent of adding another Russia to global supply in seven years – which would be an historically unprecedented feat.”
In addition to the concerns the IEA is expressing about the ability of US shale oil to support the world’s demand for oil in coming years, others believe the expansion has been overhyped and that some of most lucrative shale wells may have already peaked. German radio points the recent statements from the CEO of Schlumberger that “The well-established market consensus that the Permian can continue to provide 1.5 million barrels per day of annual production growth for the foreseeable future is starting to be called into question.”
The Germans also point to the recent warning from Mark Papa, one of the pioneers of fracking. At an energy industry conference in Houston, Texas, in March, Papa warned: “The impression of US shale as the big bad wolf is perhaps a bit overstated.” Among his concerns were revelations that drillers in two other major shale regions — Eagle Ford in Texas and the Bakken in North Dakota — had already drilled through their most lucrative assets. “My theory is that you’ve got resource exhaustion that is beginning to take place. It’s no secret that you’ve only got three shale oil plays in the US of any consequence,” Papa said, referring to the Permian, Eagle Ford, and the Bakken. “The rest of them don’t amount to a hill of beans.”
If the skeptics are right that US shale oil production will not continue to grow at its present pace, we should see more evidence of an impending decline in US shale oil production within the next few years.
The IEA’s World Energy Outlook 2018:
The International Energy Agency which is an arm of the OECD is far more attuned to concerns in the EU and other developed countries than is the US Department of Energy’s EIA which generally hones its analysis to the policies of the current administration. As a result the IEA’s annual publication, World Energy Outlook 2018, has a much broader perspective than the US government and digs into the dangers of climate change more deeply than does Washington.
This year’s 600+ page report contains too much information and analysis to recount here. However, there are a few key points that are worth remembering. The Agency continues to warn that there is not enough investment taking place in oil industry. Although it is probably overly-optimistic about the prospects for the US shale industry it clearly understands that trillions must be invested in developing the world’s offshore oil resources in the next 20 years if global oil production is not going to go into decline.
The IEA forecasts three scenarios for the world’s energy. The “Current Policies Scenario” results in large increases in the use of fossil fuels and CO2 emissions over the next 20 years. The “New Policies Scenario” takes into account pledges to reduce emissions made at the Paris climate change meeting. Finally, the “Sustainable Development Scenario” envisions a reduction in annual carbon emissions from the current 32.6 gigatons to 17.6 gigatons. This scenario envisions the use of coal being cut by 50 percent, oil use being reduced by 25 percent, and use of natural gas increasing by 20 percent, while the use of renewables, nuclear power, and hydro increase substantially.
2. The Middle East & North Africa
Iran: It has been two weeks since the US re-imposed sanctions against Iran’s oil exports to punish Tehran for its involvement in several Middle Eastern conflicts. To avoid an oil price spike, Washington granted Iran’s biggest buyers – China, India, South Korea, Japan, Italy, Greece, Taiwan, and Turkey – 180-day sanctions waivers. These countries account for about 75 percent of Iran’s oil exports. Washington and the recipients of the waivers except for Turkey have not disclosed how much oil they are allowed to import during the 6-month waiver. Iraq, which imports natural gas and electricity from Iran, was given a 45-day waiver to continue these imports. Iraq has a severe electricity shortage in the oil-producing region around Basra, and it will be difficult for Baghdad to replace the Iranian energy. Iraq ended its trucked crude to Iran nearly a month ago, leading Washington to issue its waiver for the ongoing gas and power trade between the two countries.
Bernstein Energy forecasts, “Iranian exports will average 1.4-1.5 million b/d” during the exemption period,” down from a peak of almost 3 million in mid-2018. However, people familiar with the sanction waivers say American officials are forecasting that there will only be some 900,000 b/d of Iranian crude sales by April. Reuters’ sources say that China is allowed to purchase 360,000 b/d during the waiver period which is down from an average of 655,000 b/d before the sanctions began. Several countries, including China and India, stepped up their purchases before the imposition of the sanctions.
Most observers believe that the sanctions will send Iran into an economic recession, especially with the recent $20 a barrel drop in oil prices. Whether the sanctions will result in the economic meltdown that the Trump administration hopes will bring Tehran to accept tougher restrictions on its nuclear activity, drop its ballistic missile program and scale back support for militant proxies in the various Middle East conflicts remains to be seen. The EU does not agree with Washington sanctions policy and is working on ways to help Tehran bypass the sanctions.
Iraq: Baghdad is in talks with international companies to upgrade its oil production and export capacities, and an agreement is to be reached soon. Iraq hopes to increase its production capacity to 5 million b/d in 2019 and its export capacity to reach around 3.8 million b/d. The oil ministry also plans to boost export capacity, after upgrading its energy infrastructures, to 8.5 million b/d in the “coming years.”
Last week, Iraq restarted exports of Kirkuk oil, halted a year ago due to a standoff between the central government and the Kurdistan’s semi-autonomous region. The flow of oil from the Kirkuk region resumed at around 50,000-60,000 b/d compared with a peak of 300,000 b/d seen last year. It is not clear when and by how much exports would rise.
Oil Minister Thamir Ghadhban, a longtime proponent of reconstituting an Iraqi National Oil Company, is pushing the Iraqi Cabinet to redraft a more comprehensive law to govern the company. Iraq’s Parliament passed a law in March for a national oil company, such as the one which was founded in 1964 and disbanded in 1987 by Saddam Hussein. The new company would assume operational authority over the oil sector, leaving the Oil Ministry to establish policies.
With the recent successes of the Moscow-backed Syrian government forces, there has been an influx of militants from Syria into Iraq. This is forcing Iraqi security forces to transition into a counter-insurgency mode from the conventional war they have been fighting against ISIS. Iraq’s persistent security problems have caused the US military to conclude it is “years, if not decades” away from being able to withdraw from the country.
Saudi Arabia: When the US asked Saudi Arabia last summer to raise oil production to compensate for lower crude exports from Iran, Riyadh swiftly told Washington it would do so. But Saudi Arabia did not receive a warning when the US began offering waivers to Iran’s major customers that are keeping more Iranian crude on the market. As a result, the angry Saudis are cutting output with OPEC and its allies by about 1.4 million b/d sources told Reuters this week. The Saudis started to reduce shipments to the US in September, and this month they are loading around 600,000 b/d on cargoes for the United States, down from more than 1 million b/d in July and August. According to ClipperData estimates, Saudi oil exports to the US could soon reach their lowest levels on record.
There is a debate going on inside the Saudi government over whether to leave the OPEC someday. The Organization was created 58 years ago mostly to counter very cheap oil prices, which were being fixed by Western oil companies. Since then the cartel has weathered many crises and has played a major role in affecting world oil prices. A significant change came three years ago when Russia, along with several client states, became a de facto member and was successful in pushing up oil prices by withholding production from the market.
In reality, most OPEC members do not have much influence on world prices and have small, and in several cases, shrinking oil industries. The duumvirate of Moscow and Riyadh along with their clients such as the Gulf Arab states control enough of the global export market to exert whatever influence on prices is needed without the need to take into account the needs of the smaller and less well-off exporters who are mainly interested in higher prices. The growing split between Iran and the Sunni oil exporters is another factor in the viability of OPEC. For now, the organization seems safe but and some are already looking beyond the oil age.
Saudi Aramco has approached banks to finance its $5 billion Amiral petrochemical project that Aramco plans to develop with France’s Total. Plans for the Amiral petrochemical complex in the Saudi city of Jubail were announced in April. It will be located next to the Satorp refinery, which is also jointly owned and operated by Aramco and Total.
3. China
China is expected to increase its economic stimulus programs after credit grew at its slowest pace on record last month and property sales contracted. Beijing is concerned about slowing economic growth ahead of the expected US tariffs. Its central bank has already loosened monetary policy in response to the growth slowdown. Chinese exports have remained strong so far this year, despite the US imposition of duties on $250 billions of Chinese goods, but an export slowdown is expected to appear by early next year.
Passenger-car sales in China have fallen for the past four months year-over-year and are on course to an annual decline for the first time in nearly three decades. Most automakers, foreign and domestic, are struggling. Ford Motor Co.’s passenger-car sales in China were down 45 percent in the first nine months of the year, while sales of the Fiat Chrysler Automobiles NV-owned Jeep fell 35 percent, and General Motors Co.’s Buick sales were down 9 percent, according to LMC Automotive. Only the high end of the market has seen consistent growth, with Cadillac sales up 30 percent in the first nine months of 2018, and the German trio of Audi, BMW and Mercedes-Benz all growing by 10 to 13 percent over the same period.
China’s crude oil imports averaged 9.7 million b/d last month, the highest on record. Once again, it was the independent refiners, or teapots, that drove the increase as they seek to fulfill their import quotas before they expire. Beijing announced it would raise by 42 percent the oil import quota for its non-state refiners for 2019 as new refinery capacity is planned to enter into operation next year. Chinese refineries processed an average of 12.43 million b/d last month, a little lower than the September record of 12.49 million but still the second-highest monthly throughput rate on record according to data from the National Bureau of Statistics.
As the world’s second largest LNG importer, China has ramped up preparation for the upcoming winter through early procurement plans and a series of new gas infrastructure projects. Stable central Asian pipeline imports will depress China’s need for LNG spot cargoes in the coming months, as the country officially enters the winter season this week. Centralized heating systems in the north will be switched on until March to counter a region-wide drop in temperatures. State planner, the National Development and Reform Commission, has pledged there will be enough gas supply to the residential areas this winter to avoid a repeat of last year’s winter gas shortage.
4. Russia
Moscow wants to stay out of any oil-production cuts being pushed by some of its partners in the OPEC-led supply consortium. Worried by a decline in oil prices due to slowing demand and record supply from Saudi Arabia, Russia, and the United States, OPEC is talking about a policy shift just months after increasing production. President Putin on Thursday avoided giving a direct answer on whether production should be limited but said he had discussed the situation in global oil markets with President Trump.
Russia has been pumping flat out since June and has returned to drilling new fields, raising production to a post-Soviet high of 11.5m b/d as part of an agreement with Riyadh to keep oil markets well supplied. Riyadh is said to be pushing Moscow to consider cutting back output in 2019 to help underpin prices and keep the market balanced. But Russia is said to be hesitant at this stage to agree to cuts. Its oil companies want to start up new production which has been stymied for the past two years by Moscow’s alliance with Riyadh. Moscow can still add between 200,000 and 300,000 b/d in a short time period — within several months,” one of the people said but added it depended on future decisions with its allies in OPEC.
5. Nigeria
Nigeria will raise its crude oil production to 1.8 million b/d in 2019 from around 1.6 million currently, the head of the Nigerian National Petroleum Corporation told Reuters last week. Following a wave of militant violence in 2016 and early 2017, Nigeria’s oil production started to recover in the latter half of 2017, when attacks on oil infrastructure subsided. This year, after pipeline outages during the spring and early summer, Nigeria’s crude oil production was on the rise in August and September, but oil ministry data showed last week that October’s output down by some 70,000 b/d compared to September, due to increased sabotage attacks on oil infrastructure by oil thieves.
Shell Petroleum Development Company last week complained about the high rate of vandalism on its pipeline network at its oilfields in Bayelsa resulting in oil leaks and pollution of the environment. The oil firm expressed regrets at the incessant spills and is committed to maintaining environmentally sustainable operations. He said that although the May 17 oil spill on the Trans Ramos Pipeline was traced to equipment failure, many other leaks were predominantly caused by sabotage; during April and May 26 spill incidents were reported on that line and out of these 18 were caused by sabotage and eight were operational.
Oil Minister Kachikwu was even more optimistic saying that Nigerian oil production is set for a timely boost, climbing to around 2.2 million b/d by early next year with the startup of the giant Egina offshore oil field. Nigeria has not seen any major new oil projects in the last five years which makes the Total-operated Egina project the key to increasing production. The $16 billion deepwater project is the biggest oil and gas investment in Nigeria and will boost its plateauing crude production by over 10 percent. Production from the Egina field is due to start next month at around 150,000 b/d and could ramp up to 200,000 b/d after about six months.
The Nigerian Senate announced last week it again uncovered illegal withdrawals of $1.15 billion from the dividends accounts of the Nigeria Liquefied Natural Gas by the Nigeria National Petroleum Corporation. This is apart from the $1.05 billion that National Petroleum had admitted to taking earlier.
6. Venezuela
Crude oil production in Venezuela “is in free fall”, Fatih Birol, Executive Director of IEA, told Reuters last week. Its oil production fell to just 1.197 million b/d in September, down 42,000 b/d from a month earlier. However, because things are deteriorating so quickly, that figure is now out of date. With a few weeks left in 2018, many analysts believe production could be below 1 million b/d. Venezuela’s oil exports to the United States declined by 19 percent in October, compared to a month earlier. The decline came as a result of maintenance from the country’s upgraders, which turn heavy oil from the Orinoco Belt into exportable forms of oil. Without the ability to process the Orinoco oil, exports plunged.
For nearly a century, Chevron has had close relations with Caracas and has earned big money in Venezuela—about $2.8 billion between 2004 and 2014, according to cash-flow estimates by analytics firm GlobalData. Recently, executives at the last major US oil company in the country have debated whether it may be time to get out, according to people familiar with their deliberations.
The company is well aware a pullout could trigger a collapse of the government’s finances because a significant chunk of its hard currency earnings comes from joint operations with Chevron. By staying in the country as its economic and humanitarian crises deepen, the company risks damage to its reputation by being seen as supporting an authoritarian regime sanctioned by the US government. It also isn’t making much money in Venezuela anymore.
About 700,000 b/d of the country’s oil production comes from joint ventures between PdVSA and foreign companies. That includes about 200,000 to 250,000 b/d from Chevron ventures. Joint-venture output has generated far more cash for the government in recent years than oil pumped by PdVSA alone because the company’s production has gone to repay debts to allies such as China and Russia or was processed into gasoline the government provides almost free. That means a Chevron withdrawal would take a big bite out of the government’s revenue.
Drivers are reporting long queues to fill their tanks in Venezuela’s western states, as existing gasoline shortages worsened, impacting at least half of Venezuela’s 24 regions. In some provinces, lines extended for over ten hours. Public transport and commercial distribution networks have also been affected. Government spokespeople blamed the situation - which in some states such as Barinas and Merida have persisted with fluctuating severity for nearly three weeks - on supply problems of imported catalysts used in the Paraguana oil refinery complex.
Venezuela has problems importing many goods partly due to US-led financial sanctions which prohibit US citizens and firms from dealings in Venezuelan sovereign and state oil company debt. The sanctions have been felt in US-dominated global financial and banking sectors which process international commercial transactions, with the Caracas government denouncing numerous cases of frozen bank accounts and interrupted payments.
The measures have also caused significant problems for Venezuela’s nationalized oil firm, PDVSA, which has been prevented from repatriating a reported $1 billion in annual profits generated by its US-based subsidiary, CITGO, as well as vital products produced there such as diluents used in crude processing in Venezuela’s refineries. Independent estimates suggest that Washington’s sanctions have to date cost Venezuela $6 billion in lost oil revenues due to falling production, seriously exacerbating budget shortages and lack of investment in the country’s oil industry.
7. The Briefs(selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
In Spain new licenses for fossil fuel drillings, hydrocarbon exploitation and fracking wells will be banned. Spain has launched an ambitious plan to switch its electricity system entirely to renewable sources by 2050 and completely decarbonize its economy soon after. By mid-century greenhouse gas emissions would be slashed by 90 percent from 1990 levels under Spain’s draft climate change and energy transition law. To do this, the country’s social democratic government is committing to installing at least 3,000MW of wind and solar power capacity every year in the next 10 years ahead. (11/14)
In Kuwait, loading operations at some of the ports have been suspended owing to rains and severe flooding, shipping sources said Thursday. Oil operations have been suspended since Wednesday and there was no indication as to when they would resume. (11/15)
Abu Dhabi National Oil Company (ADNOC), one of the largest producers within OPEC, is undergoing a dramatic transformation. ADNOC’s CEO has made several statements suggesting that the NOC is set for a more diversified future, in which downstream and natural gas will become a major priority. (11/16)
In Asia, oil traders’ worries over record supplies arriving in the region just as the outlook for its key growth economies weakens have pulled down global crude benchmarks by a quarter since early October. Ship-tracking data shows a record of more than 22 million b/d of crude oil hitting Asia’s main markets in November, up around 15 percent since January 2017, and an increase of nearly 5 percent since the start of this year. (11/14)
Asian LNG: An anticipated warmer winter in north Asia and Japan may be good for residents in these colder climates, but it’s starting to play havoc with LNG spot market prices and LNG shippers. North Asia’s gas inventory typically peaks in October before significant drawdowns begin, but this year there are no signs yet of stocks falling. (11/6)
In Papua New Guinea, France-based oil and gas major Total said Friday it has signed an accord to potentially increase the country’s LNG export capacity by 65 percent. (11/17)
In Angola, nearly two decades after securing the initial rights, Total’s CEO Patrick Pouyanné was in Luanda to snip the ribbon on a $16 billion oil project. It’s not clear when he, or his peers, will be cracking open the bubbly in Angola again. Without another mega-project like Total’s Kaombo on the horizon and fields getting old, Africa’s second-largest crude producer is facing a steep decline unless it can revive exploration in what was once one of the world’s most exciting offshore prospects. (11/15)
In Argentina, the Vaca Muerta Shale Basin is the only unconventional play outside of North America where activity has already made the transition from exploration to full-scale development. The potential prize is huge – geographically, the Vaca Muerta Shale is three times the size of the highly prolific Permian Basin in the US, and it could turn out to be the “next Permian” if the right conditions are established. But much remains to be done before that happens. For all the hoopla, analyst Rystad Energy says production today is about 60,000 b/d (third quarter of 2018) and may rise to between 160,000 and 200,000 b/d in the fourth quarter of 2021. (11/17)
In Canada, the oil glut continues to grow while producers wait for a solution to their constrained pipelines to materialize. With storage maxed out as well, Western Canadian oil prices have fallen dramatically. The differentials that had previously been hitting heavy oil hard (now at below $18 a barrel for the first time since 2016) have now spread to light oil and upgraded synthetic oil sands crude as well, leaving overall Canadian oil prices at record lows. (11/16)
Canada’s price trough: The record low prices of Western Canadian Select—the benchmark price of oil from Canada’s oil sands delivered at Hardisty, Alberta—is an anomaly on the market. Many of the biggest oil producers in Canada expect some relief to come in the short term with US refineries returning from maintenance this quarter and with crude-by-rail shipments to the US continuing to set new records in the coming months. (11/6)
Cuts coming to Canada? Crude oil producers in Alberta appear to be split on a proposed cut in production amid record-low prices. One of the large Canadian oil producers, Cenovus Energy, has cut production and is calling upon the government of Alberta to mandate temporary production cuts at all drillers in a bid to ease Canadian bottlenecks that have resulted in Canada’s heavy oil prices tumbling to a record-low discount of US$50 to WTI. (11/17)
Canadian crude crash: The oil-sands benchmark fell $2.29 to $13.46 a barrel Thursday. The price collapse comes as WTI experienced a record losing streak amid rising US stockpiles and projections for reduced demand. (11/17)
The US oil rig count increased by two in the week to Nov. 16, bringing the total count to 888, General Electric Co’s Baker Hughes energy services firm said. Gas rigs fell by 1 to 194. After rig additions stalled at five during the third quarter, drillers have added 25 rigs half way through this quarter. The EIA also said producers drilled 1,577 wells and completed 1,308 in the biggest shale basins in October, leaving total drilled but uncompleted wells up 269 at a record high 8,545. (11/17)
Natural gas storage: Inventory levels for the Lower 48 states and in each of the US natural gas regions ended the refill season at their lowest levels since October 2005, and these levels were considerably lower than their previous five-year averages. Despite the increased natural gas production, increased demand for natural gas reduced net injections into working gas storage. Natural gas production averaged 83.6 Bcf/day during the refill season in 2018, compared with 74.7 Bcf/day in 2017 during the same period. However, greater-than-average power sector consumption of natural gas during the late spring and summer, combined with increased natural gas demand from US export markets, resulted in lower-than-average weekly net injections of natural gas into storage. (11/16)
US natural gas prices rose 18 percent — their biggest one-day gain in eight years — as the onset of winter tests the ability of shale production to supply the country. Nymex December gas gained 73.6 cents on Wednesday to settle at $4.837 per million BTUs, the highest price for the next month’s contract since early 2014. Futures have risen 48 percent this month. The rise reflects worries that winter heating demand may draw heavily on stocks of US gas in storage. (11/15)
Narrowing gas price elasticity in the US power sector could drive upside risk at the benchmark Henry Hub this winter, adding fuel to a rally that recently lifted the NYMEX to its highest in nearly five years. Already this month, US gas demand from power generation is averaging nearly 24.8 Bcf/d, outpacing demand over the same period last year by 1.6 Bcf/d or nearly 7%. Even controlling for temperatures, which are about 2.8 degrees Fahrenheit colder this November than last, burn levels are exceptionally strong this month. (11/17)
Colorado voters rejected by a 58-to-42 margin a measure which would have required drilling of oil and gas wells to be at least 2,500 feet away from occupied structures and vulnerable areas, such as parks and waterways, instead of 500 feet, after the local oil and gas industry poured more than $30 million into defeating the measure. (11/7)
Florida voters on Tuesday approved an amendment to prohibit drilling, either for exploration or extraction, for oil or natural gas in state waters, according to unofficial results from the state’s Division of Elections. Florida’s Amendment 9, which appeared to pass with more than 68% of the vote, is a state constitutional amendment which required a 60% supermajority vote for approval. (11/7)
Biofuels pushback: A group representing biofuel companies asked a federal judge on Tuesday to force the US Environmental Protection Agency to stop exempting small refineries from renewable fuel laws until a lawsuit challenging the agency’s actions is resolved. (11/16)
Arctic permitting: The US Department of Interior said Thursday it was preparing an environmental impact statement for a 2019 lease sale that would open as much as 65 million acres of federal Arctic waters to oil and natural gas drilling. While it remains uncertain whether the sale will even take place, commercial interest in US Arctic waters appears extremely limited. (11/16)
In Minnesota, a new study found that 70 percent of the state’s electricity could come from wind and solar energy by 2050 — and it would cost about the same as natural gas. State officials plan to use the report, which was commissioned by the Minnesota Department of Commerce, as it considers future energy policy decisions. Today, around 20 percent of the state’s electricity comes from wind, and around 1 percent from solar. (11/17)
Peak coal use? The world may never again use as much coal as during a peak in 2014, according to the latest World Energy Outlook from the IEA. (11/15)
Euro renewables commitment: The European Parliament approved a binding 2030 target for renewables (32%) and an indicative target on energy efficiency (32.5%) that will play a crucial role in meeting the EU’s climate goals. (11/14)
EV push: VW will spend almost $50 billion on developing electric cars, autonomous driving and new mobility services by 2023 and explore further areas of cooperation with US automaker Ford. (11/17)
Nuclear energy in Japan may be making a significant comeback, it is just not going to be able to meet the government’s lofty production goals for 2030, according to a recent Reuters report. The Japanese government had set a target for nuclear to make up at least a 20 percent share of Japan’s total electricity production over the next decade. (11/8)
Innovative wind generator: A spinning turbine that can capture wind traveling in any direction and could transform how consumers generate electricity in cities has won its inventors a prestigious international award and $38,000 prize. Two students at Lancaster University scooped the James Dyson award for their O-Wind Turbine, which — in a technological first — takes advantage of both horizontal and vertical winds without requiring steering. (11/17)
Fusion in China: China’s self-designed “artificial sun,” a device to harness the energy of fusion, has made an important advance by achieving a temperature of 100 million degrees Celsius in plasma and a heating power of 10 megawatts. (11/14)
Warming forecast correction: Scientists behind a major study that claimed the Earth’s oceans are warming faster than previously thought now say their work contained inadvertent errors that made their conclusions seem more certain than they actually are. Two weeks after the high-profile study was published in the journal Nature, its authors have submitted corrections to the publication. (11/16)
Cost of weather disasters: Hurricane Harvey’s extreme rainfall and the most devastating wildfire season on record contributed to $306 billion in damages from climate and weather disasters in the United States in 2017, shattering the previous record by more than $90 billion, according to a federal report released Monday. The National Oceanic and Atmospheric Administration’s recap of the nation’s climate over the past year found that 2017 was the third-warmest on record. (11/15)
CA’s air quality nightmare: The wildfires that have laid waste to vast parts of California are presenting residents with a new danger: air so thick with smoke it ranks among the dirtiest in the world. On Friday, residents of smog-choked Northern California woke to learn that their pollution levels now exceed those in cities in China and India that regularly rank among the worst. (11/17)
Toxic fog in Delhi: Residents awoke on Thursday to find the city blanketed in a toxic fog. Air pollution in the Indian capital has risen to hazardous levels after firecrackers were set off to celebrate Diwali, despite a court ban. (11/8)
Global Coal Use May have Peaked in 2014, Says Latest IEA World Energy Outlook
By Simon Evans, originally published by Carbon Brief
November 14, 2018
https://www.resilience.org/stories/2018-11-14/global-coal-use-may-have-peaked-in-2014-says-latest-iea-world-energy-outlook/
Principles of Energy Transition
By Chris Nelder, David Murphy, originally published by The Energy Transition Show
November 6, 2018
"This episode features something a little different: Chris is the interviewee, and our guest is the interviewer. Dr. David Murphy, a professor of environmental studies at St. Lawrence University, returns to the show to interview Chris about energy transition in this live event, which was held at the University of Colorado, Colorado Springs, on February 13, 2018. This was a fun, loose, casual conversation that newcomers to the subject of energy transition should find very accessible."
https://www.resilience.org/stories/2018-11-06/principles-of-energy-transition/
Peak Oil Review: 5 November 2018
By Tom Whipple, Steve Andrews, originally published by Peak-Oil.org
https://www.resilience.org/stories/2018-11-05/peak-oil-review-5-november-2018/
Quotes of the Week
“US crude oil production reached 11.3 million barrels per day (b/d) in August 2018, up from 10.9 million b/d in July. This is the first time that monthly US production levels surpassed 11 million b/d. US crude oil production exceeded the Russian Ministry of Energy’s estimated August production of 11.2 million b/d, making the United States the leading crude oil producer in the world.” US EIA monthly report
“We thought that we got away with not a lot of warming in both the ocean and the atmosphere for the amount of CO2 that we emitted. But we were wrong. The planet warmed more than we thought. It was hidden from us just because we didn’t sample it right. But it was there. It was in the ocean already.” Laure Resplandy, Princeton University research team leader
1. Oil and the Global Economy
The plunge in oil prices, which began in early October, continued last week with New York oil futures closing Friday at $63.14, down about $14 a barrel in the past month. London futures have followed a similar pattern falling from $86 to $72.83 on Friday. During September the threat of the renewed US sanctions on Iranian exports forced world prices into the high $80s with many predicting that we would soon see $100 oil again. During the past month, however, market sentiment changed as it appeared the sanctions might not be as effective as some hoped, the global oil production increase, higher prices and the brewing US-China trade war threaten demand in the coming years.
Most of the world’s top oil trading houses expect prices to decline next year as slowing global economic growth and rising oil supply compensates for fewer Iranian crude barrels on the market. Speculators second this sentiment with hedge funds closing out the bulk of their long positions in the oil market during October. There are a few outliers such as Goldman Sachs which sees oil prices back to $80 a barrel by the end of the year, but for now, the sentiment that demand for oil will fall in the coming year seems to be predominant.
A $14 decline in world oil prices is starting to pressure the budgets of the world’s largest exporters and is likely to restrain in growth in investment in finding and producing from new oil fields.
OPEC: A Reuters survey says OPEC increased oil production in October to the highest since 2016, as higher output led by the United Arab Emirates and Libya more than offset a cut in Iranian shipments due to US sanctions. The cartel pumped 33.31 million b/d last month, up 390,000 b/d from September. Defacto OPEC member Russia added another 50,000 b/d to the total, and the rapid growth of US shale oil production helped too. Early reports of OPEC production are not necessarily valid, and it may be many weeks before a more accurate picture emerges. For example, there are reports that Venezuelan exports fell as much as 200,000 b/d last month.
US Shale Oil Production: Rystad Energy, an oil industry consulting firm, says the oil market should expect significantly better US oil production then found in the EIA’s predictions. “Long-term oil production potential from the US remains dramatic as long as oil prices stay above $50 per barrel. Even in a scenario of $55 per barrel we see US oil output growing to 16.5 million b/d by 2030. Moving to a price environment of $75 per barrel would unlock an additional 5.3 million b/d of volumes in 2030, but it also results in faster acceleration of base decline and an earlier plateau in production.
“The shale industry is still in the middle of a long-term investment cycle,” says Per Magnus Nysveen, Senior Partner and Head of Analysis at Rystad Energy. “If a favorable price environment persists, we will see US oil adding the equivalent of one Saudi Arabia over the next ten years and with healthy profits seen as soon as the early 2020s.” The firm’s report includes the following chart showing US oil production climbing as high as 22 million b/d in the coming decade even at moderate oil prices of $75 a barrel.
US oil production outlook
Such a report, which was likely produced to encourage more investment in the oil industry, contrasts sharply with other forecasts that take into account the growing problems of the shale oil industry. While all indications suggest that the US shale oil industry will continue to grow for the next few years, the profitability of the industry is coming under ever-increasing scrutiny. Last week, Chevron reported that its production from the Permian Basin increased by 80 percent in the third quarter over the same period in 2017, based on tweaks made to its method of drilling and completing wells. As usual, there was no mention as to what these new techniques cost or whether the increased production came from drilling only in a declining pool of “sweet spots.”
While there currently is a shortage of pipeline capacity to move oil from the Permian to markets, several pipeline companies have reported progress in building or expanding their capacity, and most expect that with 18 months there will be sufficient capacity to handle the increased production from the Permian Basin. The downside to this pipeline expansion is that the rapid depletion of the Bakken’s wells will result in excess capacity for the pipeline companies who will be left with unprofitable “stranded assets.”
Up in North Dakota’s Bakken, drillers reported record-breaking crude oil output of 1.29 million b/d in the third quarter and announced plans to ramp up production in the play. Hess produced 118,000 b/d of oil equivalent in Q3 and plans to increase output to more than 175,000 barrels of oil equivalent within three years. Keep in mind that the barrel of oil “equivalent” includes a lot of natural gas, some of which is being flared off for lack of pipelines to carry it to market. Continental Resources, the state’s largest oil producer, doubled its Bakken oil recovery estimates, claiming that as much as 40 billion barrels of crude may ultimately be produced from the play.
Despite the increase in US shale oil production, there continues to emerge a stream of reports describing in great detail the lack of profitability in drilling for shale oil. The situation will only get worse as drillers run through their inventory of productive “sweet spots” in which to drill for oil and are forced to drill in less and less productive areas. In short, the industry is not profitable now and is doomed by the facts of the situation to become even less so in the future as it is forced to drill less productive wells at the same cost as the profitable ones.
The only question is when the people financing shale oil drilling will realize that there is no future and stop supplying the capital which keeps the industry running at a loss.
2. The Middle East & North Africa
Iran: This week, the US will issue temporary sanctions waivers allowing eight countries to keep importing Iranian oil. Two countries have agreed to end those deals within months while the other six have agreed to “greatly reduced levels,” according to Secretary of State Pompeo. He also said that US actions have already cut Iran’s oil exports by more than 1 million b/d before the sanctions take effect. A million-barrel decline—more than a third of international sales—is twice the level achieved over the same period in the Obama era.
The US believes that global oil supplies will exceed demand next year making it easier for countries to cut Iranian oil imports to zero, without a large increase in oil prices according to a senior US official.
The Iranian economy, with oil accounting for 80 percent of its tax revenue and a quarter of gross domestic product, is in trouble. Europe’s largest companies have pulled out. Iranians have rushed to exchange their rials, plunging the currency’s value to record lows and sparking a surge in consumer prices. The International Monetary Fund is forecasting that Iran’s economy will contract by 3.6 percent next year.
The efficacy of the sanctions after they are imposed, and the ability of the US to detect large-scale avoidance is the subject of endless debate in the financial press. It’s been six months since President Trump announced the sanctions, and since then a lot of data has accumulated suggesting that the initial forecasts of losses of between 1.5 and 2 million b/d in Iranian exports may be too high, but it will take several months until the situation sorts itself out. Tehran is already turning off the transponders that track the movement of oil tankers around the world, but improved satellite tracking and big-data technology that weren’t available just a few years ago may make it more difficult to hide the movements of anything as large as an oil tanker.
The EU is firmly against Washington’s re-imposition of sanctions and has been working on ways to circumvent the US financial regulations that would make it difficult for European refiners to keep on purchasing Iranian oil. Last week, however, Danish diplomats briefed EU ambassadors on efforts of Iran’s intelligence services to kill the leader of an Arab separatist group in Denmark. Copenhagen is calling for action to punish Tehran and at least eight countries, including Britain and France, are supporting Danish calls for new sanctions. Tehran’s hope of maintaining customers in the EU seems to have taken a turn for the worse.
Tehran sold 280,000 barrels of crude oil to private companies for export last week as part of its strategy to counter US sanctions. In the past, private refining companies could buy Iranian crude oil for export only if it were to be turned into oil products, leaving the state the monopoly on crude exports. Iran said in July, however, that it would start crude oil sales to private firms as part of its efforts to bypass the sanctions. Analysts point out that this would still leave foreign entities buying the crude liable for penalties from Washington for doing business with Iranian firms.
Iraq: The new Cabinet is proposing a $24 billion in spending increases in a 2019 draft budget, marking a dramatic shift away from the austerity budgets initiated after the price of oil crashed.
Baghdad currently trucks small quantities of crude oil from its northern Kirkuk oil field into Iran in exchange for Tehran delivering the same amount of its oil to Iraq’s southern ports. Both sides benefit from avoiding shipping costs. This month, however, Iraq will halt trucking of crude to Iran to comply with the US sanctions. Although only less than 30,000 b/d is involved, Iraq won’t risk the wrath of Washington which provides much of its security and training of its forces.
Saudi Arabia: Diplomatic pressure from the United States and Britain for a cease-fire in the Yemen war intensified last week. The calls for a halt to the conflict were made by Secretary of State Pompeo, UK Foreign Minister Hunt, and Secretary of Defense Mattis. The request for a ceasefire came against the backdrop of rising global criticism of Saudi Arabia, which has been conducting an ineffective bombing campaign that is a major cause of civilian deaths and widespread destruction in Yemen.
The new initiative comes as relations between Saudi Arabia and the United States have cooled in the month since Jamal Khashoggi was killed by Saudi security personnel. The operatives had close ties to Crown Prince Mohammed bin Salman, Saudi Arabia’s de facto ruler, architect of the Yemen War.
Saudi Arabia reported a fiscal deficit of $1.95 billion for the third quarter, down from $1.97 billion in the previous quarter. Over the first nine months of the year, the deficit shrank by 60 percent, thanks to the improvement in oil revenues and a small increase in non-oil revenues.
Libya: Libya has restarted the eastern al-Bayda oilfield, the latest facility in the so-called Oil Crescent region to resume work after heavy fighting in June. The field has a production capacity of about 12,400 b/d.
Despite frequent production outages as various armed groups vie for a bigger share of the pie, Libya’s National Oil Corporation plans to pump 1.6 million b/d of crude by the end of the year. This was the level of production before the 2011 civil war resulted in chaos across the country. The company says it would like to boost output to 2 million b/d by 2022. To this end, the company has signed agreements with BP and Eni to resume drilling in the country. Libya still has large undrilled reserves, but the question of political instability remains the main roadblock to increasing production anytime soon.
For example, just last week a group of tribesmen staged a protest at the southern El Sharara oil field, threatening to close down production unless their living conditions improve. The field, in Libya’s remote southwest, normally produces around 300,000 b/d but has suffered frequent shutdowns caused by security problems in the past, including raids, kidnappings, and blockages by tribesmen and state-paid guards.
3. China
China’s imports of Iranian crude dropped in September compared to the same month last year and to August, while crude oil imports from the US doubled year-on-year in September despite the trade war, according to data from China’s General Administration of Customs. Oil imports from Iran slumped by 34 percent on the year to 518,300 b/d in September while imports averaged 798,423 b/d in August. Key Asian buyers of Iranian oil dramatically cut their purchases from Iran in September to the lowest level since the previous sanctions on Tehran were lifted in January 2016.
Beijing’s manufacturing sector barely grew last month after stalling in September, while an extended contraction in export orders highlighted rising pressure on the economy as a trade war intensified. The Purchasing Managers’ Index (PMI) for October, released last Thursday, edged up to 50.1 from 50.0 in September. Economists polled by Reuters had forecast a reading of 49.9, just off the 50-mark that divides expansion from contraction. The rather slight growth last month was in line with an official PMI survey showing that China’s manufacturing sector expanded at the weakest pace in over two years.
Though readings above 50 still indicate an expansion in activity, the fall was more precipitous than economists projected, with the October reading at the lowest since July 2016. “Overall, the data confirms that economic fundamentals are weakening. I’m afraid the softness will remain for a long period,” said, an economist at Founder Securities. Indicators and other economic data in recent weeks have shown that the Chinese economy is slipping faster than many officials expected. As the world’s largest oil importer, a sagging Chinese economy has serious implications for world oil prices.
The head of the Japanese steel industry group said on Monday that he is worried about signs of a slowing Chinese economy. “The U.S.-China trade spat still has limited impact on Japanese steelmakers’ business, but we are concerned about signs of a weakening economy in China.” China’s iron ore prices fell for a fourth day on Friday amid expectations that the oncoming winter season will see reduced demand for steel.
4. Russia
Moscow’s oil production increased to 11.41 million b/d in October from 11.36 million in September, setting a new post-Soviet record high. Russia has been raising its production since OPEC, and its allies agreed in June to relax compliance rates with the cuts to 100 percent from the previous over-compliance. The respective leaders of the OPEC and non-OPEC nations part of the deal—Saudi Arabia and Russia—have been interpreting the eased compliance as adding a total of 1 million b/d to the market. Moscow has already reversed its entire 300,000-b/d cut that was pledged as part of the initial deal and has been adding production in recent months. Energy Minister Alexander Novak recently said on Saturday there was no reason for Russia to freeze or cut its oil production levels, noting that there were risks that global oil markets could be facing a deficit.
Russia is set to suffer a large revenue loss from the regulation mandating cleaner marine fuels starting in 2020. Moscow is the world’s top exporter of the sulfurous residual oil that powers ships and is not ready for the change despite many years of notice that it was coming. Refineries across the world are bracing themselves for the once-in-a-generation shift intended to reduce pollution caused by ships. European and the US Gulf Coast refineries are ready to make the change to low-sulfur fuel oil, but Russian companies have done little to prepare.
5. Nigeria
There seems to be no end to the corruption and general malfeasance that plagues Nigeria’s oil industry. A new report that was recently leaked to the press says that $22.06 billion and N481.75 billion in oil and gas revenues are yet to be remitted to the government by the Nigeria National Petroleum Corporation, the Nigeria Petroleum Development Company, and some companies in the oil and gas sector. Audits of the oil industry by foreign accounting firms, including well-known US auditors, have been unable to locate the missing billions due to a lack of an adequate audit trail showing what happened to the money after foreign oil companies pay for the oil they purchase from the national petroleum corporation.
The National Petroleum Corporation said last week that it had signed a six-month crude-for-product deal with BP to supply Nigeria gasoline ahead of the upcoming Christmas celebrations and the February 16, 2019, general elections.
Brazil’s Petroleo Brasileiro will sell its 50 percent stake in a Nigerian oil and gas exploration venture to a consortium led by oil trading firm Vitol for $1.53 billion. This divestment is the latest step in the Brazilian state-controlled oil company’s debt reduction drive.
6. Venezuela
Exports from Venezuela in the first weeks of October were down to 0.99 million b/d, according to Kpler data. This is down some 300,000 b/d from September 2018. While this is a preliminary report, all data sources point to a downward trend. At the beginning of 2018 the average weekly loading volume was between 10 and 12 million barrels; now it is about 6-7 million barrels per week. Venezuela’s production has fallen back 70 years to 1940s levels.
The fuel shortages have expanded across the country as PDVSA’s refineries run at the lowest rates seen this year because of the lack of crude oil and as Cardon, the country’s largest refinery, remains closed after an Oct. 15 blackout. The oil company’s five refineries are operating at less than a quarter of their capacity. Shortages tend to be less frequent in the capital, where the government is trying to prevent unrest. Gasoline lines are one more problem for Venezuela’s people, which includes scarce food, hyperinflation, regular power outages, and lack of public transport.
More than a million Venezuelans have been living in Colombia, taking a heavy toll on its public services in border regions. The World Bank, which praises Colombia’s “open arms” policy and its efforts to register the new arrivals, says the crisis has cost the country around $1.2 billion this year alone. However, the Bank says it could be good for Colombia’s economy in the long run as many of the new arrivals are well educated and possess a range of skills.
At least 6,000 Venezuelans were lined up at Peru’s northern border last week in hopes of entering the country before a deadline for acquiring residency. Another 4,000 were due to arrive by now, according to Peru’s ombudsman’s office. Peru was one of the first countries to offer temporary residency cards for Venezuelans who have been fleeing their crisis-stricken homeland and crossing Colombia and Ecuador to reach Peru. As the number of Venezuelans in Peru has surged to nearly half a million, the government moved the deadline from the end of the year to the end of October.
The collapse of Venezuela’s health system has left many of the emigres with highly contagious diseases, such as malaria, yellow fever, diphtheria, dengue and tuberculosis, and AIDS, as they flood into neighboring countries. By early October, nearly 1,000 Brazilians who lived along the road out of Venezuela had contracted measles here and about 2,000 in the region. All had been infected by infected Venezuelans who crossed into Brazil, the Health Ministry said.
Measles is already spreading beyond the Brazilian Amazon to other Brazilian states, as well as Colombia, Peru and as far south as Argentina, according to recent Pan American Health Organization reports. Other diseases racing through communities in Venezuela are now crossing borders and raising concerns among health authorities as far away as the US. One US medical official called the situation “a perfect storm condition for a catastrophic medical situation.”
7. The Briefs (selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
Risks to oil exporters: A changing energy system is posing “critical questions” for many of the world’s largest oil and gas producing countries, the IEA says. The rise of shale gas and oil in the US, global improvements in energy efficiency, and the response to climate change are leading to “sustained pressure” on countries that rely heavily on hydrocarbon revenues. (11/2)
In northwest England, Cuadrilla extracted its first shale gas after it began fracking operations there just over two weeks ago. Cuadrilla said the gas flows were small but coming at such an early stage of the project were evidence of the potential of the site. (11/3)
Germany will speed up its plans to build a liquefied natural gas terminal as Europe’s largest economy seeks to diversify its energy supply. Chancellor Angela Merkel also said that Ukraine would remain an important gas transit country once the Nord Stream 2 pipeline is built. Critics of the new pipeline project say it will deprive Ukraine of lucrative gas transit fees and increase the dominance of Russian gas monopoly Gazprom. (11/3)
Offshore Turkey, a ship will start drilling for oil and gas in the Mediterranean, a move that could create tensions with neighboring Cyprus and Greece over jurisdiction. Turkey and the internationally recognized Greek Cypriot government in Cyprus have overlapping claims of jurisdiction for offshore oil and gas research in the eastern Mediterranean, a region thought to be rich in natural gas. (10/31)
Zimbabwe’s President Mnangagwa yesterday officially announced the discovery of oil and gas in the greater Muzarabani area by Australian company Invictus Energy, stretching over 200km. The size of the land makes the discovery the largest undrilled gas deposits in Africa so far. The President said if all goes according to plan, Zimbabwe would have its first oil exploration well by 2020. (11/2)
Angola, whose stability was sent reeling by the oil price crash of 2015-2016, is making strides in transforming the national champion Sonangol into a more accountable and competitive business entity. With this, the new presidential administration hopes, the whole of Angola’s oil production would swing back to growth (or at least settle for a lengthy stagnation); its oil production fell from a 2008 level of 1.89 million b/d to the current 1.48 million. (10/30)
Brazil’s state energy giant Petrobras has decided not to go through with a drilling plan at a field operated by Chevron, effectively ruining the supermajor’s plans for the field. Chevron has a 52-percent stake in the Frade field and Petrobras has 30 percent, but for the Brazilian company, this field is not a priority. (11/1)
Mexico’s crude oil production fell to 1.83 million b/d in the third quarter, compared with 1.87 million b/d in the preceding three months, keeping a trend toward a decline that has been going on for several years. (10/30) [Ed. note: production peaked at 3.5 million b/d back in 2004 and is down roughly 48% since then.]
In Mexico, BP and Total are among international gasoline retailers that are facing a supply shortage because of weather issues, especially Hurricane Willa, and soaring fuel theft from illegal taps into pipelines. Repairing pipeline taps takes time and requires pipeline shutdowns, leading to supply shortages. Authorities detected 1,852 illegal taps on pipelines in Guanajuato last year, more than any other state in the country. (11/3)
Pemex’s total refining utilization rate during the third week of October has reached a record low of 25.7%. The company processed 425,800 b/d of crude oil in the second week of October. Light crude oil shortages at simple-configuration refineries and technical problems in the 190,000 b/d Madero and 285,000 b/d Minatitlan refineries have been interfering with Pemex’s overall refining activities. (10/31)
In Canada, drilling for oil and gas will likely decline by 5 percent in 2019, the Petroleum Services Association of Canada has forecast, blaming pipeline capacity shortages and the resultant discount in Canadian heavy to the West Texas Intermediate benchmark for the outlook. The biggest effect of the natural gas shortage will be felt by the Canadian industrial sector, which consumed about double the amount of natural gas used by residential and commercial users according to data gathered by the provincial government in 2016. (11/3)
Canada’s pipeline bottlenecks are pushing Canadian crude prices to the lowest in at least a decade. The highways of Saskatchewan show just how desperate Canadian oil producers are to get their crude to market. Tanker trucks laden with oil are journeying almost 500 miles (800 kilometers) to pipeline and rail terminals. (11/1)
In British Columbia, the pipeline explosion on October 9th has caused FortisBC, one of British Columbia’s largest utilities, to declare that their supply of natural gas will be reduced by a whopping 50 to 80 percent throughout the coldest months of the year. The City of Vancouver will halt work at its gas-guzzling asphalt plant and turn down the thermostats at all buildings occupied by city staff, with the exception of public spaces and libraries. Large agricultural users, such as food-growing greenhouses, may skip the winter growing season. (11/1)
The US oil rig count decreased by 1 to 874 while the active gas rig count held steady at 193, according to Baker Hughes. The combined oil and gas rig count is now 169 up from this time last year. (11/3)
US record production: Monthly US crude oil production reached 11.3 million b/d in August 2018. Monthly crude oil production reached a record high in several states. Texas had the highest record level at 4.6 million b/d, followed by North Dakota at 1.3 million b/d. Other states that had record-high production levels were New Mexico, Oklahoma, Colorado, and West Virginia. Production in the Federal Offshore Gulf of Mexico also hit a record high of 1.9 million b/d. (11/3)
LNG exports: Sempra Energy will join Cheniere Energy and Dominion Energy as a US exporter of LNG produced from shale gas when it ships its first cargo, which is expected to occur in early 2019. The activity comes as the US is poised to become a major player in the global LNG market, providing spot and contract cargoes to high-demand countries in Asia and Europe and greater optionality for traders. Besides Sempra, Kinder Morgan’s Elba Island LNG export facility in Georgia and Freeport LNG’s terminal in Texas are expected to start up in 2019. (11/3)
Exxon Mobil Corp on Friday reported a quarterly profit that topped analysts’ estimate on higher prices received for its oil and natural gas, but its production volumes fell on a year-over-year basis. The company’s third-quarter net income rose 57 percent to $6.24 billion, yet oil production fell 3 percent to 3.8 million barrels of oil equivalent and natural gas output dropped 4 percent. The company’s oil and gas output has dropped in nine of the last 10 quarters. (11/3)
Coal exports out of the terminals in the Hampton Roads region in Virginia were at 3.71 million tons in October, up 20.2% from the eight-month low 3.09 million tons in September. October also marked the eighth time in 2018 that exports out of the region were higher than in the corresponding month of the last three years. (11/3)
A fleet of new coal plants in Asia threatening to derail global emissions targets has exposed the growing “disconnect” between energy markets and climate goals, the IEA said. Asia has 2,000GW of coal-fired power plants that are operating or under construction — more than 10 times as much as the EU — and many of them are inefficient plants. While the coal-powered generating plants in the US and Europe are older, 42 years on average, and near the end of their life, Asia’s coal plants are just 11-years-old on average and most still have decades left to operate. (10/31)
German coal crank down: Vattenfall is considering converting its German coal-fired power stations to use fuels including gas or biomass as utility companies in the country brace for a government deadline for phasing out coal altogether. Vattenfall, owned by the Swedish state, operates 2.9 gigawatts (GW) of coal-fired power stations in Germany, including the 1.7 GW Moorburg site that only opened three years ago and supplies 80 percent of Hamburg’s electricity. Investors are jittery ahead of a December announcement from a government-appointed commission about how coal plants will be phased out of Europe’s largest economy. (10/29)
In Japan, government authorities have announced new plans to start dumping highly radioactive wastewater from the failed Fukushima Daiichi nuclear power facility directly into the Pacific Ocean. Though the amount of radiation in the water far exceeds legally-permitted levels, there’s apparently no other place to put it at the site, which is on the verge of seeing its storage capacity completely maxed out. (11/1)
EV sales concentrated: 25 cities were home to nearly 1.4 million of the world’s 3.1 million passenger electric vehicles. These 25 cities, representing just 12% of world passenger vehicle sales, account for 44% of the world’s cumulative electric vehicle sales through 2017. China is home to half of the global electric market and 11 of the 25 top electric vehicle market cities. The EV capitals use multi-faceted strategies to spur infrastructure investment, such as adopting building and parking codes to ensure broad access to charging over the longer term. (11/1)
Solar boost for EVs: Kia Motors and Hyundai Motor plan to introduce solar roof charging technology on selected Hyundai Motor Group vehicles. Electricity-generating solar panels will be incorporated into the roof or the hood of vehicles and will support internal combustion, hybrid and battery electric vehicles with additional electrical power, increasing fuel efficiency and range. Hyundai will launch the first generation of this technology into its vehicles after 2019. (10/31)
Battery innovation ongoing: In battery development, some undeniable trends have emerged, and chief among them is that lithium-ion battery improvements are nearing their limit. The main problems with Li-ion batteries remain relatively high cost, insufficient energy density in a context of ever-higher energy density demand, and safety issues because of the liquid electrolyte these batteries use. The batteries of tomorrow—perhaps using an air-breathing zinc battery, or silicone anodes instead of graphite, or solid polymer instead of liquid electrolyte, or sodium ion batteries—seek to solve these problems. The air-zinc battery maker NantEnergy announced that its air-zinc battery will move out of the lab to commercialization. (10/30)
CA driverless test: Alphabet’s Waymo has been granted California’s first permit to test fully driverless vehicles on public roads as it races towards commercializing autonomous technology. The permit from the state’s Department of Motor Vehicles will allow Waymo’s cars to test without a human operator during the day and at night on city streets, rural roads and highways with speed limits up to 65 miles an hour. (10/31)
GM’s profits and share prices jumped on news of strong sales for pricier pickups and SUVs. That, along with the strong results in China, where new-car demand is cooling, offered relief to investors worried about GM’s ability to navigate a potential slowdown in global auto sales. (11/1)
New climate data: The world’s oceans have been soaking up far more excess heat in recent decades than scientists realized, suggesting that Earth could be set to warm even faster than predicted in the years ahead. Over the past quarter-century, Earth’s oceans have retained 60 percent more heat each year than scientists previously had thought, said Laure Resplandy, a geoscientist at Princeton University who led the startling study published Wednesday in the journal Nature. The higher-than-expected amount of heat in the oceans means more heat is being retained within Earth’s climate system each year, rather than escaping into space. In essence, more heat in the oceans signals that global warming is more advanced than scientists thought. The research was conducted with experts from the Scripps Institution of Oceanography and several other institutions in the United States, China, France, and Germany. (11/1)
Climate states: North Carolina has committed to upholding the landmark Paris climate agreement by slashing greenhouse gas emissions, a move that comes a little over a month after Hurricane Florence devastated the state. Gov. Roy Cooper (D) signed an executive order on Monday pledging to slash North Carolina’s greenhouse gas emissions 40 percent below 2005 levels by 2025. North Carolina joins 17 other governors who have signed onto the US Climate Alliance. (11/1)
Toxic air: India’s most fabled cities are now among the world’s most polluted. According to some recent rankings, India holds nine of the top 10 spots. Toxic air has become a global menace that kills seven million people each year, the United Nations Environment Program said in a bleak report released Tuesday. The bulk of these deaths are in the Asia Pacific region. (10/31)
Trains powered by hydrogen could be a reality in the UK by the “early 2020s”, according to Transport Secretary Chris Grayling. They’re seen as a cleaner – but pricier – alternative to diesel trains, as the exhaust emission is pure water. The BBC’s Roger Harrabin reports from Germany, where hydrogen trains are already running. (10/29)
Brazilian enviro concerns: Conservationists say Brazil’s far-right President-elect Jair Bolsonaro will merge the ministries of agriculture and the environment, an aide says, in a move which critics say could endanger the Amazon rainforest. Brazil’s highly biodiverse Cerrado is being destroyed for soybean production; critics expect more of the same. (10/31)
Crude oil production from onshore federal lands reached a record high over the first seven months of this year. Reuters reported in June that crude oil production from federal lands and waters rose 7 percent in 2017 to the highest since at least 2007 if not longer. The average daily production stood at 2.22 million barrels, compared with 2.07 million barrels daily a year earlier. Washington has been doing its best to stimulate a second shale boom by rolling back Obama-era regulations that restricted drilling on federal lands. (10/30)
Peak Shale: Is the US Fracking Industry Already in Decline?
By Justin Mikulka, originally published by DeSmog Blog
October 31, 2018
"In 2016, lower oil prices led to an overall drop in production for shale companies, which use horizontal drilling and fracking to extract oil and gas from shale formations such as the Marcellus and Permian. This was one of the few relatively positive financial periods for an industry plagued by high costs and low returns (although it still lost money in 2016)."
https://www.resilience.org/stories/2018-10-31/peak-shale-is-the-us-fracking-industry-already-in-decline/
Shale oil becomes shale fail (and a nice subsidy for consumers)
By Kurt Cobb, originally published by Resource Insights
October 28, 2018
https://www.resilience.org/stories/2018-10-28/shale-oil-becomes-shale-fail-and-a-nice-subsidy-for-consumers/
Peak Oil Review: 29th October, 2018
By Tom Whipple, Steve Andrews, originally published by Peak-Oil.org
https://www.resilience.org/stories/2018-10-29/peak-oil-review-29th-october-2018/
Quote of the Week
“To outward appearances, the US oil and gas industry is in the midst of a decade-long boom. [However] America’s fracking boom has been a world-class [financial] bust …. Even after two and a half years of rising oil prices and growing expectations for improved financial results, a review of 33 publicly traded oil and gas fracking companies shows the companies posting $3.9 billion in negative free cash flows through June.” Report from Institute for Energy Economics and Financial Analysis, and the Sightline Institute
1. Oil and the Global Economy
Oil prices fell by nearly 3 percent last week to settle at $77.62 in London and $67.59 in New York. This was the third weekly decline in a row that has taken prices down by about $10 a barrel since early October. As has been the case for several months, prices fall on reports of excess supply or the possibility of lower demand and increase on concerns about what the Iran sanctions due to begin next week will do to supplies.
The 2018 US midterm elections will determine the balance of power over policies affecting the gas and electric sectors across the country, with Republican control hanging in the balance in multiple statewide races as well as in Congress. Initiatives impacting the gas and power sectors include a Washington state carbon fee proposal, a Colorado initiative that would curb fracking, and proposed renewable portfolio standards in Nevada and Arizona are on the ballot.
The idea that there is trouble ahead for the oil industry is slowly making its way across the financial press and the various consultancies that pontificate about the future of the oil industry. Most focus on the lack of investment in finding new oil since the price downturn three years ago although some question just how long the US shale oil industry can lose billions and still receive financial support from Wall Street.
Last week, energy consultancy Wood Mackenzie noted that despite some increase in global spending on oil and gas development, the recovery in capital spending is much slower and shallower than in previous cycles, with current investment levels insufficient to meet future demand growth. Wood Mackenzie says spending on development is expected to rise by 5 percent in 2018, following a 2-percent increase last year. They believe that oil and gas development expenditures will need to grow by around 20 percent to meet future demand growth and make sure that oil and gas firms will sustain their production in the next decade.
It currently appears that capital spending will climb to just above $500 billion in the early 2020s from a low of $460 billion in 2016 but far below the $750 billion peak in 2014, according to the consultancy. WoodMac estimates that annual development expenditure has to rise to around $600 billion to meet future demand for oil and gas through the next decade. However, it doesn’t expect the industry to boost investments significantly.
Wood Mackenzie’s call for another $100 billion or so in annual spending on finding new oil is rather mild in comparison with OPEC and the IEA who have been calling for additional trillions.
OPEC: Last week Saudi Arabia and Russia agreed to form a permanent partnership that would last indefinitely, potentially marking a new era for the oil market. Saudi oil minister Khalid al-Falih said that he hopes to set up an official OPEC+ governing body, including a Secretariat, likely to be based in Vienna. The proposal could be formalized next month. To date, OPEC+ has been a somewhat informal group, or at least a provisional one, intended to address the supply glut that emerged following the 2014-2016 market bust.
This agreement will lead to a far more potent version of OPEC for it brings together the two major oil exporting blocs – Russia and its satellites in the former Soviet Union and the Saudis who have a significant influence over the other Gulf Arabs. In effect the OPEC cartel, which has been a major player in the oil markets since for the last 50 years, seems likely to be supplanted by a two-country organization in which agreement on policies seems much easier to obtain.
For years, the Saudis have been struggling with more than a dozen smaller oil producers to build consensuses preferring a co-presidency with Russia. When asked about who will be the driving force behind establishing a formalized OPEC+ Secretariat, Saudi oil minister Khalid al-Falih said: “I think Russia will have to take the leadership.”
OPEC signaled last Thursday it might have to return to oil production cuts as global inventories rise. An OPEC and the non-OPEC ministerial panel concluded that supply is “very comfortable” compared to demand and warned producers might need a change of tack because of rising inventories and economic uncertainties. Lower production and higher prices will likely sour relations with President Trump who has repeatedly attacked OPEC for not supplying enough oil.
US Shale Oil Production: Last week saw a spate of articles questioning the long-term viability of the US shale oil industry, which has been the major contributor to the growth of global oil production for the last ten years. On Friday, the Wall Street Journal opined, “While this [shale oil] has helped the world meet rising demand for years, it cannot go on forever. Signs are mounting that shale won’t keep growing at the same rate in the US. Drillers face pipeline bottlenecks moving crude out of West Texas. This week, Halliburton Co. Chief Executive Jeff Miller said its oil-producing clients were facing ‘budget exhaustion’ and he expected some to take extended breaks from drilling new shale wells. That is coinciding with warnings of plateauing, or even declining, production elsewhere in the world.”
“For years, shale helped keep enough spare capacity in global markets that volatility began to feel like a relic of the past. In the years to come, the world may no longer have that shale shock absorber, ending a relatively peaceful decade in oil markets.”
One of the harshest criticisms of the shale oil industry came last week in the form of a lengthy analysis from SRSrocco Report. The analysis says that the industry is nothing but a giant “Ponzi Scheme” alluding to the fact that the industry as a whole is not profitable and relies on constant injections of new capital in the form of equity shares and loans to keep functioning. The report notes that all the “new technology” the industry has been using to boost production in recent years is costly and is not paying for itself.
More problems for the shale oil industry continue to arise. Rigzone notes the game plan for cashing in on the US shale boom is shifting from quick flips to long-term commitments, according to one veteran energy investor. Fewer shale oil drillers can sell their money-losing properties to larger firms just because they have started drilling. One observer of the industry noted that “investors may now need to stick around for a decade of drilling and development before companies reach ‘full value.’”
Another problem for the shale oil industry that came in for comment last week was that the amount of water used per well jumped as much as 770 percent between 2011 and 2016. A new study published Wednesday in the peer-reviewed journal Science Advances says that in addition to the increased use of water, wastewater production in each well’s first year increased up to 15-fold during the same years. An observer of the industry comments that the numbers that they project are not sustainable. Something will have to happen if we want to keep the oil and gas production at the level they assume will happen in 10 or 15 years.”
The relatively light density of US shale oil is becoming a problem. Shale oil is closer to condensate in its API density and is unsuitable for making several of the heavier oil products such as diesel and jet fuel unless it is blended with heavier imported crude. Market observers are beginning to note that US refiners may very soon find themselves struggling with excess production of gasoline that exceeds demand for the fuel. Middle distillates are the oil products that everyone is forecasting will drive demand for crude in the coming years.
Another interesting twist to the shale oil business is the $10 differential between the global price for crude which is currently at $77 a barrel and the domestic price which is $67. US shale oil producers, especially in the Permian Basin are looking for ways to get world prices for the oil that is being exported rather than the much lower prices obtaining in the US market.
2. The Middle East & North Africa
Iran: With the US sanctions on Tehran due to begin next week, there has been much discussion about their efficacy and whether the US will be handing out waivers to selected countries. US Treasury Secretary Mnuchin told Reuters that countries importing Iranian crude that want to continue importing it would need to reduce their intake of Iranian crude by more than 20 percent to win a sanction waiver. Others are warning that there may not be any waivers and that Iranian oil exports will fall by more the million or so b/d that the conventional wisdom is saying.
For the past month, there has been a steady stream of reports that several of Iran’s customers have already stopped buying Iranian crude. Reuters is saying that China’s largest refiners, Sinopec and the China National Petroleum Corporation, haven’t booked any crude oil cargoes from Iran for November due to fears of breaching the US sanctions.
While the major oil flow reporting agencies are reporting lower Iranian exports, there are occasional reports that Tehran is finding ways around the sanctions by using secret tanker runs to straw purchasers and being paid through barter and other irregular financial transactions. The Iranian government is saying that their exports are holding up and Moscow is talking about how much damage the sanctions will do to the European economy.
Iraq: Prime Minister-designate Adel Abdul-Mahdi named part of his new cabinet last Wednesday, confirming Thamir Ghadhban as Iraq’s new oil minister and deputy prime minister for energy affairs, and Luay al-Khateeb as the new electricity minister. The 73-years-old, Ghadhban became a field and reservoir engineer in 1973 and moved up the ranks until 2003 when, after the US-led invasion, he was named the head of the ministry by the Americans. He is seen as a capable technocrat, well-respected within Iraq and by the dozens of foreign oil companies operating in the sector.
Former Oil Minister al-Luaibi told the press last week Iraq currently is producing 4.7 million b/d and wants to increase this to 7 million b/d and to reach 8 million by 2025. Luaibi said Iraq hoped to export 1 million b/d through Jordan’s Akaba port, without specifying a timeline. The burning of gas produced as a byproduct of oil extraction would stop by 2021, he said. He added that the northern refinery of Baiji is back online and processing 70,000 b/d. Newly appointed Oil Minister Thamer Ghadhban seconded the words of the outgoing minister in an email saying that Iraq will proceed with plans to increase oil and gas production.
A recent IEA report notes that one of the biggest uncertainties for oil development in Iraq is the lack of progress on projects to supply water for injection into aging oil fields. The Common Seawater Supply Project that was initially planned to be in operation by 2013 has yet to make any real progress, the IEA said, and without additional water injection, Iraq could reach a ceiling in production “well below” the 7 million b/d mark.
Saudi Arabia: The implications of the Khashoggi affair for Saudi Arabia’s future is still up in the air. The government announced that Saudi Arabia has no intention of unleashing a 1973-style oil embargo on Western consumers and will isolate oil from politics. This announcement was to counter a Saudi newspaper story that said the kingdom would retaliate for any sanctions emanating from the Khashoggi murder by cutting oil shipments.
Numerous international business and political leaders withdrew from Saudi Arabia’s Future Investment Initiative conference over the death of Jamal Khashoggi last week. Reporters at the conference described the mood as “somber”, and most of those attending were from Saudi Arabia and other Gulf countries. Despite the absence of most of the top executives from international banks and investment companies, there were still plenty of lower-level bankers working to build relationships and plan for future deals. There were even some announcements of investment agreements. These deals were largely in the oil and related industries, so they will not do much to diversify the kingdom’s economy.
Saudi Arabia would likely carry out an initial public offering for Saudi Aramco in 2021 after it builds up some downstream assets including petrochemical production, Khalid Al-Falih, the country’s energy minister, said last week. While Aramco is the world’s largest company in the upstream, with a production of about 14 million barrels of oil equivalent per day, the downstream refining and petrochemical industries need development.
Libya: Libya’s oil production could rise by several hundred thousand b/d when BP and Eni resume production at a shared field, the head of the country’s state oil company, Mustafa Sanalla, told Bloomberg. Sanalla said Libya’s current oil production was more than 1 million b/d “despite local security challenges.” BP and Eni will begin exploratory drilling in Libya in the first quarter of next year, BP’s chief executive Bob Dudley told Reuters. BP has 85 percent in an offshore oil and gas block in the North African country, and earlier this year the Italian major struck a deal with BP to buy half of it.
Libya held a rare oil conference in the eastern city of Benghazi last Wednesday as its state oil firm NOC reached out to a region home to a parallel government backing a rival oil firm. This was the first international business conference in Libya’s second-largest city since 2014 when it turned into a battlefield. Forces of Khalifa Haftar declared victory in July 2017 over Islamists, ending four years of fighting that destroyed parts of the city. Hotels and Benghazi airport have reopened, but bombings killed dozens of people this year, forcing organizers to postpone the conference until security had improved.
3. China
Concerns about China’s economy still dominate the news. After a nearly 7 percent selloff so far this year, the yuan is at the brink of hitting 7 per dollar—a symbolic threshold that could spark further selling. The yuan last traded below 7 per dollar during the recession in May 2008. The yuan’s decline against the dollar is symptomatic of the diverging directions of each country’s economy and monetary policy. China said last week that its GDP rose by 6.5 percent in the third quarter, the slowest since 2009. In the U.S., GDP growth hit a near four-year high in the second quarter.
Despite an unprecedented surge of investment in alternative energies, together with caps on coal use and the establishment of “no-coal zones” throughout the country, China’s overall consumption and production are again rising. When the US pulled out of the Paris climate accord last year, China reaffirmed its commitments to tackle the problem of coal, by far the biggest source of its climate-warming carbon emissions. China has made efforts to cut the share of coal in total energy use, with the figure expected to drop to 58 percent by 2020, down more than ten percentage points in a decade. It has also already met a 2020 target to cut the amount of carbon dioxide it emits per unit of growth.
However, the absolute volumes of both coal and CO2 remain by far the world’s highest and are still set to rise. Though some studies have suggested total CO2emissions peaked at 9.53 gigatons in 2013, well ahead of its official target of “around 2030”, environmental group Greenpeace says they could reach a new high this year or next. Coal production has also risen 5.1 percent in the first three-quarters of this year to 2.59 billion tons. Steel output from China, the world’s top producer, and consumer rose to 80.8 million tons last month, up 7.5 percent from September 2017.
China’s Hebei province announced that it would ensure sufficient supplies of clean coal during the next three winters to avoid heating fuel shortages and reduce toxic air emissions. Several regions of China encountered fuel shortages last winter as Beijing pushed to switch millions of households to natural gas from coal as part of its anti-pollution campaign, leaving many thousands of homes without heat. In August this year, Chinese Vice Premier Han Zheng urged authorities to be “realistic” in their winter anti-pollution campaign, and “steadily promote clean winter heating in Northern China and ensure people are safe and warm.”
4. Russia
Russian authorities have announced that domestic oil production hit 11.36 million b/d in September. This number marks a new peak, reached despite the poor shape of the Russian economy, the negative impact of Western sanctions, and the restrictions self-imposed on Moscow by the 2016 deal with OPEC. Current Russian production, though a record, is only 1.7 percent above the levels of 1989, the most successful year for the Soviet oil and gas industry.
Russia is well placed to maintain oil production levels above 10 million b/d beyond the next decade, despite western sanctions limiting its access to technology and capital, the International Energy Agency said last Thursday. Aided by favorable exchange rates which allowed consistent capital spending through the oil price downturn, Russia aims to halt declines and improve recovery at its major producing fields Western Siberia and the Volga-Urals basin, the IEA noted in a new long-term outlook. As a result, the IEA said it now expects Russian oil production to remain above 10 million b/d into the 2030s before a gradual decline to 9.4 million b/d in 2040.
Russia produces little beyond oil and gas, forest products minerals, wheat and weapons that can be exported. As a result, maintaining and building its oil and gas industry will be Moscow’s top priority in the coming years.
While US legislators are discussing new sanctions on Russia that would increase economic pressure on Moscow by possibly expanding sanctions to the banking and energy industries, Russia is said to be in talks with ExxonMobil over new oil and gas projects currently beyond the scope of the sanctions. Russia’s discussions with Exxon could potentially lead to increased cooperation with state-owned Rosneft, the country’s biggest oil producer.
5. Venezuela
Two weeks ago, the Washington Post ran a story about how Venezuela’s many foreign creditors are eyeing one of the country’s most valuable assets: Citgo, the Houston-based oil company that it has owned since 1990. If Citgo is ever seized and sold to pay Venezuela’s debts, it could disrupt one of the most reliable sources of cash for a country already reeling from hyperinflation, food and medicine shortages, and a population exodus. However, last week it was reported that although Caracas is regularly delaying or avoiding bond payments and is behind on billions of dollars in such payments, it is preparing to make a rare $949-million payment on one bond, because that bond is backed by a stake in its key asset, Citgo.
It was also revealed last week that ConocoPhillips said in its third-quarter earnings report that it received a $345 million payment from the Venezuelan state oil company and that another payment of $500 million will come later this year. Venezuela’s former President Hugo Chavez expropriated assets of ConocoPhillips in 2007 in the Hamaca and Petrozuata heavy crude oil projects. In April 2018, the ICC tribunal awarded ConocoPhillips approximately $2 billion arising out of PDVSA’s failure to uphold its contractual commitments.
6. The Briefs (selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
World oil balance shifting: While the US shale oil boom has helped the world meet rising demand for years, it cannot go on forever. Signs are mounting that shale won’t keep growing at the same rate in the US Drillers face pipeline bottlenecks moving crude out of West Texas. This week, Halliburton Chief Executive Miller said its oil-producing clients were facing “budget exhaustion” and he expected some to take extended breaks from drilling new shale wells. That is coinciding with warnings of plateauing, or even declining, production elsewhere in the world. All the while, global economic growth has been strong for several quarters and oil demand continues to grow. Since its last year-over-year decline at the end of 2011, oil demand has grown annually by 1.5 million b/d, according to IEA data. (10/27)
Petro-states urgently need to begin diversifying their economies, shifting away from oil production, or else they face financial risks in the years ahead. That conclusion comes from the IEA’s new report, “Outlook for Producer Economies,” which warns that a changing energy system threatens the economies of oil-producing countries. (10/26)
LNG $$ volatility coming? The rise of major emerging liquified natural gas buyers led by China has created the need for infrastructure investment and new shipping capacity to avoid price volatility, a report by the IEA said Monday. (10/23)
Bunker fuel worries: The International Maritime Organization has so far resisted pressure to soften or postpone the implementation of new regulations requiring ships to use bunker fuels with a lower sulfur content from the start of 2020. That has prompted warnings from some analysts that the regulations will squeeze the availability of low-sulfur diesel and jet kerosene required by trucks, trains, aircraft, farmers and industry, resulting in big price increases. (10/26)
New maritime fuel rules, put into motion through the ocean transport-regulating arm of the United Nations, take effect Jan. 1, 2020, and are aimed at slashing the amount of sulfur in marine fuel by more than 80%. The Trump administration raised the heat on the International Maritime Organization rules last week, saying it wants to ease the rollout because of the impact it may have on the economy and energy markets. (10/23)
Jet-fuel prices are usually pegged to diesel prices, typically selling for a few cents more a gallon. Airline and refining industry officials are bracing for a surge in diesel demand as shipowners switch from heavier bunker fuels. Should diesel prices rise, jet fuel could follow. Delta Air Lines finance chief Paul Jacobson said earlier this month that rising crude prices and the fuel switch for oceangoing vessels represented a ‘net bad’ for the airlines.” (10/23)
Norway’s crude oil production has not only been sliding this year compared to last year—as expected—but it has also consistently underperformed the production forecasts of the Norwegian Petroleum Directorate (NPD). NPD’s figures for September showed on Friday that Norway’s crude oil production stood at 1.302 million b/d, down by 13 percent compared to August 2018 and down 9.6 percent compared to September last year. (10/22)
In the UK, hydraulic fracturing was temporarily suspended on Tuesday, as very minor seismic activity was recorded near shale pioneer Cuadrilla’s Preston New Road site in Northwest England. Drilling was expected to resume Wednesday. (10/25)
The Ukrainian government plans to raise household gas prices from Jan. 1, 2020 to match what state energy company Naftogaz charges the country’s industrial companies, the government said on Saturday. Gas tariffs are heavily subsidized in Ukraine, which has committed to raise them gradually to qualify for more financial assistance from the International Monetary Fund. (10/27)
Russia’s largest oil producer Rosneft has the capacity to increase its crude oil production by the end of 2018 and will have additional capacity available in 2019, chief executive Igor Sechin said on Thursday. As the biggest Russian oil producer, Rosneft was responsible for a large part of Russia’s production cut of 300,000 bpd under the deal with OPEC to withhold supply to boost prices. (10/26)
In the Middle East, refining and petrochemicals output will grow substantially over the next two decades, boosting the region’s global market share of the two commodities groups, according to a long-term energy outlook from the IEA. Refinery output from the region is set to increase by 60% in the period up to 2040. (10/26)
When Bahrain announced the discovery of an 80bn-barrel oilfield in the spring — its biggest find since the 1930s — it was greeted with only cautious optimism by industry analysts. Bahrain’s current oil production of just 43,000 barrels a day has marked it out as a relative energy minnow among the crude-rich Gulf states, with consultancy Wood Mackenzie warning the new oilfield could prove “technically challenging and potentially high-cost to develop”. But Bahrain’s oil minister is brighter about the prospects of the Khaleej Al Bahrain Basin, believing early signs point to a field with the potential to transform the state’s fortunes. He is now on a push to attract international partners to help develop the resource. (10/23)
Qatar, the world’s largest LNG producer, is on track to expand its LNG production capacity by around 43% to 110 million tons/year. Its current production capacity is 77 million tons/year. The rapid pace of Qatar’s expansion will allow it to maintain its position as the world’s top LNG exporter despite competition from Australia that expects to have 88 million tons/year of nameplate LNG export capacity if all its 10 projects reach full capacity. (10/24)
China will lead global refinery capacity expansion and investments with 3.12 million b/d additional refining capacity and US$67.3 billion capital expenditure through 2022, data and analytics company GlobalData said in a new report. Total refining capacity in the world is expected to grow by 15.1 percent between 2018 and 2022, with global crude distillation unit’s capacity expected to hit 117 million b/d by 2022. (10/27)
Offshore Western Australia, France’s oil and gas major Total said on Tuesday that the first cargo of liquefied natural gas (LNG) from the Ichthys LNG project had left the port of Darwin for the first export of the US$40-billion project that began producing gas in July this year. The planned production volumes at Ichthys will be 8.9 million tons of LNG annually, 1.65 million tons of liquefied petroleum gas (LPG) a year, and around 100,000 b/d of condensate at peak production and full capacity. (10/25)
Australia’s new Ichthys project and others around the globe may help feed surging Asian demand for LNG at a time when China has curbed its purchases from the US as part of their trade conflict. Originally slated to cost $34 billion with a 2016 start date, the Ichthys project comprises an offshore gas field, a 553-mile pipeline and liquefaction facilities in Darwin, Australia. The project is expected to increase production to 8.9 million tons a year over the next two to three years. That is the equivalent to about 10% of Japan’s current LNG imports. (10/24)
Nigeria has lost no less than $10 billion in revenue in the last 18 years due to obsolete laws, dating back to 1950, in the sector. A senator said the country may lose more if the four bills presented before the National Assembly are not passed and signed by the president. (10/27)
Guyana, with a population of fewer than 750,000 people, has always depended on commodities. Sugar, gold, shrimp, timber, bauxite, and rice account for nearly 60 percent of this South American country’s gross domestic product. Now, Guyana is set to add oil production to that list. Three years and dozens of new oil discoveries after hitting first oil in 2015, Guyana is set to produce its own oil for the first time ever, in 2020. (10/24)
Argentina’s state-controlled oil company, YPF, will significantly boost oil and gas production, investing between $4 billion and $5 billion per year through 2022, Chief Executive Daniel Gonzalez told Reuters on Friday. It plans to raise production by between 5 percent and 7 percent per year, with the largest increase in the Vaca Muerta formation, one of the world’s largest reserves of shale oil and gas. (10/27)
Mexico depends too heavily on US oil and gas imports, an energy adviser to President-Elect Andres Manuel Lopez Obrador said Thursday while outlining the country’s plans to build new refining capacity and take stock of its nascent energy reforms. (10/26)
In Mexico, Pemex’s buying of four US Bakken crude cargoes should help it maximize the efficiency of its 330,000 b/d Salina Cruz refinery, although future imports are no sure thing as they are opposed by the incoming administration, This strategic move is key as Mexico seeks to maximize gasoline output and curtail residual fuel oil output from underperforming refineries. (10/24)
Mexico’s president-elect Andres Manuel Lopez Obrador on Tuesday criticized state-run Pemex’s plan to import US light crude from refiner Phillips 66, calling it a sign of the country’s failed economic policies. (10/24)
A small LNG project north of Vancouver is poised to move to construction in the first quarter of 2019, adding momentum to Canada’s efforts to become a significant exporter of the supercooled fuel. The $1.2 billion Woodfibre LNG project, backed by Indonesian billionaire Sukanto Tanoto’s RGE Group, would be Canada’s second LNG project to go ahead, following the approval of the massive LNG Canada project earlier this month. (10/24)
Heavy oil from Canada, Western Canada Select, typically trades at a discount relative to WTI. Canadian oil producers exposed to the low prices are now fetching around $40 to 50 per barrel less than their counterparts in the US. The lower price reflects quality issues, as well as the cost of transport from Alberta to refineries in the US In early 2018, the discount started to grow significantly, the result of Canadian pipelines filled to the brim. The inability of the Canadian oil industry to build a major pipeline from Alberta to either the US or the Pacific Ocean is increasingly dragging down WCS.
In British Columbia, a natural gas pipeline explosion that occurred earlier this month near the city of Prince George will reduce supply to the province by between 20 and 50 percent this winter, the gas distribution company said in a statement. FortisBC said that although it had planned on having the ruptured pipe up and running by mid-November, it will not be able to fill it to capacity. At best, it would operate at 80 percent of capacity for the winter. (10/24)
The US oil rig count increased by two to 875, the highest level since March 2015, General Electric Co’s Baker Hughes energy services firm reported Friday. For the month, the rig count rose 12 in October, the biggest monthly increase since drillers added 34 rigs in May. (10/27)
The US is still the world’s largest natural gas producer, despite a marginal 2017 output increase of 0.7 percent, a new report from Eni has revealed. The world’s top five natural gas producers and their 2017 natural gas production, as highlighted in Eni’s report, can be seen below: US – 26.6 trillion cubic feet; Russia – 24.4 Tcf; Iran – 7.6 Tcf; Canada – 6.5 Tcf; Qatar – 6.3 Tcf. (10/24)
Beaufort Sea drilling okayed: The Bureau of Ocean Energy Management has approved Hilcorp Alaska’s drilling project for the Liberty prospect in the Beaufort Sea; this is the first approval for a drilling project in federal waters. Congress voted to open the Arctic National Wildlife Refuge for drilling last December, after forty years of often heated discussions of the issue. Hilcorp is seeking to build, and then drill from, a nine-acre artificial gravel island in shallow waters of the Beaufort Sea. (10/26)
ExxonMobil has been sued by New York state’s attorney general for allegedly misleading investors over the risks that climate change regulations posed to its business. The suit claims that while Exxon had been telling investors for more than a decade that it had used an implied cost of carbon in its investment decisions, its statements were “materially false and misleading”. The attorney general’s office alleges that Exxon was in fact often using a lower undisclosed carbon price or no price at all when it made decisions. (10/25)
FERC reversal coming? The White House said on Wednesday President Donald Trump has appointed Neil Chatterjee, an avid supporter of subsidizing aging coal and nuclear power plants, as chairman of the Federal Energy Regulatory Commission. Chatterjee, a Republican from coal-producing Kentucky, who was a FERC commissioner, had been a backer last year of a directive by Energy Secretary Rick Perry, that the commission ultimately rejected, to bail out coal and nuclear plants. (10/25)
$$ support for batteries: Fisker Inc., an e-mobility and technology company developing electric vehicles and proprietary solid-state battery technologies, announced a strategic investment from Caterpillar Venture Capital Inc., a wholly owned subsidiary of Caterpillar Inc., the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. (10/24)
3D- printed batteries for cars? A group of scientists from Duke University has developed a new method to 3D-print lithium-ion batteries in virtually any shape. In a paper published in ACS Applied Energy Materials, the researchers explain how they used an electrolyte solution to increase the ionic conductivity of the polymers used for 3D printing, such as poly (lactic acid) or PLA. This process allowed them to print complete lithium-ion batteries with an inexpensive machine. (10/23)
Wind machines slow hurricanes? Simulations have shown that spinning turbine blades of offshore wind farms can actually slow the wind speeds of a hurricane. (10/25)
Record typhoon: In the Marianas Islands, Typhoon Yutu’s 180 mph winds overturned cars, knocked down hundreds of power poles and left an island of thousands without a medical center — and another without an airport. Buildings were reduced to haphazard piles of tin and wood by the most powerful tropical cyclone to hit any part of the US since 1935. (10/26)
In eastern Australia, drought is expected to cut the crop production this year to less than half the average over the past 20 years, with New South Wales to be worst hit. (10/26)
Plastics ban: the European Parliament has overwhelmingly approved a ban on single-use plastics such as straws, plates, cutlery and cotton-swab sticks in Europe by 2021, joining a global shift as environmentalists emphasize the urgency of halting the use of materials that very often end up in the ocean. (10/26)
Global crude steel production rose 4.4 percent to 152 million tons in September from the same month a year ago, figures from the World Steel Association showed on Wednesday. (10/25)
India’s steel industry will face several challenges as the nation is poised to become the next driver in regional economic growth. Challenges like the high cost of raw materials, including coking coal and thermal coal, transportation networks and infrastructure, and the quality of steel, were brought up by leaders in the major Indian steel mills. (10/25)
Will Lithium Sink OPEC?
https://www.valuewalk.com/2018/11/absolute-return-november-2018-lithium-triangle/
"When I began to research the topic a couple of years ago, I got the impression that commercialization of fusion energy is still decades away with the consensus settling around 30 years. However, the insider view now is that we may only be 15 years away from delivering fusion-generated electricity to the grid, such is the momentum."
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Investment implications
Whether fusion energy ever happens or not, the outlook for lithium producers seems bright. That view is predicated on a firm belief that the world is moving towards electrification of all transportation and heating, which seems to be a reasonable assumption.
Firstly, fossil fuels are very much responsible for our greenhouse gases and secondly, there is a strong desire in the OECD to reduce its dependency on OPEC. The fact that the fossil fuel industry is a monumental user of freshwater and that it ties up ever larger amounts of capital to produce the energy we need to spin the wheels every day doesn’t make that desire any smaller.
As far as electrification is concerned, think about the ongoing electrification of the global car fleet. Lithium is a significant component in electric car batteries so demand for lithium will, as a result, increase for many years to come.
Alternatively, think of the electrification theme and combine it with another of ‘our’ mega-trends – The Rise of the East. The growing middle classes of Asia will want to go digital unless they have fundamentally different desires than the rest of us; hence demand for laptop computers, tablets and smartphones, all of which are big users of lithium, will grow for many years to come.
Another implication of the electrification theme is that commercial banks may ultimately cease to exist. Just like Amazon has disrupted retailers all over the world in recent years, a new technology called blockchain (which was invented to support cryptocurrencies) may disrupt commercial banks in the years to come. The main caveat is that everything needs to be electrified before we can take full advantage of this new technology, but the writing is on the wall.
All of the above may unfold long before fusion energy is rolled out. When that eventually happens, the implications for fossil fuel prices are severe. Coal and natural gas prices will most likely go to zero, as there will be no need whatsoever for either coal or natural gas any longer. Demand from the chemical industry (mostly to produce plastic products) will ensure that oil prices won’t go to zero, but they will almost certainly settle at levels dramatically below current levels.
It is impossible to say precisely when all of this will happen. When I began to research the topic a couple of years ago, I got the impression that commercialisation of fusion energy is still decades away with the consensus settling around 30 years. However, the insider view now is that we may only be 15 years away from delivering fusion-generated electricity to the grid, such is the momentum.
Given the dramatic impact fusion energy is likely to have on everything, investors are presented with a once-in-a-lifetime opportunity. Having said that, economic growth between now and the day fusion energy is finally available on the grid will almost certainly drive fossil fuel prices higher in the short to medium term.
I don’t for one second believe you can simply go short fossil fuels today and then sit back and wait for fossil fuel prices to implode, and I will warn you strongly against shorting fossil fuels more systematically anytime soon.
Finally, in terms of the bigger picture, bear in mind that this is only the tip of the iceberg. Countries that are dependent on the fossil fuel industry for its continued economic growth – and no OECD country is more dependent on the fossil fuel industry than the US – will most likely run into strong head winds for a period of time.
Talking about OPEC, political priorities in the OECD will most likely change as OPEC’s powers begin to fade. And, as that happens, other countries – those rich on lithium – will move to the forefront. I have even (half) joked that OPEC at some point in the future may be replaced by OLEC - the Organisation of Lithium Exporting Countries.
With the biggest lithium reserves in the Lithium Triangle, and with Chile being a price-setter, could Chile become the new Saudi Arabia? Not as far-fetched as you may think. At the very least, the South American continent’s prominence and political influence will most likely grow as fusion energy becomes more than a distant vision.
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What happens if you take half a bathtub of water - seawater will do – and the amount of lithium that goes into one laptop battery? The purists will probably say “not a lot” and, at first glance, that is indeed correct.
However, imagine that the ongoing research into fusion energy is a few years further down the road, and scientists find a way to commercialise a technology that has already been proven in research laboratories all over the world. A lot will now happen.
As I said last month, the fusion process - converting hydrogen to helium - releases about 10 million times more energy than what is released when burning the same amount of hydrogen. While a 1000 MW coal-fired power plant requires 2.7 million tonnes of coal per year, a fusion plant which is geared to deliver the same output will only require 250 kilos of fuel per year.
Only a few grams of fuel are present in the plasma at any point in time. This makes the fusion reactor incredibly economical in its fuel consumption, and it adds important safety features to the process. In plain English, combining the half-filled bathtub of water and the lithium from the laptop battery will lead to about 200,000 kWh of electricity – about 30 years of UK per capita electricity consumption
Technically, what happens is that you make two hydrogen isotopes, deuterium and tritium, collide, and the fusion produces a heavier element, helium, and a neutron. Lithium is the fuel that operates the fusion power plants. You can read more about it here:
https://www.iter.org/sci/FusionFuels
All is well on our planet Earth, isn't it?
Saturday, October 13, 2018
"To compare the WWII industrial effort with the global dislocation necessary to ameliorate some of the effects of climate change is surprisingly naive and proves that the three professors got Ds in their history electives, if they had any. This comparison also neglects to account for the human population that has almost quadrupled between the 1940s and now, and the resource consumption that has increased almost 10-fold. The world today cannot grow its industrial production the way we did during WWII. There is simply not enough of the planet Earth left to be devoured.
How is it that the otherwise formidable scientists can be so blind and talk such nonsense? This is a very complicated question, but in essence it is denial amplified by brainwashing by the decades of service for the global fossil superorgansim. The global amoeba, which we all serve, demands allegiance and selective blindness towards the so many self-evident truths.
"Economic growth" is about to end because its biophysical underpinnings are getting exhausted - all at once. Only the most courageous among us see through the increasingly implausible lies we tell ourselves to obfuscate this truth. It is so much easier for us to fly to the next conference, rent a car, check into an air-conditioned hotel, eat at the air-conditioned restaurants, step over homeless on the sidewalks, and pretend that eternal growth will separate us from hard reality."
https://patzek-lifeitself.blogspot.com/2018/10/all-is-well-on-our-planet-earth-isnt-it.html?fbclid=IwAR1L6Jqg6umA3OrEbpntUVOf44AyuT9bZqukRSlhKsPWb1ZPj6wUO-nENfs
U.S. SHALE OIL INDUSTRY: Catastrophic Failure Ahead
Posted by SRSrocco in Energy, News on October 23, 2018
https://srsroccoreport.com/u-s-shale-oil-industry-catastrophic-failure-ahead/?fbclid=IwAR1OIbu0B0eXf0N-2rRe_Pss1UEzdXl2POf-5tsIsuc1JC3QRwWU5v3Eq_E
Peak Oil Review: 23 Oct 2018
By Tom Whipple, Steve Andrews, originally published by Peak-Oil.org
https://www.resilience.org/stories/2018-10-23/peak-oil-review-23-oct-2018/
Quotes of the Week
“The well-established market consensus that the Permian [basin] can continue to provide 1.5 million barrels per day of annual production growth for the foreseeable future is starting to be called into question.” Paal Kibsgaard, CEO of Schlumberger
“Two-thirds of US oil producers failed to live within their means in the second quarter, even as oil prices have risen almost 40% over the past year to more than $70 per barrel. Fifty major US oil companies reported they collectively spent $2 billion more than they took in.” FactSet’s analysis of free cash flow
1. Oil and the Global Economy
Crude oil prices have been volatile thus far in October, hitting a four-year high to start the month before falling nearly $8 a barrel in the two weeks. At the close on Friday, New York futures were at $69.12 and London at $79.78. Market sentiments have changed this month with more traders worrying about the economic problems facing China than how effective the US sanctions on Iranian exports will be.
China’s stock market fell sharply last Thursday, dragged down by a range of concerns that should offer a warning to the broader global economy. The Shanghai Composite Index fell on Thursday, falling to its lowest point in nearly four years. The problems in China are dragging down stock markets across Asia, including in Japan and South Korea. The Shanghai Composite is now down more than 25 percent since the start of the year and lost more than $3 trillion in the last six months.
Multiple problems are facing Beijing including the trade war with the US, vast amounts of debt held by local governments, a broader slowdown in growth, a weakening yuan, and high oil prices. The IMF says that China’s GDP growth could slow from 6.6 percent this year to just 6.2 percent in 2019, and there are additional risks because of the trade war.
In addition to China’s problems, there are growing concerns about the immediate future for the global economy. According to a survey from Bank of America, troubles are multiplying. Tech stocks look inflated. The Fed continues to hike interest rates, which is having ripple effects across the world. Borrowing costs are rising. The strong dollar is putting pressure on emerging market governments and their currencies, making dollar-denominated debt and oil painfully expensive.
The CEO of BP, Bob Dudley said, “There’s a healthy price for oil and energy… it’s somewhere between $50 and $65 a barrel. The world can live with this.” “Emerging and developing economies like India, South Africa, or Turkey are seeing their highest-ever prices for gasoline because their currencies have rapidly depreciated against the US dollar and because oil prices in dollars are high.”
Concerns that $80 oil is unhealthy for the world are shared by major international organizations such as the IEA and the IMF. Expensive energy is back, and it is threatening global economic growth, the IEA said in its Oil Market Report last week, and the IMF slightly downgraded its projection for global growth for this year and next—at 3.7 percent, growth is now expected to be 0.2 percentage point lower than IMF’s forecast from April this year.
OPEC: The cartel continues to assert that “the oil market is well-balanced and well-supplied.” To calm market fears, OPEC spokesmen are saying that there is plenty of oil to go around and that Russia and Saudi Arabia are adding supply as promised in June “to maintain the supply and demand balance.” While on the surface it appears that the US sanctions on Iran are cutting the world oil supply, recent reports suggest that Tehran is finding ways to keep its exports flowing below the purview of tanker trackers and others monitoring Iran’s exports.
Saudi Arabia and Kuwait haven’t made any progress in restarting the jointly operated oil fields that analysts were hoping could soon add 500,000 b/d of oil production to the global supply. The Partitioned Neutral Zone was established between Saudi Arabia and Kuwait in 1922 to settle a territorial dispute. Aramco, the field’s operator, unilaterally shut production down in October 2014, citing new government emissions standards for gas flaring. The output from the zone averaged around 500,000 b/d just before the shutdown of the two oil fields, Khafji and Wafra, in 2014-2015.
The Wafra field is operated by KGOC and Saudi Arabian Chevron and was shuttered in May 2015, with Chevron saying it had encountered difficulties in securing work and equipment permits. Sources say the dispute involved a land-use issue at Wafra unrelated to oil production. Talks to reopen the fields began last month, and Japan’s Toyo Engineering announced that it had been retained to begin preparations for a restart of Khafji in early 2019.
Last week, however, the talks between the Saudis and Kuwait broke down, and the prospects for the fields coming back online is said to be “dead as a doornail.” The Saudis want more control over the operation, and Kuwait is not happy about the Saudi-led embargo of Qatar. An additional, 500,000 b/d of Middle Eastern oil production would be very useful for keeping the lid on prices at this time.
Secretary-General Mohammad Barkindo last week urged oil producing companies to increase capacities and invest more to meet future demand as spare oil capacity shrinks worldwide. OPEC along with the IEA has been in the forefront of those warning that there is insufficient investment being made in finding new oil fields to support the demand that is expected in the next 20 years.
OPEC says the global oil sector needs about $11 trillion in investment to meet future oil needs in the period up to 2040. Crude oil demand is expected to increase by 14.5 million b/d from 2017 to 111.7 million b/d in 2040, OPEC said in its September report.
US Shale Oil Production:
US oil production may rise to as much as 14 million b/d by 2020, Secretary of the Interior Zinke told Fox Business last Wednesday. “Today we are the largest oil and gas producer on the face of the planet, rolling through 11.2 million b/d, on our way to 14,” Secretary Zinke said. There are some hurdles, we have to get the infrastructure, but the production side of it is well within the capability of going to 14 million b/d, he added. The US added four rigs last week, making last week’s count the highest since March 2015. The nation’s total rig count sits at 1,067, which is an increase of 154 from one year ago.
US drillers indeed are confident about the future. “The Permian is huge,” says Vicki Hollub, the chief executive officer of Occidental Petroleum Corp., the basin’s biggest producer, in an email. It “has the capability to sustain its position with respect to the rest of the world for another decade or two at least.”
The EIA is predicting another banner month with shale oil production increasing by 98,000 b/d including 53,000 b/d from the Permian, 13,000 b/d from the Bakken, and 15,000 b/d from Eagle Ford. In a footnote, the EIA comments that “Productivity estimates may overstate actual production which could be limited by logistical constraints.” At least the EIA is reading the press stories bemoaning the lack of pipeline capacity to move the Permian’s oil to market and shortages of many resources need to drill and frack wells. For those watching the phenomenon, the number of drilled but not yet fracked wells increased by 192 between August and September.
The upcoming startup of an expanded crude pipeline from the Permian Basin to Cushing, Oklahoma has strengthened oil prices in West Texas while weighing on futures as traders expect stockpiles to rise in Cushing. WTI Midland’s discount to US crude narrowed to as little as $2.50 per barrel on Thursday, the smallest differential in nearly seven months. WTI Midland sank to the widest in six years at a discount of as much as $18.25 per barrel in late August. Midland crude traded at $9.50 below WTI at East Houston on Thursday, shrinking from as high as $23.75 in early September. Traders closely watch the spread to gauge the economics of transporting crude to the US Gulf Coast. Natural gas production in the Permian Basin also has outpaced pipeline takeaway capacity, but with the rollout of new projects, this trend is expected to change next year.
So much for the optimism. In addition to the short-term pipeline and resource problem, which probably can be overcome in the next couple of years, there is the problem of the lack of profitability of the shale oil industry and signs that drillers are running out of new “sweet spots” that can produce enough oil to justify drilling it in the first place.
The S&P 500 Energy Index has underperformed the wider market by 42 percentage points over the past four years, despite a 35 percent increase in the price of oil. Fund managers have lambasted shale industry executives for their high pay, demanding dividends and share buybacks. In the first quarter of this year, most companies responded with pledges to do either or both, then in the next quarter proceeded to blow through their capital expenditure budgets. Whether investors will continue pouring billions of dollars into losing shale oil drillers remains to be seen.
However, the biggest problem for the industry is the decreasing number of profitable places to drill. If new shale oil wells can’t be profitable when their initial average production is above 700 b/d, then what will happen when this average drops to 300 b/d or even 150 b/d? So far drillers have succeeded in keeping up initial production by drilling longer laterals and using up to four times as much water and sand when they frack a well. While this increases the cost of fracking considerably, it has doubled the initial productivity of the average well since 2012. This gain leaves open the question of how much it has cost to produce each barrel of well when production is finished.
Last week the issue of whether Permian Basin shale oil production will continue to grow by millions of barrels per day into the distant future was raised by the CEO of the oil service firm Schlumberger, Paal Kibsgaard. As Schlumberger drills, fracks, and measures the output of wells on behalf of many drillers, it is in an excellent position to see where the industry is heading. Kibsgaard said in an earnings call, that “the main challenge in the Permian going forward is more likely to be reservoir and well performance.” “The industry has yet to understand how reservoir conditions and well productivity change as we continue to pump billions of gallons of water and billions of pounds of sand into the ground each year,” he said.
Kibsgaard pointed to an increase in the percentage of new infill — or “child” — wells in the Eagle Ford basin. “Today, the percentage of child wells drilled in the Eagle Ford has already reached 70%. And in the three-year period, since this percentage broke the 50% level, we have seen a steady reduction in unit well productivity.” “In the Permian, the percentage of child wells in the Midland Wolf Camp basin has just reached 50 percent, and we are already starting to see a similar reduction in unit well productivity to that already seen in the Eagle Ford, suggesting that the Permian growth potential could be lower than earlier expected,” Kibsgaard said. Assuming oil demand remains high, “we believe that the level of E&P investments must increase both internationally and in North America … to develop and deploy the new technologies needed to overcome the emerging shale oil production challenges,” he said.
S&P Global Platts Analytics is forecasting slower Permian growth as a result of declining efficiencies and poorer rock quality. Production is expected to climb 843,000 b/d in 2018, but that should slow to 320,000 b/d by 2022 and 219,000 b/d by 2023, according to Analytics. Independent analysts of the shale oil industry have been warning for years that the rapid depletion of shale oil fields and the lack of profitability means that the shale oil phenomenon is a speculative bubble that will not last much longer. If Platts forecasts for increases in Permian production five years from now are combined with decreases in production from the older US shale plays, then the shale oil industry may be a distant memory by the end of the next decade due to rapid depletion.
2. The Middle East & North Africa
Iran: US sanctions on Iran take effect in a little over two weeks, and Washington has already had some success in reducing Iranian exports. Iranian oil exports fell to their lowest level in at least two and a half years in September to 1.7 million b/d, from 1.92 million b/d in August, according to S&P Global Platts trade flow software, though some shipments not visible through vessel-tracking data are suspected to be taking place. The size of these undetected shipments is not known, and Tehran is claiming that its shipments have dropped very little.
According to Reuters, “an unprecedented amount of Iranian crude oil is to arrive at China’s Dalian port this month and in early November before US sanctions take effect.” An estimated 20 million barrels are destined to flow from Iran to China over the next few weeks, up from the usual 1 to 3 million barrels each month. There have been indications, however, that China may reduce its shipments during the sanctions.
South Korea did not import any oil from Iran in September for the first time in six years. It is difficult to turn oil production on and off, and with onshore storage filling up, Iran has been forced to store oil at sea. However, while Iran’s floating storage spiked in September, it actually fell back in October, as several cargoes set sail for China and India, according to data from Kpler. It appears that it will be difficult to keep track of Iranian exports during the sanctions as Tehran has considerable experience in avoiding US sanctions. Nobody believes that Washington can attain its goal of reducing Tehran’s exports to zero.
Iraq: Baghdad’s new Oil Minister Jabar al-Luaibi has issued a decree transferring the ownership of nine state-owned oil companies, including state oil marketer SOMO, from the oil ministry to the newly-formed National Oil Company which he also heads. Parliament voted in March to establish the company, which is meant to manage Iraq’s upstream operations, freeing up the ministry to set plans and strategies for developing the sector.
Iraq’s oil production climbed by 1 percent in September, as the federal government and Kurdistan made incremental gains. Countrywide output averaged approximately 4.86 million b/d, according to data gathered from each producing field. Iraq hopes to increase natural gas production by about 340 million cubic feet per day from its southern fields this year. The country urgently needs more gas to help meet unsatisfied electricity demand. The US sanctions on Iran, which currently supplies about 1,250 million cubic feet per day of natural gas and more than 1,200 megawatts of electricity to Iraq, makes increased domestic production more urgent.
Saudi Arabia: In the wake of the Khashoggi murder, Riyadh’s political situation, domestically and internationally, became extremely volatile. How it all will turn out is impossible to predict.
Last week some part of the Saudi establishment briefly threatened to restrict oil exports if President Trump imposed “severe punishment” on the kingdom. As the Khashoggi story unfolded during the week, the “oil weapon” threat dropped from sight. Given that Saudi Arabia’s oil production is somewhere north of 10 million b/d, any upset in the kingdom poses a serious threat to the global economy.
On Thursday, Saudi Aramco signed an agreement to invest $25 billion in a 400,000-b/d refinery and associated petrochemical plants in eastern China. This move is part of an effort to expand Aramco’s downstream business and secure additional markets for its oil.
To protect its ability to export oil in the event of hostilities in the Straits of Hormuz, Saudi Arabia has added 3 million b/d of oil export capacity to its West Coast Yanbu South Terminal on the Red Sea. In July, Iran threatened to close the Straits should the US drive Iranian oil exports to zero. The Strait of Hormuz is the world’s most important chokepoint, with an oil flow of about 18.5 million b/d.
3. China
China’s government on Friday reported that the economy grew by 6.5 percent over the three months that ended in September compared with a year ago. Growth in industrial output and consumption weakened in the quarter, while exports held up despite the country’s trade fight with the US. While fast by global standards, the pace of economic growth is China’s slowest since early 2009, during the depths of the global financial crisis. China’s reported growth figures over the past two years shows an economy that is just getting by with slowing growth, soaring debt and an escalating trade war with the US. Widespread doubts remain over the reliability of the government’s official growth numbers.
The exact numbers aren’t clear, but experts agree that China’s debt load is vast. S&P Global estimates that China’s local governments are carrying as much as $6 trillion in shadowy debt off the books. Analysts at the ratings firm called it “an alarming level.”
As winter approaches, the northern region of Beijing-Tianjin-Hebei needs to make sure there is enough fuel for heating. The region is notorious for its high levels of pollution, but last year it also became notorious for natural gas shortages that left millions of households without heat during the peak of winter. To prevent a repeat of last winter’s problems, the authorities are now in a rush to secure fuel supplies, and not just gas but coal as well. Last year, the central government criticized the local authorities for retiring coal plants before ensuring there would be enough natural gas to provide heating for the region and applying a “one size fits all” approach to the fight against pollution.
The anti-pollution drive is paying off, too. Reuters reports that between January and September this year, the amount of PM 2.5 particulate matter had fallen by a third from a year earlier thanks to the reduction in coal consumption and changes in industrial production practices. Natural gas is a big part of this transformation, including LNG. Last year, China became the world’s second-largest LNG importer, taking in some 38 million tons of the fuel, a 46-percent increase on 2016.
Even so, some parts of the country suffered shortages because the gas could not reach them fast enough. As a result, China is working on expanding its LNG storage capacity and pipeline network. It is also expanding its domestic natural gas production and storage. In the past ten years, China’s natural gas consumption has risen fourfold to more than 25 billion cubic feet per day.
Exxon is cashing in on China’s soaring LNG demand by coupling multi-billion-dollar production projects around the world with its first mainland storage and distribution outlet. By expanding output of LNG from tariff-exempt sources such as Papua New Guinea and Mozambique and creating demand for those supplies with an import and storage hub, Exxon is hoping to prosper even in the midst of a US/China trade war.
4. Nigeria
Every few years Nigeria suffers from one of those horrific disasters in which someone drills a hole in a gasoline pipeline and a whole village comes out to collect the leaking gas. Somebody lights a cigarette and dozens or sometimes hundreds are enveloped in the ensuing fireball. Last week, there was another of these horrors in which somewhere around 150 people were burned to death. Some are accusing the National Petroleum Company for failing to repair the leaking pipeline. For a change, Shell and the other international oil companies were not involved. This time, however, there was an added feature of security officials on the scene collecting bribes to allow villagers to scoop up gasoline rather than forcing them back into safety. Three security officials are said to have died in the blast.
The only disasters comparable to pipeline explosions are the frequent gasoline tanker accidents in which innocent bystanders are killed in when overturned tankers catch on fire and explode.
German radio, Deutsche Welle, has been investigating what happened to the estimated $10 billion in oil and products that have been stolen in Nigeria during the last two years. It turns out that much of the oil is ending up in Cameroon, where many government officials including military, police, and customs officials are involved in the smuggling. Cameroon produces about 30,000 b/d of oil as compared with circa 2 million in Nigeria. Smuggling stolen oil has become a way of life in Cameroon, a country of 25 million people, and is of considerable economic benefit to the country.
5. Venezuela
The US plans to turn up sanctions pressure on Venezuela but sees less need to immediately target its energy sector, given the country’s sagging production. Washington has imposed several rounds of sanctions on Venezuelan military and political figures close to socialist President Nicolas Maduro, who it blames for trampling on human rights and triggering the country’s economic collapse. Earlier this year, the Trump administration had weighed escalating sanctions by targeting a Venezuelan military-run oil services company or restricting insurance coverage for oil shipments.
Foreign creditors are circling one of Venezuela’s most valuable assets: Citgo, the Houston-based oil company that it has owned since 1990. If Citgo is seized and sold to pay Venezuela’s debts, it could disrupt one of the most reliable sources of cash for a country suffering from inflation, food and medicine shortages, and a fleeing population. US sanctions have exacerbated the government’s pain, keeping it from the US financial system. The fight over Citgo is unfolding in courtrooms and boardrooms across North America and Europe — with a decision expected by the end of the year.
6. Climate Change
The UN’s IPCC is being accused of ignoring research into fossil fuel-funded misinformation campaigns that have been key to holding back action on global warming. Several researchers are angry the report did not take account of academic research into the “decades-long misinformation campaign” funded and promoted by fossil fuel interests and so-called “free market” conservative think tanks that have been a major brake on progress. These scientists say the lack of consideration of academic research into misinformation campaigns was a vital but missed opportunity to educate the public and policymakers. The groups that have colluded with the fossil fuel industry have been credited with pushing President Trump to pull the US from the UN’s Paris Agreement.
7. The Briefs (selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
The rules for new maritime fuel, set roughly a decade ago through the International Maritime Organization, an arm of the United Nations, take effect on Jan. 1, 2020, and aim to slash the amount of sulfur in marine fuel for oceangoing ships. The Trump administration is seeking to slow down that transition. (10/20)
The UK government should ban sales of virtually all new petrol and diesel cars by 2032, a group of MPs say in a withering report that labels the current 2040 target “vague” and “unambitious”. (10/20)
In Norway, Oceaneering International Inc. thinks it has a promising new technology to gain an edge in what’s still a recovering market. In mid-August, the Houston-based company announced a three-year contract with Norwegian energy giant Equinor (formerly Statoil) to provide an “E-ROV” system for inspection, maintenance and repair services in up to 3,280 feet of water in the Norwegian Continental Shelf. (10/19)
In Germany, water levels on the Rhine River fell to a record low this week amid a severe drought and were forecast to fall even further, hampering oil product barge movements in northwest Europe. (10/20)
Saudi-Russia collaboration increasing: Now that global oil markets have gotten used to Saudi-Russian oil production cooperation that first hit the scene in early 2017 in an effort to rein in global price concerns, it now appears that the two fledgling allies are also going to cooperate in the liquefied natural gas sector. And this time too, it looks as if the alliance could take aim at US energy ambitions. Saudi state-owned Saudi Aramco said it is open to the idea of marketing some of the LNG from the proposed Russian Arctic LNG 2. (10/19)
Saudi Aramco signed on Thursday an agreement to invest in a 400,000 b/d refinery and associated petrochemical plants in eastern China as part of Saudi Arabia’s push to expand its downstream business and secure additional markets for its oil. (10/19)
The Abu Dhabi National Oil Company, the producer of nearly all of the oil in the UAE, began producing and exporting a new crude grade, Umm Lulu, in a move that will help raise the Middle Eastern producer’s exports as OPEC is relaxing the production cuts to offset lost supply from Iran and Venezuela. The capacity of the two new fields will increase to 129,000 b/d by the end of this year, and then to 215,000 b/d by 2023. (10/19)
The breakeven price for Qatari crude oil has risen to $47.10 per barrel this year from $24.20 a barrel ten years ago, a Gulf think-tank has calculated. The Gulf Times reports this represented a 95-percent increase in the breakeven price, which might sound like a lot, but it is below the three-digit breakeven price increases in other producers in the region, including Saudi Arabia and the United Arab Emirates, as well as Kuwait. (10/18)
Libya’s National Oil Corporation warned on Sunday it could be forced to suspend production at its Zawiya refinery due to growing security threats to its staff and facilities. (10/17)
Mozambique: Rome-based Eni, which earlier this decade led the discovery of an estimated 85 trillion cubic feet of natural gas in Mozambique, on Wednesday signed an accord in Maputo that will allow it to begin exploration work in a previously unexplored area in the country’s deep waters. (10/18)
Oil trained into Mexico: Kansas City Southern increased the number of fuel carloads moved into Mexico from the US by 164 percent year over year in the third quarter of 2018, the company said Tuesday. The Missouri-based railroad company moved 13,355 carloads of refined products in Q3 2018. (10/20)
To Mexico: Already strong US gasoline exports are likely to remain high into the fourth quarter, as refineries in Mexico, the largest buyer of US gasoline, are expected to operate well below capacity. The US exported 1.16 million b/d of gasoline last week, marking the second straight week above 1 million b/d, US EIA oil data showed. (10/18)
In Canada, as of last Friday, recreational cannabis consumption is legal. While many Canadian citizens and companies will be celebrating the reform, the Canadian oil and gas industry will be ringing in the new era with considerably less enthusiasm. Canadian oil companies and workers’ unions are busy scrambling to finalize a plan to maintain safe operating standards in an era of legal and easily attainable marijuana. (10/19)
The US oil rig count increased by four to 873 while the gas rig count increased by one to 194, according to reports from Baker Hughes. The total number of active oil and gas rigs is now 1,067, up 154 from this time last year. (10/20)
Throwing the ethanol bone: The Trump administration’s plan to allow year-round sales of higher-grade corn ethanol would have limited impact on the depressed US ethanol market, with record supplies and prices for the fuel hovering near the lowest in a decade, analysts said. With mid-term elections looming, President Donald Trump aimed to give a boost to corn producers in the Farm Belt, who helped secure his narrow 2016 election victory. (10/16)
Another US LNG project: NextDecade Corp. has secured a draft environmental impact statement from the Federal Energy Regulatory Commission for its Rio Grande LNG project near Brownsville, Texas, along with its associated Rio Bravo Pipeline. The 27-million-ton-per-annum Rio Grande LNG export facility would receive natural gas from the Agua Dulce gas hub near Corpus Christi via the company’s 4.5 billion cubic foot per day Rio Bravo Pipeline. (10/16)
Gas vs. coal: With about 21,000 MW of new gas-fired power generation planned in the Appalachian Basin, demand for gas is expected to rise as it overtakes coal in power generation market share. (10/20)
Coal port crossroads: The Trump administration is considering using West Coast military facilities to export coal and natural gas to Asia, according to an Associated Press report on Monday citing US Department of Interior Secretary Ryan Zinke. The move would help fossil fuel producers ship their products to Asia and circumvent environmental concerns in Democratic-leaning states like Washington, Oregon, and California that have rejected efforts to build new coal ports. (10/16)
In the UK, protesters gathered on Monday morning outside a drilling site in northwest England, where fracking is returning for the first time in seven years after a last-minute request for an injunction against Cuadrilla Resources failed at court on Friday. (10/16)
Battery R&D: The EU is planning to allow state aid for electric battery research and will offer billions of euros of co-funding to companies willing to build giant battery factories. Brussels is concerned that the EU auto industry, which employs 13m people, could be left behind in the race to build mass-market electric vehicles because of their reliance on batteries from Asia. (10/15)
More battery R&D: The BMW Group, Northvolt and Umicore have formed a joint technology consortium in order to work closely together on the continued development of a complete and sustainable value chain for battery cells for electrified vehicles in Europe. The chief objective is to make battery cells sustainable by establishing a closed life-cycle loop. (10/16)
India has set targets to have 175 GW renewable capacity installed by 2022, 100 GW of which is solar and 75 GW of which is wind. However, even if costs were to drop significantly, Wood Mackenzie expects that only 76 percent of the 175-GW target will be achieved by 2022, “and this would still be a noteworthy achievement,” the consultancy said. The myriad of challenges includes recently canceled auctions, which could undermine investor confidence. (10/16)
Mega-air-pollution: In northern India, farmers will soon set fire to the straw in their freshly harvested rice fields. Pungent gray smoke will then drift southeast toward New Delhi’s 29 million residents, thickening the smog that has turned India’s capital into the most polluted major city in the world. The government is trying to stop the practice. (10/17)
Cleaner air: A new study led by researchers at the University of North Carolina at Chapel Hill has found that deaths related to air pollution exposure in the US decreased by about 47%, dropping from about 135,000 deaths in 1990 to 71,000 in 2010. Improvements in air quality and public health in the US coincided with increased federal air quality regulations, and have taken place despite increases in population, energy and electricity use, and vehicle miles traveled between 1990 and 2010. (10/20)
Peak Oil Review – 15 Oct 2018
By Tom Whipple, Steve Andrews, originally published by Peak-Oil.org
https://www.resilience.org/stories/2018-10-16/peak-oil-review-15-oct-2018/
Quote of the Week
“Higher oil prices seem inevitable and, in our view, $100/barrel is easily within reach.”
Bank of America/Merrill Lynch
Contents
1. Oil and the Global Economy
2. The Middle East & North Africa
3. China
4. Russia
5. The IPCC Report
6. The Briefs
1. Oil and the Global Economy
Oil futures fell by over $4 a barrel on Wednesday and Thursday but then stabilized on Friday to close at $71 in New York and $80 in London. Behind the selloff were a sharp drop in the equity markets, profit-taking in the wake of a $14 a barrel price increase since mid-August, and concerns that the Sino/US trade war may reduce global demand for oil. EIA, IEA, and OPEC revised their forecasts downward for the size of next year’s demand increase. The International Monetary Fund cut its forecast for global growth to 3.7 percent for 2018 and 2019, down from a previous estimate of 3.9 percent, and the EIA reported that US crude stocks increased by 6 million barrels the week before last.
Major players in the oil industry are still in disagreement as to where oil prices will go in the near future. A few weeks ago, many financial writers were talking about $100 oil, but the sudden surge of volatility and turmoil in global financial markets has caused many to rethink their forecasts. Brent futures lost almost $4 per barrel over two days last week. There are plenty of reasons why oil could resume its upward climb, with the supply losses in Iran and Venezuela at the top of the list. But a new report from Barclays argues that even if oil prices spike, the spike would only be temporary.
International Energy Agency: Last week, the agency lowered its oil-demand growth forecasts by 110,000 b/d for 2018 and 2019 to 1.3 million b/d and 1.4 million b/d respectively. It also reported that the global oil supply is growing fast; in September, world oil production, at around 100 million b/d, was 2.6 million b/d higher than a year ago. Non-OPEC output is forecast to expand by 2.2 million b/d and 1.8 million b/d in 2018 and 2019, respectively, led by the US.
The head of IEA, Fatih Birol, told a conference last week that oil prices are set to enter the “red zone” during the fourth quarter of 2018, and are threatening to slow demand growth as the strength of the global economy slows. The loss of Iranian oil supply due to US sanctions and deteriorating output from Venezuela will see oil markets further tightening. Birol said he expects Venezuelan oil production could fall below 1 million b/d “sometime soon.”
OPEC: The cartel’s crude oil production rose by 100 kb/d in September to a one-year high of 32.78 million b/d. Since May, OPEC output has increased by 735 kb/d, led by the main Gulf producers and supported by Nigeria and Libya, offsetting falls in Iran and Venezuela. In its Monthly Oil Market Report, OPEC revised down its global oil demand growth to 1.54 million b/d this year, down by 80,000 b/d from the September estimate. In its latest forecast, OPEC now sees global oil demand growth next year at 1.36 million b/d, down by around 50,000 b/d from last month’s assessment, to reflect expectations for lower economic growth for Turkey, Brazil, and Argentina.
According to OPEC’s monthly report, Venezuela’s September oil production was just under 1.2 million b/d, down by 42,000 from August. While Venezuelan officials say its September crude oil production fell to 1.4 million b/d, other estimates say it is now in the vicinity of 1 million.
Like the IEA, OPEC sees the oil market as currently well supplied and is wary of creating a glut next year. This suggests producers are in no rush to expand a June agreement that allows output to increase.
US Shale Oil Production: In its weekly status report, the EIA estimated that US oil production increased by 100,000 b/d last week to 11.2 million, an increase of 1.7 million b/d over this time last year. While next week’s report will be lower due to the disruption to offshore production caused by hurricane Michael, the EIA’s estimate for shale oil production has it increasing at a spectacular annualized rate of over 5 million b/d. These numbers are still only educated estimates. Better production figures will be available in about six weeks.
EPIC Midstream said it will temporarily convert the multibillion-dollar natural gas liquids pipeline it is building in Texas to transporting crude oil to help alleviate the shortage of pipeline capacity for moving crude from the Permian Basin. EPIC plans to bring its 730-mile NGL pipeline online in the third quarter of 2019 and says the pipeline will deliver crude oil at least until January 2020 when its adjacent crude oil pipeline is supposed to start up.
Last week it was announced that two key pipelines that are to transport US natural gas into Mexico had been delayed by at least three months. When completed, these pipelines will reduce the need to ship LNG into Mexico and are expected to play a significant role in reducing the bottleneck that keeps Permian natural gas from being delivered to markets. There are already reports that limitations on flaring excess natural gas produced in the basin may force drillers to reduce oil production until the bottlenecks are eliminated.
Debt levels among US shale oil drillers have had some industry observers worried in the past few years despite the recent recovery in oil prices. During the oil-price downturn, more than 140 companies filed for bankruptcy with their combined debt reaching US$90 billion. Even with oil prices recovering to over $70 a barrel, the uncertainty remains that despite cost improvements, high debt levels could yet force exploration and production companies that keep borrowing to boost production into economic difficulties.
As one observer put it, “Given the higher decline rate from shale wells and their short life as compared to conventional wells, shale producers need to accelerate CapEx spending to maintain production rates. Accordingly, the rise in capital spending puts the producers deeper in debt, reflecting in rising total debt for these companies amid rising interest rates.”
According to Moody’s, US oil producers are facing a debt of $240 billion maturing in the next five years, of which some 15 percent will be rated with the lowest rating of Caa. Exploration and production companies account for the bulk of the total US$240 billion maturing by 2023, at $93 billion. The lack of profitability and the diminishing number of highly productive “sweet spots” in which to drill new wells are the two primary reasons that the great US shale oil boom will not last as long as many hope.
2. The Middle East & North Africa
Iran: Tehran’s crude oil exports fell to 1.1 million b/d in the first seven days of October, down from 1.6 million b/d in September. Condensate exports fell by 46 percent between March to September according to customs data. Iran, which derives a large part of its foreign currencies and state revenues from oil exports, is seeking creative ways to sell its oil ahead of the re-imposition of US sanctions on November 4. Plans under consideration to circumvent the sanctions include an initiative to revive “middlemen” who would be allowed to buy barrels of crude through a domestic energy exchange, or “bourse,” and sell them in world markets under the guise of Iran’s “private sector.” The measure is a sign of how desperate the government is to maintain even the smallest amount of oil exports.
Iran’s economy is expected to shrink by 1.5 percent in 2018 and by another 3.6 percent in 2019, the International Monetary Fund said in the October update of its World Economic Outlook, heavily downgrading the Islamic Republic’s growth prospects due to the sanctions.
Iran took a step to combat banking isolation by passing a bill to comply with the regulations of the Financial Action Task Force; a group set up in 1989 to combat the financing of terrorism. Iran has long been on the Task Force’s blacklist for supplying funds to “terrorist” groups. If Tehran can convince the organization that it is not laundering money or providing funds to black-listed organizations, it might be in a better position to make its way around US banking restrictions.
Although Iranian oil shipments are believed to have fallen in September and early October, these numbers are compiled from shipments that can be observed through vessel tracking. However, clandestine deliveries may also still be happening, according to shipping and trading sources. There is growing evidence of attempts by Iran to continue shipments to its key buyers while minimizing public visibility.
India hasn’t worked out yet a payment system for purchases of oil from Iran, the economic affairs secretary at India’s finance ministry, said last week. India’s Oil Minister has indicated that his country would continue to buy some Iranian oil and is continuing negotiations with Washington for waivers in return for doing some cutting of its Iranian imports. Analysts at Commerzbank say, “The US appears to be abandoning its tough stance on buyers of Iranian oil, and it appears that consumer countries are to be given more time, after all, to replace their oil shipments from Iran.”
Syria/Iraq: Russia and Syria are discussing the possibility of rebuilding Syria’s gas transportation infrastructure, underground gas storage facilities, oil and gas production, and oil refineries, Russian Energy Minister Alexander Novak was quoted as saying. By intervening in Syria, Moscow now has the responsibility of caring for and feeding a country that has been ravished by war.
Baghdad is planning to contract for major infrastructure projects to add millions of barrels per day of export capacity to keep pace with ambitious plans to raise production. The Oil Ministry is looking to jump-start work on a long-delayed pipeline contract with an Australian company and will contract to build an artificial island which is likely to be built by a Dutch firm.
Lukoil’s massive discovery in southern Iraq will start production in 2021, according to the head of Iraq’s regional oil company. Russia’s Lukoil announced earlier this year that “recoverable reserves of 2.5 billion barrels of crude” from the Eridu-1 well was the biggest find in Iraq in 20 years.
Iraq’s Cabinet has named Jabbar al-Luiebi, the current oil minister, to head the new Iraqi National Oil Company. This appointment should give new momentum to a fundamental restructuring of the country’s oil sector.
Saudi Arabia: The disappearance of a Saudi journalist while visiting the Saudi consulate in Istanbul last week has overshadowed all other news about the kingdom. The Turks are saying they have solid evidence that the journalist was killed in the consulate, but the Saudis deny the allegation. The affair has already disrupted a major economic conference that is to launch a round of massive foreign investment in Saudi Arabia. So many foreign dignitaries have already announced their withdrawal from the conference that the Saudis are no longer posting the attendees list.
This affair has serious implications for US-Saudi relations and perhaps for the future of the kingdom. The Trump administration has very close ties with the Saudi leadership. If the Turks can prove their allegations, then US-Saudi relations are sure to change at a critical time. If, as many believe, the crown prince and de facto day-to-day leader turns out to be involved, his position as the next king could be in doubt. This could lead to political instability in the kingdom with implications for Saudi oil exports. For now, all we know is that the Saudi’s Future Investment Initiative conference is in serious trouble as could be the prospects for large foreign investments in the Saudi economy.
3. China
The UN climate change report has many serious implications for the world but in particular for China’s economy which has been built on coal for the last 70 years. China now consumes close to 4 billion tons of coal a year or nearly half of global coal production. According to the IEA, within five years China will be the world’s biggest renewable energy user. For Beijing, the prime reason for replacing coal with renewables is to clean up the air in the cities where it had become unbreathable. Until recently China has been more concerned with dirty air and economic growth rather than the consequences of climate change. Despite its share of floods, droughts, and massive typhoons slamming into its coasts, the need to sustain economic growth still trumps concerns about global warming. China’s reaction to the IPCC report over the next few years will be interesting. As the largest consumer of coal Beijing has the most to lose as climatic conditions become so bad that its use has to be curtailed.
Some believe that China may already be suffering from the US/China trade war which only seems likely to intensify. Last week the Bank of China said it was cutting the reserve requirement ratio for most banks by 100 basis points, which will result in an injection of $109.2 billion into China’s banking system. The move is intended to provide easier lending and more liquidity in China’s economy as the impact of US sanctions start to hit manufacturing and the overall economy. Analysts are saying that this move shows China is getting nervous about a protracted trade war.
Senior White House officials say that recent exchanges between the US and China in what appears a new Cold War aren’t the exception to President Trump’s China policy. They are exactly what the administration wants. Vice President Mike Pence last week gave a blistering speech on US-China relations, saying “the United States has adopted a new approach to China” with the message to China: “This president will not back down.”
Assuming the US slaps tariffs on all Chinese imports, the effect on consumer and business confidence combined with the negative financial market reaction would cut the GDP of the United States by more than 0.9 percent in 2019. Chinese economic output would be 1.6 percent lower than it otherwise would be, according to the IMF.
Although the Chinese government has not yet gone so far in the trade war as to sanction US oil, imports are drying up anyway as Chinese buyers shy away from US crude. After Washington lifted restrictions on exports at the end of 2015, China began buying large quantities of US crude. Chinese imports represented 23 percent of total US crude exports in 2017 and averaged 22 percent this year–until August. Now imports have completely stopped.
Despite the boycott of US crude, China imported 9.05 million b/d of crude oil in September, which was the highest rate of crude oil imports since May. The amount was 10,000 b/d higher than the August import rate and was also the third monthly increase in a row as teapot refiners prepare for winter. For the first nine months of 2018, crude oil imports into China rose 6 percent on the year to 8.98 million b/d despite worry that demand would slow down this year because of a domestic fuel glut.
4. Russia
Hardliners in the Trump administration have been stepping up their rhetoric against Russia recently. President Trump’s chief economic adviser Larry Kudlow said in a television interview that the US should focus more on the energy sector as a way to challenge Russia. “We are the dominant energy power. We will be producing 15 million barrels of oil per day in a couple of years. We’re passing the Saudis. We’re passing Russia,” Kudlow said. “Get this stuff to the northeast, get this stuff to Europe and challenge Russia’s hegemony on natural gas and LNG,” he added. This is doable.”
American LNG is still expensive compared to Russian piped gas. Using a Henry Hub gas price of $2.85/MMBtu as a base, Gazprom recently estimated that adding processing and transportation costs, the price of U.S.-sourced LNG in Europe would reach $6/MMBtu or higher – a steep markup. Russian gas sells for around $5/MMBtu in European markets and could even trade at lower prices in the future as Gazprom removes the commodity’s oil price indexation.
In the meantime, BP Chief Executive Bob Dudley said if the United States imposed sanctions on Russian energy firms Gazprom and Rosneft such as it did on aluminum producer Rusal, it would virtually shut down Europe’s energy systems. Russia’s energy minister said last week that the Nord Stream 2 pipeline which will transport Russian gas to Germany would be completed on time even if new sanctions are imposed on Moscow.
5. Climate Change
The UN’s Intergovernmental Panel on Climate Change report has significant implications for the future of the fossil fuel industry, either now or in the long run. If, as seems likely, the report’s recommendations are ignored, eventually climatic conditions become so bad that steps to curtail the havoc will have to be taken. The new report says that the climate is deteriorating so rapidly that steps must be taken immediately to keep global warming to a 1.5oC increase from the current goal of “below 2.0oC.” Half a degree may not sound like much. But even that much warming could expose tens of millions more people worldwide to life-threatening heat waves, water shortages, and coastal flooding. Half a degree may mean the difference between a world with coral reefs and Arctic summer sea ice and a world without them. At 1.5°C, sea ice will remain during most summers. At 2°C ice-free summers are ten times more likely.
To avoid the disasters which could be much worse in only 20 years, the scientists say that at least $2.4 trillion a year must be spent between now and 2035 to replace coal as a fuel and seriously reduce the use of other fossil fuels. According to the International Energy Agency, carbon emissions, which plateaued in 2015 and 2016, are likely to increase this year.
As could be expected a report that recommends replacing 85 percent of current energy with something more benign was greeted with global silence. While many newspapers took the report as a sober warning of what is in store, nearly all of the world’s leaders, notably President Trump, remained unmoved by the report. The assertion that trillions in spending would have to be diverted from the fossil fuel industry to developing other sources of energy was too much for some to ignore.
The Wall Street Journal responded with an Op-Ed accusing the UN of ignoring the reality of economics and asserting that no climatic conditions could be so bad that it would be worth spending some $50 trillion to mitigate. Rather than a crash program, the Journal recommends spending more on R&D so that new cheaper sources of energy could be developed. On Capitol Hill, a parade of GOP lawmakers dismissed the report’s policy recommendations as wildly impractical, using ridicule to do so. “They might as well be calling on me to sprout wings and fly to Canada for the summer,” Sen. Roger Wicker (R-Miss.), a climate change skeptic, said of the actions urged by the report. “It’s totally unrealistic,” Sen. John Kennedy (R-La.) said. “They must have parachuted in from another planet.”
From the reactions to the report, it was evident that a critical mass realizing that climate change is a significant threat to human civilization has not yet formed. While the endless succession of drought, floods, and unprecedented storms continues, they are not yet deemed frequent or damaging enough to overcome the costs and dislocations that would be caused by a rapid shift away from the fossil fuels that supply some 85 percent of the world’s energy.
6. The Briefs (date of the article in Peak Oil News is in parentheses)
The oil market’s value is larger than the world’s valuable raw metal markets combined, with an annual production valued at $1.7 trillion. A flourishing black market is no surprise, with about $133 billion worth of fuels stolen or adulterated every year. These practices fund dangerous non-state actors such as the Islamic State, Mexican drug cartels, Italian Mafia, Eastern European criminal groups, Libyan militias, Nigerian rebels and more – and are a major global security concern. (10/12)
Petrochemicals’ role: The debate about peak oil demand always tends to focus on how quickly electric vehicles will replace the internal-combustion engine, especially as EV sales are accelerating. However, the petrochemical sector will be much more difficult to dislodge, and with alternatives far behind, petrochemicals will account for an increasing share of crude oil demand growth in the years ahead. (10/8)
Natural gas to grow: Energy companies are betting demand for natural gas will rise at a break-neck pace for decades, undermining warnings that tackling climate change would require a rapid switch to renewable energy. The majors see oil, and especially natural gas, playing a major role throughout the decades of transition and beyond as demand for electricity and plastics grows. (10/10)
Marine fuels: Gasoil refining margins could spike to $40 a barrel in 2020 as more shippers shift to middle distillate fuels when new rules limiting sulfur emissions take effect, Bank of America Merrill Lynch said on Tuesday. From 2020, the U.N. International Maritime Organization will ban ships using fuels with sulfur content above 0.5 percent, compared with 3.5 percent now, to curb pollution. The bank estimated the current global demand for marine fuels at 5 million b/d, of which 70 percent is comprised of dirtier fuel oil. (10/10)
Fracking in the UK is resuming on Saturday for the first time since 2011—when it was linked to earthquakes—after a court dismissed on Friday a last-minute request for an injunction. (10/13)
UK fracking take two: Cuadrilla Resources has returned with a government-enforced go-slow approach. It has set up a chain of seismic monitors three miles beyond its dig to gauge tremors. Contractors from Schlumberger, the oilfield services firm, plan to pace themselves and spend up to three months stimulating the wells using the process known as fracking. In the U.S., a similar effort would take just a few days. (10/12)
UK fracking protest: Three men have been jailed for up to 16 months for causing a public nuisance during protests at a Lancashire fracking site. The men are believed to be the first anti-fracking protesters in the UK to be jailed. (10/10)
Protesting the sentencing: More than 200 academics have signed a letter calling for a judicial review of “absurdly harsh” prison sentences handed to three fracking protesters on Wednesday. (10/10)
In Norway, Chevron will become the first oil major to formally exit the continental shelf as the company transfers its last stake in an exploration license. Chevron is also seeking to sell assets in the British North Sea in order to focus on growing US onshore shale production as well as the giant Tengiz field in Kazakhstan. (10/11)
Israel’s Energy Ministry unveiled on Tuesday a plan to end the sale of new gasoline and diesel-powered cars by 2030 and replace them with electric vehicles and trucks running on compressed natural gas as part of a more ambitious plan to totally cut Israel off reliance on coal, gasoline, and diesel. The Israeli government is expected to approve by the end of this year the energy ministry’s plan for zero-emission vehicles by 2030. (10/10)
Qatar on LNG: The head of Qatar Petroleum on Tuesday warned there would be a significant shortage of LNG on global markets sooner than expected as he reaffirmed the company’s plans to reach a final investment decision on its domestic LNG expansion project by end-2019.
From Turkmenistan, Russia’s Gazprom plans to resume imports of gas at the start of 2019, CEO Alexei Miller said this week, having ceased purchases in January 2016 on poor economics. Relations between Turkmengaz and Gazprom worsened over 2014 and 2015 when the two became embroiled in a dispute over payments and supply volumes. In January 2016, Gazprom ceased purchases altogether. (10/11)
In Zimbabwe, fuel shortages intensified across the country as long queues formed at service stations that were selling the commodity amid widespread panic-buying of basic goods blamed on government’s new austerity measures. (10/9)
Total Nigeria attributed accidents caused by oil tankers’ in Nigeria to illiteracy among tanker drivers, aging equipment, substandard tank construction and low quality of road infrastructure. Total’s Management System for Transport manager, Mr. Ajibola Alaga, said that in aggregate terms, 120 major tankers accidents had been recorded since 2014, comprising 94 rollovers, 16 collisions, and 10 fires. (19/8)
The US oil rig count increased by 8 to reach 869, Baker Hughes reported. Gas rigs increased by 4 to reach 193, bringing the total number of active oil and gas rigs to 1,063—considerably higher than a year ago when 743 rigs were active. (10/13)
US crude oil exports could increase to 3.9 million b/d by 2020, mostly driven by rising production in the Permian, according to a new report by S&P Global Platts. US crude oil exports are expected to reach 2.2 million b/d next year, according to the estimates. EIA reports that US crude oil exports hit the 2 million-b/d monthly mark for the first time in May this year. (10/10) [Ed note: the US still has net imports averaging just over 3 million b/d during 2018. Further, the US will continue importing oil to meet the mix that our refineries were designed for.]
Colorado’s oil and natural gas industry will likely defeat an effective drilling ban on November’s ballot, a key state lawmaker predicted Friday, but she cautioned that the effort would return stronger in 2020 if state legislators do not find common ground on regulating abandoned wells and other issues. (10/13)
Nymex natural gas prices have jumped nearly 15 percent over the past month, rising to roughly $3.30 per million Btu. The market has clearly grown a little concerned about adequate supplies heading into the winter and that is reflected in natural gas prices rising to their highest point since the beginning of the year. For the week ending on September 28, natural gas inventories stood at 2,866 billion cubic feet (Bcf), or 636 Bcf lower than at the same point a year earlier, as well as 607 Bcf below the five-year average. (10/11)
Most heating bills will be higher this winter season while the weather may also be on average about one percent colder than last year — with potential fuel “supply issues” in cases of severe weather. On average, the US EIA expects natural gas bills to rise by five percent, home heating oil by 20 percent and electricity by three percent. (10/12)
Ethanol dustup: US President Donald Trump said Tuesday before heading to Iowa to announce an end to the summertime ban on higher ethanol blends that he wants lower US fuel prices. But the policy change to allow year-round use of gasoline blended with 15% ethanol, or E15, will not have an immediate impact on fuel prices or trade flows as it will have to go through a long rulemaking process by the EPA. And oil refiners have already promised to challenge it in court. (10/10)
Ethanol issue: The US EPA currently prohibits summer sales of gasoline blended with 15 percent ethanol, or E15, due to smog concerns. Because ethanol is cheaper than gasoline, the administration hopes it will bring down retail prices, which currently average $2.91 a gallon. (10/9)
EV partnership: Audi unveiled last month its first fully electric SUV, the e-Tron, at an event on Tesla’s home turf in San Francisco—the electric vehicle industry’s latest step toward mass adoption of EVs. What’s unusual about this particular launch is that Audi teamed up with Amazon for a home charging solution, letting Amazon into the energy and transportation businesses. (10/12)
A plus for EVs: Tesla’s competition is about to get more crowded next year with many legacy automakers and luxury brands launching a record number of battery electric vehicles and plug-in hybrids. All EV makers will have one common element that could help lift demand for battery vehicles—rising oil prices leading to fuel prices at four-year highs, which could turn consumers towards EVs. (10/8)
Vanadium is lithium on steroids—wildly bigger and the only way forward from here. We may have already reached the peak of our electric revolution through batteries with lithium. We need bigger batteries, preferably the size of a football field—or 20. That’s vanadium—Element 23. The answer to our issue of scale. (10/11)
Looming generation retirements: More than 37 GW of generation capacity—4% of today’s total—has been proposed to retire by September 2021, including 16.3 GW of coal-fired capacity, 12 GW of gas-fired power and 8 GW of nuclear generation, according to the US Federal Energy Regulatory Commission staff’s monthly infrastructure report. There is 897 GW of coal, nuclear and gas-fired capacity online today. (10/10)
Nuke export tighten-up: The US will strengthen controls on nuclear technology exports to China. The new rules, which take effect immediately, include a presumption of denial for the export of nuclear goods to China’s largest nuclear power company, the state-backed China General Nuclear Power Co., or CGN. Officials said they had evidence China was accelerating efforts to gain the technology for its military, including for use on islands in the South China Sea (10/12)
Fusion, again: The International Thermonuclear Experimental Reactor (ITER), the world’s largest experimental fusion facility in which India is a scientific partner, will start generating “a new, clean, safe and unlimited light” by 2025. (10/12)
Renewable energy is growing at a blistering rate, but clean energy is also nowhere near what is needed to avoid some of the worst effects of climate change. Renewable energy accounted for half of the increase in new electricity generation in 2017, a remarkable feat, according to a new report from the IEA. By 2023, renewables will account for 12.4 percent of total global energy demand (not just for electricity), a sign that the adoption of wind and solar around the world is gaining steam. (10/9)
Australia has rejected a call by scientists to phase out coal use by 2050 to prevent the world overshooting targets in the Paris Climate Change agreement with potentially disastrous consequences. The world’s biggest coal exporter on Tuesday said it would be “irresponsible” to comply with the recommendation by the UN’s Intergovernmental Panel on Climate Change (IPCC) to stop using coal to generate electricity. Canberra also reiterated its priority is to cut domestic electricity prices rather than curb greenhouse gas emissions, which have risen for four consecutive years. (10/9)
Climate investment: Exxon Mobil Corp’s latest shift on climate includes a $1 million donation to a political action committee’s lobbying campaign to promote a US tax on carbon-gas emissions, a central factor in global warming. The contribution was disclosed less than a month after Exxon agreed to contribute $100 million to oil companies’ efforts to develop technologies to reduce greenhouse gas emissions. (10/10)
Carbon tax: Exxon sees a carbon tax as an alternative to patchwork regulations, putting one cost on all carbon emitters nationwide, eliminating regulatory uncertainty hovering over Exxon’s business in states that might seek to target oil companies. Exxon’s contribution will go to Americans for Carbon Dividends, a new group co-chaired by former Senate Majority Leader Trent Lott. It is promoting a carbon tax-plus-dividend policy first proposed by two former secretaries of state, James Baker III and George Shultz, last year. All three figures are Republicans. The idea is to discourage companies from emitting carbon through the tax but to avoid burdening consumers by returning the money to Americans through what the group calls a “carbon dividend” that it estimates could be as much as $2,000 annually per family. (10/9)
Emissions target: The European Council agreed on setting a target of a 35 percent average reduction in CO 2 emissions from new cars by 2030. Average CO 2 emissions of new passenger cars registered in the EU will have to be 15% lower in 2025. (10/10)
Aviation target: The EU will miss its 2030 aviation emissions target by almost 100m tons if it adopts a new industry-backed standard being rolled out next year, a transport campaigning group has claimed. (10/9)
Cleaning up big-city air: Many major cities around the world are still engulfed in a daily cloud of smog. Even in a state like California, which demands the toughest emission standards, Los Angeles leads the list of US cities for poor air quality. Today, there is a very dynamic movement to switch to all-electric cars as soon as possible, but that might not be the definite solution to such complex air pollution problems. (10/13)
$240/gal gasoline tax? A new U.N. report suggests a $240 per gallon gas tax equivalent is needed to fight global warming. The U.N. says a carbon tax would need to be as high as $27,000 per ton in the year 2100. If you think that’s unlikely to ever happen, you’re probably right. (10/9)
Insurers on the hook: Extreme weather of one sort or another has been a regular feature of 2018—the same as last year. According to research from Swiss Re, there were $144bn of insured losses from natural catastrophes and man-made disasters last year, making it the most expensive year so far. “We have been looking into climate change for 30 years,” says Edi Schmid, the chief underwriting officer at insurer Swiss Re. “Clearly, there are effects — temperatures are rising, and there are more frequent heat waves and droughts.” Mr. Schmid points out that not all of the costs can be directly connected to climate change. Claims in future years could well be higher if insurance cover spreads. Total economic losses globally from last year’s disasters were $337 billion, meaning that more than half of the damage was not covered by insurance. (10/9)
Peak Oil Review: 8 Oct 2018
By Tom Whipple, Steve Andrews, originally published by Peak-Oil.org
https://www.resilience.org/stories/2018-10-09/peak-oil-review-8-oct-2018/
Quote of the Week
“The amazing thing [the Trump administration] is saying is human activities are going to lead to a rise in [atmospheric carbon] that is disastrous for the environment and society [a 7-degree Fahrenheit increase from pre-industrial levels]. And then they are saying they are not going to do anything about it.”
Michael MacCracken, senior scientist at US Global Change Research Program (1993 – 2002)
Contents
1. Oil and the Global Economy
2. The Middle East & North Africa
3. China
4. Russia
5. Nigeria
6. Venezuela
7. The Briefs
1. Oil and the Global Economy
Oil prices continued to climb last week, with London futures hitting $86.74 a barrel on Wednesday, $10 higher than they were a month ago. Later in the week, profit taking and announcements from the Saudis and Russia that they were going to increase production drove prices lower. Whether the Saudis, Russia, and their close allies can increase production by enough to cover the decline in Iranian exports remains contentious. At week’s end, oil prices had settled to $74.34 in New York and $84.16 in London for a $10 a barrel difference.
The question of whether we will see $100 oil before Christmas continues to dominate analytical comment in the financial press. The Iranian sanctions are the main factor that could drive prices substantially higher in the next year or so; however, there are many other forces at work that could lead to lower oil prices. Some are expecting that a large increase in US shale oil production from the Permian Basin combined with higher Saudi and Russian production will create a surplus of oil next year. Others see the increasing prices of oil products in many countries due to weaker currencies as causing a significant drop in the demand for oil products next year.
India, in particular, faces threats in the form of a massive current account deficit, a falling rupee, and its position as the world’s fourth-largest oil importer. This situation obtains in many other developing countries. Lower demand combined with whatever comes from the Sino-US trade war could easily overshadow a drop in Iranian exports. A clue that major speculators are uncertain about the future came last when hedge funds cut their bullish wagers on US crude to the lowest level in nearly a year.
In addition to the Iran sanction, however, there are still many wildcards out there which could send the oil supply lower in the next couple of years. The situations in Venezuela, Libya, and Iraq are far from stable and could result in lower oil supplies.
The OPEC Production Cut: As usual, there is uncertainty regarding OPEC production numbers. According to Reuters, the organization pumped 32.85 million b/d in September, up 90,000 b/d from August’s revised level. However, the Platts survey of analysts says that OPEC increased its production in September to 33.07 million b/d, a 180,000 b/d rise from August. Early estimates of OPEC and even US production are unreliable as we see in the weekly surveys of analysts concerning US inventories which are frequently off from the EIA actual counts by significant amounts. Several OPEC members have political agendas in reporting their oil production figures, so even the official numbers have political biases.
Saudi Energy Minister al-Falih said OPEC is technically able to raise oil output by 1.3 million b/d, the TASS news agency reported on Thursday. Whether an increase of this size ever comes to pass remains to be seen. The Saudis usually couch discussions about spare capacity by saying it will only be used if there is sufficient demand.
Last week, the US accused OPEC of withholding 1.42 million b/d of spare capacity from the world market and was driving up prices as a result. The US and OPEC appear to be talking past each other when it comes to the cartel’s spare output capacity. The two sides don’t agree on the definition of the term, let alone how much spare capacity OPEC even has available. While Saudi Arabia and its allies have much reason to help the US in its sanctions on Iran and would like to see higher oil prices, they realize that when prices get too high demand drops. As we have seen several times in the past few decades, low spare capacities usually drive oil prices much higher until reduced demand brings them back down again.
US Shale Oil Production: A new report by consulting firm Arthur D. Little finds that US drillers will need to adjust their business models to keep up with forecasted growth in the Permian. The report forecasts Permian activity during the next five years to:
Rise by up to 3 million barrels of oil equivalent per day.
Possibly produce up to 5.4 billion barrels of oil equivalent per day.
Have a need for up to 41,000 new wells (mostly unconventional) to be drilled to meet production outlook.
Require more than $300 billion in capital expenditures.
The report called the demands on infrastructure “tremendous,” citing trucking, roads, water usage, power consumption, sand to frack wells, and community services like housing, schools, and hospitals. The biggest problem will be the $300 billion in capital for an industry where few have ever shown a profit and costs are rising.
The biggest hole in the report seems to be an absence of concerns as to whether affordable oil will be available in the highly productive “sweet spots” to permit a doubling of production. Analysts have noted that productivity per foot of horizontal well is already dropping and that the rapid depletion of production from existing wells is already approaching that of production that can be increased each month. To assume that the industry can drill and frack new wells at an ever-increasing pace seem far-fetched. Some are already forecasting that 2019 will see the peak of oil production due to increasing logistical difficulties and a lack of profitable places to drill.
There are also concerns as to whether the very light shale oil, which is better for making gasoline than heavier diesel and jet fuel, will be as much in demand. In a recent article, Wood Mackenzie’s VP for Chemicals and Oil Markets warned that US refiners might very soon find themselves stuck with excess production of gasoline that exceeds demand. At the same time, to make matters worse, the production slump in Venezuela is reducing the availability of heavy crude needed for the middle distillates necessary for economic growth.
2. The Middle East & North Africa
Iran: China’s top refiner Sinopec is halving its oil imports from Iran as of September, bowing to pressure from the United States, which is seeking to bring Iranian oil exports down to zero. Tehran is scrambling to find ways around the sanctions which seem on track to be more effective than analysts had believed. The success of the sanctions program has caused Washington to reevaluate its announced policy of no waivers for countries who are willing to make cuts in their imports of Iranian oil. At week’s end, Washington was “in the midst of an internal process” of considering sanctions waivers for countries that reduce but do not entirely stop importing oil from Iran.
According to the head of the state-run National Iranian Oil Company, Iran has no plans to cut oil production as its exports dwindle. In a new wrinkle, Iran plans to start offering oil for exports via its national stock exchange. Iran accused Saudi Arabia and Russia last week of breaking OPEC’s agreement on output cuts by producing more crude oil. Tehran is saying that the two countries are not able to provide enough oil to make up for a reduction in Iranian exports.
As Iranian natural gas sales are also prohibited under the sanctions, Tehran’s hopes of boosting exports of the commodity do not look good. Iran holds the second-largest natural-gas reserves in the world and was hoping to start selling natural gas to the European Union this year. Iraq is having trouble continuing its natural-gas purchases from Tehran because banks are reluctant to carry the payments due to the US restrictions.
Iraq: Baghdad earned $7.91 billion in oil revenues in September, its highest take in 52 months, despite a small decrease in Basra Gulf exports. Nationwide, exports dropped two percent month-on-month, from 4.02 million b/d to 3.95 million, as Kurdistan loaded fewer tankers despite increased pipeline flows to the Ceyhan port in Turkey.
Despite the Oil Ministry’s optimistic report on the country’s capability to ramp up production, internal political issues could lead to new crises soon. Last week Adil Abd al-Mahdi, Iraq’s former oil minister, was named prime minister-designate on Tuesday, hours after Barham Salih was elected president of Iraq in a political standoff. The controversy surrounding Barham Salih’s election as the new president is threatening to destabilize a strategic relationship between the autonomous Kurdistan region’s two leading political parties. This, in turn, could lead to still more trouble between Erbil and Baghdad.
In an ominous development which could have serious consequences for the future of Iraq, the agriculture ministry said last week that it would reduce its 2018-2019 winter crop planting area by 55 percent due to a water shortage. Water flowing down the Euphrates into southern Iraq has been declining in recent years and is now down to the level where food-planting must be curtailed.
Saudi Arabia: The issue of how much spare production capacity the Saudis have and can sustain remains the question of the day. Saudi officials insist that they can produce up to between 12.0 and 12.5 million b/d if needed; however, there is widespread doubt that level of sustained production is possible. Last week oil minister Khalid al-Falih said that the kingdom currently is producing 10.7 million b/d and has about 1.3 million b/d of spare capacity. Falih said Saudi Arabia’s November output was likely to be slightly higher than October’s projected 10.7 million b/d. He also said that the kingdom plans to invest $20 billion in increasing oil production in the coming years.
Once the US sanctions on Iran go into effect November 5, Platts Analytics expects Iranian crude and condensate exports to fall to 1.1 million b/d, and to 800,000 b/d by the fourth quarter of 2019, down from 2.91 million b/d in April 2018.
Russia pumped at record high levels in September, producing 11.35 million b/d, and energy minister Alexander Novak said Wednesday that his country could add up to 300,000 b/d in the next several months. Kuwait and the UAE are increasing production, but it is doubtful any other countries can respond quickly. Later this coming winter, we should have a better idea of how much the sanctions will cut Iranian production and whether OPEC and Russia can make up for the shut-in Iranian oil.
A $200-billion solar power project that was planned to be the largest solar farm in the world might never happen, government sources told the Wall Street Journal last week. The solar project would have had installed capacity of 200 GW by 2030. However, the WSJ sources said, nobody is working on the project, and the government is planning another set of renewable energy initiatives, to be made public later this month.
Saudi Arabia’s crown prince says the plan to sell shares in Aramco will go ahead, promising an initial public offering by 2021. For the past two years, Saudi Arabia has been preparing to place up to 5 percent of its national oil company on the stock market. After months of setbacks, the prince’s father King Salman stepped in to shelve the project.
3. China
As the trade conflict intensifies, new data shows that privately owned makers of cars, machinery, and other products stopped expanding in September, as export orders dropped the most in more than two years. Output by large, state-owned manufacturers also continues to weaken. The first major gauge of China’s economic performance for the third quarter indicates that the U.S.-China trade fight is beginning to take a bigger bite out of the growth of the world’s second-largest economy.
US crude oil shipments to China have “totally stopped,” the President of China Merchants Energy Shipping Co (CMES) said on Wednesday. Washington and Beijing have placed steep import tariffs on hundreds of goods in the past months. Although US crude oil exports to China, which only started in 2016, have not yet been included, Chinese oil importers have shied away from new orders recently.
China is raising the oil import quota for its non-state refiners for 2019 by 42 percent as new refinery capacity will start up next year. China is allocating a total of up to 4.06 million b/d, of import quota to non-state refineries for next year according to a communication from the Chinese Commerce Ministry. This suggests that Chinese demand for imported crude will continue to keep pressure on the oil markets.
4. Russia
Russia’s crude production in September hit a record high of 11.356 million b/d, exceeding the level of October 2016, the benchmark Moscow used for cutting production under the deal with OPEC. Crude production was up by 146,000 b/d from August. Russia’s crude exports outside the 11 former Soviet Republics fell by 1 percent to 4.798 million b/d in September.
While Russia is producing oil close to post-Soviet highs, because of transportation constraints, it can’t significantly increase its oil supply to Asia, where the loss of Iranian oil exports is being felt, according to deputy energy minister Pavel Sorokin. In Europe, Russia’s Urals is considered to be one of the best replacements for Iranian grades. The price of Urals compared to Brent to which the Urals deliveries are priced off has recently jumped to a five-year high, as European refiners were starting to search for alternative grades to replace imports from Iran. This has also prompted Saudi Arabia to raise last month the prices for Europe for its flagship Arab Light crude grade for October.
Global energy executives assembled in Moscow on Wednesday said the world needs Russian gas to keep the lights on, in a clear message to US President Trump who has warned he may impose sanctions on Russian gas export projects. Trump, citing what it calls Russia’s “failure to act as a good global citizen,” says the US may take steps to block the Nord Stream 2 gas pipeline, which will increase the volumes Russia can export to northern Europe. The US position has prompted a backlash from the Kremlin, and from business groups in Germany, and now from leading figures in the global energy industry.
5. Nigeria
The country’s leading newspaper notes that after 58 years of independence from Britain, the state of the Nigerian oil industry has remained pathetic among other oil producers.
The Nigerian system, regrettably, is supported by obsolete laws: Petroleum Act 1969; Petroleum Profits Tax Act 1959; Deep Offshore & Inland Basin (Production Sharing Contracts) Act, and sundry ad hoc legislation. Other African countries are making giant strides in the quest to regulate their oil industry and optimize the dividends from the industries.
Former World Bank Vice President, Oby Ezekwesili, said it was unfortunate that Nigeria overtook India in May 2018 to become the country with the world’s highest number of people living in extreme poverty amid enormous oil and gas reserves. India’s population of 1.3 billion people now has 5 percent of its population living in extreme poverty. Nigeria with a population of about 191 million has 44 percent in extreme poverty.
Without the requisite laws to coordinate the oil/gas sector, issues like lack of transparency/accountability; low participation by indigenous players; political interference with the Nigerian National Petroleum Corporation; inefficient downstream operations; funding constraints; weak and dependent regulator; overlapping institutional roles; revenue management issues; outdated laws; and environmental degradation, will continue to plague the Nigerian oil/gas space.
6. Venezuela
Repairs to a dock at Venezuela’s main oil export port will take at least another month to complete following a tanker collision more than a month ago. The Jose port’s South dock is one of three used to ship heavy and upgraded oil to customers including Russia’s Rosneft, Valero, and Chevron, and to receive diluents needed for the exports. Jose port typically handles about 70 percent of Venezuela’s total crude exports, which in September declined 14 percent compared with the previous month to 1.105 million b/d, according to Refinitiv Eikon data.
The delay in resuming shipments is due to insufficient funds to make repairs, partially thanks to US sanctions, which have essentially closed access to foreign funding. China, not bound by these restrictions, recently agreed to a US$5-billion lifeline for the Venezuelan government and its oil industry, but this money will take time to become available. Venezuela has officially launched its state and oil-backed cryptocurrency, El Petro, which analysts and experts see as nothing but a scam and another effort to skirt sanctions.
The domestic situation is desperate with 60 percent of the population saying they have lost weight due to the lack of food. Some 2 million people out of a population of 31 million have already left the country — and more are leaving the country, at a rate exceeding 15,000 per day. The Maduro government, which has already survived months of mass demonstrations by killing hundreds of protesters, has blocked five military coup attempts. A Cuban-run intelligence apparatus has proved brutally effective in rooting out internal opposition: Some 600 military officers are believed to be under detention, and much of the civilian opposition leadership has been jailed or driven into exile.
7. The Briefs (date of the article in Peak Oil News is in parentheses)
Big Oil—and its smaller competitors—attracted a lot of praise for their tight financial discipline during the last three years, after Brent collapsed from more than US$100 a barrel to less than US$30 in less than 24 months. Reuters reported this week that big oil companies’ boards are under increasing pressure to boost spending, expand production, and increase reserves. That’s just three years after everyone in oil woke up to the fact that Brent was going nowhere but down for a while longer and belts started tightening. Now, with Brent at $85 and climbing, these belts are getting too tight, it seems. (10/5)
Petrochemicals—components derived from oil and gas that are used in all sorts of daily products such as plastics, fertilizers, packaging, clothing, digital devices, medical equipment, detergents and tires—are becoming the largest drivers of global oil demand, in front of cars, planes and trucks, according to a major study by the International Energy Agency (IEA). Petrochemicals are set to account for more than a third of the growth in world oil demand to 2030, and nearly half the growth to 2050. (10/6)
Europe’s natural gas and electricity markets are heading into the winter heating season with prices at record highs amid various supply outages in already tight markets and uncertainty over how much flexibility in gas and power generation there will be. Forward prices for natural gas are factoring in a winter risk premium in the currently tight market, highlighting the concern that another supply outage could strain the market further and send prices even higher. (10/1)
UK shale gas pioneer Cuadrilla Resources is to begin hydraulic fracturing at the first of its two horizontal shale gas wells at its Preston New Road site in Northwest England “in the next week,” the company said Friday. Once the fracking starts, it will represent the first such activity in the UK since 2011. The UK is increasingly dependent on gas imports, with Cuadrilla and its peers saying shale gas can go some way to reducing that dependence. (10/5)
Offshore Cyprus, ExxonMobil plans to begin drilling for oil and gas sometime this quarter, a senior executive said on Friday, while Turkey warned again on Thursday against exploration offshore Cyprus in what it says is ignoring the rights of the Turkish Cypriot people. Turkey, which recognizes the northern Turkish Cypriot government and doesn’t have diplomatic relations with the internationally recognized government of Cyprus, claims that part of the Cyprus offshore area is under the jurisdiction of Turkish Cypriots or Turkey. (10/6)
India’s Vedanta Ltd is investing $4.1 billion to boost oil output to over 400,000 b/d from its flagship Barmer block in the desert state of Rajasthan in 2021, its chairman Anil Agarwal said. Agarwal said oil output from the block would rise next year to more than 300,000 b/d from about 250,000 b/d currently. India, the world’s third-biggest oil importer, ships in 80 percent of its oil needs from overseas as its local output has stagnated for years. The country produces an average of 720,000 b/d oil. (10/2)
India has introduced fuel price relief as prices at the pump rise inexorably, following soaring international benchmarks. The move was made after consultation with local oil companies, which agreed to reduce prices by US$0.034 per liter of gasoline and diesel, of which they will absorb US$0.014 per liter of fuel, and the government will shoulder the rest by cutting excise duties on fuels. (10/5)
India gave the green light to businesses hurt by the rising costs of crude oil to start borrowing up to $10 billion in foreign money that will offset the heavyweight of rising oil prices and the falling rupee, Reuters reported on Wednesday. India’s current commercial borrowing rules prevent businesses from borrowing more than $750 million in foreign money—the previous limit as outlined in April by the Reserve Bank of India. (10/4)
In Singapore, Exxon Mobil Corp is considering a multi-billion-dollar investment at its Singapore refinery, the company’s largest, ahead of new global shipping fuel regulations starting in 2020. (10/3)
Egypt, recently self-sufficient in natural gas, continues to rely on imported gasoline and diesel fuel. Now rising oil prices—at levels today way above prices that Egypt had factored into its budget and state finances ($67/barrel)—mean that the government will be spending more on fuel subsidies this fiscal year through June 2019, when it plans to have phased out the support for fuel prices. The higher price of oil may soon pose a dilemma for the government: either risk public discontent by letting fuel prices reach market-price levels or miss its targets for cutting the deficit. (10/5)
South Africa could experience its biggest fuel price hike in the country’s history in October, the Automobile Association warned on Friday. AA described the increases as “catastrophic” for road users. (10/2)
Argentina is in the midst of an economic and market crisis. Its local currency has lost around 40 percent against the US dollar so far this year. The central bank has raised interest rates to 60 percent to try to stem soaring inflation that is running at over 30 percent. The economy is shrinking, and demand is dropping. Demand for natural gas is also falling. And Argentina’s state-run energy company YPF is responding to dropping demand by scaling back its natural gas output and halting production at some wells. (10/4)
Canadian crude plunged to a record low relative to US crude, hurt by reduced capacity at American refineries and a jump in production from new oil-sands megaprojects that has overwhelmed the nation’s pipeline system. Maintenance work at US refineries over the next six months will lead to stretches when those facilities are offline, giving portions of Canadian heavy crude nowhere to go. (10/6, 10/4)
Western Canadian LNG…again? Royal Dutch Shell Plc and its four partners have agreed to invest in a multibillion-dollar liquefied natural gas project in western Canada — the largest new one of its kind in years that would carve out the fastest route to Asia for North American gas. LNG Canada — comprised of Shell, Malaysia’s Petroliam Nasional Bhd, Mitsubishi Corp., PetroChina Co. and Korea Gas Corp. — is set to announce a final investment decision on the C$40 billion ($31 billion) project as early as Monday. (10/2)
US East Coast oil refiners are ramping up rail deliveries of crude from Western Canada, grabbing stranded barrels that full pipelines have driven to a record discount. That trend is expected to accelerate, as prices will remain weak, with no new Canadian export pipelines expected until late 2019. Rail volumes from Canada to East Coast refineries averaged 35,000 barrels a day for the 12 months ending in July, up from 16,000 b/d for the prior 12-month period. Canada is having difficulty building and expanding pipelines due to the environmental and aboriginal opposition, prompting a swing back to its crude-by-rail delivery system. (10/2)
The US oil rig count fell for a third consecutive week, by two rigs, to 861, General Electric Co’s Baker Hughes energy services firm reported on Friday. More than half the total US oil rigs are in the Permian, the country’s biggest shale oil formation. Active units there declined by one this week to 485. The number of gas rigs held steady at 189. (10/6)
Exxon Mobil Corp is exploring the sale of many of its US Gulf of Mexico assets. Major oil companies have been looking to concentrate development operations in a few key areas. Exxon is focusing on promising acreage in offshore areas such as Guyana and Brazil and onshore in the Permian basin of Texas. Exxon has asked a small number of parties to gauge their potential interest in the company’s Gulf assets, ahead of deciding on how to proceed. (10/3)
In Colorado, oil and gas companies and their supporters have poured $20.3 million since August into a campaign to defeat a ballot initiative that would limit new drilling in populated areas, according to state financial filings released on Tuesday. Colorado, the sixth largest and one of the fastest growing US oil-producing states, votes on Nov. 6 on a citizens’ petition that would require new wells be at least 2,500 feet from homes, schools, and parks. (10/3)
Working natural gas stocks in the Lower 48 states totaled 2,866 billion cubic feet (Bcf) as of September 28, 2018, which is the lowest working natural gas stocks have been at this time of year since 2005. (10/6)
Hybrid electric plane coming: Boeing- and JetBlue-backed Zunum Aero has selected Safran Helicopter Engines as the turbine provider for its hybrid electric commercial aircraft, which will be available in the early 2020s. The turbo-generator will power a 12-seat, hybrid-to-electric 700-mile commercial aircraft. The new aircraft is targeted to deliver breakthrough operating costs of 8 cents per available seat mile or $250 per hour for the aircraft—60-80 percent lower than comparable conventional aircraft of comparable size. The ZA10 aircraft is designed to cruise and land on turbo-generator power alone, offering full redundancy. (10/6)
EV charging race: At its recent electric-car deep-dive in Germany, Volkswagen announced that the solid-state batteries it is working on for 2025 will be able to charge at up to 400-kw—fast enough to recharge a 300-mile battery in the upcoming Porsche Taycan in less than 10 minutes. That’s just a little longer than it takes to refill a gas tank. When the first electric cars launched in 2011, buyers and fans were clamoring for CHAdeMO fast charging that operates at about 50 kilowatts and could recharge a short-range electric car (to 80 percent capacity) in about a half hour. (10/2)
Finland’s Olkiluoto 3 nuclear power plant, which is already more than a decade behind schedule, may face further postponements, plant operator Teollisuuden Voima (TVO) said. The project in western Finland, built by a consortium led by French state-owned nuclear group Areva, has been hit by repeated delays and soaring costs. TVO said the final testing phase is now running late. The plant, Finland’s fifth, is slated to provide 10% of the country’s electricity. It was originally scheduled to come on line in 2009. (10/4)
In the Balkans, year-over-year hydropower production continued to fall in early October, mostly as a result of lower run-of-river output, while reservoir levels also dropped. (10/2)
Iran and Syria signed on Tuesday a memorandum of understanding under which Iran will build a power plant in Syria’s coastal city of Latakia in a project worth US$475 million (411 million euro), Iran’s Islamic Republic News Agency (IRNA) reported today. The project will be launched next year. (10/3)S,
Bad wind rising? In the journal Joule, Harvard researchers report the most accurate modeling yet of how increasing wind power would affect climate. They find that large-scale wind power generation would warm the Continental United States 0.24 degrees Celsius because wind turbines redistribute heat in the atmosphere. (10/5)
Climate change conundrum: Despite the Trump administration’s own prediction that by the end of this century, the world could warm “a disastrous” 7°F, or about 4°C, above pre-industrial levels, the president has decided not to curb greenhouse gas emissions, but instead to use the devastating findings to justify and intensify his pro-fossil fuel agenda, including cutting back on increased mpg vehicle requirements. (10/5)
EU emissions reduction push: Members of the European Parliament approved a proposal which would set a higher target for reducing EU fleet-wide emissions for new cars by 2030 of 40% (compared to the EU Commission’s 30%; year of reference 2021) with an intermediate target of 20% by 2025. Similar targets are set for new vans. Market uptake of electric and low- emission cars should also accelerate, said MEPs. (10/4)
H2 plane: After 12 years developing hydrogen propulsion systems for small unmanned aircraft, HES Energy Systems has unveiled its plans for Element One, the first regional hydrogen-electric passenger aircraft. Element One merges HES’ ultra-light hydrogen fuel cell technologies with a distributed electric aircraft propulsion design. Element One is powered by HES’s Aeropak—a combination of its extremely lightweight fuel cells with high energy density hydrogen energy storage, allowing flight duration extensions by several orders of magnitude compared to lithium batteries. (10/2)
Peak Oil Review: 24 September 2018
By Tom Whipple, originally published by Peak-Oil.org
https://www.resilience.org/stories/2018-09-24/peak-oil-review-24-september-2018/
Quote of the Week
”Assuming that the balancing act between declining and growing [oil producing] countries continues (from Mexico through to Canada) the whole system will peak when the US shale oil peaks (in the Permian) as a result of geology or other factors and/or lack of finance in the next credit crunch, and when Iraq peaks due to social unrest or other military confrontation in the oil-producing Basra region. There are added risks from continuing disruptions in Nigeria and Libya, steeper declines in Venezuela and the impact of sanctions on Iran.” Matt Mushalik, Australian engineer and oil industry analyst
1. Oil and the Global Economy
Oil prices continued to show strength last week but closed in London up by less than a dollar for the week at $78.80. Brent now has closed above $78 a barrel six times since mid-May and has touched $80 a barrel once or twice but failed to close above $80 since mid-2014. As is now routine, traders are split between the increasingly effective US sanctions on Iran and the prospects of a lengthy trade war between the US and China. Last week was complicated by the issue of whether the OPEC+ consortium would officially raise production or leave individual production levels cloudy as they have been since June.
Bloomberg reported last week that Saudi Arabia might allow crude prices to rise above $80 per barrel as the market adjusts to the start of US sanctions on Iran. In response, President Donald Trump sent a tweet on Thursday calling for OPEC to lower oil prices. The general feeling among analysts seems to be that you can’t tweet oil out of the ground and that tighter markets are ahead. Last week’s market strength was bolstered by a fifth weekly US crude inventory drawdown and strong domestic gasoline demand. U.S. crude inventories fell 2.1 million barrels last week to the lowest level since February 2015. Gasoline stocks fell 1.7 million barrels versus forecasts for a 100,000-barrel drop. Gasoline consumption usually picks up in the summer and wanes in autumn, but demand remained strong in the latest report, at 9.5 million b/d.
The OPEC Production Cut: In Algiers, the 24-member coalition including OPEC and Russia ended their meeting on Sunday with no formal recommendation for any additional supply boost. However, Oman’s Oil Minister and his Kuwaiti counterpart told reporters that producers had agreed they needed to focus on reaching 100 percent compliance with production cuts agreed to at an OPEC meeting in June. That “focus” effectively means that the meeting decided to increase production without setting any specific goals for individual countries. Thanks mainly to falling production in Venezuela, the OPEC+ consortium produced at 129 percent of the objective they originally set. Iraq and Russia have been saying that they can increase production quickly.
Tehran is unlikely to be happy with this development, as its OPEC governor has accused Saudi Arabia and Russia of being in cahoots with the US to undermine other OPEC members and destabilize the oil market. Saudi Arabian leaders find themselves in a tight spot. The Saudis, who lead OPEC, face pressure from President Trump to increase production to stabilize crude oil prices. But the Saudis must also appease their fellow OPEC countries, which could threaten their leadership within the oil cartel. OPEC and Russia were unified in their efforts to reduce production the past two years to push prices up. The alliance with Russia is critical for the Saudis and they want to make it a permanent institution.
Some analysts have doubts that the 24-member OPEC+ consortium can raise oil production enough to offset the million barrel + drop in Iranian exports that US sanctions on Iran might bring about. The insurgency situations in Libya and Nigeria could easily lead to lower production in the next year or so. It is perfectly evident that all oil exporting countries want to see oil prices as high as their customers can bear without causing a significant drop in demand as was seen in 2008.
US Shale Oil Production: Crude oil production from US shale deposits will hit 7.59 million b/d next month, according to the EIA’s latest Drilling Productivity Report. This production level is 79,000 b/d more than this month’s estimated production. The most significant increase, once again, is supposed to come from the Permian Basin, where producers will add 31,000 b/d to overall daily output from the current 3.427 million b/d to 3.458 million b/d. The second-largest contributor to the monthly increase will be from the Eagle Ford, where the EIA estimates production will rise by 16,000 b/d to 1.449 million in October.
Countering all the talk of bottlenecks in getting oil to market from the Permian Basin, was the announcement last week by Plains All American L.P. that it will begin operations on an expanded West Texas oil pipeline on Nov. 1. The extended Sunrise pipeline, when completed, will add 500,000 b/d from Midland to Wichita Falls, Texas, with connections to the crude storage hub at Cushing, Oklahoma. The notice did not say how much new oil the extended Sunrise pipeline will be able to carry at the outset. The Sunrise pipeline will be capable of transporting 360,000 b/d by the first quarter of 2019, enough new capacity that Permian producers can expand production over the following six months, according to a research analyst at East Daley Capital Advisors. Pipeline operators are planning to add 3 million b/d of takeaway capacity from the Permian by the end of 2020, almost doubling the region’s current 3.5 million b/d according to energy consultancy Wood Mackenzie.
The Wall Street Journal reports that a new large-scale drilling plan is being pursued by Chevron. The “factory model” for drilling consists of “master planning an entire region of small shale wells by locking up labor, building infrastructure and securing sand and other needed materials, all at once.” Economies of scale for large companies give them an advantage over smaller drillers. “They can transfer technology and skilled people across assets and parts of their portfolio from North America to Argentina.” “These bigger companies have the scale to build or finance infrastructure and secure the best equipment and supplies.”
On the downside, West Texas Intermediate at Midland traded on Thursday at a discount of $15 a barrel to US crude. These deep discounts have been going on in recent months as crude producers in the Permian Basin struggle to find space on pipelines amid rising production. Moreover, a new report from the EIA indicates that the growing shortage of pipeline takeaway capacity in the Permian Basin is resulting in some companies reallocating capital earmarked for Permian drilling to other areas in which they produce.
While drilling in the Bakken basin has increased significantly this year, more activity means that drillers are being forced into less desirable locations. As a result, the majority of wells in the Bakken could shift from having an initial monthly production of 1,000 b/d to a majority of wells with just 500 b/d of peak performance, according to a study from the North Dakota Pipeline Authority. This drop in productivity would require a doubling of well completions to keep production level and increase costs. Outside analysts have been warning for years that large decreases in production would come as the most productive “sweet spots” are used up.
One sign that the fracking industry is becoming concerned about water is that there are now societies and conferences dedicated to the topic of “produced water.” Produced water is the industry term for the toxic water that is “produced” over the life of a fracked oil or gas well. According to a study by Wood McKenzie, the costs of water disposal for the fracking industry could add another $6 per barrel of oil produced. For the US shale oil and gas industry, which has consistently lost money over the past decade, adding another $6 per barrel in costs would have significant effects.
A new Duke University study concludes that from 2011 to 2016 the amount of water used to frack oil and gas wells rose 770 percent. But the amount of toxic wastewater produced in that same period rose 1,440 percent. The headline of a recent Dallas News story on the fracking water crisis in the Permian Basin referred to it as a “Disposal nightmare.”
2. The Middle East & North Africa
Iran: Most of the Iranian oil news last week concerned falling sales due to the US sanctions and how Tehran will fare at the Algiers OPEC+ summit. It now seems that Japan, India, and South Korea will cut back or stop Iranian oil imports. European importers are also likely to cut back, leaving Chinese and other refiners. At least 7 Iranian owned oil tankers have turned off their transponders, which makes it more difficult for commercial “tanker trackers” to figure out where oil leaving Iranian ports is going.
Iran’s LPG shipments in September dipped to 356,000 tons after hitting 568,000 last month, the highest since previous Western sanctions were lifted in January 2016. Iran could lose up to 1.4 million b/d of exports by the end of the year, according to the latest projections by Platts Analytics.
Tehran has already announced that it is opposed to any increase in oil production which it sees as merely aiding the US in finding sources of oil to replace those Washington is attempting to shut in. Because any OPEC agreement requires unanimous consent, Iran could block any changes to the formal oil production cut deal. The specifics of the June agreement, which called for increased production on the order of 1 million b/d, were not hammered out.
Tehran rejected a new US offer of negotiations on Thursday, saying Washington had violated the terms of the 2015 nuclear accord. The US special envoy for Iran said on Wednesday that Washington now wanted to negotiate a treaty that included Tehran’s ballistic missile program and its regional behavior. Hook said the new deal that Washington hoped to sign with Iran would not be a “personal agreement between two governments like the last one”, but a formal treaty.
Gunmen fired on a military parade in Ahvaz, which is in southwestern Iran, on Saturday, killing 24 people, half of them members of the Revolutionary Guards in one of the worst attacks ever on the elite force. More than 60 people were wounded as the attackers targeted a stand where Iranian officials had gathered to watch an annual event marking the start of the 1980-88 war with Iraq.
Iraq/Syria: According to the director general of Iraq’s State Oil Marketing Organization, Baghdad can increase oil production “immediately” to support the market ahead of the implementation of US sanctions on Iran which is expected to lose on the order of 1.4 million b/d in exports by the end of the year. Iraq pumped 4.68 million b/d last month, up 110,000 b/d from July and the highest recorded in the 30-year history of the Platts OPEC survey, as exports from both the country’s southern port of Basra and through the Turkish port of Ceyhan saw increases.
However, a new report on Iraq’s oil production capability says a series of problems, including export bottlenecks caused by a lack of infrastructure, will continue to limit the country’s oil output for years to come. The report, from the London-based consulting firm IHS Markit, found that while Iraq could theoretically produce about 7 million b/d, in practice the connections between its oil fields and storage farms and the export terminals in the south will be bottlenecks. A spokesman for HIS Markit says that Iraq would be lucky to reach 5 million b/d by 2028, and 6 million by 2036.
Before the civil war, Syria produced over 400,000 barrels of oil per day. But by 2013 the number had dropped to 58,000. In January 2018, Syria’s President Bashar al-Assad had signed an agreement with Russian President Vladimir Putin giving Moscow sole rights to oil and gas production in Syria. With a well-armed corporate militia, Gazprom and others can aggressively protect assets at home and abroad and may soon play a significant role in Russia’s energy plans for Syria.
Russia will be expected to pump $30 billion or more into restoring Syria’s energy infrastructure. In exchange, Russia will have a stronger presence in the Middle East and the eastern Mediterranean. Assad has responded generously with an invitation to such firms, promising lucrative incentives for companies willing to restore Syria’s energy infrastructure.
Saudi Arabia: Oil prices were up last Tuesday on reports that Riyadh would be comfortable letting oil prices rise above $80 a barrel and OPEC may not be rushing into further production boost commitments after the one they agreed upon in June. In July, Saudi Arabia’s oil stocks dropped by 5.51 million barrels, after the Kingdom unexpectedly reduced its production compared to June while it kept exports stable. The Saudis pumped 10.49 million b/d in August, far above its quota of 10.06 million b/d under the supply cut agreement, but below the 10.8 million to 11 million b/d that it had signaled it would produce at the June meeting.
Russia and Saudi Arabia will continue co-operating on the design of a framework for long-term relations between OPEC and its external partners, according to a Russian Energy Ministry statement. The statement was released following a meeting between Energy Minister Novak and Khalid al-Falih.
Saudi authorities are seeking the death penalty for three prominent clerics, rights activists and a government official said, testing the unwritten code that has kept the kingdom’s rulers in power. Crown Prince Mohammed bin Salman and his father, King Salman, have jailed activists, businessmen, and government officials as part of their efforts to reshape Saudi society and economics. However, Saudi clerics have been a power unto themselves for decades, with fame and influence beyond that of wealthy, and allegedly corrupt, businessmen including members of the royal family. Moving against clerics could turn public opinion against the kingdom’s rulers.
Signs of political instability in a country producing so much oil is always troublesome.
3. China
US crude oil exports have been temporarily spared from Chinese tariffs, giving state-run oil refineries a short window to import as much as possible. They’re scrambling for US imports because WTI, the US benchmark, is selling at a $6.66 per barrel discount to Dubai crude oil. That’s the biggest price difference of the year.
Although the tariff on LNG announced last week was only 10 percent, rather than the initially threatened 25 percent, it is still bad news for US LNG producers. China’s procurement is widely seen as the major driver for future LNG demand as Beijing’s anti-pollution fight focuses on a shift from oil to gas.
Shipments of LNG from the US to China remain cheaper than other sources despite a 10 percent tariff. However, the political risks may deter Chinese buyers from US cargoes even if they are a lower price. Despite the urgent demand for more natural gas, Chinese buyers are likely to seek longer-term LNG contracts from politically neutral sources such as Qatar and Australia.
China’s demand for diesel has peaked, and gasoline demand will soon follow, research from state energy giant CNPC has revealed. Reuters says CNPC’s research division is also saying that crude oil demand in the country will stop growing at a level of 690 million tons annually—13.8 million b/d—which is set to happen in 2030. Gasoline demand will peak around 2025.
As Beijing tightens environmental regulations, it is dampening demand for fuels. Economic growth is also slowing, further hurting demand. While economic growth could rebound, the environmental regulations are likely to stay in place as the country battles one of the worst pollution levels in the world.
4. Russia
Moscow’s oil production could peak as early as 2021 due to high taxes and costs provided there are no benefits for exploration or tax incentives, Energy Minister Novak said last week. Moscow’s oil production is expected to average around 553 million tons this year, or 11.105 million b/d. The Interfax news agency quoted Novak as saying that by 2021, Russia’s oil production will rise to 570 million tons, which, without more benefits and lower taxes, could be the peak of its oil production. If current production trends continue, and if Russia doesn’t do anything to further stimulate oil exploration and new field development, after 2021 production may start to fall and reach just 310 million tons by 2035, that is, Russia’s oil production could drop by 44 percent in the next 18 years.
Exploration and new oil field development are becoming increasingly important for Russia’s oil industry, Prime Minister Dmitry Medvedev said at the meeting, adding that the government needs to assess reserves and draft measures for incentives. Minister Novak cited “increased production costs and excessively high taxes in West Siberian oil fields” as part of the problem.
Western analysts have been saying for years that without the discovery of major new sources of oil production, Moscow’s aging fields should be slowing soon despite constant in-field drilling. A significant quantity of production from polar fields is still a long way away and, despite talk of massive US-style shale oil deposits, nothing of significance has been announced.
Russia’s Novatek is set to start exporting LNG from its third 5.5 million ton/year train at the Yamal LNG project by the end of 2018, CEO Mikhelson said last week. Mikhelson noted that Novatek could review its strategy to reach 57 million tons/year of LNG production by 2030 in the coming years as it continues to expand its vast gas resource base in northern Russia. He also said he expected some 80 percent of its future LNG production to serve the Asian market, with future sales to China in Yuan under consideration. The company is also close to making a final investment decision on a new LNG plant — Arctic LNG 2 — which would have a production capacity of 19.8 million tons/year.
Gazprom and Tokyo-based conglomerate Mitsui & Co. signed a memorandum of understanding on LNG development last week. The deal includes building an LNG plant on the Baltic Sea coast and would mark the two companies’ second joint LNG project. Currently, Japan – the world’s top LNG importer – is also the largest buyer of Russian LNG, importing a 36 percent share of the Moscow’s LNG production.
So far, 2018 has been a good year for Gazprom, the biggest investor in oil and gas projects in the world, with $160 billion worth of investments. Gazprom has seen an end to its legal battles with the European Commission and additional pipelines are under construction to the east and west. The Nord Stream 2 is continuing despite frictions between the US and Germany and opposition from Eastern Europe. The first phase of Turk Stream for the domestic Turkish market has been completed while the second pipeline for the European market is under construction. In the east, the highly publicized ‘Power of Siberia’ pipeline to north-eastern China is on schedule to be completed on time.
Russia has more of a future in the lower-polluting natural gas world where it can build pipelines to Asia and Europe than in trying to scrape more oil from its aging oil fields.
5. Nigeria
The scandals surrounding Nigeria’s oil industry roll on and on. Last week an Italian court sentenced two intermediaries to four years in prison. The case relates to the 2011 purchase by Italian oil company Eni and Royal Dutch Shell of an offshore oilfield for about $1.3 billion. Prosecutors in Milan noted that there were allegations of bribes totaling around $1.1 billion said to have been paid to win the license to explore the field, which has never entered into production. The prosecutors say that money from the deal wasn’t transferred to Nigeria where the oil field is located but ended up in accounts controlled by former Minister of Petroleum, Mr. Dan Etete. The Nigerian government received only $210 million.
This trial was a separate fast-track one which, under Italian law, allows sentences to be cut by a third. The main trial, which is expected to go on from months, involves Eni CEO Claudio Descalzi and four ex-Shell managers, including former Shell Foundation Chairman Malcolm Brinded. According to one observer, this judgment will send shivers down the corporate spines of the oil industry — and will surely alarm Shell and Eni employees and shareholders who have been repeatedly told that there was nothing amiss with the deal.
In a separate case, Nigerian police announced last Thursday that they had recovered $470.5 million (€400 million) in state oil company funds that had been siphoned off into private bank accounts. Police said they discovered the money linked to the Nigerian National Petroleum Corporation’s Liquefied Natural Gas business unit during a nationwide exercise to recover stolen funds.
6. Venezuela
The government sold 9.9 percent of the shares in joint oil venture Sinovensa to a Chinese oil company, President Nicolas Maduro said after returning from China last week. He also said that Venezuela expects some $5 billion in the joint investment with China to boost its crude output. The Sinovensa sale forms part of a plan to invest $5 billion over the next year in projects to double oil production and be able to send a million b/d to China. Given that Venezuela’s oil production is at a 60-year low and currently is just above 1 million b/d, it is doubtful Caracas will be able to come up with 1 million b/d to pay off the existing Chinese loans much less any new ones.
The exodus of starving people from Venezuela continues to grow and is at the point where neighboring countries can no longer cope with the influx. Three years ago, some 87,000 Venezuelans were believed to have crossed into neighboring countries in search of food. This year the number will be on the order of 1.5 million. Given that Venezuela has a 1400-mile border with Columbia, border crossing is impossible to control. Peru, the No. 2 recipient of Venezuelans in the Americas, has an enclave of more than 350,000 Venezuelans, up from 2,300 just three years ago, the International Organization for Migration said.
Meanwhile, domestic troubles continue to grow. Dozens of Venezuelans on Friday brought the city of San Cristobal to a standstill by blocking roads with their cars to protest gas shortages. Venezuela, where gasoline is selling for around a third of a cent per gallon, has been plagued by intermittent fuel shortages in recent months as its oil industry suffers from lower production and failing refineries. The problem was compounded this month when the government rolled out a new payment-for-gasoline system in eight states near the Colombian border, in an attempt to halt the widespread smuggling of Venezuela’s gas to Colombia. The payment system, which will pave the way to charging international prices for fuel, involves providing gas stations with wireless devices that use a state-issued identification card to purchase gasoline. The new document, called the Fatherland Card, is meant to provide subsidies to motorists to help soften the impact of the steep price increases.
7. The Briefs (selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
EU + US LNG: In a bid to deter US President Donald Trump from imposing hefty new trade tariffs on European Union goods, the EU said in July it would work to increase imports of US soybeans and LNG. Trump wants US LNG to compete with Russian natural gas exports in Europe. (9/19)
When low-sulfur rules for ocean tankers take effect in 2020, expectations are, naturally, that high-sulfur fuels demand will take a hit while low-sulfur fuels enjoy higher demand. Diesel is among these latter fuels, as is low-sulfur fuel oil. (9/17)
Offshore Norway, the rise in oil prices brought about the recovery of the nation’s oil industry, with companies lining up plans to invest in boosting oil production on the Norwegian Continental Shelf. This is most welcome news for Western Europe’s biggest oil and gas producer, which faces a decline from the mid-2020s onwards if new large discoveries are not made soon. (9/17)
In Panama, Royal Dutch Shell has won a long-term contract to provide liquefied natural gas to a Chinese company’s 441-megawatt power plant under construction in Colon. (9/21)
In Mexico, President-elect Andres Lopez Obrador has said the country’s oil production will climb to 2.6 million b/d by the end of his six-year term from 1.8 million b/d today. To achieve this, he is expanding Pemex’s exploration and production budget by $4 billion to $11 billion next year and will award new drilling contracts as soon as his administration begins in December. (9/21)
Mexico could be at the precipice of a region-wide energy revolution, and natural gas is the key. Major industry players will meet at a conference in Mexico City from October 9-11 to discuss, among other topics, the country’s potential to become a major energy hub for Latin America. (9/20)
To recover Mexico’s natural gas production, the country’s National Hydrocarbon Commission (CNH) has recommended creating a state-owned upstream company dedicated exclusively to gas. The new company would receive all the non-associated gas areas currently under control of Mexico state oil company Pemex. (9/22)
The US oil rig count declined by one last week to 866, the second decline in three weeks, according to Baker Hughes. Since June, the rig count has held mostly steady at above 860 rigs. So far this year, the combined oil and gas rig count has averaged 1,018. (9/22)
Keystone pipeline: The US State Department on Friday issued an environmental assessment of a revised route for the Keystone XL crude pipeline that concluded it would not harm water or wildlife, clearing a hurdle for the project that has been pending for a decade. Even if the pipeline spilled crude oil along its revised route through Nebraska, a top concern of environmentalists, there would likely be no impact to groundwater, the nearly 340-page draft review said. (9/22)
GOM investment angle: While majors and independents alike have had their sights on red-hot onshore shale plays, it’s left the door open for private equity investments in the Gulf of Mexico. (9/20)
Atlantic offshore drilling angle: Hurricane season is in full swing — and it’s throwing into the spotlight an ongoing debate between industry and environmental groups over expanding offshore drilling. The National Ocean Industries Association warns the country is “rolling the dice” with natural disasters, which can jeopardize the country’s oil supply if bad weather forces companies to shut down oil production and evacuate oil platforms. Drilling offshore the Atlantic coast, Alaska and California would diversify that risk. (9/18)
Royal Dutch Shell, shedding assets to pay for its takeover of BG Group Plc, is in talks to sell its interest in the Gulf of Mexico oilfield Caesar Tonga to Focus Oil for $1.3 billion. (9/21)
Methane rules relaxed. The Trump administration finalized a rollback of Obama-era limits on methane that is leaked, vented or flared from oil and gas wells on federal lands, part of a one-two punch on regulations designed to curb the release of the potent greenhouse gas. (9/19)
CA’s rocket attack: As President Donald Trump weakens one environmental rule after another, the deep green state of California has found a way to fight back: with a rocket. “With science still under attack and the climate threat growing, we are launching our own damn satellite,” declared Governor Jerry Brown, explaining that the craft will track emissions and share the results. One of the pollutants the satellite will measure is methane. Mr. Brown’s declaration on Friday in San Francisco, came just two days after the EPA in Washington said it wanted to relax methane rules. (9/18)
States vs. feds on MPG: Top officials from California, Maryland and Connecticut vowed Friday to take whatever legal action necessary to preserve their stricter tailpipe rules if the Trump administration rolls back federal fuel economy standards. US oil demand would increase by 500,000 b/d under a proposal announced by the Trump administration in August to weaken fuel economy rules for light-duty vehicles by freezing efficiency gains at the 2020 target of 43.7 mpg. (9/22)
In Colorado, proponents of Proposition112—which qualified in end-August for the ballot with enough signatures raised—say that it would limit the health and environmental dangers of fracking. Opponents and analysts say that such setback measures would effectively mean a ban on drilling in the state as it would put a lot of land off limits for new developments. (9/18)
Delta’s refinery: It is on track to make money in 2018, but high regulatory costs and shifting market dynamics that put East Coast refineries at a disadvantage have made the plant more of a hassle than Delta anticipated, even if fuel prices are on the rise. Delta, currently the No. 2 US air carrier by traffic, was the first US airline to make its own fuel. The refinery, which is run by a subsidiary, generated $5 billion of Delta’s $41 billion in revenue last year. (9/22)
Ethanol Trumped: Major US ethanol producer Green Plains Inc. is shutting down two ethanol plants in Iowa and cutting output at another in Minnesota due to low-profit margins, three industry sources told Reuters. The production cuts come after the Trump administration’s escalating trade disputes cut off the US access to ethanol markets in China, contributing to a domestic supply glut that has pushed biofuel prices to near their lowest in over a decade. (9/18)
Sales of electricity in the US have barely increased despite nine straight years of economic growth. Yet for the six months ended June, electric sales to ultimate customers in the US actually rose 3.5 percent. Temperature departures from the heating and cooling norm make a big difference for residential kWh sales. Thus, it looks as if the recent sales surge is weather induced. (9/20)
Solar projects that incorporate storage are becoming cheaper to build per megawatt-hour in parts of the US Southwest than a new gas-fired generation, according to a report Monday by Bloomberg NEF. That positions solar to replace a significant portion of the 7 gigawatts of coal-fired power that’s expected to retire in the region over the next decade. (9/18)
Shutting an NJ nuke: Exelon Generation permanently shut its single-unit 670-MW Oyster Creek nuclear power plant in Forked River, New Jersey, at noon EDT last Monday, the company said in a statement. The boiling water reactor had been the country’s oldest operating nuclear power unit, having received its operating license in April 1969 and beginning commercial operation in December 1969. (9/18)
Nuclear pickle: the Vogtle plant is the only nuclear power plant under construction, or even under serious consideration, in the US. If work on it stops, the prospects for new nuclear power in the US would dim considerably and raise the question of whether the country can revitalize its nuclear industry. The project is billions of dollars over budget and years behind schedule and expected to cost upwards of $27 billion, more than double the original price tag estimated when work began a decade ago. It has received $12 billion in federal loan guarantees, including $3.7 billion from the Trump administration last year.
German coal showdown: the works council and trade unions with Germany’s utility RWE say they oppose plans to end coal-fired power generation in Germany by around 2035, raising questions over a possible compromise between a government commission and environmentalists. RWE said the date was unacceptable and more investments in grids and renewable energy were needed to secure energy supply in the future. (9/17)
In China, the taste for tiny EVs has become a quirky subplot in the nation’s push to become a world leader in electric cars. Roughly 1.75 million micro-EVs were sold in China last year, more than twice the sales of regular EVs, of around 777,000, industry executives estimate. Most of the tiny ones were sold in a handful of rural provinces. The market is still growing rapidly, with some 400 Chinese manufacturers building countless models. (9/22)
Electric planes: After decades in which jets have been powered by fossil fuels, advances in materials, battery technology. and electrical systems are holding out the promise of cleaner, cheaper commercial flight. (9/18)
Climate impact: Temperatures not much warmer than the planet is experiencing now were sufficient to melt a major part of the East Antarctic ice sheet in Earth’s past, scientists reported Wednesday. During one era about 125,000 years ago sea levels were as much as 20 to 30 feet higher than they are now. (9/21)
Industry climate changing: ExxonMobil and Chevron have joined the Oil and Gas Climate Initiative, a group of companies supporting curbs on greenhouse gas emissions. The move is the latest sign of how pressure from the public and investors is forcing the industry to address the threat of global warming. Occidental Petroleum is also joining the initiative, which was launched in 2015 with European companies including Royal Dutch Shell and BP making up most of its members. (9/21)
CO2 conversion to fuel: Columbia University engineers have made a breakthrough in understanding electroreduction of CO2 for conversion to electrofuels. Recent research in electrocatalytic CO2 conversion points the way to using CO2 as a feedstock and renewable electricity as an energy supply for the synthesis of different types of fuel. (9/21)
H2 in the EU: On Tuesday, 25 European nations backed a measure to increase hydrogen use to power factories, drive vehicles, and heat homes. The coalition sees it as an alternative to fossil fuels to cut the continent’s carbon emissions, and to solve the problem for electricity generation caused by fluctuating supply of renewable energies. (9/21)
Peak Oil Review 17 Sept 2018
By Tom Whipple, Steve Andrews, originally published by ASPO - USA
https://www.resilience.org/stories/2018-09-17/peak-oil-review-17-sept-2018/
Quote of the Week
[The Trump administration stated there is a “reduced the urgency of the US to conserve energy.”] I strongly disagree with this argument. It isn’t certain that the US will become a net exporter of petroleum and petroleum products, but in any case, that’s not a reason to forego conservation. There are economic reasons, national security reasons, and environmental reasons for conserving oil.”Robert Rapier, energy industry commentator
1. Oil and the Global Economy
Oil prices climbed for the first three days last week with Brent climbing above $80 a barrel on Wednesday before falling back to close at $78.09 on Friday. An unexpected drop in the US crude stocks of 5.3 million barrels and a warning from the IEA that the global oil market was tightening and that higher prices are coming were behind the spike. However, concerns that the Sino/American trade war is showing no sign of getting better took over and sent prices lower. During the week, the price spread between Brent and WTI climbed above the $10 a barrel mark and closed the week at $9. The size of the price spread should continue the export demand for WTI in the coming weeks sending US crude supplies even lower.
Some analysts are warning that oil prices could reach $100 per barrel after the Iran sanctions are reimposed on November 4th. Oil prices have not been above $100 since 2014. Despite global oil production surpassing the 100 million b/d mark in August, there are problems ahead. Venezuela’s production for August was down to 1.22 million b/d and seems likely to go lower. Iranian exports continue to contract, and there is always trouble in Libya and Nigeria which could reduce their oil production by hundreds of thousands of barrels per day at any time. Even the ever-optimistic EIA is saying that the outlook for US shale oil production no longer looks as good as it did a few months ago.
OPEC: August saw the cartel’s biggest month-on-month increase in more than two years, bringing the supply from the group’s 15 members to a nine-month high. The increase came from higher production in Libya, Iraq, Nigeria, and Saudi Arabia. OPEC’s increase far outweighed, at least for now, falling Iranian production. Global oil production in August climbed above 100 million b/d for the first time.
Russia’s energy minister Alexander Novak says that OPEC, Russia, and their allies within the production cut alliance should sign an agreement on the group’s broader cooperation in December so that the new partnership format comes in force from January 1, 2019. A formal agreement between Russia and its allies in the former Soviet Union would bring about the most significant change to the OPEC cartel since its founding in 1960 by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. Despite its massive oil exports, Moscow has long feared to join the organization for fear that its energy policies could be affected by votes or compromises inside OPEC.
The success of the OPEC+ production freeze during the last two years has brought about a change in thinking for it resulted in a doubling of oil prices and saved some major oil exporters from near-bankruptcy. The addition of circa 15 million b/d to OPEC’s 32 million b/d allows the combined organization to have more impact on the oil markets in the years ahead. This union could become important if the Sino-American trade war results in a significant drop in the demand for oil.
Despite the euphoria over OPEC’s production successes in August, there are still many dangers for the cartel’s production ahead. The 15-member OPEC has not increased its production significantly in the last 15 years and, except for a few bright spots, most of its oil fields are in decline. Several major OPEC oil exporters such as Venezuela, Nigeria, Libya, Iraq, and Iran, are involved in domestic or international situations which could reduce their exports in the next year or two.
US Shale Oil Production: US crude oil production in 2019 is expected to grow at a slower rate than previously forecast, according to a monthly EIA forecast released last week. US crude production now is expected to rise by 840,000 b/d to 11.5 million next year, lower than a previous estimate for it to grow 1.02 million b/d to 11.7 million. Oil demand growth in 2019 is expected to rise by 250,000 b/d, a decrease from EIA’s previous projection for an increase of 290,000 b/d. The agency left 2018 production and demand growth forecasts unchanged. Behind this change is the recognition that drilling activity in the Permian basin has begun showing signs of a slowdown due to limited pipeline takeaway capacity and decreasing well productivity.
Although numerous challenges are facing producers in the Permian Basin, interest remains high. The price rights to drill on the New Mexico side of the Permian Basin soared to $95,001 an acre in a recent federal government auction, a record high for land in the Permian. The state’s previous record was $40,001 an acre set in December, according to a statement yesterday by the US Department of the Interior. The two-day auction saw bids on 142 parcels of land and raised $972 million, more than the whole of 2017 and double the 2008 record.
The recent auction provides a rare insight into how oil producers value drilling rights in the Permian, most of which is in Texas, where land and minerals are privately owned. Record prices show that despite a slowdown in activity due to pipeline shortages, explorers view the Permian as a long-term asset. “The Permian is the center of the oil universe when it comes to investment right now and just because of a few pipeline constraints that’s not going to change.”
New pipelines can’t get built fast enough in the Permian Basin, where oil is selling at a $15 discount and producers are locking in prices for the next two years. Several multi-billion pipeline projects are under construction or planned over the next few years to get the crude oil and natural gas to refineries on the Gulf Coast. However, a new report by Wood Mackenzie suggests that producers don’t have faith that the pipelines will be done on time. The number of Permian producers hedging their bets for 2020 increased by more than five times in the second quarter. According to Wood Mackenzie, “The only reasonable conclusion one can draw from this surge is that Permian producers are concerned that key pipeline projects won’t be completed on schedule.”
US Highway 285 is a major north-south route within the Permian Basin of West Texas and southeastern New Mexico. Thanks to the oil boom in the region, the highway is much busier than it was a decade ago. More flatbed trucks rely on the road to haul equipment and supplies. In addition, the region’s constrained pipeline capacity has led to a large number of tanker trucks hauling crude oil on 285 and other highways in the region. The Texas Department of Transportation is addressing the limitations on 285 through a series of improvements which will take years to complete. The highway department has placed an 11-foot-wide lane restriction on 285 which is forcing the oil industry to modify their routes because they move oversized loads every day. “These alternate routes increase the time and distance to move a rig, so what started out as a short routine move could easily creep into a long-distance rig move, having a substantial impact on the cost associated with the rig moves.”
2. The Middle East & North Africa
Iran: The prospects for Iranian oil exports after US sanctions are imposed remained the top oil market story last week. Iranian crude production fell 200,000 b/d from July to 3.52 million b/d in August as hedging activity indicates some traders are preparing for a price spike above $80 a barrel as a result of further declines in Tehran’s exports. S&P Global Platts Analytics expects 1.44 million b/d of Iranian crude and condensate to leave the market when the US secondary sanctions snap back November 5, compared with April levels. The EIA says Iran’s production already has dropped 310,000 b/d since April.
Tehran’s problems could increase as it meets obstacles in selling its condensate and refined products. Iran is dependent on exports of condensates and fuel oil, while it relies on gasoil and gasoline imports. Unlike when the US imposed sanctions in 2011, the Trump administration has broadened the list of secondary sanctions, to include condensates and other oil products “obtained from the processing of crude oil (including lease condensate), natural gas, and other hydrocarbon compounds.” There have been signs Iran’s exports of fuel oil and LPG have started to fall in the past few weeks.
Iran has started to store oil in its own tankers off its coasts ahead of the US sanctions. According to tanker tracking data, at least five tankers owned by the National Iranian Tanker Company have been sitting fully laden with crude oil off the Kharg Island oil terminal in the Persian Gulf over the past two and a half weeks. Another two tankers full of Iranian condensate, the ultra-light oil Iran produces from its natural gas fields, have been anchored off Dubai for weeks.
While Russia, China, and Turkey remain firm in their commitment to Tehran, there are reports that other countries such as Japan, India, and South Korea are giving in to Washington’s pressure and are reducing their purchases of Iran’s oil.
Last week the issue of whether the sanctions will result in a substantial increase in oil prices came back into the news. During an interview in Moscow last week, US Energy Secretary Perry said last week that Saudi Arabia, the United States, and Russia could between them raise global output in the next 18 months to compensate for falling oil supplies from Iran and elsewhere. Countering this view was Iran’s OPEC governor Hossein Kazempour Ardebili who told Reuters that there is already an emerging “supply shortage” and little spare capacity virtually everywhere means that the US can’t achieve its goal of bringing Iranian oil exports down to zero.
Iraq: Baghdad’s oil production grew steeply again in August, as the federal government continued to unlock field capacity in the wake of loosening OPEC constraints. Combined output from the federal government and the autonomous Kurdistan Regional Government (KRG) hit 4.81 million b/d. Iraq replaced Saudi Arabia in August as the top oil supplier to India as refiners turned to Iraq to compensate for a lower import of Iranian oil. Gulf Keystone Petroleum said it would resume investing in the Shaikan oil field in Iraq’s Kurdistan Region, aiming to boost production to 55,000 b/d in the second half of 2019, from just over 30,000 b/d now.
The political and social situations, however, are not going so well. Demonstrations flared in Basra this month after thousands fell ill because the water supply was contaminated and intensified last week after several protesters were killed. Protesters burned the offices of most political parties in Basra, including Iran-backed paramilitary groups. Prime minister Haider Al-Abadi is facing growing domestic discontent as veiled criticism from the country’s top Shia cleric, and violent street protests threaten his attempts to form a new government. The strife is undermining hopes that elections held in May would mark a turning point and set Iraq on the road to recovery after decades of conflict. In a rare intervention, the office of Ayatollah al-Sistani, Iraq’s top Shia cleric, issued a statement urging politicians in power not to run again, a move interpreted as a call for Mr. Abadi to abandon his efforts to remain prime minister.
Islamic State militants have bombed an oil pipeline in Kirkuk, northern Iraq. It was not immediately clear which pipeline the Islamic State militants had blown up and what the effect on shipments from northern Iraqi fields will be. The Baiji refinery, which was shut down in 2014 during the war with Islamic State, has partially resumed operations. The 70,000 b/d Salahaddin-2 unit of the refinery is operating at full capacity as of last week.
Libya: Several armed men attacked the headquarters of Libya’s National Oil Corporation in Tripoli last week, killing at least two staff members. In the first attack of its kind against the top managers of Libya’s state oil industry, two of the gunmen were killed and at least 10 NOC staff wounded, officials said. Security forces said they had regained control of the building in the center of the city. The attack came less than a week after a fragile truce halted fierce clashes between rival armed groups in Tripoli which has been in turmoil since a 2011 uprising.
The US Treasury Department, along with the United Nations, placed sanctions on Libyan militia strongman Ibrahim Jadhran over the June attacks on the country’s oil ports. The sanctions were proposed by Libya’s Permanent Mission to the UN. Ibrahim Jadhran, former leader of Tripoli-backed Petroleum Facilities Guard (PFG), now finds himself on the wrong end of both the United Nations and the United States.
3. China
Christine Lagarde, the IMF managing director, told the Financial Times that the escalating US-China trade war could deliver a “shock” to already struggling emerging markets, raising the prospect that a crisis ripping through Argentina and Turkey could spread across the developing world. She warned that “things could change rapidly” and cited the “uncertainty and lack of confidence already produced by the threats against trade, even before it materializes.”
Worries about the Chinese economy continue with Investment in factories, railways, and other projects in China so far this year growing at its slowest pace in more than a quarter-century. Fixed-asset investment outside rural households rose 5.3 percent in the January-August period from a year earlier, the National Bureau of Statistics said Friday. The rate was the most sluggish since 1992 when the investment data was first available.
China is the centerpiece of what a growing number of financial analysts warn could be another global economic recession. Bank of England Governor Mark Carney recently said that China is “one of the bigger risks” to global financial stability. Since 2007, China’s debts have quadrupled. According to the IMF, its total debt is now about 234 percent of gross GDP, which could rise to 300 percent by 2022. The significance of China’s dwindling supplies of cheap domestic energy is little understood by mainstream economists.
Beijing is considering allowing its northern provinces to decide on individual output cuts by heavy industry to rein in emissions during the winter. Talk of the move drove down steel and industrial raw material prices and comes as Beijing looks to end its “one-size-fits-all” fight on pollution to limit economic disruptions. “Production cuts on heavy industry will remain this winter, but detailed cutting rates will be set by local authorities based on their own situation,” said a knowledgeable Chinese source.
PetroChina has just signed a deal to buy 3.4 million tons of LNG per year for 20 years from QatarGas. This is China’s largest ever LNG supply deal. State-controlled QatarGas has agreed to supply PetroChina from the QatarGas 2 project, a joint venture between Qatar Petroleum, Exxon Mobil and France’s Total. The first cargo will be delivered later this month. The deal comes as President Trump ramps up the ongoing trade war between the US and China. Trump says he is ready to levy additional taxes on practically all Chinese imports, threatening duties on $267 billion of goods over and above planned tariffs on $200 billions of Chinese products. If China’s retaliation includes a 25 percent duty on US LNG, it would no longer be competitive for Chinese importers.
4. Russia
On Friday, Russia’s central bank raised the key rate from 7.25 percent to 7.5 percent per annum. According to the bank’s statement, the annual inflation is forecast to be 5-5.5 percent in 2019 and to return to 4 percent in 2020. After a week in which the ruble fell to a two-year low against the dollar, investors anxious about emerging market turmoil have been concerned about what the bank would do. The Kremlin has been putting the bank under unprecedented pressure to cut the benchmark rate — which stands at 7.25 percent — to help stimulate growth to pay for President Vladimir Putin’s ambitious spending targets.
The General Court of the European Union upheld sanctions imposed on several Russian oil companies and banks after the annexation of Crimea in 2014 and Russia’s involvement in the Ukraine crisis.
Russia’s largest independent gas producer, Novatek, surpassed in market value state behemoth Gazprom for the first time. Strange as this may seem to casual observers of the Russian gas market, Novatek’s value has been rising consistently over the last years while Gazprom’s has stagnated. The most apparent difference between the two is ownership. Gazprom is majority owned by the Russian state. Government ownership means Gazprom caters more to the government’s political interests rather than the interests of its minority shareholders. It also means the company undertakes projects with uncertain returns as a state company while private shareholders like certain returns.
5. Venezuela
The government has agreed to hand over at least seven oil fields to little-known companies that will be paid to boost output through contracts similar to ones killed off during the Hugo Chavez period. The new plan signals that President Maduro, who is struggling under a hyper-inflationary economic meltdown and fast-declining oil output, is willing to reverse the efforts of his predecessor to expand the state’s role in the energy industry. However, the plan faces significant hurdles because the companies involved have no known experience operating oilfields, and US sanctions would inhibit more experienced firms from getting involved. Venezuela’s production fell in August by 20,000 b/d to 1.22 million b/d. Compared to August last year, Venezuelan oil production is down by 680,000 b/d.
During a rare visit by President Maduro to Beijing, China agreed to several small oil deals with Venezuela last week but gave no public confirmation that it would extend more loans to the country. Venezuela faces a stiff payment schedule over the next two months of about $2 billion to bondholders, some of whom have debt secured against US-based refiner Citgo, and in compensation to western oil companies for past nationalizations in Venezuela.
Simon Zerpa, Venezuelan finance minister, said earlier this week that Beijing would extend a $5 billion loan to Caracas. But Premier Li Keqiang, while saying that China would help Venezuela, made no mention of a loan of that size. China lent the country more than $50 billion over the past 10 years, mostly backed by oil deliveries that are no longer being made. The largest loan, from the China Development Bank in 2010, was worth more than $20 billion. Terms of China’s loans are not made public.
Venezuela resumed supplying a critical domestic crude to political ally Cuba this summer as its refining output fell further. The shipments, which began in June and continued through August, totaled 4.19 million barrels of Venezuela’s Mesa 30 crude, a type used to produce fuel at domestic refineries and to blend with heavier oil for export. Venezuela has supplied Cuba with oil under agreements since 2000. Havana has been deeply involved in providing advice and assistance to Caracas’s intelligence and security services. As Venezuela’s domestic situation deteriorates, Cuban security assistance may be a priority for the embattled President who may be vulnerable to a coup or uprising.
6. The Briefs (selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
USA vs. Saudi vs. Russia: The United States likely surpassed Russia and Saudi Arabia to become the world’s largest crude oil producer earlier this year, based on preliminary estimates by the US Energy Information Administration. EIA expects that US crude oil production will continue to exceed Russian and Saudi Arabian crude oil production for the remaining months of 2018 and through 2019. (9/14)
In the UK’s oil and gas industry, despite reduced costs and efficiency improvements, the sector could lose its significance as a key contributor to the UK economy and energy supply, due to record low drilling activity and lack of new project approvals. (9/12)
Oil and Gas UK said in its annual Economic Report that a 50 percent decline in drilling activity over the last five years was a cause for “real concern.” It said the industry had initiated just four exploration wells in the first eight months of 2018 and the expected number for the whole year, at 10-12 wells, would be the lowest since 1965. (9/11)
Offshore North Korea, seven countries have joined together to hunt ships smuggling fuel. More than 50 personnel from allied countries will be hosted aboard the USS Blue Ridge, an American command ship stationed in Yokosuka, Japan. The coalition will include the U.K., Australia, New Zealand and Canada—the U.S.’s partners in the Five-Eyes intelligence alliance—as well as France, Japan, and South Korea. (9/15)
Offshore Egypt, the huge Zohr gas field has increased its production six-fold since it started production in January this year. Production at Zohr has increased to 2 billion cubic feet per day (bcfd) from 350 million bcfd when it began commercial production in January 2018. Italy’s Eni discovered the field in 2015 when it said that it was the largest ever gas discovery in the Mediterranean. Eni and its partners aim to reach plateau production in excess of 2.7 bcfd in 2019. (9/14)
Egypt has signed a deep-water oil and gas exploration deal with Royal Dutch Shell and Malaysia’s Petronas worth around $1 billion for 8 wells in the country’s West Nile Delta. The country also signed a second $10 million deal with Rockhopper, Kuwait Energy and Canada’s Dover Corporation for exploration in the Western Desert. Egypt aims to be a regional hub for the trade of LNG after a string of major discoveries in recent years including Zohr. (9/15)
In South Sudan, China National Petroleum Corporation (CNPC)—which holds stakes in the two joint venture companies pumping nearly all of South Sudan’s current 165,000 b/d—signed at the end of last month a memorandum of understanding (MoU) to boost existing production and consider acquisitions of new acreage. (9/12)
Panama collateral damage? Fewer ships from China and the United States could use the Panama Canal if trade tensions escalate between the two economic giants, but the dip could be offset by grain exports from northern Brazil. The canal, which cuts through Panama creating an essential shipping route between the Atlantic and Pacific oceans, is a major source of revenue for the central American country. (9/15)
In Mexico, incoming Mexican President Andres Manuel Lopez Obrador announced that his government will soon be pouring $3.9 billion of next year’s budget into oil extraction, specifying the allocation of his previously disclosed $16 billion investment plan for Mexican oil in 2019. The investment is part of a broader plan to increase Mexico’s long-waning oil output by 800,000 b/d and bring an end to Pemex’s financial woes. (9/14)
In Canada, China’s Sinopec Corp has joined a group planning to build a 167,000 barrel/day oil refinery in Alberta, the project’s consultant said, an enterprise that would strengthen demand and prices for the Canadian province’s heavily discounted crude. (9/15)
Cyber threats in the US against the energy industry are growing steadily. Jeremy Samide, chief executive officer of Stealthcare, a company which seeks to improve cyberdefenses for a diverse set of US companies, sees the cyber battlefield starkly. He says the threat is very real, and he puts the threat of serious attack at 83 percent. (9/11)
The US oil rig count increased by 7 to reach 867, Baker Hughes reported. With the natural gas rig count staying flat, the total number of active oil and gas rigs climbed to 1,055. The combined rig count is now 119 rigs higher that it was this time last year. (9/15)
Crude by rail is making a comeback as North American crude production outpaces takeaway pipeline capacity in the Permian and lower rail costs make Bakken margins attractive to both US Atlantic Coast and US West Coast refiners. (9/11)
Decade+ GOM leak? Between 250 and 700 barrels of oil per day are leaking into the Gulf at the site where Taylor Energy Co.’s oil platform collapsed in Hurricane Ivan in 2004, new analysis concludes. The same location is where a persistent sheen of oil on the surface has appeared ever since. That leakage rate is higher than previous estimates Taylor has cited, which had the spill emitting around three gallons of oil per day. (9/15)
The Port of Corpus Christi, which is handling booming exports of US crude oil, has invoked a 12-year-old criminal case against the commodities trading house Trafigura as it seeks to slow the latter’s efforts to build an alternative site offshore to load supertankers. (9/12)
California Governor Jerry Brown signed into law this weekend a bill that aims to make drilling for oil and gas off the state’s coast unprofitable. The bill sought to deter oil and gas drillers by banning infrastructure necessary for offshore drilling, including docks, pipelines, and other onshore installations. (9/11)
Natural gas, helped by gains in energy efficiency, will dethrone oil as the biggest energy source that the US uses by the end of this year. That’s according to the chief executive of Norway-based risk management consultancy DNV GL, and it would hardly come as a surprise to anyone who’s been following energy developments in the world’s top gas producer. (9/12)
In Alaska, ExxonMobil has agreed on terms and conditions for the sale of its 13.8 Tcf of natural gas resources in the north slope’s Prudhoe Bay and Point Thomson fields of Alaska’s North Slope to Alaska Gas Development Corp., the state-owned entity leading the development of the Alaska LNG Project. (9/11)
Relaxing methane rules: The proposed changes, among other measures, would give drillers a year to do leak inspections instead of just six months, and 60 days to make repairs instead of 30, the document said. Environmentalists are likely to oppose the plan, asserting the delayed inspections and repair schedules are likely to increase the amount of harmful gases released into the environment, and that the proposal opens the door to further rollbacks of climate regulations. (9/11)
World coal steady: the most striking statement in BP’s analysis is “there has been almost no improvement in the power sector fuel mix over the past 20 years. The share of coal in the power sector in 1998 was 38 percent — exactly the same as in 2017.” (9/12)
Nukes still growing: The world is consuming ever-growing amounts of energy, and consumption is set for a particularly intensive growth in electricity. This fast growth will require more generation capacity, some of which will be nuclear. In fact, according to a report by the International Atomic Energy Agency, the world’s nuclear power generation capacity may grow to 511 GW(e) by 2030 from 392 GW(e) in 2017, and further to 748 GW(e) by 2050. This is a high case scenario. (9/14)
Nuke nix: California lawmakers have passed legislation mandating the replacement of the Diablo Canyon nuclear plant’s 2.2 GW of capacity with greenhouse-gas-free generation, which the governor is expected to approve. The proposal drew mixed reviews Monday from industry observers regarding its impact on power markets. (9/11)
EV trucks: Walmart Canada plans to power its fleet using 100 percent alternative power by 2028. To meet that goal, the company has announced plans to acquire an additional 30 Tesla 18-wheeler semi-trucks, building on its original order of 10 trucks in November 2017. With 40 Tesla Semis in total, the company will reach an initial milestone to convert 20 percent of its fleet to electric power by 2022. (9/11)
UK supporting EVs: The UK government will support the roll-out of fast-charging networks for electric vehicles, Business Secretary Greg Clark said Tuesday. There is to be a competition for commercial partners to work with the government to provide fast-charging facilities on motorways up and down the country, backed by a GBP400 million ($523 million) investment fund to accelerate the process. (9/11)
Battery-powered train: Bombardier Transportation has introduced a new battery-operated train. This train is the first of its kind to enter passenger operation in Europe in more than 60 years. It does not generate any exhaust and sets the standards for smart mobility with peak values of 90 percent in the areas of efficiency and recyclability. It is also around 50 percent quieter than modern diesel trains. A comparative study shows the battery-operated train clearly has an edge with respect to the total costs across the service life of 30 years. (9/13)
CA commitment: The bill that Governor Jerry Brown signed into law, SB 100, requires the state to reach 100 percent clean electricity in less than 30 years, with interim goals along the way, including 60 percent by 2030. Yet, Governor Brown took an even bolder step, not only signing the legislation but also issuing an executive order calling on the entire economy to become carbon neutral by 2045, not just utilities generating electricity. (9/13)
If Europe’s eight largest oil companies want to meet the climate and carbon-reducing goals they have set, their spending on new, low-carbon energies must double by 2020, and then double again within five years, with total spending seen as ‘monumental’, according to JP Morgan. Currently, Europe’s big oil—Shell, Total, BP, Eni, Equinor, Repsol, OMV, and Galp—spend on average around 5 percent of their capital expenditures on “new energies.” If Europe’s Big Oil were to meet climate goals and not lose credibility as they work toward their goals, they would need to raise the share of the ‘new energy’ spending to 9 percent of capital budgets by 2020, and to 17 percent of capex by 2025. (9/13)
United Airlines has become the first US airline to publicly commit to reducing its own greenhouse gas emissions by 50% by 2050, relative to 2005. The airline will continue expanding the use of more sustainable aviation biofuels, welcoming newer, more fuel-efficient aircraft into its fleet and implementing further operational changes to better conserve fuel. (9/14)
Airline fuel efficiency on transatlantic flights has improved by one percent a year since 2014 as carriers buy modern planes, but a new study says the industry still lags its own climate goals. The industry’s average fuel efficiency improved to 34 passenger kilometers per liter of fuel from 33 between 2014 and 2017 as carriers opted for modern aircraft with lower fuel burn and operated fuller planes. (9/12)
Drought has spread upstream on the Colorado River. The river’s Upper Basin – north of Lake Powell – has been largely insulated from the 19-year drought afflicting the giant watershed, thanks to the region’s relatively small water demand and heavy snows that bury Colorado’s 14,000ft peaks each winter. But this year, several major Colorado River tributaries saw record-low snowpack this winter. As a result, many reservoirs on the west slope of the Rocky Mountains have shrunk to mud puddles. In August, the resort city of Aspen, Colorado, imposed mandatory watering restrictions on its residents and visitors for the first time in its history. (9/15)
Peak Oil Review: 10 Sept 2018
By Tom Whipple, Steve Andrews, originally published by ASPO-USA
https://www.resilience.org/stories/2018-09-10/peak-oil-review-10-sept-2018/
Quote of the Week
“[T]he fortunes of energy companies are highly dependent on a single, highly-salient, well-understood, widely-available, plausibly exogenous factor – the price of oil….This is a market where firm value hinges to a large degree on observable luck, so the fact that we observe little filtering of luck from [the size of] executive pay is particularly striking.” Lucas W. Davis and Catherine Hausman, the Energy Institute in Haas
1. Oil and the Global Economy
Oil prices fell by another $1-2 a barrel last week to settle at $67.75 in New York and $76.83 in London as the struggle between lower demand occasioned by the Sino-American trade war balanced against falling Iranian exports. Last week saw a storm in the Gulf of Mexico which did less damage than expected and a 4.3 million barrel drop in US crude inventories which brought them to the lowest since 2015. However, prices were driven lower as US gasoline stocks rose by 1.8 million barrels and distillate stockpiles by 3.1 million barrels, suggesting that the summer driving season has come to an end.
Last week saw several stories in the financial press laying out the case for higher oil prices ahead. Barclays now expects Brent to average $75 per barrel in 2020 and $80 in 2025. The bank noted that the market is dramatically different than it was at this point last year. The forecasts of the major financial institutions, however, are rather mild in comparison to those arguing for much higher prices ahead.
Most of these analyses focus on the Iranian sanctions combined with a generally tight oil market, rising demand and the over-dependence on steadily increasing production from the Permian Basin to balance the market. Some believe there are limits to how much OPEC can increase production in response to falling Iranian, Venezuelan, and possibly Libyan and Nigerian exports. Some see considerable potential for a military conflict in the Persian Gulf as Iran faces internal dissent due to falling oil exports. Others talk about the lack of sufficient capital investment in finding new oil, but the consequences of this are still a few years off. However, some are throwing around numbers, like $90, $95, or even $150 a barrel within the next year without having any real insight into which of many possibilities could cause a price spike.
The OPEC Production Cut: An OPEC and non-OPEC technical committee will meet on September 17th to discuss proposals for sharing the agreed-upon output increase of 1 million b/d. There are four suggestions on how to distribute the increase, presented by Iran, Algeria, Russia and Venezuela, one of the sources said, suggesting agreement will not be straightforward. One idea, to share it pro-rata among participating countries, is unlikely to be approved by Russia and Saudi Arabia since it would give them less than the supply boosts of 300,000 and 400,000 b/d that they respectively want, the source said.
OPEC, Russia and other non-members agreed in June to return to 100 percent compliance with oil output cuts that began in January 2017. Months of underproduction in Venezuela and elsewhere had pushed adherence above 160 percent. The June meeting concluded with disagreement between Saudi Arabia and Iran, longtime rivals in OPEC. Any proposals agreed to by the technical committee will be presented to ministers attending a monitoring meeting in Algeria on Sept. 23,
OPEC’s crude oil production hit a 10-month high in August, as Iraq including Kurdistan pumped at record levels and Libya recovered from weeks of port blockades. The total OPEC-15 oil production came in at 32.89 million b/d last month, including 320,000 b/d output from its newest member, Congo, which joined OPEC in June this year.
US Shale Oil Production: At a Barclays conference in New York last week The CEOs of Schlumberger and Halliburton said they see activity in the Permian slowdown. Pipeline constraints have not yet curtailed production growth, but the oilfield service companies have already felt the impact.
Oil producers in the Permian Basin are increasingly turning to trucks and rail to ship the crude to refineries and export terminals on the Gulf Coast. Crude oil production in the Permian is in the vicinity of 3.6 million b/d, while pipeline capacity out of the region is just 3.5 million according to Wood Mackenzie. Crude is selling for as much as $10 more a barrel in South Texas, the Gulf Coast and other markets outside of West Texas.
Last week saw several critical newspaper stories on the future of the shale oil industry. An opinion piece in the New York Times pointed out that the 60 biggest exploration and production firms are not generating enough cash from their operations to cover their operating and capital expenses. In aggregate, from mid-2012 to mid-2017, they had negative free cash flow of $9 billion per quarter. Amir Azar, a fellow at the Columbia University Center on Global Energy Policy, calculated that the industry’s net debt in 2015 was $200 billion, a 300 percent increase from 2005.
Another recent publication uses Hubbert Linearization and concludes that US shale oil production will be down from 5 million b/d and will start to drop in a year or so to around 1 million by 2025. This analysis is indeed not the industry’s nor the EIA’s appraisal of the situation, but the number questioning just how long the shale oil “bubble” will last is starting to grow given the lack of profits.
2. The Middle East & North Africa
Iran: Tehran’s oil exports may have declined as much as 600,000-700,000 b/d in August, to as low as 1.66 million, according to the Wall Street Journal and SVB Energy International. SVB expects Iran’s oil exports to fall as far as 0.8 million b/d by November. That will amount to the loss of nearly 1 million b/d from April, the month before Washington withdrew from the nuclear accord. The supply disruptions have been more severe than many had expected because the US is taking a tough line on sanctions, sending signals that Washington will grant few if any, waivers to Iran’s customers. This stance is making it difficult for Iran to find insurance for its shipments and financing for oil deals.
Resistance to Washington’s plans for Iran has come mainly from the EU and China. However, there are limits to the EU’s influence over European oil companies who have interests in keeping good ties with the US and can purchase oil elsewhere. The EU is preparing for the hit its economies will have to absorb once the full weight of Washington’s punitive measures comes into effect in the fourth quarter of this year.
India imported about 523,000 b/d of oil from Iran in August, down 32 percent from a month earlier, according to preliminary tanker arrival data. Pompeo said Thursday that come November, however, the sanctions on Iran will “ratchet up to yet another level,” so that nations choosing to continue accepting imports of Iranian oil will face US sanctions themselves. Washington will consider waivers for Iranian oil buyers such as India, but they must eventually halt imports.
Economies from North America to Europe and East Asia are seeing growing economic activity, causing global oil consumption in 2017 to rise by 1.5 million b/d, further tightening the market. As Tehran has already warned, OPEC will be unable to meet shortfalls if the US pursues its policy of reducing Iranian oil exports to zero. This goal is highly unlikely, however, as China has refused to abide by the new US sanctions.
Iraq: Civil unrest fueled by anger against corruption and misrule by Baghdad spread across the south of the country last week as protesters stormed the Iranian consulate in Basra while others took workers hostage at a nearby oilfield. After five days of deadly demonstrations in Basra in which government buildings have been ransacked and burned, protesters broke in and damaged the consulate’s offices, shouting condemnation of what many perceive as Iran’s sway over Iraq’s political parties.
Terminals in the Basra Gulf and Kurdistan-controlled Ceyhan in August combined for a record average of 4.028 million b/d of oil exports, representing a 4 percent increase from July. The federal government exported 3.583 million b/d – its highest monthly average ever – and earned $7.7 billion on an average $69 per barrel.
Despite production and export figures showing a significant improvement, optimism is not warranted. The country continues to head towards a major showdown between the two main political rival blocks, led by Prime Minister Al Abadi and former PM Al Maliki. Both are currently in a race to lead the country while being confronted by internal and external threats.
Saudi Arabia: In the latest twist, the Saudis now want to keep oil prices between $70 and $80 a barrel as they try to strike a balance between maximizing revenue and keeping a lid on prices until US congressional elections, according to OPEC and industry sources. Urged by President Trump to cool what was then a heating market, Saudi Arabia pledged June 23 along with the rest of OPEC, Russia and nine other non-OPEC partners to boost crude output by a collective 1 million b/d, in anticipation of supply shortages caused by US sanctions on Iran and Venezuela’s economic crisis.
The Saudis could earn $161 billion this year from oil exports, versus a budgeted $131 billion. Financial services provider Al Rajhi Capital noted in a report that the economic growth of the Kingdom is doing well due to higher oil prices. The company also forecast growth in non-oil revenues that will contribute to a further narrowing of the fiscal deficit, which the firm sees at around $22 billion, 58 percent lower than the budgeted deficit.
Saudi Aramco awarded Baker Hughes the first integrated services contract for the expansion of its offshore Marjan oilfield, the most significant development program this year. This project is the first of three planned offshore expansions aimed at expanding its production capacity to offset natural declines at maturing fields.
Yemen’s Houthi rebels are claiming a successful attack on an unidentified oil facility belonging to Saudi Aramco in Jizan, according to a report from the Iranian state news agency. The strike with Badr 1 missiles took place last week, two days after an earlier one that targeted a Saudi frigate in Jizan.
A senior adviser to Crown Prince bin Salman appeared to be confirming that the kingdom is considering digging a canal along the border with the Qatari peninsula, effectively turning it into an island. Reports of the canal first emerged back in April on a news website with close links to the Saudi royal family. However, the official’s remarks were the most unambiguous reference yet that the Saudi regime is serious about the project.
Libya: A ceasefire was signed between armed factions fighting over the Libyan capital, the United Nations announced last Tuesday, after more than a week of violence inside Tripoli. Dozens of people have been killed in fighting engulfing the capital as rival armed groups vie for power and money.
Some 400 prisoners escaped from a facility near the Libyan capital Tripoli during the fighting between militia groups in the city, police say. “The detainees were able to force open the doors” to leave the Ain Zara prison, the local police said. They added that guards, fearing for their lives, were unable to prevent the breakout. Many of the prisoners held at the Ain Zara prison in south-east Tripoli were supporters of the former Libyan leader Muammar Gaddafi and had been found guilty of killings during the uprising.
There were no reports of disruptions to oil production last week which is around 1 million b/d.
3. China
China’s crude oil imports rose 6.5 percent in August from a month earlier to their highest since May, boosted by a rebound in demand from smaller, independent refiners. Arrivals last month were 9.04 million b/d, according to the General Administration of Customs. This was up from 8.0 million b/d a year ago and 8.48 million in July. For the first eight months of the year, crude purchases stood at 299 million tons, up 6.5 percent from last year.
The White House is gearing up to hit China with tariffs of 25 percent on as much as $200 billion in Chinese goods, on top of the $50 billions of Chinese exports already facing 25 percent levies. China has pledged to retaliate against US tariffs in “equal scale and equal strength.”
Chinese officials and executives of ExxonMobil Corp discussed a $10 billion investment by the US firm in the southern province of Guangdong, according to Chinese state television. Exxon said last Thursday it signed a preliminary deal to build a petrochemical complex and invest in a liquefied natural gas terminal in China. It said the investment would be worth billions of dollars but did not give a specific figure.
PetroChina is betting big on boosting natural gas production in line with the government’s policy to increase its gas production and use by industrial firms and residencies. However, the planned production increases will not even come close to reducing China’s dependence on oil and natural gas imports—they are set to rise further as the country’s energy demand grows. However, less dynamic coal-to-gas switching, improved gas storage, and a boost in imports will help China avoid a repeat of the heating crisis seen in the past winter according to Wood Mackenzie analysts.
4. Russia
Russia’s oil production in August was virtually flat at 11.21 million b/d compared to July as Moscow kept output at a near post-Soviet record, after having reversed most of its production cuts under the OPEC+ deal the previous month. After the OPEC meeting in June decided to ease compliance rates, Russia increased production in July and pumped at its highest level since the OPEC/non-OPEC agreement came into force in January 2017. At 11.215 million b/d, Russia’s oil production in July was very close to the post-Soviet record-high of October 2016, the month used as a baseline for the production cuts. Russia’s oil production in July increased by 148,000 b/d from June, according to government data.
Russia’s oil industry has plenty of cash and will be able to withstand the planned $15 billion in extra taxes over the next six years. The government is looking for extra money to implement President Vladimir Putin’s pledges of higher social spending and better infrastructure over the next six years, expected to cost around $120 billion. The new oil tax changes will see an increase in the mineral extraction tax and a gradual reduction in oil and oil products export duty.
5. Nigeria
Nigeria’s oil production fell by 14.56 million barrels in the second quarter. The drop, which accumulated from 160, 000 b/d production shortfall was a result of 1.84 million b/d production average in the second quarter, a 3.95 percent decline between April and June. This decline from a 2 million b/d average in the first three months of the year had also reduced the country’s economic growth to 1.50 percent year-on-year between April and June.
In recent weeks there have been threats by militant groups to resume disruption of oil production in the Niger Delta if the federal government fails to restructure the country. Acting under the auspices of the Coalition of Niger Delta Agitators, militant leaders said new actions would be initiated against the interest of the Nigerian government in the Niger Delta region if the country remained the way it is. In 2016, Nigeria lost hundreds of thousands of barrels of oil production each day following a series of militant attacks on oil facilities.
The Nigerian Navy has deployed 16 newly bought ships to the Niger Delta to guard critical oil infrastructure. In August, a report from the Nigeria Natural Resource Charter revealed that the country had lost some $7.23 billion from theft during 2016 and 2017. Data from Chatham House suggests that in addition to oil theft in the Delta, Nigeria is also losing $1.5 billion a month from pirates stealing oil. The situation is so bad that Nigeria has been ranked the world’s worst performer in terms of oil theft, ahead of Mexico, Russia, and Iran.
Shell has reportedly initiated negotiations with local oil producers for selling two of its Nigerian oil licenses in the Niger Delta, worth about $2 billion. After the sale, Shell will focus on its deepwater operations where the frequency of theft and threat of attacks on infrastructure are low. Shell’s tenure in Nigeria dates to 1936 back when Shell D’Arcy was founded, the group’s first company in Nigeria.
6. Venezuela
Caracas’s production fell by 20,000 b/d to 1.22 million b/d last month. Compared to August last year, Venezuelan oil production was down by 680,000 b/d.
A new analysis of the Venezuelan situation says that the most likely force that will cause a political change comes from bondholders and their lawyers as they move to seize the country’s foreign assets. Venezuela owes about $65 billion US in outstanding bonds, according to Caracas Capital, a financial advisory firm. That’s in addition to other debts owed by the government and state companies — an estimated total of about $150 billion US. Holders of that debt include some of the biggest names in US finance, such as BlackRock, T. Rowe Price, Northern Trust, and the U.K.-based Ashmore Group. Venezuela also owes tens of billions of dollars to Russia and China, after borrowing heavily from the two countries in recent years, mainly through oil-for-loan deals.
Venezuelan drivers faced long lines for gasoline in border states on Tuesday as the government struggled to roll out a new payment system that is supposed to reduce smuggling of heavily-subsidized fuel. The pilot program that began last Tuesday in eight states was supposed to provide service stations with wireless devices that use a state-backed identification document called the Fatherland Card to carry out fuel transactions. The payment system will pave the way for charging international prices for fuel – a massive increase given that gas is now almost free. Gasoline prices are set so low that the equivalent of $1 buys nearly 400,000 gallons of fuel. Experts estimate Venezuela – where shortages of food and medicine have fueled hunger, disease and a mass exodus of citizens – loses at least $5 billion per year as a result of not selling gasoline at international prices.
ConocoPhillips is still awaiting payment from Venezuela on a $2 billion arbitration settlement reached last month with the country’s state-run PDVSA. Conoco suspended legal attachment efforts last month that had cut Venezuela’s oil exports from several Caribbean facilities following a deal that allowed Caracas 90 days to make an initial $500 million payment. Conoco says it would resume its legal efforts to collect the debt if the payments are not made.
7. The Briefs (selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
A wave of contaminated fuel that has clogged and damaged engines on between 200 and 300 oil tankers and container vessels in the past months has pushed shippers to demand stricter quality controls around the world. The calls are shining a light on the notoriously opaque shipping fuel sector, where any contamination can spread quickly and be difficult to trace back to its source. That is because large volumes of fuel oil are blended with so-called “cutter stocks” by suppliers and sold through an extensive network of middlemen before finding their way into ships’ fuel tanks. (9/5 and 9/6)
Scotland’s leader Nicola Sturgeon launched on Friday a major renewable energy project boasting the world’s most powerful wind turbines, which she hopes will propel the independence ambitions of her nationalist party. The 11,191-meter-high turbines in the waters of Aberdeen Bay will eventually produce 312 GWh of power a year – enough to power 80,000 households – helping to reduce Scotland’s reliance on its oil industry. (9/8)
Syrian sanctions: The US Department of Treasury announced sanctions against five Syrian companies and four individuals on allegations of facilitating crude oil shipments and financing to the Assad government. (9/8)
Qatar’s energy minister on Thursday called for oil-producing countries to boost investment in the oil and gas sector given a recovery in the price of oil, but said he did not back setting any specific targets for such investment. The Minister said he expected the issue to be addressed during a meeting of OPEC and non-OPEC countries in Algeria at the end of the month. (9/7)
In Yemen, the governor of a southern province pumping 100,000 bpd—half of Yemen’s total oil production— threatened on Thursday to suspend oil shipments from the region if the internationally recognized Yemeni government doesn’t meet the demands of protesters in Yemen’s south who have been protesting against government policies as the economic and humanitarian situation continues to deteriorate and the local currency to plunge. (9/7)
Turkmenistan completed an upgrade of its largest electric power plant on Saturday, which it hopes will help boost exports and eventually allow supplies to Pakistan, which would require the construction of a new transmission line. The Central Asian nation, which sits on the world’s fourth-biggest natural gas reserves, has been hit hard by the plunge in global hydrocarbon prices and is seeking to diversify exports in order to increase its hard currency earnings. (9/8)
African boom: There are at least 41 billion untapped barrels of crude oil in sub-Saharan Africa, the US Geological Survey estimated two years ago. During the downturn, oil companies bought licenses there and waited for the price environment to improve to advance their drilling plans. Independents such as Tullow Oil and Kosmos Oil expanded on the continent alongside supermajors such as BP. Now, these drilling plans are gathering pace, Uganda is one of the hot spots. Senegal, Kenya and even Namibia are other centers of attention. (9/7)
In Brazil, the outcome of their upcoming presidential election is astoundingly unclear, with scenarios that range from a winner from the far-right, center or left. The energy industry is certainly not at the core of the debate by any means, but there could be significant ramifications for Brazil’s oil and gas industry. (9/7)
Falkland’s kerfuffle: The Royal Navy of the U.K. has intercepted an Argentinian survey ship that a Navy commander suggested had been ‘snooping for oil’ on the edge of British territorial waters off the Falkland Islands in the South Atlantic. Navy officials and experts called it a minor incident in an area with a long-standing territorial dispute between the UK and Argentina, who also staged a brief war over the Falklands in 1982. (9/7)
Ecuador loses court ruling: Chevron Corp said on Friday an international tribunal ruled in its favor in an environmental dispute with Ecuador, finding the South American nation had violated its obligations under international treaties. The tribunal unanimously held that a $9.5 billion pollution judgment by Ecuador’s Supreme Court against Chevron “was procured through fraud, bribery and corruption and was based on claims that had been already settled and released by the Republic of Ecuador years earlier.” (9/8)
The US oil rig count fell by two to 860 on Friday while the gas rig count increased by two to 186, according to Baker Hughes data. Canada’s oil and gas rigs for the week fell sharply, by 24, bringing its total oil and gas rig count to 204, with an 18-rig decrease for oil and a 6-rig decrease for gas for the week. (9/8)
In Powder River Basin, compared to the Permian, Big Oil has found less-congested pipelines, cheaper land, and more importantly, a whole lot of oil. It’s not the first time that the Powder River Basin has garnered industry attention. In 2014, when oil prices were soaring, many industry players were already eyeing the basin as the next big thing, but when oil prices waned in the following years many drilling plans in Powder River were abandoned for established operations. Now with higher prices for crude, there has been a renewed rush for land deals in oil-rich areas, and the Powder River Basin is no exception. (9/5)
Delta’s Trainer refinery: Delta Air Lines, parent of refinery owner Monroe Energy, is moving forward with strategic options to sell a 49% stake in its 190,000 b/d Trainer, Pennsylvania, refinery, but will continue to operate the plant. (9/8)
Oil industry executives are rewarded for the strong performance of their companies. This “pay-for-performance” model incentivizes CEOs to maximize company value. But in the oil and gas industry, much of a company’s value is determined by the price of oil, which is entirely outside of management’s control—in other words, pay is in part based on luck. (9/6)
Colorado ballot issue: Oil and gas companies have pumped millions this campaign cycle into an effort to defeat a Colorado ballot measure that would increase new drilling setbacks by five-fold and cripple the future of the industry there. The pro-industry group Protecting Colorado’s Environment, Economy and Energy Independence, received $7.9 million during August alone, according to data from the state’s secretary of state. If the ballot issue is approved, drilling setbacks would increase from the current 500-foot setback to 2,500 from all occupied structures as well as vulnerable areas, including waterways and parks. (9/8)
Fuel-switching: In the U.S., the capability of the manufacturing sector to switch the fuels it uses declined continuously between 1994 and 2014, according to the EIA. Among the most commonly substitutable fuels used in manufacturing, the amount that could readily be switched in less than 30 days dropped from 24% in 1994 to 10% in 2014. Shifting use of these energy sources was likely the result of increased availability of natural gas, generally lower natural gas prices relative to other fuels, and the ability of natural gas to comply with environmental regulations. These factors led manufacturers to focus on natural gas use and to discount the value that fuel switching capability had provided in earlier years. (9/7)
German EV’s launching: While it’s taken them two years to join the race, German automakers are poised and ready to take on Tesla during a particularly vulnerable time for the electric carmaker. Mercedes-Benz is set to unveil its much-anticipated electric SUV on Tuesday. Then BMW will be flying the autonomous iNEXT electric crossover to press events in Munich, New York, San Francisco, and Beijing. Audi will unveil its first all-electric SUV at a world premiere in San Francisco on Sept. 17. (9/5)
North American railroads have begun to invest in improving rail efficiency and better infrastructure due to in part to increased demand from coal shipments. Canadian National will buy an additional 60 locomotives from GE after ordering 200 in December 2017, citing demand for higher rail capacity from commodities, the railroad said Wednesday. (9/8)
US offshore wind growing: The US East Coast is leading the nation’s charge toward developing an offshore wind industry, and while the country only has 30 MW of offshore wind capacity installed currently, if goals are met and announced projects are built, the East Coast could have nearly 9 GW of offshore wind capacity by the 2030s. (9/8)
Pushing batteries: China is looking to boost its energy storage market and projects as it adds growing renewable power capacities. At the end of last year, the Chinese authorities issued a unified national policy to boost the energy storage industry that has been lagging behind other countries despite the fact that China is leading global investments in renewable energy. Also thanks to the central government policy boost, and to some regional storage policies, China added nearly as much battery storage capacity in the first half of 2018 as it had in total at the end of 2017. (9/3)
The California Fuel Cell Partnership’s (CaFCP) 2030 vision statement describes a self-sustaining market in 2030 for fuel cell electric vehicles and renewable hydrogen, and the strategic priorities necessary for realizing it. The CaFCP document envisions 1,000 hydrogen stations enabling upwards of 1,000,000 electric vehicles on California roads in 2030. As of July 2018, nearly 5,000 fuel cell cars are already on the road in California. These first adopters currently have access to 35 retail hydrogen stations, with another 29 stations in development. (9/6)
Global emissions risk: The world is not making nearly enough progress in reducing greenhouse gas emissions to achieve the goals for limiting global warming agreed at the Paris climate summit in 2015, a group of political and business leaders has warned. The Global Commission on the Economy and Climate said on Wednesday the next decade or so would be “a unique ‘use it or lose it’ moment in economic history”, creating an opportunity to put the world on a path of low-emissions growth. If that opportunity was not grasped, however, the group warned that “by 2030 we will pass the point by which we can keep global average temperature rise to well below 2C”, the objective set at Paris. (9/6)
Solar H2 R&D: A new study, led by academics at St John’s College, University of Cambridge, has used semi-artificial photosynthesis to explore new ways to produce and store solar energy. They used natural sunlight to convert water into hydrogen and oxygen using a mixture of biological components and manmade technologies.
Peak Oil Review 4 September 2018
By Tom Whipple, Steve Andrews, originally published by ASPO-USA
https://www.resilience.org/stories/2018-09-04/peak-oil-review-4-september-2018/
Quote of the Week
“The [California] legislature finds and declares that the Public Utilities Commission, State Energy Resources Conservation and Development Commission, and State Air Resources Board should plan for 100 percent of total retail sales of electricity in California to come from eligible renewable energy resources and zero-carbon resources by December 31, 2045.” Senate Bill 100 reads
1. Oil and the Global Economy
Oil prices had two down and three up days last week closing out Friday a dollar or so higher with NY futures at $69.80 and London at $77.64. The struggle between the soon-to-be-implemented Iran sanctions and the threat to demand posed by the trade war continues as the primary factor driving prices. An unexpectedly large drop in the US crude inventory of 2.6 million barrels last week and a four-unit increase in the US oil rig count last week contributed to the volatility of the market.
Reuters reports that oil analysts cut their price forecasts for 2018 for the first time in almost a year amid growing concern over the impact on crude demand from escalating trade tensions. Iranian oil exports are already falling rather smartly; however, there is a floor under how far they will fall probably somewhere between 1 and 2 million b/d. Chinese demand alone will ensure that they do not drop any further.
The US-China trade war, however, does not seem to have a definite end in the immediate future and many are wondering just how much economic damage the standoff will do. There are too many factors, such as the pace of oil production from Venezuela, Libya, and the Permian Basin, to say whether any decline in the global demand for oil will offset looming production problems.
OPEC: News from the organization has been sparse since the Cartel+ decided to raise its production caps in June. OPEC oil output increased last month to a 2018 high as Libyan production recovered and Iraq’s southern exports hit a record, although a cut in Iranian shipments due to US sanctions limited the increase. The cartel pumped 32.79 million b/d in August, the survey on Friday found, up 220,000 b/d from July’s revised level and the highest this year.
OPEC and non-OPEC oil producers will attempt to formalize their long-term cooperation later this year by approving a charter that will make possible further joint action on output controls. Russia and several other non-OPEC countries joined OPEC producers in reducing oil output since 2017 in a move that has helped raise oil prices to nearly $80 per barrel from a low $30 in early 2016.
OPEC and its allies announced last week that they would review the monitoring mechanisms of its output agreement at the Joint Ministerial Monitoring Committee meeting in Algiers on September 23 but said it sees the current oil market as mostly balanced. In December, OPEC will discuss whether its members can compensate for a sudden drop in Iranian oil supply after US sanctions against Tehran begin in November.
US Shale Oil Production: US crude oil production rose 231,000 b/d in June to a record 10.674 million b/d, according to the US Energy Information Administration in a pair of monthly reports on Friday. This data comes two months after the end of June and is usually more accurate than the weekly estimates which are proving to be too high.
However, figures by the Railroad Commission of Texas showed production in Texas dropped in June 2018 and was down 7 percent from May, the first yearly drop since February 2017. Initial data from the Texas Commission is usually far too low because of rules allowing producers to keep some of their production secret to avoid tipping off local competitors as to how well they are doing. For example, the initial Texas production number for June 2017 was 75.2 million barrels, but a year later that figure has been revised upwards to 90 million.
Other news concerning oil production from the Permian Basin, which is the only US oil field from which significant production increases are expected, has not been so good. Last week, prices for WTI in Midland slumped to their widest discount to WTI elsewhere since August 2014. Reuters estimates that the price discount of WTI in Midland to the U.S. benchmark exceeded $18 a barrel. Some West Texas producers say they will pull back on activity and delay well completions as a result of falling local oil prices.
The number of drilled but uncompleted wells (DUCs) in the Permian rose by 167 in July, to 3,470, accounting for around 43 percent of all the DUCs in the US, according to the EIA. The Keane Group, which fractures shale wells, said it expects DUCs to rise as operators continue to drill wells to hold onto specialized rigs. When prices are weak, producers hold off on completing wells.
The current pipeline capacity for moving crude out of the Permian is 3.1 million b/d. The EIA estimates that the Permian will have pumped 3.387 million b/d in August, and expects production to rise to 3.421 million b/d in September. If these numbers are valid, there is a severe shortage in the ability to move newly produced oil out of the Permian. Vista Proppants and Logistics say they have made a deal with logistics firm JupiterMLP to transfer crude oil from trucks to rail tanker cars at Pecos, Texas, and then ship crude on the Union Pacific Railroad until pipeline capacity catches up with rising production. Even if this scheme should work, it is likely that crude output from the Permian and hence from the US will not be growing as fast in the next year as has been forecasted.
2. The Middle East & North Africa
Iran: Iran oil shipments are declining at a faster-than-expected pace ahead of US sanctions set to begin in November. In the first half of August, Iran’s oil exports fell by 600,000 b/d, going from 2.32 million b/d to 1.68 million. Tehran’s exports have been falling all year, reaching their lowest level in four months by July and then dropping more rapidly last month. Indications are that August exports will be around 2.06 million b/d vs. a peak of 3.09 million in April.
South Korea, India, the EU, and Japan are cutting imports; however, Tokyo remains firmly committed to seeking US exemption for Iranian oil imports as it sees the Iranian oil as necessary for the country’s energy security. India will “definitely” not cut off entirely its crude oil imports from Iran, but it expects to reach some agreement with Washington at a meeting with US officials this week.
Beijing has been posturing over the US demand that every nation halt Iranian oil purchases, but most believe that China will continue to import at the pre-sanctions level, rather than attempting to undercut the sanctions by buying up oil that cannot be sold elsewhere.
The breadth of the US sanctions is having an impact on the Iranian economy. The threat of sanctions against tanker companies transporting Iranian oil, insurance companies covering Iranian cargoes, and financial institutions doing business with Iran are causing considerable trouble. Iran’s currency has fallen by more than half since the start of the year. The economic pressures have the government in turmoil with top officials being purged. The hardliners in Tehran seem to be gaining ground against the government of moderate President Hassan Rouhani. Rouhani’s real failure in the eyes of the hardliners was in trusting the United States when it agreed to the 2015 nuclear deal. The Trump administration’s withdrawal from the pact earlier this year was proof in Tehran that opening up and negotiating with the US was a mistake.
OPEC will discuss in December whether producers can compensate for a sudden drop in Iranian oil supply after US sanctions against Tehran start in November. Despite all the fuss, Iran has remained within the main restrictions on its nuclear activities imposed by the 2015 nuclear deal, a report by the UN indicated last week.
Iraq: In the meantime, Baghdad is waiting in the wings to increase its exports and seize Iran’s share of the oil market. OPEC’s Joint Ministerial Monitoring Committee is expected to discuss an increase in oil production during the next meeting, which is expected to take place on September 11th. The Monitoring Committee’s production plans will likely include a formula for how to divvy up the increased production limits by country, and Iraq wants to make sure it is included in those plans.
Iraq’s oil production has been increasing according to OPEC’s Monthly Oil Market Report, averaging 4.476 million b/d in the first quarter of 2018, increasing to 4.556 million for July. Iraq’s August crude oil exports are nearing 3.595 million b/d, according to the chief of Iraq’s state marketing organization. A settlement with the Kurds would enable Baghdad to increase its exports even further.
Saudi Arabia: The perturbations in Saudi oil production continue. Riyadh will report to OPEC that its crude oil production in August averaged 10.424 million b/d, up 136,000 from the July level of 10.288. However, the Saudis supplied 10.467 million b/d to the market in August, drawing on stored oil to supply more crude to the market than it produced.
Russian Deputy Foreign Minister Mikhail Bogdanov said on Friday that Vladimir Putin is preparing to visit Saudi Arabia. Global oil markets likely will be on the top of the agenda as will developments in Syria (where Moscow and Riyadh are on opposing sides in the ongoing Syrian Civil War), as well as talk about US sanctions on Iran.
Reuters released a new report last week concerning a split between Saudi King Salman, and his 32-year-old son and de facto ruler, Crown Prince Mohammed bin Salman. For the past two years, Saudi Arabia had been preparing to place up to 5% of its national oil company, Saudi Aramco, on the market. The planned listing was to be the cornerstone of the kingdom’s promised economic overhaul and, at a targeted $100 billion, the biggest IPO ever. The IPO was the brainchild of 32-year-old Crown Prince Mohammed bin Salman.
In late June, work on launching the Aramco IPO was halted. According to Reuters, King Salman stepped in and ordered the IPO stopped after he met with family members, bankers, and senior oil executives who told him that the IPO, far from helping the kingdom, would undermine it. The shelving of the Aramco IPO was a significant blow to the prince’s reform program, which aims to transform Saudi Arabia’s oil-dependent economy.
The question is whether the Aramco IPO fiasco is an indication of a fallout between the aging King and his favorite son. For now, Reuter’s sources say “No,” but this could change if the crown prince pursues policies that the King considers dangerous to his legacy. A split within the royal family could quickly evolve into a threat to the world’s oil supply.
Libya: Clashes broke out in Tripoli last week as rival militias vied for control over territory in parts of the capital city. A temporary truce is in place, though it may be tenuous as neither side is willing to give up territorial gains. An August report from the International Crisis Group found government unity in Libya is lacking given the mounting distrust running in leadership circles since the end of civil war. For some form of political agreement to take place, the group said everything from more transparency at the nation’s central bank to a more significant role for the UN mission might be necessary.
Libya’s oil production has been holding at around 1 million b/d for the past couple of weeks, rising slightly this week thanks to increased production at two small oilfields in the east. Libyan media is reporting that Ibrahim Jadhran, who led the devastating June attacks on Libya’s export terminals, is now teaming up with tribes and forces loyal to Muammar Gaddafi and Chadian rebels to plan a new strike on the oil region.
3. China
The Sino-American trade war and the Iranian sanctions remain important issues for China’s oil industry. Sinopec, China’s largest refiner which imports about 85 percent of its crude, says it will continue to buy crude oil from both the United States and Iran as keeping diversified sources of crude is essential to China’s well-being. Recent reports suggest that Chinese oil buyers can swap purchases of US crude for cargoes that are not encumbered by the tariff war.
US crude exports to China appear set to slow dramatically in September, with vessel-tracking data compiled by Thomson Reuters Oil Research and Forecasts showing about 6.12 million barrels, or about 204,000 b/d, scheduled for arrival. This would be down from around 363,000 b/d in August, and would also be the weakest month since March this year.
However, the pricing of the various grades of crude oil rather than impending tariffs explains why China stocked up on US crude in August, and appears to have backed off in September, and probably October as well. The discount of front-month WTI crude oil futures to Brent futures widened to $11.39 a barrel on June 6th and traded close to level for around a three-week period from late May to mid-June. May-June was the time that oil for September-October import into China would have been purchased.
Chinese refiners could buy WTI last spring at a substantial discount to Brent in the paper market, which would allow them to take physical cargoes. However, by the time September cargoes for China would have been purchased, the numbers had moved in the other direction, with Nigeria’s Bonny Light trading at $73.52 a barrel on June 25, putting it at a discount of $1.47 to WTI Houston. This price shift would have made buying West African light crudes more attractive than cargoes from the US even without the political considerations.
China’s near-desperate need to reduce the burning of coal which is poisoning the atmosphere of nearly all its large cities was highlighted last week by a new study showing that chronic exposure to air pollution could be linked to the cognitive performance of the Chinese people. Researchers believe that the negative impact of air pollution increases with age, and affects men with less education the worst. The results have global relevance, with more than 80 percent of the world’s urban population breathing unsafe levels of air pollution.
For now rapidly increasing the use of natural gas in China’s cities seems the only short-term fix for the pollution problem. PetroChina is aiming to grow its gas output at a much faster rate than oil over the next five years, however, “Domestic oil and gas resources are not good enough for significant production increases,” according to Zhang Jianhua PetroChina’s vice chairman. So far Beijing has not added LNG to the list of US exports targeted for tariffs.
The government is becoming increasingly concerned about the demographic slide which will leave a country of retirees being supported by fewer and fewer workers. Beijing now appears poised to scrap the limit on the number of children couples can have., A state-run newspaper has cited a draft civil code that would end decades of controversial family planning policies including fines and forced abortions. A new population policy would not have an impact for at least two decades by which time China’s economy and its demand for energy are likely to have changed radically.
4. Nigeria
For many years now a bill has been winding its way through the Nigerian legislature that would bring about a comprehensive reform for Nigeria’s perennially troubled petroleum industry. Last week President Buhari refused to give his consent to the Petroleum Industry Governance Bill (PIGB) and has returned it to the Senate. Given the current impasse between the executive and legislative arms of government, this bill will not be revived for the next two years. In the meantime, Nigeria’s petroleum industry will continue to be incredibly corrupt and is unlikely to make much progress in increasing oil production.
The Nigerian National Petroleum Corporation wants to build two condensate refineries with 200,000 b/d refining capacity. While the initiative would increase the NNPC refining capacity from 445,000 b/d to 645,000 b/d, its current refineries are only operating at a fraction of their rated capacity due to lack of maintenance. The company would be far better off in getting its existing refineries fully operational again before it undertakes to build new ones.
5. Venezuela
There was not much good news last week. PDVSA says it will increase oil output by 640,000 b/d by bringing in seven service companies to raise production from existing wells. Despite the claim that “a new era” has arrived for the company, it seems more likely that production will continue to decline. Last week a ship-handling accident at the PDVSA’s main export terminal shut down one-third of its capacity for an indeterminate period. The closing of the dock could delay as much as 5 million barrels in crude deliveries to Russian company Rosneft, further complicating Venezuela’s oil-for-loans agreements with Moscow. Shipments to the US’s Valero and Chevron are also delayed.
Under a contingency plan, oil tankers that were assigned to load diluted and upgraded crudes at the damaged dock are being diverted to a neighboring terminal. However, only ships carrying under 500,000 barrels can be accommodated at the smaller terminal.
As could be expected, PDVSA filed an appeal requesting that a Delaware court vacate a decision on Aug. 23rd granting Canadian miner Crystallex the right to seize the company’s US assets including the Citgo refineries.
6. The Briefs(selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
Petro-dollar war: The main front where the future of the dollar will be decided is the global commodity market, especially the $1.7 trillion oil market. In the midst of America’s economic euphoria, it is worth remembering that one of every four people on the planet lives today in a country whose government is committed to ending the dollar hegemony. (8/28)
Offshore Norway, Equinor has raised the resource estimate for its giant oil field Johan Sverdrup in the North Sea and said it was able to drive development costs for the project further down. The estimated recovery for the entire Johan Sverdrup field is raised to 2.2-3.2 billion barrels of oil equivalent (up 0.1 bboe). The first phase of the Johan Sverdrup project is slated to start production in November 2019 and will be the main contributor to Norway’s rising oil production until 2023. (8/28)
In German coastal waters, construction work for Nord Stream 2, the planned Russian gas pipeline to Europe, has started, despite the threat of sanctions from US president Donald Trump and condemnation from across the EU. The contentious pipeline, which will double Russian gas imports to Germany across the Baltic Sea and reduce shipments through Ukraine, has heightened geopolitical tensions between Europe, the US and Russia, souring relations between Berlin and Washington and highlighting the EU’s fractured stance towards Moscow. (8/31)
Offshore Australia, ExxonMobil said on Monday it had commenced an $88 million offshore exploration drilling off the country’s southeast coast to search for new sources of natural gas. ExxonMobil Australia is also actively considering a potential gas import project to bring additional supply to the country’s east coast market. (8/27)
Brazil’s Petrobras and France’s Total on Friday agreed to buy millions of barrels of oil from the Brazilian government. It was the country’s first successful auction of its share of output from the pre-salt offshore play. The auction was the second attempt to sell its share of oil from three fields in the Santos offshore basin. The first attempt in May yielded no bids. (9/1)
In Brazil, investing $8 billion in waning offshore Campos Basin could boost its oil production by 230,000 barrels of oil equivalent per day (boepd) by 2025, consultancy Wood Mackenzie said. Production in the Campos Basin, where activity began about forty years ago, has fallen by a third over the last seven years to 1.3 million boepd, raising the specter of hefty outlays to close down operations. (8/28)
Onshore Colombia, six mostly foreign companies have so far made bids to explore for oil in 21 areas—many of them new—under a new system that seeks to boost investment and find new deposits to increase the nation’s reserves. (9/1)
In Mexico, a document drafted by advisors to incoming Mexican president Andres Manuel Lopez Obrador proposes withdrawing Mexico from the International Energy Agency and moving closer to OPEC. (8/30)
Mexico’s president-elect Andres Manuel Lopez Obrador will reportedly suspend oil auctions for at least two years, with some experts believing that his administration won’t hold any new oil auctions at all during his six-year term. He has also vowed to review the 107 contracts already awarded to companies through auctions over the last few years to check for corruption, although he has said he would not try to invalidate them so long as they check out. (8/27)
To Mexico, new pipeline capacity additions on both sides of the border have helped US natural gas pipeline exports to jump to their highest level on record in July, with a number of pipelines expected to become operational by 2020. For the U.S., more pipeline takeaway capacity gives the Permian an additional export outlet from West Texas to Mexico as producers are looking at ways to ease pipeline constraints on booming natural gas production. For Mexico, natural gas imports help to meet its rising gas demand as the country is adding gas-fired electricity generation capacity at a rapid clip while it faces a decline in its domestic gas production. (8/27)
A Canadian court on Thursday overturned approval of the Trans Mountain oil pipeline expansion, ruling that Ottawa failed to adequately consider aboriginal concerns, putting the future of the C$7.4 billion ($5.71 billion) project in jeopardy. The decision is a blow to Prime Minister Justin Trudeau’s government, which agreed in May to buy the pipeline from Kinder Morgan Canada for C$4.5 billion, and to the country’s oil sector. (8/31)
In Canada, with one surprise court ruling Prime Minister Justin Trudeau faces the risk of contesting next year’s election with key pieces of his economic and environmental plans in ruins. The Federal Court of Appeal overturned on Thursday the Liberal government’s 2016 approval to expand Trans Mountain, a critical pipeline to link Canadian crude with foreign markets, followed hours later by Alberta’s tit-for-tat withdrawal from Trudeau’s climate plan. The day’s events amplified criticism that Trudeau has failed to produce a regulatory system in which oil pipelines stood a chance of approval and undermined the PM’s ambitions to reduce emissions. (9/1)
The US oil rig count grew by two last week to 862, the first increase in three weeks, according to energy services firm Baker Hughes. Drilling has steadied over the last three months; the oil rig count rose by one in August after gaining three rigs in July and losing one in June. (9/1)
In Alaska, crude oil output on the North Slope could increase by as much as 40 percent in the next eight years. Fewer bureaucratic barriers and recent technology advancement continue to make the North Slope popular among oil exploration operators. Alaska has the infrastructure for oil production. The oil lurking under the surface of the historically oil-rich region is enough to turn the state’s economy around and reinstate it as a major player in the oil industry, according to new research from IHS Markit. (8/28)
In Wyoming, oil companies looking for the next big find are wading into the Powder River Basin, where pipelines are not congested, and land is cheaper than in Texas’ Permian Basin, the world’s fastest-growing oil-producing region. A series of largely undisclosed land deals is fueling interest in its conventional and shale formations. (9/1)
The earthquake link: In a new study in the journal Science, scientists describe for the first time how earthquakes can be triggered so far away from wastewater injection wells. That efficient practice by the oil and gas industry is creating a ripple effect far beyond its drilling locations. Geologists have linked injection wells to quakes, with findings based on years of observation. Human-made earthquakes, however, are mostly moderate in size, but put 1 in 50 people in the United States at risk, according to a recent U.S.G.S. analysis. (8/31)
Colorado voters will decide in November whether to increase land setbacks from new oil and gas development, a measure that could sharply limit future production from the DJ Basin. The setbacks would have the biggest impact on Weld County northeast of Denver, the most prolific production area in the state. Colorado is the seventh top oil-producing state and sixth top natural gas producer. (9/1)
Trump trumped in CA: Earlier this week, the California State Assembly passed SB 884, a bill that would prohibit the States Lands Commission from allowing any new wharfs, piers, pipelines and other facilities in state waters from the shoreline out to three miles offshore that could be used to expand oil production, effectively blocking Trump’s plans to drill for oil in federal waters off the California coast. (8/31)
California legislators scored a win against the Trump administration by passing one of the nation’s most ambitious clean energy bills. The bill, introduced last year by Sen. Kevin de León, D.-L.A., increases the state clean energy target from 50 percent of the state mix by 2030 to 60 percent and moves the target to 100% by 2045. (8/30)
US gasoline prices, as well as demand, remain high for the Labor Day weekend, the US EIA reported on Friday. The US average retail price for regular gasoline, reported on Aug. 27, was $2.83 per gallon, the highest it has been the Monday before Labor Day since 2014 — when it was $3.45 per gallon. (9/1)
EV support: By a unanimous vote, California lawmakers approved Assembly Bill 2127, as amended, that calls for a biannual update on electric vehicle charging infrastructure. The bill mandates the review to gauge progress on a state-wide effort to put at least 5 million zero-emission vehicles on California roads by 2030. (8/28)
Sales of battery electric vehicles and plug-in hybrids in Europe jumped by 42 percent annually in the first half of 2018, hitting the 1-million milestone, with the plug-in share of the European light vehicle market at 2 percent, data compiled by sales database and analytics firm EV-Volumes showed. The sales of battery electric vehicles (BEV) and plug-in hybrids (PHEV) in Europe came in at 195,000 units in the first half of this year. (8/28)
In Europe, the car market is also softening as demand returns to pre-recession levels. That is making profits harder to come by in a region where many car companies have long struggled to make money. President Donald Trump’s trade policies are undermining consumer confidence in many markets outside the US and are widely seen as the biggest threat to continued economic growth. (8/28)
Russian EV? Well-known arms and military equipment giant Kalashnikov—perhaps best known for its AK-47 assault rifle—took the world of cars by surprise last week, unveiling what it says will rival Tesla: an electric vehicle that can go 220 miles on a single charge. Critics note that the CV-1 is an ugly retro-design and that Kalashnikov hasn’t yet let observers look under the hood. (8/27)
Coal consumption continues dropping: The US EIA reported that the nation’s power sector consumed 661 million short tons of coal last year, the lowest level since 1983. (8/30)
Wind energy player: The US would be key to Ørsted’s efforts to grow its global footprint. The company has installed about 25% of the installed offshore-wind capacity in the world. Earlier in August, Ørsted made its first major investment in the US when it agreed to buy Lincoln Clean Energy LLC, a Chicago-based onshore wind, and solar company, for $580 million. Bidding for capacity in the US is next on the agenda. (9/1)
Since China has tapped all of its near-shore capacity for wind, Norwegian certification body DNV GL said it would help China develop additional power resources offshore. Huadong Engineering Corp. has contracted DNV GL to provide technical training and feasibility studies for an offshore wind farm. (8/30)
Aussie H2? Australia, one of the world’s top LNG exporters, has a bright future as a hydrogen economy. This is the conclusion from the Commonwealth Scientific and Industrial Research Organization, a federal agency that has, with a new roadmap, joined a growing interest in hydrogen as a renewable alternative to fossil fuels. (8/31)
Ultra air pollution: The Pacific Northwest, sandwiched between Canada’s smoldering British Columbia to the north and six fire-wracked Western US states, is feeling the side effects of one of the worst fire seasons on record. For much of the past several weeks, clouds of choking smog have upended daily life and posed a health hazard for millions here. (8/30)
When heat really hurts: A recent meta-analysis of 60 prior studies showed that unstable temperatures tend to be correlated with conflict. In the US, for example, there is good evidence that road rage, domestic assault, and murder are higher during heatwaves. (8/31)
Tankers with sails? In the 1980s, French ocean explorer Jacques-Yves Cousteau commissioned the Alcyone which used turbo-sails that provided thrust in the direction of travel along with the engines. Shipping executives said similar efforts didn’t catch on with tanker operators because either the costs of such technologies were too high or tests didn’t yield the expected fuel savings. But modern, lightweight and relatively cheap rotating sails show more promise. The cylinders on a Maersk tanker are made with composite materials by Finland-based Norsepower Oy Ltd. and cost 1.2 million to $2.3 million to fit on a vessel, depending on the size of the ship. (8/31)
Could Oil Demand Peak in Just Five Years?
Recent forecasts point to oil growth ending far earlier than many in the industry expect
New estimates are putting increased pressure on big oil companies to clarify how they intend to confront a looming energy transition. Photo: Justin Sullivan/Getty Images
By Sarah Kent
Sept. 10, 2018 7:01 p.m. ET
https://www.wsj.com/articles/debate-heats-up-over-when-era-of-oil-will-end-1536620460
LONDON—The Era of Oil is coming to a close but experts and corporate analysts disagree about just when that will happen.
The time left before global demand for crude peaks is increasingly tightening, according to new projections from industry analysts. Two reports published this week point to an end of oil’s growth within the next five years, far earlier than many in the industry are expecting.
Though most forecasts of oil’s demise project a long tail, the estimates put increased pressure on big oil companies to clarify how they intend to confront a looming energy transition.
Demand for fossil fuels will peak around 2023, as increasingly cost-competitive solar and wind are buoyed by supportive government policies to displace growth in oil, coal and natural gas, according to an analysis by London-based think tank the Carbon Tracker Initiative.
“It’s not a scenario; it’s just obvious,” said Kingsmill Bond, new energy strategist and author of the Carbon Tracker report.
Norwegian risk-management company DNV GL takes a similar view in an analysis released in London on Monday. It predicts oil demand will max out in five years’ time, making way for renewables to dominate an increasingly electrified and efficient energy system.
“The transition is undeniable,” said DNV CEO Remi Eriksen.
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The aggressive forecasts add to a raging debate among energy executives and analysts over what the coming decades may hold for the industry. Mainstream views have shifted from a decade ago, when many fretted over the prospect that oil supply could run out. Now, global ambitions to curb global warming, coupled with cheaper and better renewable technologies, are pressuring assumptions about long-term demand.
Investors are increasingly sitting up and taking notice, demanding big oil companies outline how resilient their businesses are to an energy transition. While the industry unsurprisingly has a more bullish outlook on the commodity, even some big oil companies acknowledge a tipping point may be coming sooner than previously anticipated.
Earlier this year, BP PLC said the world’s appetite for oil could plateau and then begin to decline between 2035 and 2040, acknowledging that renewables like solar power are growing faster than expected. Previously, the company had said crude demand would keep growing into the 2040s. Royal Dutch Shell PLC has said if serious global action is taken to combat global warming, consumption could peak by the mid-2020s. Both companies look at a range of scenarios when planning their strategies and don’t treat such numbers as forecasts.
“As an industry we will have to deal with radical uncertainty on a scale which we have not experienced before,” Shell CEO Ben van Beurden told an industry conference in March. “We ignore that at our peril.”
The International Energy Agency—whose outlooks are often used as an industry benchmark—has also published scenarios in which oil consumption peaks in the 2020s on the basis of aggressive climate action. But its central assumption is still that oil demand will continue to grow into the 2040s. That is also the view of U.S. oil giants Exxon Mobil Corp. and Chevron Corp.
“The oil companies and the IEA think we have decades to go,” Carbon Tracker’s Mr. Bond said. “This is a real turning point…[and] it’s jolly soon.”
Peak Pique
Within the oil industry, the amount of time left before demand peaks is the subject of hot debate
Carbon Tracker: fossil fuel demand to peak in 2023
DNV: 2023
IEA: demand continues to grow out to 2040
Equinor: around 2030
Shell: as soon as 2025, as late as 2040
BP: 2035-40
Exxon: demand continues to grow out to 2040
Chevron: no peak in the near or intermediate future
Wood Mackenzie: mid-2030s
Source: The Companies
Write to Sarah Kent at sarah.kent@wsj.com
Appeared in the September 11, 2018, print edition as 'New Fuels Bring End of Oil Era Nearer.'
Do the Math
Using physics and estimation to assess energy, growth, options
by Tom Murphy
Posted on 2011-10-18
https://dothemath.ucsd.edu/2011/10/the-energy-trap/
Michael Klare: Finite Resources And The Geography of Conflict
Gail Tverberg is looking at conflict and war:
https://ourfiniteworld.com/2018/08/27/how-energy-shortages-really-affect-the-economy/
"Most of us have never been taught about resource wars. The wide availability of fossil fuels eliminated the need to even think about a possible lack of energy resources, or other limited resources such as fresh water. Unfortunately, resource conflict may be back in some new 21st century version in the not too distant future."
No More
Our existence is predicated on the conversion of one energy form into another. In the process of doing that, we give ourselves employment and wages.
Norman Pagettco-author of The End of More, in paperback and kindle on Amazon http://www.amazon.co.uk/dp/B00D0ADPFY email pagett.communications@blueyonder.co.uk
https://medium.com/@End_of_More/no-more-e837750bb035
Our existence is predicated on the conversion of one energy form into another. In the process of doing that, we give ourselves employment and wages
Whether engaging in trafficking human beings, or ferrying vast quantities of oil around, the intent has always been the same, to get rich by that conversion process. To make it work, the process must run faster year on year.
That is the basis of the society we live in. It is all we (collectively) have and do. We might fantasise about a lifestyle that consumes less, but we cannot remain prosperous by taking in each other’s washing and mending each other’s shoes.
If every fuelpump and oilbarrel since oil went into commercial production in 1859, had had OIL KILLS PLANETS printed on it in letters a foot high, we would still have burned the stuff as fast as possible, with or without Rockefeller’s help. We may see him as the epitome of greed, but we’ve all shared in it, willingly and eagerly, even though the wars it spawned killed millions and destroyed the planet we live on.
Wailing weeping and handwringing now will not rectify the mess we’re in, neither will we stop burning oil, despite exhortations from those of learned bent to “do something’?—?-aimed and governments as well ourselves. That ‘something must be done’ is engaging in wish politics, together with a liberal dash of wish economics and wish science.
Oil consumption is not like smoking, with health warnings printed on packets.
Smoking is a lifestyle choice.
Oil is the choice of life or death. Except that we don’t have a choice. We must now consume oil to stay alive.
We have pulled off the neat trick of converting petroleum into food, (to quote prof. Albert Bartlett.)
That has put 7.4 billion people on the planet, 6 billion of whom would not be here without hydrocarbon support.
Remove hydrocarbon fuels, and those 6 billion don’t have a future.
1 Bn people are at starvation level now. We are on course to reach 9 or 10 bn by 2050.
Common sense says that we cannot sustain that number, so something has got to happen within the next 30 years to stop it. This is going to be our ultimate holocaust.
Our lines of growth are promised to climb towards infinity, despite living on a finite planet.
And thinking oneself into a utopian future of renewable energy systems is not going to prevent it. Windfarms and solar panels deliver electricity. Without our (hydrocarbon based) infrastructure, electricity is of very little use, and cannot sustain civilization in any sense that we know it.
Doubters should imagine electric cars running on unmade roads. Or making a single lightbulb. We are headed back to the ‘naked light’ society from whence we came only a few generations back.
We are perhaps expecting to have a future where we will be only mildly inconvenienced by changed (energy) circumstance?—?-where ‘they’ will fix things. Or to extend the fantasy into the surreal, that some ‘new technology’ will be developed to allow business as usual.
We must get real here. Your future, my future is dependent on that business as usual supporting us through a healthy lifespan and into secure old age.
We are all complicit in the madness, everyone demanded (and is demanding) that oil should make princes of us all; governments of whatever stripe have had no choice but to concede to everyone’s demands.
Trump has offered what might be the final straw to clutch at, promising to ‘make America great again’, in denial that it was cheap energy that provided that greatness, (such as it was) in the first place.
And having no other straw to clutch at, millions reach out in desperation.
But of course, we are navigating through the rear view mirror of history, where we see that the faster we burned oil, the richer we got. It seemed to good to be true, which it was. We called everything ‘GDP’, as though the act of work delivered infinity prosperity; when in fact GDP and ‘growth’ were exclusively a result of consuming fossil fuels.
But our leaders still offer that future.
Whether saint or charlatan, they can offer no other.
There is no other.
We might agree that ‘things must change’. They will of course change, but not in ways of our choosing. I can offer the certainty that humankind has never collectively changed unless forced to do so.
That change has invariably been unpleasant, and driven by (short lived) dictators intent on tribal supremacy.
Homo sapiens has existed for 100,000 generations, give or take. Those countless generations have had one overriding factor, that of homicidal intent, driven by the genetic force of survival. That drive has brought us to where we are now. We have perhaps a single generation left in which we might alter our destructive habits.
Can we manage that?
I’d like to believe it to be possible, but oil driven resource wars of the past 100 years would suggest otherwise.
Peak Oil Review 27 August 2018
By Tom Whipple, originally published by ASPO - USA
https://www.resilience.org/stories/2018-08-27/peak-oil-review-27-august-2018/
Quote of the Week
[In Mexico] “Production peaked in 2004/2005 at just over 3.5 million b/d, so the overall decline is approaching 50%…Only three years since 1999 have had reserve replacement ratios greater than 100%. Many years’ numbers have actually been negative, some of them significantly so, and the estimated ultimate recovery has been revised slightly downwards overall.” George Kaplan, oil industry analyst
1. Oil and the Global Economy
The oil price surge which began two weeks ago continued last week with prices rising by $4-5 a barrel to settle on Friday at $68.72 in New York and $75.82 in London. The markets are still conflicted as to whether a reduction in demand occasioned by the trade war or a drop in supply stemming from the Iranian sanctions, the Venezuelan collapse, and the slowing growth of US shale oil production will dominate the immediate future. Last week we learned that China may continue buying US crude, but will swap or sell the oil to third countries so that crude imports to China would not come directly from the US. Third party crude would not be subject to any tariffs imposed on US crude or give the appearance that Beijing is backing down in the trade confrontation with Washington. Any crude that comes from the US would reduce China’s dependence on the volatile Middle East.
Last week’s price rise was helped by a weaker US dollar, a 13-rig decline in the number of active oil and gas rigs in the US, and an unexpected 5.8 million barrel drop in US commercial crude inventories. Refinery utilization rates remained unchanged at 98.1 percent of total capacity, the highest since 1999. Gasoline stocks rose 1.2 million barrels, compared with analysts’ expectations in a Reuters poll for a 488,000-barrel drop. Distillate stockpiles, which include diesel and heating oil, rose by 1.8 million barrels, versus expectations for a 1.5 million barrels increase, the EIA data showed.
The EIA estimated that US crude production rose by 100,000 b/d to 11 million b/d the week before last. These weekly estimates are becoming controversial as actual production which takes several weeks to compile has been showing a much lower production figure. Coupled with the increasing costs of producing and shipping shale oil, these weekly EIA estimates should be taken with a grain of salt until real data is released.
OPEC: The EIA estimates that members of OPEC earned about $567 billion in net oil export revenues in 2017. This increase of about 29 percent from the $441 billion made in 2016 came mainly as a result of the increase in average prices during the year and the rise in OPEC net oil exports. Saudi Arabia accounted for the largest share of total OPEC earnings with $167 billion in 2017, representing nearly one-third of total OPEC oil revenues. EIA expects that OPEC net oil export revenues will rise to about $736 billion in 2018 due to much higher prices and increased exports.
OPEC and the other participating oil exporting producers are expected to agree on a mechanism to monitor their crude production before the end of the year. A committee that will meet in Algeria on Sept.23, known as the JMCC, is chaired by Saudi Arabia and includes OPEC members Algeria, Kuwait, United Arab Emirates and Venezuela, as well as non-OPEC members Oman and Russia. Iran asked to attend the meeting to defend its market share which could be impacted by US sanctions due to take effect in November. Tehran is asking that other OPEC members do not steal its share of the global market while its exports are sanctioned.
US Shale Oil Production: Drillers cut nine oil drilling rigs this week, the largest reduction since May 2016, following a recent decline in crude prices. The oil rig count, which fell to 860 last week, is still much higher than last year when only 759 rigs were active.
Drilling activity in the Bakken has seen a gradual expansion this summer on higher oil prices, but it now faces growing problems as the region struggles to process a rising volume of associated gas and an increasing water cut. It’s not an issue if water production increases along with oil. However, it’s a severe problem if by-product wastewater rises a great deal more than oil production, and that seems to be what has taken place in the Bakken over the past two years. According to the North Dakota Department of Mineral Resources, the Bakken produced 201 million barrels of oil in the first six months of 2018. However, it also created 268 million barrels of wastewater.
The trend of an increasing water cut is not good. It costs drillers some $4-5 a barrel to get rid of the wastewater down disposal wells. In Oklahoma, these disposal wells have been blamed for causing minor earthquakes, and their use is now regulated. This situation will have to be followed closely for some are saying that it suggests that peak production from the Bakken is coming soon. Others are saying that the increasing water cut is an artifact of the new drilling technology which has raised the amount of water used to frack a well from 60,000 barrels per completion to 200,000. Simple arithmetic suggests that it is difficult to believe that an extra 140,000 barrels forced down each new well during the fracking process will account for the massive increase in the water cut in recent years.
A new Duke University study of the water used for fracking and the wastewater cut coming from shale oil wells finds that the amount of wastewater increased by 1,440 percent between 2011 and 2016. Over the same period, the total amount of water used for fracking rose roughly half as much, 770 percent. Drillers have been making an effort to increase the quantity of fossil fuels they can extract from each well by drilling longer horizontal laterals and using more sand, water, and chemicals when fracking. But the water use and wastewater production per well have been growing even faster than the per-well fossil fuel production, the researchers found, labeling the water demand and wastewater growth “much higher” than the oil or gas increases. This increased demand for water is bad news for arid areas like the Permian Basin in Texas and New Mexico, where underground water supplies are already taxed by residential and agricultural demand.
Some observers are starting to say that water for fracking, and the disposal of wastewater from shale oil and gas wells, are about to become the primary factors that will limit production from fracked wells in coming years.
A survey of 33 shale companies by Rystad Energy found that while the group increased spending by about 8 percent, they only increased their expected amount for this year by 1.4 percent. “This disconnect might suggest that the shale industry requires more capital than before to achieve healthy production growth.” There are some signs that the Permian, for instance, is running into some productivity problems, raising the possibility that the highly touted “efficiency gains” over the past few years are reaching their limit.
2. The Middle East & North Africa
Iran: The efficacy of the US sanctions on Tehran’s oil exports remain the top issue. The evidence is mounting that secondary sanctions that Washington says it will place on any nation or company doing business with Iran is starting to have an effect. There have been reports that Tehran’s exports are already down by 700,000 b/d suggesting that the current US goal of cutting crude shipments by 1 million b/d may be feasible.
The war of words between Washington and Tehran continues. Last Wednesday Iran warned it would hit US and Israeli targets if it were attacked by the US after President Trump’s security adviser said Washington would exert “maximum pressure” on Tehran going beyond economic sanctions.
China’s shipowners are avoiding carrying Iran’s oil, forcing Tehran to use its own tankers to supply top customers. All 17 ships used to transport oil from Iran to China in July and August are owned by the state-run National Iranian Tanker Co., according to ship-tracking data compiled by Bloomberg. Almost half the vessels used in the prior three months were owned by Chinese. The shift in carriers shows how trade is being affected even before US sanctions come into effect in early November.
Two of Iran’s biggest OPEC rivals, Saudi Arabia and Iraq, are taking over its European oil market share by increasing production of their lookalike crude grades. Iran’s crude has been normally purchased by refiners in China, India, Japan and South Korea, and some customers in Turkey and the European Union. Buyers seeking an alternative cannot just opt for any crude on the market but must import crude grades compatible with, and optimized for their refineries.
Tehran is already complaining about the shift to OPEC saying that no member country should be allowed to take over another member’s share of oil exports. As Washington reimposes sanctions aimed at cutting off Iran economically from the world, the Iranian people are feeling isolated. A recent spike in the cost of airfare is making travel to the world expensive, and major air carriers are now suspending service to Iran. On Thursday, British Airways and Air France announced they would end direct flights to Tehran, following a similar decision by KLM last month.
Iran’s oil minister announced last week that France’s Total has officially left Iran after the United States threatened to impose sanctions on companies that do business in the country. Total is holding talks to transfer its 50.1 percent stake to state-owned China National Petroleum Corp. but is having trouble reaching an agreement on price. Total’s pullout from the South Pars project is the most substantial blow Iran has suffered as yet from the threat of renewed US sanctions.
Iraq: Southern Iraqi exports in the first 19 days of August averaged 3.7 million b/d, up 160,000 b/d from July’s 3.54 million – the existing monthly record. The increase follows the June OPEC+ meeting that allowed oil producers to increase production after they had been curbed during the previous 18 months. Before the June OPEC meeting, however, Iraq had been boosting exports from southern terminals to offset a halt in shipments from the northern Kirkuk region last October after Iraqi forces seized control of oilfields there from Kurdish fighters.
Northern exports also increased in August, averaging about 350,000 b/d so far, up from about 300,000 b/d in July. That is still far below levels of more than 500,000 b/d in some months of 2017.
Iraq’s state-run Basra Oil Company and the US’s Chevron agreed to begin implementing a memorandum of understanding to develop fields in the south of the country. The agreement outlines a program to develop two oil fields in southern Iraq, including studies to survey the reservoirs and extraction operations. In the last few years, most American participation in the development of southern Iraqi oil fields has declined due to the unfavorable terms that Baghdad has required foreign oil companies to accept.
Saudi Arabia: Most of the news from the Kingdom last week concerned the fate of the Aramco IPO which was the be the centerpiece of Crown Prince bin Salman’s efforts to finance reforms to strengthen his economy. Early last week, there were reports that Saudi Arabia had called off the domestic and international stock listing of Aramco, which had been touted as the most significant such deal in history. The Saudi government continues to insist that it remains committed to an initial public offering of Aramco, but says the listing would go ahead “at a time of its own choosing when conditions are optimum.”
The King instructed Saudi Aramco to acquire the Public Investment Fund’s 70 percent stake in Saudi petrochemicals maker Sabic, raising some $70 billion for the fund by moving money from one state coffer to another. To pay for the stake in Sabic, Saudi Aramco is planning to raise tens of billions of dollars from international banks, which some advisers say is an alternative to an Aramco IPO that achieves much of the same objectives.
Some are saying that the decision to shelve what was billed as the most significant share sale ever is a major blow to the credibility of Crown Prince Mohammed bin Salman. The decision raises doubts about the management of the process as well as the broader reform agenda, sapping the momentum generated by Prince Mohammed’s dramatic 2030 Vision announcement in 2016 that helped propel him to power as the de facto head of the Saudi government.
3. China
On Thursday China implemented tariffs on the second round of US goods, targeting oil products and coal for the first time. This move is in retaliation for US tariffs effective the same day and paving the way for crude oil and LNG to be hit next. These tariffs come in the midst of trade talks between the US and China on Wednesday-Thursday in Washington. The two days of talks aimed at easing trade tensions ended without an apparent breakthrough, ensuring that the dispute will continue indefinitely. At the end of the negotiations on Thursday evening, Lindsay Walters, the White House deputy press secretary, said the two sides had “exchanged views on how to achieve fairness, balance, and reciprocity in the economic relationship” but gave no indication that any progress had been made.
The world’s two largest economies have now slapped tit-for-tat tariffs on a combined $100 billion of products since early July, with more in the pipeline, adding to the risks for global economic growth. US businesses are not happy with the Trump administration. The new tariffs on $200 billion of Chinese imports will force Americans to pay more for many items they use throughout their daily lives.
China’s banking regulator has ordered banks to boost lending to infrastructure projects and exporters as the government seeks to bolster economic confidence. Since the tariffs were announced on July 6, China’s currency and stock markets have fallen, reflecting investor nervousness about slowing economic growth and the longer-term impact of the trade war. The benchmark CSI 300 index has fallen more than 15 percent, and pressure has been building on the renminbi, which fell almost 7 percent against the dollar to a low of 6.93 on August 15.
While China’s imports of crude and LNG from the US have fallen considerably since the trade war began in July, Beijing backed off on the idea of sanctioning US oil earlier in August when the government pulled oil from a proposed tariff list. Last week Reuters reported that China’s Unipec, the trading arm of Asia’s biggest refiner Sinopec, will resume purchasing “some” US crude in October after a two-month halt. Before the trade dispute broke out, China overtook Canada as the largest importer of US crude in the first five months this year, importing an average of nearly 350,000 b/d.
As China’s domestic oil production shrinks and its need for LNG to replace the coal smoke which is befouling its largest cities increases, the need to keep open diversified sources of oil and natural gas is becoming more critical every day. Given the political instability in the Middle East with frequent threats to close the Straits of Hormuz, Beijing can no longer afford to shut itself off from a significant source of crude and LNG merely to score points in a trade war. Should oil exports from the Middle East ever be restricted, Beijing’s economy would be seriously harmed.
4. Russia
At US Senate hearings last week, a Treasury official said that Washington’s sanctions have curtailed investment in Russian oil and gas exploration projects necessary to grow Russia’s production. Total foreign direct investment into Russia has declined more than 5 percent since 2013, while US investment has fallen by 80 percent since then. There are bills in Senate committees which seek to increase economic pain throughout Russia’s banking and energy sectors and sovereign debt markets.
According to Russia-based analysts, the ‘bill from hell’ of hard-hitting sanctions against Russia that US senators introduced earlier this month is unlikely to have a wide-ranging impact on Russia’s oil industry, because Russian firms now rely almost entirely on domestic and Chinese banks for funding, and have lessened their dependence on Western drilling technology.
However, it was Russia’s natural resources ministry that said last week that the sanctions had hampered natural gas project developments in the country. In a report on oil and gas resources and their development for the period 2016-2017, the ministry said that sanctions limit the flow of foreign investment, new technologies, and equipment for the sector and complicate the development of new projects especially in offshore areas and in hard-to-extract resources such as shale oil. In the period 2016-2017, not a single significant gas project was launched, while gas firms focused instead on working on already operational projects.
5. Nigeria
Shell shut-in the Trans Ramos pipeline which feeds into Nigeria’s Forcados oil export terminal, to clean up crude oil spilled from a rupture in the pipeline last week. The pipeline, which has remained shut-in since the incidents, supplies 100,000 b/d of crude to the 200,000-250,000 b/d Forcados Oil Export Terminal in the western Niger Delta. As usual, Shell is forbidden by the government from revealing the cause of the “spill,” however, attacks on the Forcados pipelines as well as on the export terminal halted exports for most of the period between February 2016 and May 2017.
A report titled Stabilizing Nigeria’s Volatile Economy, says that between 1970 and 2014, Nigeria benefitted from five oil booms but never used the $1 trillion it earned during this period to expand the country’s economic base. The Obasanjo Administration’s economic reforms of 2003 to 2007 was the first attempt to break the pattern through innovation of a savings mechanism known as the “Excess Crude Account” into which extra oil revenue from oil was kept. The account was so successful that at the end of that administration in 2007, it had accumulated $17 billion in excess revenue; however, this effort was not sustained by governments.
6. Venezuela
A growing number of migrants are fleeing the economic meltdown and political turmoil in Venezuela, threatening to overwhelm neighboring countries. Officials from Colombia, Ecuador and Peru will meet in Bogota next week to seek a way to deal with the crisis. Ecuador and Peru have tightened entry rules for Venezuelans, requiring them to carry passports instead of just national ID cards. In Brazil, rioters drove hundreds of emigrants back over the border. The UN estimates that 2.3 million people, some 7 percent of the population, have left Venezuela since 2015. On Friday, The UN’s migration agency said the situation is building toward a “crisis moment” comparable to events involving refugees in the Mediterranean.
Last week the government issued new bank notes, with five fewer zeros on them. However, the biggest denomination bill, the 500-bolívar note, is worth only $8.3, even at the official exchange rate. The government also announced a 3,000 percent rise in the minimum wage which is likely to raise prices further. PDVSA is preparing to increase fuel prices in the domestic market to international levels next month after two decades of frozen rates and untold millions of dollars lost in subsidies and smuggling. Daily gasoline consumption is estimated at 190,000 b/d in Venezuela, of which 83,000 b/d are imported.
The only good news for the country recently is that PDVSA settled with ConocoPhillips over a long-standing debt issue that was allowing ConocoPhillips to seize PDVSA’s refining assets in the Dutch Caribbean, a devastating blow that compounded fiscal and operational problems. Without the processing facilities on the islands of Curacao and Aruba, PDVSA’s oil exports plunged deeper in the second quarter.
On the flip side, however, A US judge has granted a Canadian company the right to go after the US refineries of Citgo which belong to Venezuela. This judgment is intended to collect on a $1.4 billion award stemming from the nationalization of a gold mining operation by Caracas ten years ago. The refineries have already been pledged as collateral for a loan from Russia and a Venezuelan bond issue.
The Bolivarian Republic of Venezuela is still producing somewhere between 1 million and 1.3 million barrels of crude per day. Should that be reduced substantially due to the domestic turmoil, this development along with the new sanctions on Iran could move oil prices significantly higher in the coming year.
7. The Briefs (selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
Already tough transport conditions for barges operating in low water on the River Rhine look set to worsen in the coming weeks. The drought is fueling concerns over the supply of commodities such as oil products, coal, and petrochemicals that are shipped on the major Northwest European transport artery. (8/23)
Merkel rethinking? Castigated by US President Donald Trump as relying too much on Russian gas supplies, German Chancellor Angela Merkel headed to Azerbaijan last week to discuss the development of a southern pipeline to deliver gas to Europe from the Caspian. The visit underscores Merkel’s openness to finding alternative sources of affordable gas even as she remains committed to the Nord Stream 2 pipeline, which will carry gas directly from Russia under the Baltic Sea to Germany. (8/23)
Kuwait expects to sign an agreement with Iraq on the two countries’ joint oil fields by the end of this year and to return to producing oil in the region that it shares with Saudi Arabia soon. Production from Kuwait’s joint oil fields has been shut down since the 1990 invasion by Iraq. After years of squabbles over how to divide and operate the fields, it looks like Kuwait and Iraq may have finally had a breakthrough in talks. (8/23)
Sudan and China are close to signing new deals on oil and gas exploration that Chinese companies would carry out in the African country. The first project of Chinese companies overseas was in Sudan, and China has long been a strategic partner in the oil and gas sector of Sudan. (8/25)
South Korean refiners’ ability to process some of the densest crude grades continues to shine with Hyundai Oilbank’s latest plan to expand and further upgrade some of its cracking facilities, painting a rosy picture for Mexico’s Maya crude exports to Asia’s fourth-biggest energy consumer. (8/20)
Papua New Guinea’s LNG: After several months of what can only be only called bad PR and troubling news coming out of the ExxonMobil-led $19 billion Papua New Guinea LNG project, finally some good news has broken. Project partner Oil Search, which holds a 29 percent stake, said the project had agreed to a deal to supply LNG to a unit of British oil giant BP. (8/30)
Egyptian dominance? The natural market gas in the Eastern Mediterranean is in full ebullition – with Egypt determined to be the center of this regional marketplace. The country faces challenges, including maintaining equidistance from the region’s various tensions, reforming its legal framework for regional gas deals and effectively communicating its activities to the Egyptian population. (8/20)
Panama is carrying out studies for potential oil exploration, hoping that recently discovered oil fields in neighboring Colombia close to Panama’s border could extend into Panama. Panama is 100-percent dependent on crude oil and refined oil products imports. A geological survey, the first in 30 years, found signs that there could be oil and gas in Panama’s section of the Caribbean Sea in an area connected with three natural gas wells in Colombia. (8/25)
In Mexico, the incoming administration won’t propose changes to the nation’s constitution, which was amended in 2013 to allow for private investment in oil and gas, but will use its majority in Congress to tweak the hydrocarbons law. (8/23)
Mexico’s oil production is in decline, though not as steep as it was expected to be. For June crude and condensate production was 1.87 million b/d, down 25,000 b/d from May and 170,000 b/d year over year. Production peaked in 2004/2005 at just over 3.500 million b/d, so the overall decline is approaching 50%. (8/21)
Mexico and NAFTA: oil and gas is proving to be a sticking point in the NAFTA renegotiations, with the incoming Mexican president hoping to exclude the chapter on energy from the trade deal. (8/23)
In Canada, the nation’s energy regulator reported the average daily amount of crude oil exported by rail has nearly doubled from the previous year. Canada ships nearly all of its oil exports to the United States. (8/24)
Canada’s gas-rich province of Alberta is looking to recreate the building boom spreading along the US Gulf Coast, where inexpensive natural gas generated billions of dollars in investment by petrochemical companies. Alberta’s prices that are about one-third those at the US Gulf Coast could turn into a competitive advantage to attract petrochemical companies. Such investment would provide a badly needed market for oil and gas within the landlocked province, where energy companies struggle to reach buyers farther away. (8/23)
The US oil rig count decreased by nine last week, the biggest reduction since May 2016. It now sits at 860, according to Baker Hughes energy services firm. (8/25)
Alaska’s North Slope is a “Super Basin” awaiting a “resurgence” in oil production, according to a new report by IHS Markit. Over the next eight years, oil production could rise by 40 percent, even though output has been in decline for decades. Prudhoe Bay can claim to be the most productive oil field in US history, having produced 12.5 billion barrels of oil as of last year. But it also peaked in the 1980s and has been losing output ever since. Yet based on recent discoveries, IHS estimates that the North Slope Basin holds 38 billion barrels of oil equivalent (boe) in remaining recoverable resources. That figure includes 50 trillion cubic feet of natural gas and 28 billion barrels of oil. (8/24)
TX oil exports: The Texas Gulf Coast oil terminals sent abroad more crude than they received in April for the first time ever. During that month, crude oil exports from the Houston-Galveston port district exceeded imports by 15,000 b/d. Over the next month, the advantage of exports over imports welled further, to an impressive 470,000 b/d. Total US oil exports in May hit a record of 2 million b/d, with Houston-Galveston’s share of the total at a record-breaking 70 percent. The bulk of crude oil exports from the Houston-Galveston area went to China, Canada, Italy, and the UK, with exports to China averaging 300,000 b/d in both June and July. (8/22) [Pop quiz: what is the U.S.’s current rate of net imports of crude oil and petroleum liquids? In the 3 million b/d range…]
GOM lease: The Trump administration on Wednesday held a new auction for offshore drilling in the Gulf of Mexico (GOM), yielding some $178 million in winning bids, a slight improvement from its last major lease sale in March which was at the time was called a major setback for the president’s plan to increase oil and gas investment in the region. (8/21)
Utah is a yawn amid the drilling frenzy that has upended the energy picture in recent years. It accounts for just one of every 100 barrels of oil produced nationwide. But a couple of executives who have spent decades hunting for oil across the Middle East, South America and Canada are betting that the next energy patch will be near here, in a remote stretch of craggy desert known as Asphalt Ridge. They are trying something that has repeatedly failed in Utah: mining the state’s enormous deposits of oil sands, an arduous process of extracting oil from hard rock. (8/22)
Cheaper gasoline: With some exceptions, motorists throughout the United States are gradually paying less for regular unleaded gasoline. According to AAA, the national gasoline price average for August 20 is $2.84 per gallon – three cents lower than the price at the beginning of the month. With the exception of several states, most US motorists are enjoying “slow, but steady pump price drops” as summer draws to a close. (8/21)
Trumping efficiency: Conserving oil is no longer an economic imperative for the US, the Trump administration declares in a major new policy statement that threatens to undermine decades of government campaigns for gas-thrifty cars and other conservation programs. The position was outlined in a memo released last month in support of the administration’s proposal to relax fuel mileage standards. The government released the memo online this month without fanfare. (8/21)
SPR release: The US Dept. of Energy is offering 11 million barrels of oil for sale from the nation’s Strategic Petroleum Reserve ahead of sanctions on Iran that are expected to reduce global supplies of crude. The delivery period for the proposed sale of sour crudes will be from Oct. 1 through Nov. 30. The sale appears to be designed to show the Trump administration is taking measures to restrain energy price increases ahead of the sanctions. Trump has proposed the sale of half of the stockpile — which currently totals 660 million barrels — to cut the budget deficit. Congress has so far authorized the sale of around 240 million barrels between 2017 and 2027. (8/21)
Political release? An 11-million-barrel sale from the Strategic Petroleum Reserve over two months—or 183,000 b/d—likely won’t do much to offset the impact of sanctions, which the administration estimates will remove 700,000 to 1 million barrels a day of Iranian crude from the global market by early November. (8/22)
The turnover of household vehicles has slowed since 2009, based on US Department of Transportation surveys of household vehicle travel. The 2017 National Household Travel Survey reported that the average vehicle age—including cars, trucks, and vans—has increased from 9.3 years in 2009 to 10.5 years in 2017. The slowing of vehicle turnover has implications for transportation fuel consumption because newer vehicles tend to have better fuel economies. (8/22)
Gas vs. coal in MISO: After several years of increased coal-to-gas switching across the Midcontinent Independent System Operator service area, the region is expected to become even more bullish for gas as additional coal retirements loom while multiple new gas-fired plants are slated to enter service over the next few years. Through August of 2014, coal plants has a 61% share of the total MISO market. This year, during the same time period, coal share had dropped to just 40%. (8/25)
India’s coal imports appear headed for another strong month in August, raising the question as to why the usually cost-sensitive market hasn’t scaled back purchases given a surge in prices to the highest in nearly seven years. (8/20)
Wind turbines have been getting bigger as industry players vie for ever more powerful designs, climbing from under a megawatt to the brink of the double-digit threshold. (8/25)
Army going solar: The US Army has increased its investments in solar power and is eyeing further opportunities to work with the private sector to develop projects, despite the Trump administration’s skepticism about renewable energy. Michael McGhee, who leads the US Army’s Office of Energy Initiatives, told the Financial Times that installing solar panels at army bases could improve resilience against attacks or natural disasters, and provide cost-effective electricity supplies. (8/25)
Battery progress: Researchers at Jülich Forschungzentrum have introduced a new concept battery that allows currents up to ten times greater during charging and discharging than previously described in the literature. Their battery takes less than an hour to recharge. The battery, described in a paper in the journal ACS Applied Materials and Interfaces, uses a monolithic all-phosphate concept. (8/21)
Battery progress #2: Researchers at the University of Michigan have developed a new rechargeable technology for batteries that could have double the power output compared to today’s most widely used batteries, without catching fire or taking up additional space. This new breakthrough—using a ceramic, solid-state electrolyte in lithium metal batteries–could dramatically extend the range of electric vehicles. (8/20)
PM 2.5 pollution shortens human lives by more than a year, according to a new open-access study from a team of environmental engineers and public health researchers published in the ACS journal Environmental Science & Technology Letters. Better air quality could lead to a significant extension of lifespans around the world. (8/25)
Clean air mandate: The City of London is considering banning non-electric vehicles from a special “low-emission” street, in a pilot program that underscores the severity of the air pollution crisis plaguing the financial heart of the British capital. The City of London, often known as the Square Mile, is home to several of London’s worst hot spots for nitrogen dioxide pollution, because of its narrow roads, high buildings and congested traffic. (8/21)
Scorcher! The entire continental US ranked hottest in 123 years of records for the 3-month period May-June-July at 70.9 degrees F. Those records go back to 1895. (8/21)
Aussie denial: Mile after mile of the Great Barrier Reef is dying amid rising ocean temperatures. Hundreds of bushfires are blazing across Australia’s center, in winter, partly because of a record-breaking drought. The global scientific consensus is clear: Australia is especially vulnerable to climate change. And yet on Monday, Australia’s prime minister, Malcolm Turnbull, abandoned a modest effort to reduce energy emissions under pressure from conservatives in his party. And on Tuesday, those same conservatives just missed toppling his government. What on earth is going on? (8/21)
The Arctic Ocean’s thickest and oldest sea ice is located to the north of Greenland and in the Canadian Archipelago. The seawater in this area is frozen, even in the summer. During the current freakish weather year, records have been broken for heat waves, floods, droughts, and wildfires in the world’s temperate zones; it also broke records in the Arctic, the fastest warming region on Earth. In an ominous sign of biosphere collapse, The Guardian reports that these frozen waters have been opened up not once, but twice so far this year due to warm winds (that tear the ice from where it’s fastened at the coastal bedrock) as well as climate change driven heatwaves in the northern hemisphere. This has never happened before and prompted Thomas Lavergne, a scientist at the Norwegian Meteorological Institute in a retweet to describe the phenomenon as “scary”. (8/22)
Peak Oil Review 20 August 2018
By Tom Whipple, Steve Andrews, originally published by ASPO - USA
https://www.resilience.org/stories/2018-08-20/peak-oil-review-20-august-2018/
Quote of the Week
“Climate change is no longer coming, it’s here. And we are living with it every day.” Geisha Williams, CEO of PG&E, wrote in an email, hoping to offload some of the blame for several of the last 12 months’ fires from PG&E itself.
1. Oil and the Global Economy
Crude prices were up Thursday and Friday of last week but still closed with a seventh consecutive weekly loss for WTI — the longest losing streak since 2015. Fears that the multiple escalating trade wars will lead to a drop in global demand are trumping the warnings that the lack of sufficient investment and the beginning of problems with US shale oil output could lead to production shortfalls in the months ahead.
However, Chinese demand for oil still tops the list of trader concerns. “One of the biggest concerns is that China’s demand numbers are coming down if China’s GDP growth is slowing,” said one US observer. US futures closed out the week at $65.91 and London closed at $71.83. Due to transportation problems, some US shale oil is selling for as much as $10 or more below the NY futures prices. These prices are not helping the profitability of some US shale oil producers.
Even some well-informed speculators have been caught off guard by the sudden and unexpected drop in prices during the last two months. Two of the world’s largest energy-focused hedge funds, Andurand Capital and BBL Commodities, suffered double-digit percentage losses in July as oil prices plunged.
Despite the prices declines of late, some bullish speculators believe that we will see much higher oil prices within two years. The logic is that the Iranian sanctions seem to be on course to take roughly 1 million b/d off the oil market and that there is insufficient quick ramp-up spare capacity elsewhere to make up for the difference. Some are talking of oil prices reaching $150 a barrel, especially if the US sanctions do succeed in cutting Iranian exports by more than 1 million b/d.
Bank of American recently said that although trade wars are a significant downside risk to oil demand, it remains “much more concerned” about the sanctions on Iran. “For every 1 million b/d imbalance, we see a price impact on Brent of around $17.” For the next year or so, the fate of oil prices seems to be in the interaction of the various trade wars with the efficacy of the Iranian sanctions. This interaction could leave prices anywhere from $60 to $150 a barrel which is why the markets are so confused. We seem to be in unknown territory.
OPEC: According to its monthly report, the cartel’s crude oil production was up 41,000 b/d in July, but that was after June production was revised down by 43,000 b/d leaving production down 2,000 b/d from what was reported last month. Secondary sources say Saudi Arabia production in July, was down by 52,800 b/d; however, the Saudis claim they produced some 200,000 b/d less. Both numbers have been called into question as Saudi production has become a major political football in the Iran sanctions controversy. Secondary sources say Iranian production was down 56,300 b/d in July, but Tehran says said they were up 4,000 b/d.
US Shale Oil Production: The EIA is backing off on some of the optimistic overestimates it has been making about the growth of US shale oil output. US unconventional oil production is forecast to increase to 7.522 million b/d in September, up 93,000 b/d from August – the smallest month-on-month growth projection since November 2017. Last month, the EIA projected domestic oil output to grow in August by a relatively high 143,000 b/d. Now, “We more and more worry …that production growth is slowing,” EIA Senior Analyst Jozef Lieskovsky said recently.
Of all the US shale oil basins, the EIA projects the Permian to show the biggest monthly growth in September at 34,000 b/d, to 3.421 million b/d, although that is less than half the 73,000 b/d increase that was projected for August, according to the EIA’s latest Drilling Productivity Report. The EIA also expects the Eagle Ford Shale play to grow by 24,000 b/d to 1.448 million b/d in September. That is less than the 35,000 b/d of oil growth that the agency predicted last month.
While output in the Permian basin is already starting to slow down, primarily due to pipeline constraints, there is information that suggests that shale drillers are bumping up against a ceiling for gains in productivity and efficiency. New data from the EIA shows a slowdown in the amount of oil that the average rig can produce from a new well in the Permian. In September, the EIA expects new-well production per rig to fall by 10,000 b/d in the Permian, compared to August levels. That means that when a company drills a new well, that rig will produce a little less oil than it did when compared with how much oil the average rig produced a month earlier.
One industry observer recently noted that, “We believe that the short-cycle nature of shale exploitation and the intensity of activity in the Permian means that production from Tier 1 geological locations (e.g., those with the best pay, the optimum pressure) is starting to move to Tier 2, which is unable to achieve the same rates of productivity.” The availability of Tier 1 geological locations in the Permian is one of the most critical issues for the future of global oil production. The IEA and the EIA have been saying that rapid growth of oil production in the Permian over the next few years will be enough to offset production declines elsewhere and is the key to preventing shortages and much higher prices. If the Permian is indeed running out of Tier 1 “sweet spots” then peaking of global oil production may be closer than many believe.
EIA did increase its outlook for the Bakken Shale over last month, predicting 17,000 b/d of increased production with September, coming in at 1.314 b/d. That compares to 15,000 b/d EIA had projected for August. It should be noted, however, that the more accurate North Dakota State report for June says that oil production fell by 20,000 b/d from May due to the associated production of more natural gas than can be flared legally. According to the North Dakota government, some drilling companies voluntarily shut in some oil production during June to stay in compliance with the gas flaring policy.
June was the third straight month producers were unable to keep flaring within state regulations of 15 percent or less of total natural gas production. Producers burned off 15.5 percent in April, 17 percent in May, and 16.8 percent in June. Starting November 1st, only 12 percent of associated gas can be flared before fines for over-flaring begin. Associated natural gas production has increased by about 200 million cf/d since March to 2.3 billion cf/d. Some new wells are coming online in areas where there are not adequate gathering lines and processing facilities to process the natural gas. Some observers have noted that in some areas, shale oil wells are producing more gas than originally expected.
Another problem is starting to be recognized by close observers of the shale oil industry. Oil producers are drilling too many horizontal wells near one another, and when they frack the newer wells — known as child wells — they “steal” oil from the older wells thereby lowering the older wells productivity or even killing their production completely. The potential costs of these “frac hits” and tight well spacing aren’t currently known by the industry, but there is no doubt that they are costing money and contributing to production declines.
The issue of shale oil profitability is still with us. This year was supposed to be different in that the US shale industry would finally start earning profits due to more efficient production techniques and higher prices. However, a new report in the Wall Street Journal says that the shale industry is still mostly unprofitable. The paper found that roughly 50 major US oil producers burned through $2 billion more cash than they generated in the second quarter.
While shale drillers succeeded in lowering costs during the oil market downturn that began in 2014, those efficiency gains are inadequate to support profitable shale oil production today. Beginning last year, a renewed drilling frenzy, particularly in the Permian, has led to a rebound in costs. Many shale executives had promised that the cost efficiencies were structural, locked in, and would not reverse. But that is now looking to be overly optimistic.
The Journal reports that more than a dozen shale companies announced in their second-quarter earnings reports that they either would have to spend more to produce the same amount of oil and gas, lowered this year’s production guidance, or they missed second quarter production figures. When more pipelines come online over the next few years, drilling activity likely will pick up again and drillers will rush to complete the backlog of drilled but uncompleted wells which has exploded over the past 18 months. Whether this helps the lack of profitability remains to be seen.
2. The Middle East & North Africa
Iran: The pressure of the impending US sanctions is increasing discord in Tehran as the country braces for another period of hardships and austerity. Last week, Iran’s Supreme Leader Ayatollah Ali Khamenei accused his government of economic mismanagement and said it needed to improve its performance to help the country better weather the newly reimposed sanctions. He also rejected President Trump’s offer of unconditional talks to improve bilateral ties.
There is much discussion in the press of just which countries will, or will not, abide by the US sanctions and Washington’s efforts to reduce Tehran’s oil exports to zero. German state-owned rail operator Deutsche Bahn announced that it is phasing out projects in Iran. These projects involved restructuring and reorganizing the Iranian state railway, RIA. Several European companies have suspended plans to invest in Iran due to the US sanctions, including French oil major Total as well as carmakers PSA, Renault, and Daimler.
Other Iranian customers are having trouble complying with the US request to cut economic ties with Iran. South Korea is seeking a sanctions waiver from the US to continue importing Iranian condensate, saying that it is hard to find alternative sources. A major question mark is India, a fast-growing energy market and a major consumer of Iranian oil and natural gas. When the new sanctions were announced, India, which depends on Iran for 80 percent of its energy requirements, began cutting imports from Tehran. However, last week, Bloomberg reported that India was only preparing to reduce its imports of Iranian oil by half, to earn a waiver from US sanctions. New Delhi plans to argue that it can’t obtain energy products from any other producer at competitive prices.
The major issue is what China will do about the sanctions. The new US special representative for Iran said last week that the Trump administration is prepared to impose sanctions on all countries that buy oil from Iran after the November deadline, including China. Beijing has said many times that it has no plans to comply with the US sanctions that are due to be reimposed on Nov. 4
As pushback from India, South Korea, and China mounts, Washington is beginning to reconsider the scope of its Iran embargo. The administration now is projecting a 50 percent reduction in Iranian exports when sanctions are fully imposed. Under this scenario, Iran’s oil exports would fall to about 1 million b/d, the level reached during the 2012-2014 sanctions.
Iraq: Kurdish officials are saying that Iraq and Turkey must reach a deal with Erbil to export oil from the Kirkuk fields in northern Iraq via Kurdistan and Turkey. Around 300,000 b/d that was pumped and shipped from the Kirkuk region have been shut in since Baghdad moved in last October to take control over the oil fields in Kirkuk from Kurdish forces.
The Basra Oil Company and Chevron announced last week that they have agreed to terms of an agreement that could help boost production from the state-run Luhais, Tuba, and Subba fields.
Unrest continues around Basra. On Thursday, dozens of Iraqis staged a sit-in to protest the reported death of a protester and the injury of several others by the security forces. Earlier last week, Iraqi security forces forcibly dispersed two demonstrations in Basra — one near the West Qurna 2 Oilfield and another in the city’s Ezz al-Din Salim district. According to an Iraqi military source, the protest dispersals left at least one demonstrator dead and another 20 in police custody. The protesters had set up tents outside the governor’s office on Wednesday and announced the launch of an open-ended sit-in “to protest police heavy-handedness.
Saudi Arabia: Saudi Arabia lowered its oil production in July even as the kingdom has pledged to raise output significantly to make up for an expected decline in Iranian exports. Riyadh pumped just under 10.4 million b/d last month, a drop of 52,000 b/d from June, according to numbers submitted by analysts and consultants to OPEC. Saudi’s official numbers showed an even lower figure, below 10.3 million.
These production numbers, however, have come under scrutiny by some energy analysts and price reporting agencies claiming they are much higher – above 10.6 million b/d. The kingdom claims it has lowered production because it has not seen sufficient demand for its crude, as Tehran offers heavy discounts for its crude ahead of the new US sanctions.
The kingdom’s Energy Minister Khalid Al Falih said in a company report on Friday that Aramco remains committed to meeting future oil demand through continued investments. Despite an improved market picture, the oil industry’s preparedness for the future remains in question as the industry has lost an estimated $1 trillion in planned investments since the start of the market downturn, Al Falih wrote in his report.
Libya: Tripoli’s crude oil production exceeded 1 million b/d for the first time since June when port blockades and a kidnapping caused production outages that brought production to as low as 670,000 b/d. The improvement came from production growth at the country’s largest producing field, Sharara. Last week, Sharara pumped 218,000 b/d, but this has now grown to more than 250,000 b/d. The field has a capacity to pump 340,000 b/d.
Militants tried to take a couple of the country’s oil export terminals in June, but were pushed back by the Libyan National Army, which then decided to not hand over control of the ports to the internationally recognized National Oil Corporation (NOC) but to the entity of the same name that is affiliated with the eastern Libyan government. Eventually, the LNA and the legitimate oil company agreed, and NOC resumed control of the export ports, which put an end to the production suspensions. However, the situation in the divided country remains highly volatile politically, which means other outages are more a question of time than anything else. Late last week there were new protests at the oil terminal and refinery servicing the Sharara oil field, with sources telling Platts they expect another complete shutdown of the field.
With militias fighting at ports and oil export disruptions, many shipowners avoid transportation of Libyan oil cargoes. This situation, in turn, raises the premiums of freight on Libyan routes compared to freight rates on shipments in the Mediterranean that don’t involve Libya.
3. China
As China prepares for a trade fight with the US, it is facing increasing trouble from a slowing economy. Spending on fixed assets such as factory machinery and public works projects cooled to the lowest point in nearly two decades, the government reported on Tuesday. Retail sales grew, but not as sharply as analysts had expected. The data suggest that China can’t go toe-to-toe in retaliating against US tariffs, according to an economist with Standard Chartered Bank in Hong Kong.
China and the US had a small breakthrough in their standoff over trade, saying they will hold lower-level talks later this month. China’s Commerce Ministry said Thursday that a vice minister would come to the US at the invitation of the Treasury Department, to discuss trade. Shortly afterward, President Trump declared that the tariffs would go ahead.
China has backpedaled on imposing tariffs on US crude imports, a move indicative of its need to maintain diversified sources of crude as its domestic production falters. However, last week, Dongming Petrochemical, an independent Chinese refiner, said it has halted crude purchases from the US and turned to Iranian imports. US crude oil exports to China reached 400,000 b/d at the beginning of July, but Beijing has recently threatened a 25 percent duty on imports.
As the US-China trade war escalates, a growing number of analysts and organizations have increased warnings that further trade tensions could dent economic growth, consumer spending, and investment flows globally—all of which could curtail the world’s oil demand growth.
In a recent paper, a team of Chinese researchers studying the water flow coming from melting glaciers made a surprising discovery. As they tried to estimate the effects of global warming on glacier thinning, glacier retreat and local supply of water resources, they found that the glacier is expected to reach “peak water,” with runoff shrinking by half of its 1980 flow in the next 30 years.
As glaciers shrink, runoff increases but then decreases after the size of the glacier has shrunk permanently. Peak water, or the tipping point of glacier meltwater supply, comes when runoff into glacier-fed rivers reaches the maximum. This event now is estimated to occur around 2020 in some parts of China. A decline in the water flow coming from glaciers has serious implications for China, which has invested heavily in hydroelectric dams in recent decades.
4. Russia
Events of the past few days showcased the way President Putin can exploit differences between the US and its allies. However, these events have also highlighted the downside to Mr. Putin’s policies and accentuated where he falls short on matters of importance to both the president and ordinary Russians. He has yet to translate divisions in the West into reduced Western sanctions against Russia.
The sanctions he hoped to get lifted have only been tightened this past week, pushing the ruble down to its lowest levels in years. The US State Department moved last week to enact yet another round of such measures, just days after the United States Senate brandished its own. The “bill from hell” that US Senators from both parties introduced on August 2 contains proposals for wide-ranging sanctions, including on goods, services, technology, financing, and support that directly and significantly contributes to Russia’s ability to develop crude oil resources located in the Russian Federation.
However, Moscow maintains that the Senate’s new US sanctions against Russia would only have a limited impact on its oil industry because it has drastically reduced its reliance on Western funding and foreign partnerships and is lessening its dependence on imported technology. This situation has forced Russian oil companies to increase drilling in aging oil fields and has delayed efforts to develop Arctic oil resources in partnership with Western firms that have the deepwater experience.
5. Nigeria
The Nigerian National Petroleum Corporation (NNPC) plans to float 40 percent of its stock on the local stock exchange once the President signs the Petroleum Industry Governance Bill. The bill, which has been under consideration for years is at the heart of an overhaul aimed at making the corruption-ridden state company profitable.
To do this, the company needs to be more commercially driven. It needs cash, which would be raised through the listing. As part of the overhaul, the NNPC will be split into two: the Nigerian Petroleum Company, which will be an integrated oil company taking all assets of the NNPC except for production-sharing contracts, and the Nigerian Petroleum Assets Management Company. Based on the history of the Governance Bill, it seems likely that the new arrangements are years away.
Nigeria produced 1.67 million b/d in July, below the 1.8-million-b/d quota it had agreed with OPEC after it joined the production cut effort. Total says it will increase Nigeria’s oil production by 200,000 b/d by the end of the year with the increase coming from the Egina Deep project. The Egina field was discovered in 2003 by Total, which partnered with China’s CNOOC and Brazil’s Petrobras. Its development will have an estimated cost of $16 billion and will feature a floating production, storage, and offloading vessel that arrived at the location earlier this year. Egina is the largest deepwater offshore development in Nigeria to date.
The Nigerian National Petroleum Corporation and a Chinese consortium have met in Dubai, United Arab Emirate, to complete the arrangements for the financing of the 381-mile Ajaokuta-Kaduna-Kano pipeline project. The new AKK gas pipeline would bring natural gas to key commercial centers in the northern corridor of Nigeria.
6. Venezuela
Venezuela made a payment to Canadian mining company, Crystallex, using government bonds instead of cash, potentially the first time it has done so since US sanctions last year barred similar transactions. The payment on Tuesday was made as creditors scramble to move in on the remaining assets of a country that is already in widespread default and enmeshed in an economic crisis.
Venezuela’s heavily subsidized domestic gasoline prices should rise to international levels to avoid billions of dollars in annual losses due to fuel smuggling, President Maduro said last on Monday. At the black-market rate, gasoline is now selling in the vicinity of one-third of a US cent per gallon.
On Friday Venezuelans rushed to shops and lined up at gas stations on concerns that a monetary overhaul to lop off five zeros from prices in response to hyperinflation could wreak financial havoc and make commerce impossible. Shoppers sought to ensure their homes were fully stocked with essentials such as food and dry goods and their tanks full before the measure decreed by President Maduro takes effect on Monday. Inflation hit 82,700 percent in July, according to the opposition-run congress, as the country’s socialist economic model continued to unravel, meaning purchases of essential items such as a bar of soap or a kilo of tomatoes require piles of cash that is often difficult to obtain.
7. The Briefs (selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
Tough new rules on marine fuel are forcing shipowners to explore liquefied natural gas as a cleaner alternative and ports such as Gibraltar are preparing to offer upgraded refueling facilities in the shipping industry’s biggest shake-up in decades. From 2020, International Maritime Organization rules will ban ships from using fuels with a sulfur content above 0.5 percent, compared with 3.5 percent now, unless they are equipped to clean up sulfur emissions. Using LNG to power ships instead of heavy fuel oil or the lighter marine gasoil can reduce polluting emissions of nitrogen oxides and sulfur oxides by 90 to 95 percent, according to industry estimates. (8/16)
Norway’s company DNO said it was paying its first dividend in 13 years, pointing to a high level of success for its assets in the Kurdish north of Iraq. The company said the fast-track development of its Peshkabir field alone will accelerate average production by more than 40 percent by the end of the year. (8/17)
Russia’s Gazprom leads a consortium working to twin the Nord Stream natural gas pipeline running through the Baltic Sea to Germany. The consortium now has the permits to build a 70-mile section of the second phase of the pipeline in Russian territorial waters. Nord Stream 2 is a 759 mile (1,222 km) natural gas pipeline running on the bed of the Baltic Sea from Russian gas fields to Germany, bypassing existing land routes over Ukraine, Poland, and Belarus. It would double the existing Nord Stream pipeline’s current annual capacity. (8/17)
In India, a cheaper rupee could increase the nation’s crude oil bill by as much as US$26 billion in FY 2018/19. The currency hit a low of 70.32 to the US dollar last week, which will also push up fuel prices at the pump and prices of cooking gas. (8/17)
China Gas plans to increase its annual imports of liquefied petroleum gas from 2.8 million tons to 10 million tons during the next five years as it enters the petrochemicals industry, S&P Global Platts reports, quoting industry sources. The company’s plans also have to do with higher demand, with LPG sales to households forecast to grow by over 12 percent per year. (8/17)
In Australia, energy company Melbana said Tuesday that a survey of the Beehive prospect, with more than 1 billion barrels of estimated reserves, is complete. The survey was conducted in coordination with Australian energy company Santos and French supermajor Total. (8/15)
In Egypt, Italian energy company Eni said it is strengthening its position in Egypt. The company stated Tuesday that its plans to oversee an exploration license on the Nile Delta basin in the Egyptian waters of the Mediterranean Sea were approved by the government in Cairo. (8/15)
In southeast Niger, the latest confirmed oil discovery in a basin makes it four in a row for Savannah Petroleum’s exploration campaign in the Agadem Rift basin. Reserve estimates won’t be released until production testing is completed. (8/16)
Mexico’s intentions: On July 27, Mexican president-elect Andrés Manuel López Obrador said his government will earmark more than $9 billion for state-run energy companies next year and start working on a new oil refinery in southern Mexico. The moves seek to reduce reliance on fuel imports from the United States while boosting the country’s oil production, which has significantly fallen off in recent years. (8/17)
The US oil rig count stayed flat on Friday at 869, following a 10-rig jump the previous week. Gas rigs also remained flat at 188. (8/18)
GOM auction dud: Oil companies bid on less than 1 percent of the parcels offered in a sweeping US auction of Gulf of Mexico exploration leases on Wednesday, showing tepid interest in the region for the second time this year. (8/16)
Keystone approval pretzel: A US federal judge ruled that the State Department must conduct a new environmental review of the project after the pipeline’s route was changed. The project was forced to change routes in Nebraska to avoid sensitive areas. Nebraska regulators gave the project approval, but only for the revised route. But the rerouting of the project subjects the project to new legal, and environmental, scrutiny. (8/17)
The US Gulf Coast refining complex processed more crude than ever before last week, according to data from the US Energy Information Administration. Those refineries, which make up more than half of all US capacity, averaged a net crude-input of 9.649 million b/d, roughly 175,000 b/d more than the previous high during 2017. (8/16)
Exxon to face the music: A federal judge rejected Exxon Mobil Corp’s motion to dismiss a securities suit alleging the company and top executives misled investors about the impact of climate change on its business. (8/16)
When US natural gas futures passed a milestone this month, they did so quietly: volatility fell to the lowest levels since the market’s debut nearly 30 years ago. The event seemed improbable. Volatility usually fades when commodity stocks are ample. Yet US gas stocks are 19.5 percent below average. When the winter starts they are set to be at their lowest in more than a decade. This situation is the latest example of how the world’s largest gas market has been transformed by shale drilling. While demand for gas is galloping, it has been met by waves of supply that show no sign of abating. Conditions that put traders on edge a decade ago get shrugs. (8/15)
US pipeline exports: The US is sending via pipelines record volumes of natural gas to Mexico, and although pipeline capacity to Mexico and production and exports have jumped in recent years, delays at some pipelines on Mexican territory have been slowing down the rise in US piped natural gas exports. US exports to Mexico have been at 4.9 billion cubic feet per day (Bcf/d) so far in August as demand for the power sector in Mexico rises. The volume of US natural gas exports to Mexico has tripled over the past ten years. (8/14)
LNG export capacity: The US energy regulator has approved a request by Cheniere Energy to feed the first gas into its new liquefied natural gas (LNG) facility in Corpus Christi, Texas, marking the beginning of a commissioning phase for the export terminal. The approval from the Federal Energy Regulatory Commission means Cheniere will be able to produce the first commissioning cargo by this year’s fourth quarter. Train 1 at the Corpus Christi facility will become the first LNG export terminal in Texas and the third functioning one in the U.S., including Cheniere’s Sabine Pass (Louisiana) operation which began exports in February 2016. (8/18)
Texas environment regulators should coordinate shutdowns of oil refineries and other petrochemical plants during major storms to avoid big releases of air pollution like during last year’s Hurricane Harvey, a report said on Thursday. (8/16)
Coal call: The Trump administration next week plans to formally propose a vast overhaul of climate change regulations that would allow individual states to decide how, or even whether, to curb carbon dioxide emissions from coal plants. The plan would also relax pollution rules for power plants that need upgrades. (8/18)
India’s solar surge: A new report by Power Technology shows that India is taking the race very seriously, with five of the nine largest solar installations in the world. China and the US had taken the lead in the past, making up two-thirds of global growth in solar power in recent years. But India is investing heavily to beat them. (8/17)
Peak lithium? Nah… A temporary tightness in lithium supply in the near future is a possibility, but this would more likely be a result of available production capacity combined with booming demand for EV batteries than irreversible depletion of reserves. There are plenty of reserves. Peak lithium is not happening any time soon. (8/13)
Nevada’s Lake Mead, the biggest reservoir in the West, is on track to fall below a critical threshold in 2020. The Bureau of Reclamation, a multistate agency that manages water and power in the West, said Wednesday there is a 52 percent probability that water levels will fall below a threshold of 1,075 feet elevation by 2020. If so, it could trigger the first ever federal shortage declaration on the Colorado River—which experts say could undermine the Southwest’s economy. (8/16)
Western water curtailment threat: Lake Powell, created by the Glen Canyon Dam in Arizona, is only at 43 percent of its capacity this year. The reservoir is part of a system that supports 40 million people in seven western states who benefit from water from the Colorado River Basin. A forecast from the US Bureau of Reclamation echoes previous warnings that a nearly 20-year trend toward a drier regional climate coupled with rising demand could drain so much water from the Lake Mead reservoir that cutbacks as soon as the end of 2019 could be mandatory. (8/18)
Does climate have a big role in CA fires? Scientists tend to agree with that assessment. But California’s biggest utility, PG&E, has an especially compelling reason to link the fires to the environment. State investigators have tied PG&E equipment, such as trees hitting power lines, to some of the blazes in October 2017 that in total destroyed nearly 9,000 structures and killed 44 people. It faces damage liabilities totaling as much as $17 billion, and possible financial ruin — its stock is down about 37 percent since the fires — unless CEO Geisha Williams can convince California lawmakers that the company’s problem is, in fact, a climate change problem. (8/14)
Peak Oil Review 13 August 2018
By Tom Whipple, originally published by ASPO - USA
https://www.resilience.org/stories/2018-08-13/peak-oil-review-13-august-2018/
Quote of the Week
“A ballot measure requiring greater setbacks could have a dramatic effect on drilling in Colorado. In Weld County, Colorado, where much of the drilling in Colorado’s DJ Basin takes place, the greater setback distances would put roughly 78 percent of the surface land off limits to drilling. ‘That is effectively a ban on the industry,” Dan Haley, president of the Colorado Oil & Gas Association, told Bloomberg in a July interview. “You’d basically have no new wells drilled in Colorado.’” Nick Cunningham, Oilprice.com
1. Oil and the Global Economy
Oil prices slid about 3 percent last Wednesday as the trade dispute between the US and China escalated and after Chinese import data showed a slowdown in energy demand. However, prices recovered a bit on Friday as US sanctions against Iran looked as if they would tighten oil supplies ending up the week with New York futures at $67.63 and London at $72.81.
Goldman Sachs believes that the case for higher oil prices ahead remains strong despite concerns about the Sino-American trade war. The demand for oil remains robust, with the global economy growing at 4.3 percent, and could go higher. Low stockpiles of crude mean supply shortages could develop in the face of today’s strong demand. The Saudis are not flooding the markets with as much oil as anticipated and Beijing has not yet added oil to the list of US exports subject to heavy tariffs.
China has announced plans to apply a 25 percent tax to US LNG; however, natural gas is still selling below $3 per million BTU’s in Louisiana compared with $10 in Asia. This differential could allow US exporters to compress the gas, transport it, and swallow the 25 percent tariff while still making a profit. Demand for LNG is strong across Asia so that China needs the US’s LNG worse than the US needs the Chinese LNG market.
With the ever-growing demand for oil; the likelihood that US shale oil production will not be growing as fast as was anticipated; and the uncertainty surrounding the sanctions on Iran, the case for higher prices this winter looks stronger than the one for lower prices.
IEA’s Oil Market Report: The Agency see the global increase in the demand for oil falling slightly to 1.4 million b/d this year, but rebounding to 1.5 million next year. These forecasts are caveated with warnings about the uncertainties in the various trade disputes and sanctions that are ongoing. The global oil supply in July rose about 300,000 b/d and is now at 99.4 million or about 1.1 million above July of last year. OECD commercial oil stocks are now approximately 32 million barrels below the five-year average, although the previous three years were a time of unusually high commercial stocks.
The IEA points out that ample oil supplies have contributed to the Brent price falling from just over $79 a barrel at the end of June to below $72 this week. The agency takes note of the increasing climate turmoil with record high temperatures causing disruptions such as low water levels hampering barge movements; the lack of sufficient cooling water for nuclear power plants; and soaring demand for air-conditioning.
While there currently is relative calm in the oil markets, this could change when the US sanctions on Iran kick in next November. The agency also sounded its recurrent concern that there is not enough investment in energy taking place around the world. It noted that global energy investment fell by 2 percent in 2017, the third consecutive year of a decline. According to the IEA’s executive director, Fatih Birol, “The overall trend of energy investment remains insufficient for meeting energy security, climate, and air quality goals, and is not spurring an acceleration in technologies needed for the clean energy transition.”
US Shale Oil Production: While US crude production has climbed dramatically, production may rise more slowly as prices drop, transportation bottlenecks develop and the best places to drill are used up. US output was expected to increase by 1.31 million b/d to 10.68 million in 2018, lower than last month’s forecast of growth of 1.44 million b/d to 10.79 million, according to the EIA. The administration slightly increased its expectation for 2019 production growth to 1.02 million b/d from 1.01 previously. It expects crude production to average 11.7 million b/d in 2019, compared with 11.8 million it forecast in its last report.
The downward revisions in the EIA’s forecasts come after recently released data from the agency shows that output growth during this past spring was not as much as it had been estimating. Until recently the agency was saying that shale oil output was growing at a blistering rate, with production rising by over 200,000 b/d between the beginning of April and the end of May. But more recent data suggests that production actually dipped a bit over that period.
The recent revisions to the EIA’s data from months ago raise questions about the production figures being released each week. Right now, that weekly data says that the US is producing a little less than 11 million b/d. But because those weekly figures are repeatedly revised down as time passes, there is a good chance that US production is not that high right now.
There are more issues facing increased US shale oil production than just an overestimation of output. In addition to pipeline constraints, drillers face other operational problems. “Escalating costs, logistical constraints, decreasing cash flows, and the pace of drilling forcing a downwards move in the quality of new drill sites from Tier 1 to Tier 2 locations. All these may be just a few of the reasons for initial well productivity in the Permian reaching a plateau over the past few months.”
The only good news recently was the announcement by Plains All American Pipeline that two West Texas projects would begin partial operations slightly ahead of their original schedules. The Sunrise expansion project is expected to go into partial service in the fourth quarter this year while the Cactus II line will begin partial service in the third quarter of 2019. The Sunrise extension will add about 500,000 b/d of capacity from Midland to Colorado City and Wichita Falls, Texas, and provide connections to the oil-storage hub at Cushing, Oklahoma. The 670,000 b/d Cactus II line from the Permian basin to Corpus Christi is expected to be complete in April 2020. By late this year, a portion of the line, from Wink to McCamey, Texas, will begin partial service.
2. The Middle East & North Africa
Iran: How well Tehran will succeed in avoiding the renewed US sanctions remained the top issue last week. China, Russia, and India say they will continue to buy oil from Iran, despite US sanctions. However, there are reports that Indian refiners are cutting back on purchases out of fear of losing access to American financial institutions. Japan’s largest refiner may be forced to stop imports of Iranian crude oil loading in September without clear guidance from the government. Tehran’s oil exports dropped by 7 percent to 2.32 million b/d in July—their lowest level in four months—as South Korea and Europe cut imports ahead of sanctions.
Washington now expects that it will be able to persuade Iran’s oil customers to cut their Iranian crude imports by as much as 1 million b/d. A 1-million-b/d reduction would be roughly half of the average Iranian oil exports over the past year, but well below the US administrations target of reducing the Islamic Republic’s oil sales to “zero.” Analysts say a 1 million b/d drop in the global oil supply in early November would boost oil prices.
Under the new sanctions that took effect last week, Iran is barred from purchasing or acquiring US dollars and limited in what it can do with its currency outside of Iranian territory. This is making it exceptionally difficult to invest in Iran’s oil fields. Asian investors in Iranian projects have discovered that they can no longer rely on their usual banking partners in the United Arab Emirates to transfer funds for projects in Iran. This blockage of funds has delayed several deals worth billions, according to the companies involved, and foreign development officials.
With its oil customers already backing away ahead of the next round of sanctions in November, Iran is facing severe economic problems and growing internal dissent. The Iranian rial has lost half of its value against the US dollar on the unofficial market this year, while the price of fruit and vegetables has increased by 50 percent since the start of the year. The commander of Iran’s Revolutionary Guards Major General Mohammad Ali Jafari has acknowledged the gravity of the situation, declaring that “domestic weaknesses and threats are more serious” than the foreign military threat posed by the US or other countries.
Iraq: The State Oil Marketing Organization said last week that Iraq’s crude oil production rose to its highest level in 13 months in July—to 4.46 million b/d. Since the fourth quarter of 2017, Baghdad has been consistently reporting to OPEC that its production was 4.36 million b/d each month. According to OPEC’s secondary sources, however, in July Iraq’s oil production jumped by 71,500 b/d in June over May, to 4.533 million b/d. This was the second largest increase within the cartel for June, after the Saudi production jump of 405,400 b/d, according to the secondary sources—the ones that OPEC uses for calculating quotas and compliance. According to the latest S&P Global Platts survey, Iraq’s oil production in July was 4.57 million b/d. Much of this discrepancy is due to the Iraqi government’s desire to keep within its OPEC commitments while still exporting as much oil as it can.
Iraq’s election commission has completed a manual recount of votes from a parliamentary election held in May. Parliament ordered the recount in June after a government report concluded there were serious violations in an initial count using an electronic vote-counting system. However, a fire that broke out in the warehouse where the votes were stored made a complete recount impossible.
Three months after the vote, the winning parties are still embroiled in negotiations over forming the next governing coalition. A group of Iran-backed Shi’ite militia leaders placed second behind cleric Moqtada al-Sadr’s bloc, with incumbent Prime Minister Haider al-Abadi’s bloc in third place. Major policy changes, likely involving the oil industry, are coming soon.
A high-voltage power line in Iraq was attacked by Islamist militants eight times over the past two months according to the Electricity Ministry. Power outages have been among the reasons for protests in several Iraqi cities over the past month. While some outages have resulted from terrorist attacks, most of them seem to result from the poor state of the Iraqi electric grid which has suffered years of neglect.
Demonstrations continued in Basra, Missan, and Dhi Qar provinces last week as protesters criticized slow government response to complaints of unemployment and poor services. The most volatile protests took place outside the gates of West Qurna 1 and West Qurna 2 oil fields, operated by ExxonMobil and Lukoil respectively, where protesters sporadically blocked roads and prevented employees from accessing the facility.
Saudi Arabia: The Saudis told OPEC it cut output in July to 10.29 million b/d, but estimates from the US government and independent agencies say it boosted production—amounting to a difference of as much as half a million barrels a day. Traditionally, the summer months are the season of peak local consumption of crude as air conditioning demand hits a high. However, this year temperatures have been below the five-year average for the period, and exports have not registered any marked increases, either. If Saudi export and domestic consumption data are correct, Aramco may have started to fill up its oil tanks again. The truth of the claims and counterclaims are difficult to sort out.
Saudi Aramco announced that after a halt due to militant attacks, oil shipments through a Red Sea strait near the coast of Yemen resumed last week.
3. China
The great US/China trade war continued unabated last week with China’s state media lashing out at the policies of President Trump in an unusually direct attack. US crude oil exporters appear to have found an alternative buyer for cargoes no longer heading to China, with India on track to import record volumes in August. US exports of LNG to China in July fell to their lowest level in a year and are expected to decline further as the trade dispute forces utilities to seek alternative supplies.
Last week, Beijing announced the decision to remove crude oil from its latest tariff list in the trade war with the US. Sources in Beijing say this move was prompted by a strong lobbying effort by the main importer Sinopec Group. Dropping crude oil from the final tariff list on $16 billion in US goods announced late on Wednesday underscores the growing importance of the US as an alternative supply source for China, which is seeking to diversify its oil purchases as domestic production sinks.
China increased its coal imports in July by 14 percent to their highest in 4-1/2 years as rising temperatures boosted demand for coal-fired power to run air conditioners. The China Meteorological Administration has been issuing regular heat alerts over the past few weeks. Last Wednesday, it warned that regions in western and southern China could see temperatures reaching as high as 104°F, which would continue to support demand for coal-fired electricity.
During the first seven months of this year, China imported some 8.98 million b/d of crude oil, up 5.6 percent from a year earlier. Total natural gas imports, including both pipeline gas and LNG, rose to 7.38 million tons during the same period, up 28.3 percent from a year ago. Economic growth as well as Beijing’s mandate that natural gas makes up at least 10 percent of the country’s energy mix by 2020has increased demand. The growing use of these two fossil fuels will pose problems for the country in the years ahead as it becomes increasingly dependent on imported oil and gas, especially from the volatile Middle Eastern OPEC states. Awareness that hostilities between Middle Eastern OPEC members would devastate its economy is likely behind China’s aggressive moves to establish a foothold in the South China Sea and its reluctance to place tariffs on oil imports from the US.
4. Russia
IEA said last week that Russian crude and condensate production climbed by 150,000 b/d last month, to 11.21 million b/d. That “significantly sharper acceleration than expected” put Russian production 265,000 b/d higher year-on-year and just 14,000 b/d lower than Russia’s October 2016 record high.
New US sanctions, mandated by a 1990 US law, were imposed on Moscow last Wednesday in retaliation for the use of a chemical weapon to poison a former Russian agent and his daughter in the UK. The second round of sanctions that the law could trigger after three months would block many Russian exports to the US, including crude and oil products. The Russian stock market fell on Thursday, and the ruble hit a two-year low after the new sanctions were announced. While the impact of US and EU sanctions imposed after Moscow’s 2014 annexation of Crimea may have only cut the Russian gross domestic product by just half a percentage point a year, they add pressure when growth is already stagnating.
Years of failure to diversify Russia’s economy away from reliance on energy and natural resource exports is taking a toll on economic development. The lack of a real rule of law and protection for property rights is deterring foreign investment. Oligarchs allied with senior government officials are slowly looting the country of the money needed for investment. The new sanctions will further deprive Russia of western know-how and financing vital to modernize the economy. Rosneft said last Tuesday that it had completed the acquisition of ExxonMobil’s stakes in joint projects set up to the develop the offshore Arctic, deepwater Black Sea, and West Siberian tight oil reserves.
Separate legislation introduced last week by Republican and Democratic senators proposes curbs on the operations of several state-owned Russian banks in the United States and restrictions on their use of the dollar. This move caused Prime Minister Dmitry Medvedev to declare that Russia would consider any US move to curb the operations of Russian banks or their foreign currency dealings a declaration of economic war. He also said that Moscow would take economic, political or other retaliatory measures against the US.
Denmark, one of the last countries yet to sanction Russia’s Nord Stream pipeline, is reviewing new route plans, the country’s energy agency stated Friday. Sweden’s government has already issued the permit necessary for Gazprom to build and operate the 315-mile section of the second leg of the Nord Stream gas pipeline in its territorial waters leaving approval by Copenhagen as the key obstacle to building the pipeline. The pipeline is controversial as it would allow Russia to pipe natural gas directly to Germany, bypassing Ukraine and Poland, and would increase the EU’s reliance on Moscow.
5. Nigeria
In recent weeks, the anticipated completion of the 650,000 b/d Dangote Refinery next year has been touted as the way to help Nigeria save over $7.5 billion a year by halting the importation of the bulk of the country’s oil product consumption. Along with the overhaul of Nigeria’s current refineries, the completion of Dangote would put the country on the map as a major oil and gas hub in Africa. Last week sources with direct knowledge of the matter said that the Dangote refinery, being built in Nigeria by Africa’s richest man, cement baron Aliko Dangote, is unlikely to start production until 2022, two years later than the target date.
Last month, Shell signed an agreement with the Nigerian National Petroleum Company and two other companies for the development of natural gas projects worth some $3.7 billion, as part of Nigeria’s efforts to deal with a looming domestic shortage of the fuel. However, it looks like this deal is just the start of a much larger-scale strategy. In a recent interview, Shell Gas Nigeria’s managing director Ed Ubong said the company eyes a complete transformation of the Nigerian energy system by further development of its massive gas reserves, estimated by BP to be the largest in Africa at 5.2 trillion cubic meters.
6. Venezuela
Venezuela’s prospects suffered another blow last week when a judge in the US gave a Canadian mining company permission to seize the shares of the Venezuelan holding company that owns Citgo. The case dates back to 2011 when Venezuela nationalized Las Cristinas, a gold reserve owned by Crystallex. The Canadian company took Venezuela to the international arbitration tribunal ICSID and won, but Venezuela refused to pay up. Crystallex, then, went after Citgo as compensation, arguing that PDV Holding Inc, which is owned by Venezuela’s state-owned oil company PDVSA, is essentially a part of the Venezuelan state. PDVSA’s depends on its US unit, Citgo, for refined products and diluent. These arrangements could be put in jeopardy by a US court order.
Despite a steady decline in its crude oil production, Venezuela increased exports of oil to the US. Between February and June, Venezuelan shipments to the Gulf Coast refineries increased by 43 percent. The recovery in Venezuelan exports is confined to the Gulf Coast where refineries are equipped to process heavier crudes, and their choice of suppliers is limited. Mexico’s oil production is stagnating and, while Canada’s heavy crude production is growing, its pipeline capacity is not.
PDVSA has limited the damage from its slump in crude exports by transferring oil between tankers at sea and loading vessels in neighboring Cuba to avoid asset seizures. PDVSA’s problems increased in in May when ConocoPhillips began seizing PDVSA assets in the Caribbean as payment for a $2 billion arbitration award. The seizures left PDVSA without access to facilities such as Isla refinery in Curacao and BOPEC terminal in Bonaire that accounted for almost a quarter of the company’s oil exports. Conoco’s actions also forced PDVSA to stop shipping oil on its own vessels to terminals in the Caribbean, and then onto refineries worldwide, to avoid the risk the cargoes would be seized in international waters or foreign ports.
The company then asked customers to charter tankers to Venezuelan waters and load from the company’s terminals or from anchored PDVSA vessels acting as floating storage units.
PDVSA told some clients in early June it might impose force majeure unless they agreed to such ship-to-ship transfers.
7. The Briefs (selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
The world’s biggest oil companies are systematically over-valuing their assets based on excessively optimistic forecasts of future prices, according to a leading investor. UK asset manager Sarasin & Partners has asked the oil companies in which it invests, BP, Shell, and Total, to reveal the full risk they face should demand for crude peak as the trend towards decarbonization grows. Sarasin oversees almost £14 billion of investments, including funds from many top charities. (8/6)
LNG gaining steam: A new race to build multi-billion dollar liquefied natural gas plants is gaining momentum after a long hiatus in investments as energy giants sense a widening supply gap within five years. Spending on new, complex facilities dried up following the collapse in energy prices in 2014. Appetite was further dampened by fears that a plethora of LNG plants built since the late 2000s would lead to a large supply glut until early in the next decade. But sentiment has radically changed over the past year, buoyed by rising oil prices and exceptionally strong demand from rapidly growing economies such as China and India. Global demand for LNG surged by 12 percent in 2017, far exceeding forecasts, and is expected to grow by up to 10 percent in 2018. Liquefaction capacity additions are expected to fall sharply by the end of 2019 as newly commissioned plants reach their maximum capacity (8/7)
In the UK, four senior geologists are calling for a moratorium on oil and gas drilling in Surrey, southeast of London, after 12 earthquakes were registered in the area over the past four months. (8/7)
In Portugal, which doesn’t produce oil domestically. several oil wells will be drilled during the next few months—a controversial point. The overarching fear of opponents is that it will transform the nation to the worse, tainting the pristine beaches that tourists are increasingly fond of and bring about environmental damage not seen before. Additionally, Portugal produces 44 percent of its electricity from renewable energy. For many, developing oil deposits would be tantamount to compromising past successes in emissions-free energy sectors. (8/9)
The United Arab Emirates will build an oil pipeline connecting Eritrea’s port city of Assab with Ethiopia’s capital Addis Ababa. The announcement is the latest sign of the UAE’s increasing involvement in the Horn of Africa. The UAE played a behind-the-scenes role in helping Ethiopia and Eritrea end a two-decade state of war last month. (8/10)
In Pakistan, ExxonMobil is close to discovering huge oil reserves near the border with Iran, and those reserves could even be larger than the oil reserves of Kuwait, the Pakistani Minister for Maritime Affairs and Foreign Affairs, Abdullah Hussain Haroon, said. According to Arab News, if the oil discovery in Pakistan turns out to be as large as expected, the country would rank among the world’s top ten oil-producing countries. (8/7)
With Taiwan, US liquefied natural gas company Cheniere Energy Inc said on Friday it had signed a 25-year deal to supply the nation’s CPC Corp, which CPC valued at roughly $25 billion. Cheniere said it will sell 2 million tons of LNG per year on a delivered basis to the state-owned oil and gas company, starting in 2021. It said the purchase price will be pegged to the Henry Hub monthly average, plus a fee. (8/11)
The Philippines is trying to curb its inflation running at five-year highs by ordering the companies to make available for sale cheaper but dirtier fuel, backtracking on a ban on such dirty fuels introduced two years ago and aimed at improving air quality. (8/11)
In Niger, the government said Wednesday it’s eager to capitalize on the potential launch of new crude oil production as soon as possible. British energy company Savannah Petroleum, which has a core focus on Africa, signed a memorandum of understanding with Niger’s government to move forward with an early production scheme for discoveries made in the southeast of the country. Savannah Petroleum said it has made oil discoveries at three wells in its license area in Niger’s Agadem Rift basin. (8/9)
In Cuba, Melbana Energy, one of the few Western companies with an established footprint in the country, said its best estimate of reserves there improved more than 10 percent. The company, which has headquarters in Australia, said an independent assessment found the best estimate for oil in place for the Block 9 prospect on the northern coast of Cuba was 15.7 billion barrels of oil, a 24 percent increase from the previous estimate. (8/8)
In Mexico, when the National Hydrocarbons Commission scheduled its first-ever shale tender for September this year, the July elections were obviously not front and center in the thoughts of its management. Yet now, this tender may be as good as gone after President-elect Andres Manuel Lopez Obrador said last week, “We will no longer use that method [hydraulic fracturing] to extract petroleum.” (8/9)
Canadian nightmare: Western Canada Select (WCS) recently fell below $40 per barrel, dropping to as low as $38 per barrel last Tuesday. That put it roughly $31 per barrel below WTI, the largest discount since 2013. The sharp decline in WCS prices is a reflection of a shortage of pipeline capacity that’s growing worse. Even as pipeline takeaway capacity hasn’t budged, Canadian oil production continues to rise. Output could jump by around 230,000 b/d in 2018, followed by another 265,000-b/d increase in 2019. (8/10)
The US oil rig count grew by 10 last week, bringing the total count to 869, General Electric Co’s Baker Hughes energy services firm said. Gas rigs increased by 3 to 186. The combined oil and gas rig count now stands at 1,057—up 108 from this time last year. (8/11)
American refiners are posting their best second-quarter profits in years, thanks to soaring domestic oil production and regional pipeline bottlenecks that are allowing them to buy crude on the cheap. (8/7)
Ethanol #s: The EIA on Tuesday adjusted its forecast for US ethanol blending with gasoline in the remainder of 2018 but left the production forecast unchanged. The outlook showed blending ticked higher in July than originally forecast, which bumped the forecast average for the whole year slightly higher to 945,000 b/d from 941,000 b/d in the July outlook. (8/8)
Diesel will dominate the commercial truck industry for years to come, but when will the switchover to electrified, automated trucks seriously impact the demand for this fuel? It’s a pressing question for the US in particular, where 70 percent of the goods use traditional diesel engine medium- and heavy-duty trucks (and some of the medium- and light-duty work trucks use gasoline engines). (8/6)
SPR release? Even if the US Administration decides to release crude oil from the Strategic Petroleum Reserve, American drivers are unlikely to see gasoline prices coming down, because US refiners already have enough oil to run at maximum rates, and much of the oil products that would be produced could be exported, analysts briefed by Reuters say. (8/11)
GOM leases: A federal auction of exploration leases in the Gulf of Mexico next week will test energy companies’ appetite for acreage after the Trump administration left royalty rates for deepwater parcels unchanged, bucking an industry call to lower them. Oil companies had lobbied for lower royalty payments for deepwater acreage because of the projects’ high cost and long lead time before production can begin. (8/11)
Drilling restraint looming: In Colorado, an initiative to expand the setback distance required for oil and gas drilling just received a boost, potentially making the November ballot. Initiative 97 would require oil and gas wells to be a minimum of 2,500 feet away from “occupied structures,” which means houses, and “vulnerable areas,” which includes parks, public spaces and fresh water, among other areas. That distance is much greater than the current distance of just 500 feet for “occupied structures,” and 1,000 feet for “high occupancy buildings,” such as hospitals and schools. (8/10)
Tariff issues: US President Donald Trump’s proposal to double tariffs on steel and aluminum from Turkey could push up costs even further for domestic oil and gas pipeline projects, as energy executives said they were already struggling from earlier tariff rises. There are more than a dozen US energy pipelines on the drawing board, some of which are still seeking financing. The projects would pave the way for greater US oil and gas exports and relieve a bottleneck in West Texas shale fields that is starting to pinch output in the region. (8/11)
Nuke bind: When Exelon’s Oyster Creek nuclear unit disconnects from the grid at the end of September and permanently shuts, it will mark the start of a busy period of US nuclear power plant closures driven by low power prices that are placing dozens more units at risk. As utilities threaten to shut nuclear units, a patchwork of state subsidies has emerged, and DOE and the US Federal Energy Regulatory Commission are mulling separate actions to prevent reactors from closing. (8/11)
TX wind: Strong wind generation helped the Electric Reliability Council of Texas (ERCOT) system cope with the mid-July heat wave with high prices, but such wind capacity is unlikely to be available if another heat wave strikes in August, board members were told Tuesday. ERCOT set a new all-time power demand record of 73,259 MW on July 19 and a new all-time weekend demand record of 71,444 MW on July 22. (8/8)
RE generation costs: Based on 2016 EIA data for newly constructed utility-scale electric generators (those with a capacity greater than one megawatt) in the US, annual capacity-weighted average construction costs for solar photovoltaic systems and onshore wind turbines declined, while construction costs for natural gas generators increased slightly. These three technologies accounted for about 93% of total electric generating capacity added in 2016. (8/9)
EV uptake: A new report by ABI research forecasts that a proportionately higher uptake of EVs in car-sharing fleets, and the higher utilization rates of those EVs, will result in global electric mileage share to exceed 20 percent by 2030. While consumer adoption of EVs continues to disappoint with only 2 percent of all vehicles shipping in 2018 expected to be electric, city governments are increasingly becoming aware of their benefits in terms of sustainability, reduced environmental impact, and improved air quality. (8/11)
EU carmaker fines coming? New analysis by IHS Markit suggests that automakers failing to meet 2021 fleet CO 2 emissions compliance for passenger vehicles sold in the European Union (EU) could be fined more than €14 billion (US$16 billion) in 2021. (8/7)
More battery promise? Researchers at the University of Cambridge have identified an entirely new class of materials that could allow lithium-ion batteries to charge faster and deliver higher power performance—and at lower costs—than the nanoparticles used in battery electrodes. This new class of materials—known as niobium tungsten oxides—could allow not only our smartphones to charge in minutes but could also make higher-power batteries that charge faster and more safely than those used in today’s EV and energy storage systems – thus potentially overcoming the battery barrier to mass adoption of EVs and solar power. (8/7)
Japan may eventually import hydrogen from Australia to help boost the use of hydrogen in power supply and hydrogen fuel cell powered vehicles. Hydrogen can be produced with excess renewable energy that would otherwise be wasted, and can be transported like natural gas. (8/8)
Tesla is working on a “mini-car that can squeeze in an adult,” a new tweet from chief executive Elon Musk told the world. The tweet, like another recent one about the addition of new AI to Teslas, came in response to a fan question about “Radio Flyer Model X”. This is not the first announcement of a new Tesla model by Musk in the past year. The earlier ones, about the Tesla Semi electric truck and a future SUV, have been met with mixed feelings. (8/7)
Climate extremes: Researchers believe we could soon cross a threshold leading to boiling hot temperatures and towering seas in the centuries to come. Even if countries succeed in meeting their CO2 targets, we could still lurch on to this “irreversible pathway”. Their study shows it could happen if global temperatures rise by 2o C. (8/7)
Heat wave: Eight places in Portugal broke local temperature records as a wave of heat from North Africa swept across the Iberian peninsula — and officials predicted the scorching temperatures could get even worse over the weekend. Temperatures built to around 45 degrees Celsius (113 degrees F.) Friday in many inland areas of Portugal. (8/6)
Peak Oil Review 6 August 2018
By Tom Whipple, Steve Andrews, originally published by ASPO - USA
https://www.resilience.org/stories/2018-08-06/peak-oil-review-6-august-2018/
Quote of the Week
“Weekly data had shown a strong 324,000 b/d output rise [in US oil production] from March to May. The revised data shows that this rise was a mirage: output actually fell 19,000 b/d over the period. It is time to deal with the statistical gorilla on the oil trading floor. We think US crude oil production has not reached the 11 million b/d shown in recent weeks in the Energy Information Administration weekly data, and that it is significantly below 11mb/d, with growth slowing.” Paul Horsnell, head of commodities research at Standard Chartered
1. Oil and the Global Economy
Oil prices fell last week mostly on concerns that the looming US-China trade war would stifle demand. There was a short-lived rally on Thursday after the stocks report showed a 3.8 million barrel increase in total crude stocks mostly due to lower exports, but a 1.1 million drop in the inventory at Cushing, Okla. For now, the markets seem well supplied with production by Russia, the Saudis and the Gulf Arabs increasing after the relaxation of the market cap, and there has not yet been a significant reduction in Iranian exports in response to the new US sanctions. The week ended with New York oil futures down to $68.49 and London down to $73.21.
U.S. crude prices rose in 13 of last month’s trading 21 sessions, while London was up in 13 of the 22 trading days. However, most of the gains were moderate, and the drops more severe. Brent lost nearly $11 over three sessions spread throughout the first four weeks of July. U.S. crude lost almost $8 over as many days during the same period. A final day of heavy losses last Tuesday left both markets with their worst monthly drop since July 2016 with London futures trading at close to $79 a barrel in late June and ending up around $73 at the beginning of August. Several of the down days clearly were due to comments from the White House such as on July 2nd when the President announced on Twitter that Saudi Arabia’s king had agreed to pump up to 2 million more barrels per day to tame fuel prices.
A new market assessment from S&P Global Platts concludes that two-year production highs from Saudi Arabia and other OPEC producers are more than offsetting declines from Iran, Libya, and Venezuela. According to Platts, production from Iran last month averaged 3.72 million b/d, its lowest level in a year and a half. US sanctions on Iran have hit its oil sector, and some European customers are already curtailing purchases of Iranian crude.
Libya’s production average of 670,000 b/d in June was its lowest since April 2017 as Africa’s largest producer struggles with national security problems. Venezuela, meanwhile, is coping with what the International Monetary Fund said was a “profound” economic crisis and aging infrastructure, pushing oil production to the lowest level since Platts started keeping track 30 years ago. Outside of Saudi Arabia, meanwhile, Kuwait and the United Arab Emirates produced the most oil since December 2016, the month before OPEC and other non-member states, including Russia, agreed to curtail production to balance an oversupplied market.
US Shale Oil Production: The most interesting news of last week came when the EIA published its revisions to US oil production for May revealing that US crude output actually fell by 30,000 b/d during the month rather than increasing by over 100,000 b/d. The monthly total of 10.442 million b/d for May is considerably lower than what EIA itself thought at the time. EIA weekly estimates for May have production increasing from 10.703 million b/d in early May to 10.769 million at the end of the month. The weekly assessments are known to be less accurate than the retrospective monthly numbers. That involves a lot of guesswork. Yet, the discrepancy is a major one. Not only did the EIA estimate that production in April and May was much higher than it actually was, but the agency also thought production was rising quickly. If the weekly estimates were to be believed at the time, production would have climbed from 10.525 million b/d in early April to 10.769 million b/d by the end of May, an increase of 244,000 b/d over an eight-week period.
The main reason for the decline in overall US output was a 75,000-b/d decline in production from the Gulf of Mexico. But Texas production only rose by 20,000 b/d, a figure far below what the EIA and most analysts had expected. It has been known for some months that rapidly increasing production from the Permian Basin was running into troubles.
Most of these troubles concern shortages of pipeline capacity to move increasing quantities of oil and gas production to market. While new pipelines are under construction, it will be another 18 months to two years before the capacity problem is mitigated. The basin also is seeing increasing costs of production, shortages of labor and limited capacity to rapidly frack newly drilled wells. This is leading to a large increase in drilled but uncompleted wells in the Permian.
A more subtle problem is the issue of whether developers are running out of the most productive “sweet spots” to drill in the Permian. While the EIA continues to tell us that newly drilled wells are producing more oil in the first few months than ever before, some observers note that these more productive wells are considerably longer and more expensive to drill than those being brought online a few years ago. At some point, albeit months, years, or decades away, the cost-effective places to drill for shale oil will be gone and the great US shale oil boom of the early 21stcentury will be over.
Most forecasters still see rapidly increasing production from the Permian Basin as the key to sustaining global oil production in the face of severe declines in capital expenditures on finding and developing new sources of oil elsewhere in the world. Other US shale oil fields are believed to be at or close to peak production and are no longer capable of significant growth. While there have been several large new deepwater discoveries in the last two years, these discoveries are many years away from producing large quantities of oil and global demand for crude still seems to be increasing at the rate of circa 1.5 million b/d each year.
It is still too early to tell if the unprecedented increases in production from US shale oil fields that we have seen in the last ten years is coming to a close. If monthly US production figures continue to fall substantially short of expectations, that would have serious global ramifications. The oil market could end up being a lot tighter than we all expect and oil prices could be considerably higher.
2. The Middle East & North Africa
Iran: President Trump said last Monday he was willing to meet the leaders of Iran without any preconditions, opening the door to possible negotiations with Tehran. Senior Iranian officials and military commanders replied on Tuesday by rejecting President Trump’s offer as worthless and “a dream,” saying his words contradicted his action of re-imposing sanctions. Iranian President Rouhani added that Trump’s repudiation of the international nuclear deal was “illegal” and Iran would not readily yield to Washington’s renewed campaign to strangle Iran’s oil exports.
An Iranian naval commander again threatened hostilities by saying, “The cruel sanctions being imposed on Iran will affect the Strait of Hormuz functions.” The US says Iran has started carrying out naval exercises in the Gulf, apparently moving up the timing of annual drills due to the heightened tensions.
The issue now is which oil importers will follow Washington’s demands and stop or cut back on purchases of Iranian oil. US officials are attempting to persuade Washington’s allies to suspend imports of Iranian crude, but analysts doubt the push will be ultimately successful, as Iran’s return on international oil markets provided a welcome diversity of oil supplies for buyers from Asia to Europe. Beijing already has declined the request by US officials to stop importing crude oil from Iran; however, the critical question is whether the Chinese are willing to increase their imports of Iranian oil to make up for any loss of sales to other countries.
Ahead of the impending US sanctions, India’s state refiners boosted their Iranian oil purchases, pushing up Indian oil imports from Iran by 30 percent from June to a record 768,000 b/d in July.
Iran is also said to have started to offer Indian cargo insurance for tankers operated by Iranian companies as some Indian insurers have refused to cover oil cargoes from Iran in the face of the returning U.S. sanctions on Tehran. However, Indian oil refiners reduced their orders for Iranian crude oil in June by 12 percent compared to May. Some large Indian refiners worry that their access to the US financial system could be cut off if they continue to import Iranian oil, and have started to reduce purchases. It will be several months before we know how this confrontation turns out.
In the meantime, Iran’s economy is not doing well, and Iranians are taking to the streets in protest. The country’s currency hit another record low against the US dollar last week on concerns about new American sanctions. The rial traded at 119,000 to the US dollar last Monday and has almost halved since early May. Iranian officials clearly are concerned with the head of the Central Bank saying “Enemies are out to destroy the country’s assets and instill disappointment in public through sanctions.” Over the weekend sporadic protests took place in several cities.
Iraq: Iraq’s oil exports hit an annual high in July as the country sold 3.87 million b/d – an increase of more than 70,000 b/d compared to June. Baghdad exported 3.54 million b/d via the Basra Gulf, earning $7.597 billion – its largest monthly revenue figure since July 2014. All the oil Baghdad shipped in July came from the southern fields. and there were no exports during the month from the Kirkuk fields, located in northern Iraq but under the control of the federal government.
Protests continued around Basra last week, as demonstrators threatened to shut down all roads leading to the super-giant West Qurna 1 oil field. Outraged protesters have flocked back to several oil sites in Basra following a message Friday from Grand Ayatollah Ali al-Sistani, who encouraged his followers to express their displeasure about the Iraqi government’s failures to address problems of corruption, unemployment, and lack of basic services.
As protests spread in southern Iraq, there have been renewed demands for autonomy for the governorate. The concept of autonomous regions is a thorny issue among Iraqis, many of whom resist the idea of the division of Iraq. However, it may be argued that calls for an autonomous Basra governorate are merely an attempt to pressure the central government to disburse the governorate’s budget allocation and provide better services.
Basra is economically the most important province in Iraq, the third largest governorate with a population of more than 1.5 million people, situated between Iran and the Gulf states. The governorate contributes a major part of Iraq’s federal budget. In June 2018, the central government exported 105 million barrels of oil from Basra, which produces 2.8 million barrels on a daily basis. However, the governorate’s residents do not benefit much from the revenue.
Saudi Arabia: The Aramco IPO was put on indefinite hold several weeks ago, but Saudi Arabia’s funding needs have never been greater. Now Crown Prince Mohammed bin Salman has come up with a scheme to raise tens of billions for the government by forcing Aramco to issue debt to buy a controlling stake in a petrochemical company from the country’s sovereign-wealth fund. Should the deal go through, it would give the Public Investment Fund (PIF) between $50 billion and $70 billion for all or part of its stake in Saudi Basic Industries, or Sabic. Controlled by the state, Sabic is also the country’s largest publicly listed company, with a market cap of about $100 billion.
The Aramco IPO with its required disclosures would have shed light on the inner workings of the company for the first time since it was nationalized in 1980 and lead to the independent verification of its oil reserves and other assets. It would be a significant step in unmasking the murky world of national oil companies, whose reserves are thought to represent 90 percent of global reserves of oil and natural gas according to one estimate. Some are saying that an international sale of bonds to finance the purchase of the Sabic petrochemical company would also require disclosure of the company’s financial information, but many doubt the new scheme to finance the Saudi government will ever take place.
3. China
The impending Sino-American trade war continues to be one of the world’s top issues. Last week US President Trump sought to ratchet up pressure on China for trade concessions by proposing a higher 25 percent tariff on $200 billion worth of Chinese imports. US Trade Representative Robert Lighthizer said Trump directed the increase from a previously proposed 10 percent duty because China refused to meet US demands and has announced retaliatory tariffs on US goods. On Friday, China proposed retaliatory tariffs on $60 billion worth of US goods ranging from liquefied natural gas (LNG) to some aircraft, as a senior Chinese diplomat cast doubt on prospects of talks with Washington to solve the trade conflict.
China’s proposed tariffs on US liquefied natural gas and crude oil exports opens a new front in the trade war. China included LNG for the first time in its list of proposed tariffs at the same time that its biggest US crude oil buyer, Sinopec, suspended US crude oil imports.
The first official data reflecting the impact of US tariffs on China’s economy was released last week with surveys of factories and service providers pointing to sluggish domestic demand. The official manufacturing purchasing managers’ index fell to a five-month low of 51.2 from June’s 51.5, slightly lower than economists’ expectations. The import sub-index of the PMI slipped to a 23-month low, while the export sub-index held steady thanks to a weaker yuan. An official measure of activity outside China’s factory gates, also released Tuesday, declined to an 11-month low in July, as cooling manufacturing and construction activities weighed on the sector.
A meeting of the Politburo last week highlighted the challenges Beijing faces. Without mentioning the trade conflict with the US, a statement issued after the meeting made it clear that the dispute is a threat to China’s growth and stability.
4. Russia
Russia’s crude oil and condensate output during July rose by 148,000 b/d, to 11.215 million b/d, in line with Russia’s pledge to boost output under the OPEC agreement. Under the original deal in force since January 2017, Moscow had agreed to cut 300,000 b/d from its October 2016 output of 11.247 million b/d. On Wednesday, Energy Minister Novak said his crude and condensate output in July was 40,540 b/d below the October 2016 level. The October 2016 level of 11.247 million b/d came as the result of an unusual monthly surge in production from 10.7 million b/d meaning that after the supposed “cut” Moscow’s production was still close to pre-agreement levels.
Production may remain around the 11.2 million barrels a day level for the remainder of the year, a government official said, citing the oil ministry’s most recent calculations. Supply could even increase if there are further agreements with OPEC+ to change current output policy and boost supplies, though there haven’t been any detailed talks on this yet. OPEC+ may discuss whether a bigger production increase is needed when they meet in September, Novak said last month.
5. Nigeria
Between March 2017 and March 2018 the Nigerian National Petroleum Corporation incurred a loss of US$663 million as an under-recovered expenditure in importing gasoline at the international market price and selling at the federal government’s regulated pump price of $.40 per liter. The report, which showed that 80.26 million liters of gasoline were consumed in March 2018, also indicated that in February 2018, Nigeria’s oil production volumes declined by about 7.588 million barrels on account of many production shut-ins mostly on crude oil export terminals and pipelines.
The Minister of State for Petroleum Resources says that new and upgraded oil refineries in Nigeria would place a lot of demand on the country’s oil production, so that it may find it difficult to meet the needs of the soon-to-be-completed refineries. The imminent recovery of refining capacity of the four refineries owned and operated by the Nigerian National Petroleum Corporation is part of the expected pressure on the country’s oil production which is currently around 2.3 million b/d.
Government’s statistics had indicated Nigeria currently has a 445,000 b/d refining capacity in the NNPC’s four refineries. This number is however projected to rise with the coming on stream of refineries such as the 650,000 b/d Dangote refinery; the Omsa Pillar Astex Company (OPAC) refinery in Delta; as well as the 12,000 b/d Azikel refinery, amongst others. At a recent meeting in Abuja, where Nigeria and Niger Republic penned agreements to build a 150,000 b/d refinery in Katsina, the Minister predicted that Nigeria could have challenges providing crude oil for the refineries when they all become operational.
Nigeria’s crude oil production is expected to rise further if Shell and its partners, next year, decide whether to go ahead with the development of the nation’s Bonga Southwest offshore oilfield. The project, one of the country’s largest with an expected production of 180,000 b/d, is expected to generate a profit above $50 a barrel. Shell is negotiating a production sharing contract with the Nigerian government which will determine the viability of the project,
6. Venezuela
According to the Miami Herald, a US probe into the laundering of $1 billion from Venezuela’s state-owned oil company PDVSA has involved President Maduro. Although Maduro was not named in the criminal complaint filed earlier this month, the president along with other senior Venezuelan officials are being investigated for their alleged participation in the scheme that involved channeling hundreds of millions of dollars from PDVSA into US and European banks.
As the economic crisis continues to deepen, President Nicolas Maduro is promising a new policy on gasoline which is currently generously subsidized by the government. Given the rate in inflation in Venezuela, it is difficult to put a meaningful price on anything, but the current authority on world gasoline prices puts the price of a gallon in Venezuela at $.01(1 cent). Maduro promised last week a new plan to ease the economic crisis and hyperinflation. The president didn’t elaborate on the gasoline policy plan, but said: “I’m committed and with a new national hydrocarbon policy we’ll have enough money, cash, in this country to invest in everything our people need. We’ll have money to spare.”
Maduro didn’t say that gasoline prices would be increased but warned that people who don’t take part in a nationwide car census that began last Friday would not be eligible to receive state subsidies for gasoline. It sounds a lot like rationing of that one cent gasoline is on the way.
7. The Briefs (selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
In Yemen, despite a worsening humanitarian crisis amid a war between the Houthi rebels and a coalition of Saudi Arabia and the UAE, the poorest Arab country has found a way to restart oil production and has even exported the first cargo: 500,000 barrels sold to a Chinese company. This is the first outbound shipment of crude oil from Yemen since 2015 when a civil war broke out. (8/4)
India’s cabinet approved a policy to allow companies to explore and exploit unconventional oil and gas resources such as shale oil and gas and coalbed methane under the existing production sharing contracts, as it aims to reduce its dependency on energy imports. (8/2)
In China, reductions to subsidies for hybrid and battery-powered vehicles that came into effect mid-June are already having a dramatic impact. According to government data, some 64,000 battery-electric vehicles rolled off production lines in June 2018, a drop of 16 percent compared to May. June sales of BEVs fell by 23 percent. (8/3)
South Korea is planning to cut taxes on LNG by 74 percent and raise taxes on coal for power generation by 27 percent next year in an effort to cut the country’s heavy reliance on coal for power production and shift towards gas. (7/31)
The Indonesian government has moved to reclaim its prolific Rokan oil block from Chevron in 2021. When Chevron’s contract is set to expire, the government will then turn it over to state-run Pertamina. Chevron Pacific Indonesia is just the latest oil major casualty in Indonesia’s determination to nationalize its natural resources, including oil. (8/2)
In Argentina, energy industry participants are set to meet August 13 in Neuquen with labor leaders and politicians to discuss the future of the Vaca Muerta, as issues mount that could slow development of one of the world’s largest shale oil plays. (8/1)
Offshore Mexico, the outcome from a potential $1.9 billion commitment by Italy’s ENI could realize 90,000 barrels of oil per day from 2021. The so-called Area 1 basin is located in the shallow waters of the Campeche Bay. (8/2)
Canada’s gross domestic product grew at a faster pace than forecast in May, led by the oil and gas industry and more specifically, oil sands. Statistics Canada reported that the national GDP expanded by 0.5 percent in May, with 19 out of 20 industries booking improved results compared to April, with oil and gas posting a 2.5-percent improvement and the oil sands industry recording growth of 5.3 percent. (8/3)
Canada secondary? Like most other elements of President Trump’s America First policy, there should be little expectation that Mr. Trump has any commitment to Canada when it comes to energy. Reaching non-US global markets directly is clearly in the strategic interest of Canadian energy producers, for both expanded sales opportunities and capturing better prices. But without adequate pipeline and shipping infrastructure, Canadian energy producers will remain dependent on a single buyer, the U.S., with a fickle and self-absorbed energy agenda. (8/1)
Canadian heavy oil prices are the weakest in almost five years, leading Canada’s largest producer—Canadian Natural Resources Ltd.—to focus on drilling for lighter crude. Western Canadian Select’s discount to benchmark West Texas Intermediate widened to $31 a barrel Friday, the biggest gap since December 2013. Prices have tumbled amid constraints on pipeline and rail capacity out of Western Canada and as the US Midwest’s biggest refinery prepares for maintenance later this month on its largest crude distillation unit. (8/4)
The US oil rig count declined by two to 859, the second such decline in three weeks, according to Baker Hughes. Gas rigs dropped by three to 183. The rate of oil rig growth has slowed over the past couple of months with recent declines in crude prices. So far this year, the total number of oil and gas rigs active in the US has averaged 1,010, the highest since 2014 but well below that year’s average of 1,862 rigs. (8/4)
BP’s $10.5 billion move to acquire most of BHP Billiton’s shale acreage in North America “signals a bold return by the UK oil giant to the lower 48 states,” according to Rystad Energy. The energy research company said the action gives BP a prominent position in the North American tight oil play and secure access to new projects that can contribute on a large scale to growing its production. (8/1)
Oil export tools: Tallgrass Energy on Wednesday joined a growing list of midstream companies that plan to load US crude directly onto supertankers by building an offshore pipeline. The company said it will build an 800,000 b/d crude pipeline that will carry oil from the Cushing, Oklahoma, hub to the St. James, Louisiana, refining complex and then link that line to an export-capable liquids terminal being built near the mouth of the Mississippi River. The proposed terminal will then be linked to a separate offshore pipeline extension that would allow for the loading of VLCCs that can transport about 2 million barrels of oil. (8/2)
US natural gas demand is rising on a structural basis, as coal plants shut down and more gas-fired generation comes online. In addition, gas exports in the form of LNG are steadily on the rise. That means that while demand continues to follow a cyclical pattern, both the peaks and the valleys of this pattern are rising steadily over time. (8/3)
Gasoline prices: The AAA warned that consumer gasoline prices in the US could be on the rise given signs in government data of robust demand. The EIA reported earlier this week that demand for gasoline for the week ending July 27 was 1,000 b/d short of setting an all-time record. So far, consumer demand for gasoline is about 1.5 percent higher than last year, while gasoline supplies have moved lower. (8/3)
US energy expenditures declined for the fifth consecutive year, reaching $1.0 trillion in 2016, a 9 percent decrease in real terms from 2015. Adjusted for inflation, total energy expenditures in 2016 were the lowest since 2003. Expressed as a percent of gross domestic product (GDP), total energy expenditures were 5.6 percent in 2016, the lowest since at least 1970.(8/3)
Oil + drugs: The fastest-growing oil region in the US is fueling not only the second American shale revolution—it’s fueling a subculture of drug and alcohol abuse among oil field workers. The Permian shale play in West Texas is once again booming with drilling and is full of oil field workers, some of whom are abusing drugs and alcohol to help them get through long shifts, harsh working conditions, and loneliness and isolation. (7/30)
Miners’ $$ doldrums: Brent crude prices are up 40 percent in the past year, cheering oil industry executives but causing concern among their customers in the mining sector. Miners use heavy fuel oil to generate electricity at remote sites; they also use it for transport, with large trucks and other equipment guzzling down millions of gallons each day across the industry. (8/4)
Electric power sector coal consumption in 2017 was 36 percent (376 Million ton) lower than in 2008 when US coal production reached its highest level. The 661 million tons of coal consumed in the electric power sector in 2017 was the lowest amount of coal consumed since 1983, and 2017 was the fourth consecutive year that US coal consumption and coal shipments by all transport modes declined. (8/4)
US coal exports totaled 9.2 million tons in June, up 5.1% from May and up 38.6% from the year-ago month, according to US Census data out Friday. Relatively high seaborne prices for both metallurgical and thermal coal, in addition to a possible ban on petcoke in India, have opened the door for US exports. (8/4)
State-owned Coal India Ltd increased its production to 40.56 million tons in July, up 10.6 percent on the year. (8/2)
Nordic nuke slow-down: This year’s unusually warm summer in the Nordic region has increased sea water temperatures and forced some nuclear reactors to curb power output or shut down altogether, with more expected to follow suit. The summer has been 6-10 degrees Celsius above the seasonal average so far and has depleted the region’s hydropower reservoirs, driving power prices to record highs, boosting energy imports from continental Europe and driving up consumer energy bills. Reactors need cold sea water for cooling but when the temperature gets too high it can make the water too warm for safe operations. (8/2)
Germany has added over 2 GW of new solar capacity over the past year as the rebound for the sector accelerates and annual additions are on track for the strongest growth since 2013, the latest monthly data from the federal grid regulator showed Tuesday. Additions in the first six months of 2018 are up by over 40% on the year at 1.3 GW. Overall solar growth is still well below levels seen during the boom years 2010-12 when Germany added some 20 GW in just three years. (7/31)
Offshore Maryland, Deepwater Wind, which operates a wind farm in waters off Rhode Island, wants to build another wind farm. But before its proposal can go forward, the company needs to know what lies on the sea floor here. So, geologists, marine biologists, and archaeologists will spend the next couple of months seeking answers, scouting the potential footprint of a wind-energy project planned near the mouth of the Delaware Bay. (8/1)
Hoover Dam for pumped storage? The Los Angeles Department of Water and Power, an original operator of Hoover Dam when it was erected in the 1930s, wants to equip it with a $3 billion pipeline and a pump station powered by solar and wind energy. The pump station, downstream, would help regulate the water flow through the dam’s generators, sending water back to the top to help manage electricity at times of peak demand. The net result would be a kind of energy storage — performing much the same function as the giant lithium-ion batteries being developed to absorb and release power. (7/30)
EV push needed? A new report by the progressive policy institute Center for American Progress estimates that the US needs to add 14 million new PEVs and more than 330,000 new public charging outlets by the end of 2025 in order to meet its Paris Agreement targets. According to the authors, the existing state and VW funds can provide only about 50% of the funding needed to deploy adequate public charging infrastructure through 2025. (7/31)
CA pushing ZEVs: California Governor Jerry Brown has directed the California Air Resources Board (ARB) to assess possible regulatory requirements to ensure greater inclusion of zero-emission vehicles in public and private light- and heavy-duty vehicle fleets. California is looking for ways to meet a 5-million zero-emission vehicle target by 2030. (8/4)
EV deliveries: UPS announced a collaboration with Thor Trucks to develop and to test a fully-electric class 6 delivery truck in Los Angeles, Calif. The truck is expected to be ready for deployment later this year. The Thor medium-duty truck will have a driving range of approximately 100 miles powered by a Thor-designed and built battery that will be lightweight, durable and allow long-range driving distances. (8/2)
EV solution: Honda is introducing a new Honda SmartCharge beta program that allows electric vehicle customers to reduce the environmental footprint of charging their car while earning monetary rewards. Honda SmartCharge computes the best time to charge a vehicle from the electric grid, dynamically taking into account the driver’s daily schedule, the amount of renewable energy being generated, and the amount of CO2 emitted from power plants on the grid. (8/1)
Tesla goes to China: Tesla plans to build a $5-billion car-manufacturing plant near Shanghai in China, and is weighing possibly raising part of the funds for the factory from local partners, Bloomberg reported on Wednesday. Tesla expects to begin production of its Model 3 in the new Chinese plant by 2020. (8/2)
Recycling EV batteries: While scores of research labs around the world look for ways to replace lithium-ion batteries with cheaper and more reliable alternatives, China has started a pilot EV battery recycling program in anticipation of a boom in EV adoption in the next few years. Seventeen cities and regions will work to encourage car producers to build battery recycling facilities and join forces with battery makers, used car dealers, and scrap traders to set up recycling networks. (8/1)
H2 status in CA: The California Air Resources Board has released the 2018 issue of its annual report on fuel cell vehicles and fueling stations. The report describes an uptick on both fronts. There are 4,411 FCEVs registered to the Department of Motor Vehicles as of 4 April. Industry estimates a total of 4,819 vehicles deployed through May of 2018. The hydrogen fueling network has gained seven additional Open-Retail stations for a total of 36 locations. (8/1)
Hot as Hades: In Northern Europe, this summer feels like a modern-day version of the biblical plagues. Cows are dying of thirst in Switzerland, fires are gobbling up timber in Sweden, the majestic Dachstein glacier is melting in Austria. In London, stores are running out of fans and air-conditioners. In Greenland, an iceberg may break off a piece so large that it could trigger a tsunami that destroys settlements on shore. Temperatures in Spain and Portugal are expected to reach 105-110 degrees F this weekend. The preliminary results of an Oxford study found that, in some places, climate change more than doubled the likelihood of this summer’s European heat wave. (8/4)
Emissions targets: The EU’s energy chief is pushing for member states to adopt a more aggressive carbon reduction target ahead of UN climate talks later this year. The EU already has some of the most ambitious carbon emission reduction targets in the world but Miguel Arias Cañete, the EU energy commissioner, wants the bloc to go further. To reach the new energy and climate change targets will require a mixture of public and private investment of €379bn a year between 2021 and 2030, as well a 50 percent increase in the number of new renewables installed each year. (7/30)
Peak Oil Review 30 July 2018
By Tom Whipple, originally published by ASPO - USA
https://www.resilience.org/stories/2018-07-30/peak-oil-review-30-july-2018/
Quote of the Week
“The economic collapse I predict will occur because the world’s petroleum industry lacks the capacity needed to supply additional low-sulfur fuel to the shipping industry [in 2020] while meeting the requirements of existing customers such as farmers, truckers, railroads, and heavy equipment operators.” Phillip Verleger, oil industry economist, and analyst
1. Oil and the Global Economy
Oil prices climbed steadily through Thursday last week, supported by easing US-EU trade tensions and a temporary shutdown by the Saudis of a critical crude oil shipping lane. On Friday prices fell in sympathy with the US equities market to end the week at $74.29 in London and $68.69 in New York. Crude prices were unfazed last week by the unexpectedly robust US GDP figure, or the threatening rhetoric exchanged between Tehran and Washington.
There are so many issues affecting oil prices these days that analysts are all over the map on forecasts for oil prices. At the bottom of the forecast range is Citi bank which says that Brent soon could fall back into a trading range of $45 to $65 a barrel. Goldman Sachs is in the middle forecasting a $70-80 range for Brent, while Bank of America says that Brent could rise to $90 by the second quarter of next year. However, the Bank says that should Iranian exports be completely cut off then there would be a price spike above $120 a barrel. An interesting outlier from economist Philip K. Verleger suggests that oil prices could increase to $200 a barrel solely because of new regulations on sulfur emissions for maritime fuels which begin in 2020.
Some believe that the markets are ignoring the risks of tightening supplies. These analysts note that the expected increase in oil exports from OPEC and Russia has not materialized and that reports of spare Saudi capacity that will be brought into production are overblown. The attack on two Saudi oil tankers in the Strait of Bab El Mandeb by Yemeni Houthi forces could presage more troubles in the area. The Bab El Mandeb is not militarized by US-NATO naval forces – which means it is far more exposed to attacks than the Strait of Hormuz.
OPEC: Last May a bill was introduced in the US Congress that would let the US sue OPEC for oil price fixing. The proposed law is called “No Oil Producing and Exporting Cartels Act,” or NOPEC. Last week, two Republican Senators and two Democrats introduced legislation aimed at allowing the government to bring lawsuits against OPEC members for antitrust violations. If passed, this bill would be an amendment to the Sherman Anti-trust Act of 1890. One of this act’s central provisions outlaws all combinations that restrain trade between states or with foreign nations. This prohibition applies not only to formal cartels but also to any agreement to fix prices, limit industrial output, share markets, or exclude competition.
In 2007, a similar bill passed in the House of Representatives with a 345-72 vote, and in the Senate by 70-23, only to fail afterward in the face of White House opposition. This time around, however, there is a good chance that Trump would sign such a bill into law. Such a US law could cause considerable mischief by endangering US-Saudi relations.
US Shale Oil Production: In its biggest deal in nearly 20 years, BP has agreed to buy US shale oil and gas assets from Australian miner BHP Billiton for $10.5 billion. The acquisition will give BP access to some of the most desirable acreage in the US shale basins where BP’s scale of operations can provide a considerable advantage. Big oil companies have historically focused more on large offshore projects, but they are increasingly sinking money into shale developments that start producing and making money faster. BHP will book a roughly $2.8-billion charge against assets for its 2018 fiscal year. BHP paid a combined $20 billion to acquire its US shale assets in 2011, and then spent billions more to explore and develop them. But a collapse in oil prices in 2014 resulted in significant losses, including a more than $7-billion pretax charge in 2016 that is its largest-ever single write down.
The BHP experience in US shale oil once again raises the issue as to where US shale oil is going and just who is making money from wells that are mostly used up in two to three years. While the US reached a new record of 11 million barrels of oil production per day last week, the top five shale oil fields also suffered the highest monthly decline rate ever. This is terrible news for the US shale industry as it must produce more and more oil each month to keep oil production from falling. According to the newest EIA Drilling Productivity Report, the top five US shale oil fields monthly decline rate is set to surpass a half million b/d in August. Thus, the companies will have to produce at last 500,000 barrels of new oil next month to keep production flat.
In the charts that are shown above, the UP arrows denote the forecasted new output added from new wells opened during August while the figures above the DOWN arrow provide the monthly decline in production from wells opened any time before the current month. For example, the chart on the bottom right-hand side is for the Permian Region. The EIA forecasts that the Permian will add 296,000 b/d of new shale oil production in August, while production from the existing wells in the field will decline by 223,000 b/d during August from the previous month. Thus the whole Permian Basin is forecast to produce 73,000 b/d more oil in August than in July.
If we add up these top five shale oil fields monthly decline rate for August will be 503,000 b/d. Thus, US shale oil companies must produce at least 503,000 b/d of oil from newly opened wells in August to keep production from falling. This decline rate will continue to increase as shale oil production rises. Again, according to the EIA’s figures, the top five US shale oil fields monthly legacy decline rate increased from 398,000 b/d in January to 503,000 b/d for August:
However, the EIA forecasts that these five largest US shale oil fields will produce 635,000 b/d of oil from newly drilled wells during August resulting in a net increase of 360,000 b/d for the month. For September, the 635,000 b/d from these new wells will start to decline rapidly and add to the decline from “legacy” (more than one month old) wells. At some point in the months ahead, the shale oil industry will not be able to drill enough new wells in a month to keep up with the rapid decline from existing wells. Like the red queen in Alice in Wonderland, the shale oil industry must drill faster and faster just to keep production level.
Pioneer Resources is the largest shale oil producer in the Permian. The company spent $818 million on capital expenditures for additions to oil and gas properties (drilling and completion costs) during the first quarter of 2018, opened 63 new horizontal wells in the Permian, but added 9,000 b/d of oil equivalent over the previous quarter. Pioneer reported $554 million in cash from operations and spent $818 million drilling and completing oil wells in the Permian and a few other locations. Therefore, the largest shale oil producer in the Permian spent $264 million more than they made from operations drilling 63 new wells in the Permian and only added a net 9,000 barrels per day of oil equivalent.
Of the ten shale companies in the chart above (in order: Continental, EOG, Whiting, Concho, Marathon, Oasis, Occidental, Hess, Apache & Pioneer), only three enjoyed positive free cash flow, while seven had free cash flow losses. The net result of the group was a negative $455 million in free cash flow. These losses are taking place even with oil prices at levels that are supposed to be profitable. It is going to take many years of much higher oil prices to recoup the losses the shale oil industry is suffering. Even if oil prices increase significantly in the years ahead, the question is whether there will be enough shale oil left to ever pay back the losses.
2. The Middle East & North Africa
Iran: Last week was marked by threats and counter-threats between Washington and Tehran over the impending US sanctions. At times the rhetoric reached unprecedented levels. The most interesting feature of the week was how little reaction there was in the oil markets which have long been accustomed to inflammatory rhetoric emanating from Tehran, but are getting used to the same class of threats from Washington.
Tehran’s most potent bargaining chip is the ability to halt, or at least attempt to block, oil exports through the Straits of Hormuz. As this would cut off roughly 30 percent of the world’s seaborne oil supplies and much of the oil going to many nations, major hostilities would almost certainly result within hours of an Iranian effort to stop oil tankers transiting the Straits. The exchange of harsh rhetoric resulted in many commentaries as to whether Tehran would ever undertake such a move as it would surely result in unprecedented hardships for Iran.
More sophisticated analyses point out that while blocking the Straits would be tantamount to suicide for Tehran, they have other options such as the attacks on two Saudi oil tankers transiting the Bab al Mandeb Strait in Yemen and Djibouti last week. These attacks resulted in the Saudis temporarily closing the Straits to their oil tankers. By using the Houthi insurgents in Yemen as cutouts in attacks on oil traffic going through the Suez, Tehran could obtain some additional leverage in its dispute with Washington without the risks of open confrontation. This confrontation has months or even years to play and there are many dangers along the way.
Iraq: For the past three weeks, Iraq was rocked by protests. They began in the southern province of Basra, home to over 70 percent of Iraq’s oil reserves, and quickly spread to the rest of the country. Despite Basra’s oil wealth, people lack basic amenities such as clean water, electricity and waste management. They accuse the government of widespread corruption and are demanding sweeping changes.
Electricity service collapsed across several provinces in Iraq on Thursday due to technical failures, as protesters continue to rail against government corruption and incompetence, including renewed demonstrations at oil fields. Power generation came to a halt in Basra, Dhi Qar, and Missan provinces mid-day on Thursday, but began to come back online by early evening. Kirkuk and Ninawa provinces were also affected, according to statements from the Ministry of Electricity.
Saudi Arabia will ship fuel to Basra in order to help Iraq through its electricity crisis and to keep its power flowing, according to reports on Saudi Arabian state TV. The report said large amounts of fuel would be transported to Iraq from the port of Dammam in Saudi Arabia. Power cuts started last week across Iraq after Iran cut electricity and fuel supplies to the country over payment disputes and protests continue across the country as a result of the electricity crisis.
Despite the protests, Iraq’s oil exports continued to increase last week and averaged around 3.5 million b/d; however, the energy sector remains vulnerable if the protests continue. Last week at least two minor attacks including a small roadside bomb were launched against oil facilities.
The political crisis stemming from the disputed election results continues with no end in sight and few important decisions about the future of the country being taken.
Saudi Arabia: Riyadh said on Thursday it was suspending oil shipments through the Red Sea’s Bab al-Mandeb Strait, one of the world’s most important tanker routes, after Yemen’s Iran-aligned Houthis attacked two ships in the waterway. Saudi Energy Minister Khalid al-Falih said the Houthis attacked two Saudi oil tankers in the Red Sea on Wednesday, one of which sustained minimal damage. A senior oil source said Saudi Arabia had already beefed up security and that all crude vessels in the area are accompanied by warships.
Saudi crude exports through Bab al-Mandeb are estimated at around 500,000-700,000 b/d. Most Gulf oil exports that transit the Suez Canal and SUMED Pipeline pass through the strait. Industry and shipping sources said the suspension was unlikely to impact Saudi crude supplies to Asia, but could add shipping costs to Saudi vessels heading to Europe and the United States due to a longer transit. Traders said the suspension order was only for Saudi-owned vessels, so Saudi Aramco could still charter foreign ships to move its crude. Saudi Arabia also has a 5 million b/d pipeline route to the city of Yanbu on the Red Sea which bypasses the Strait.
The latest price rally is particularly good news for Saudi Arabia, whose budget deficit this year should to shrink to 5.6 percent from 9.3 percent last year. Saudi Aramco, the main revenue source for the Kingdom, is rumored to be seeking a majority stake in one of the world’s largest petrochemical giants – SABIC. Saudi Aramco is said to be weighing use of the international bond market for the first time to finance the acquisition of SABIC, a move into global capital markets that could offer an alternative to an initial public offering of Aramco stock. If Aramco goes ahead with an international bond — potentially among the biggest ever done by a corporate issuer — the sale would force Aramco to disclose its accounts to investors for the first time since nationalization 40 years ago as well as many other details about oil reserves and operations.
3. China
As the U.S.-China trade war escalates and policymakers around the world warn that tariffs and counter-tariffs could weaken global economic growth, China is looking to boost its economy with measures to expand domestic demand and promote investments, including in infrastructure. Last week, Beijing announced a mix of tax cuts and infrastructure spending citing “uncertainty,” as it increases efforts to stimulate demand and counteract a weakening economy. The move, late Monday, came the same day as an injection of $74 billion into the banking system by the People’s Bank of China— the central bank’s largest ever, single-day cash injection using that tool. These moves provide growing evidence that China’s policymakers are concerned about how the trade war with the US will exacerbate a domestic slowdown and follow a series of monetary loosening actions in recent weeks.
China’s crude oil imports from the US for July have fallen sharply from June, and are expected to drop even further for August, according to vessel tracking data, as Beijing’s tariffs on US crude imports get closer to implementation. The decline is seen in the procurement activity of state-run Unipec, the trading arm of China’s Sinopec, the world’s largest refiner. “Sinopec will continue to take deliveries of crude from the US in August, but will reduce buying for the rest of the year,” said an executive at a Sinopec refinery,
The EIA’s International Energy Outlook 2018 points out that China’s energy consumption is tied to both its rate of economic growth and the size of its energy-intensive manufacturing industries. Chinese policy goals call for a move away from heavy industry toward a less energy-intensive economy with a greater focus on service industries suggesting that the pace of growth of its demand for oil could be slowing in coming years.
4. Russia
Moscow’s oil production this year will increase to 11.02 million b/d, a new 30-year high, Energy Minister Alexander Novak said on Wednesday. He said Russia would further raise production to somewhat higher in 2019 after OPEC and other oil producers agreed last month to ease production curbs. Last year Russia’s oil production reached a new 30-year average annual high of 10.98 million b/d despite the country’s participation in the OPEC agreement. While “new highs” may sound impressive, the 300,000 b/d increase is not that significant when compared to increasing global demand of circa 1.5 million b/d.
6. Venezuela
The IMF recently called the economic crisis in Venezuela “profound” as a substantial drop in oil production takes its toll. The Fund noted that real gross domestic product for Venezuela is on pace to drop 18 percent this year, the third year in a row for a double-digit decline. Racing to keep up with hyper-inflation which the IMF forecasts will hit 1,000,000 percent this year, the Venezuelan government announced that it would knock five zeros off its currency, the Bolívar — not the three it had previously planned.
Even after the new bills come into circulation, they will not be worth much. At the current rate of inflation, which the opposition-controlled National Assembly estimated at an annualized 46,305 percent in June, the highest denomination bill would be worth only $6 by the end of August. By the end of this year it would be worth 20 cents.
President Maduro also announced that part of the country’s oil reserves in the Orinoco Basin would be transferred to the central bank and would be included in the country’s international reserves. This move could be symbolic, designed simply to inflate the reserves number, or the government might be planning to convert ownership of the oil reserves into a tradable asset. “This would be tantamount to the government’s selling the country’s oil under the ground as a source of financing.” Venezuela currently is in the midst of one of the worst economic meltdowns in Latin American history.
7. The Briefs (selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
Oil prices could spike as high as $200 per barrel over the next 18 months, which would cause an “economic crash of horrible proportions,” according to a new report. A research paper from economist and oil market watcher Philip K. Verleger predicts there could be a shortage of low-sulfur diesel fuel in 2020 as a result of regulations from the International Maritime Organization aimed at cutting sulfur emissions. (7/25)
China’s decision to regulate maritime fuels could have a significant impact on international efforts to lower emissions from shipping, analysis finds. Following its so-called Blue Sky initiative, the Chinese Ministry of Transport announced extensions to emission control areas along the coastline. (7/25)
Big oil’s best threesome: Investors should feel confident about BP’s, Eni’s and Shell’s increased wave of new project approvals during the recent downturn. A Rystad Energy review of the performance of their recent projects against those of other operators shows that the three European oil giants have outperformed their peers. (7/25)
The Norwegian government gave Equinor consent to start production drilling in an oil field in the Norwegian Sea set for a production start next year. Equinor submitted a field development plan for Trestakk in 2016, outlining capital spending for the program of around $675 million. Discovered in 1986, production is slated for 2019. (7/27)
In the UK, shale gas developer Cuadrilla on Tuesday became the first operator in Britain to receive final consent from the government to frack an onshore horizontal exploration well, paving the way for commercial production. (7/25)
British energy company Cuadrilla Resources is still facing protests over shale gas work, despite work that was pumping millions of dollars into the local economy. The company said Tuesday it was taking legal action against six protestors who blocked access to its shale exploration site in Lancashire earlier this month. (7/26)
Russia’s Gazprom said Wednesday that just over 90 percent of its Power of Siberia gas pipeline to China is completed. Gazprom said construction on the facilities for gas production from fields feeding the 1,350-mile pipeline is about halfway completed. Pipeline testing and installation of a power supply is scheduled for 2019. Gazprom has a 30-year sales agreement with China National Petroleum Corp. (7/26)
In Israel, the Trump administration is pressing for a go-ahead on a gas pipeline deal it signed with Jordan a few years ago. The deal has been frozen due to a rekindling of tensions between Tel Aviv and Amman. The Israeli Prime Minister’s chief economic adviser is a staunch opponent of the Red-Dead pipeline that will link the two seas, believing it is not worth the $150 million to be invested. Of this, the US has undertaken to provide $100 million. (7/28)
Saudi Arabia will invest $10 billion in energy projects in South Africa. The funds will be used to build refineries and will also be used to advance petrochemicals and renewable energy projects in the developing economy. The funds can’t come soon enough for South Africa, whose power sector outages likely represent the African nation’s number one problem—99 days of rolling blackouts during 2016. (7/23)
In India, Iran has overtaken Saudi Arabia as the nation’s number two oil supplier in the April-June quarter. Iraq remains India’s number-one supplier of crude. While Iran ousted Saudi Arabia as the number two oil supplier, Iran’s oil shipments to India year over year are down. Iraq’s, on the other hand, have increased, perhaps as India looks to wind down shipments ahead of US sanctions on Iran that go into effect in November 2018. (7/24)
Sri Lanka will pay down its oil debt held by Iran with tea—a full year’s worth—in response to new regulations that Sri Lanka has issued in order to comply with a UN Security Council Resolution. (7/24)
Australian energy company Melbana said surveys have started in the Beehive prospect, one of the largest undrilled prospects in the country. Melbana has 20 percent of the options in Beehive, alongside Total and Australian energy company Santos. Melbana says the Beehive prospect is potentially the largest undrilled hydrocarbon prospect in Australia. (7/25)
In Kenya, Tullow Oil had threatened over the weekend to shut down its oil wells in the Lokichar basin if the government does not act soon to remedy production, security, and transportation problems. Tullow pulled the trigger not even three days later as it finds it difficult to transfer oil to the Kenyan coast as locals continue to interfere with transportation and operations unabated. (7/26)
In Guyana, gross discovered recoverable resources for Hess Oil’s Stabroek Block has been revised upward to 4 billion barrels of oil equivalent—up from the previous estimate of 3.2 billion barrels. Since the end of 2016, the estimate for recoverable resources on the block has quadrupled. (7/24)
In Mexico, president-elect Andres Manuel Lopez Obrador said on Friday his administration will look to boost the country’s crude oil production to 2.5 million barrels per day (bpd) from 1.9 million bpd now. Mexico’s oil and gas output has declined steadily over the past 14 years due to a lack of investment and natural depletion of oil fields. (7/28)
Mexico’s Pemex on Friday reported a 163.16 billion peso ($8.2 billion) net loss for the second quarter due to foreign exchange losses and higher costs. That compares with a profit of 32.76 billion pesos in the year-ago period. Pemex’s crude production slipped 7.3 percent in the quarter to an average of 1.866 million barrels per day, while natural gas production fell 9.7 percent to 3.915 billion cubic feet per day. (7/28)
Canadian oilsands boost: Despite continued takeaway capacity constraints, Canada’s top two oil producers raised their production in the second quarter, as demand for heavy Canadian oil among US Gulf Coast refiners has been rising at a time when Venezuelan heavy oil supply is dwindling. (7/27)
Canadian provinces Newfoundland and Labrador have agreed with Norway’s Equinor to develop a deepwater oil project off Canada’s eastern coasts that will cost US$5.2 billion ( C$6.8 billion. Equinor Canada is the operator of the Bay du Nord oil discovery, made in 2013 and estimated to hold more than 300 million barrels of light, high-quality crude oil. The Bay du Nord oil project aims for first oil in 2025. Bay du Nord is the first remote, deepwater project in the province’s offshore. It is located 500 kilometers (311 miles) from shore at a depth of around 1,200 meters (3,937 feet). (7/27)
The US oil rig count increased by 3 to 861 last week while the gas rig count dipped by 1 to 186, according to Baker Hughes. The oil and gas rig count now stands at 1,048—up 90 from this time last year, with oil rigs accounting for all of that increase. Canada gained 12 oil and gas rigs for the week, all of which were oil rigs. Canada’s oil and gas rig count is now up just 3 year over year. (7/28)
Chesapeake Energy Corp. is selling its last remaining oil and gas holdings in Ohio’s Utica Shale, a move aimed at whittling down the company’s debt and enabling it to focus increasingly on crude production. The roughly $2 billion sale to Houston-based Encino Acquisition Partners, announced Thursday, is the latest in a series of deals by Oklahoma City-based Chesapeake to improve its finances. (7/27)
Phillips 66 is running all the heavy Canadian crude oil the independent refiner can handle at its US refineries and will not seek additional supply from a new pipeline, CEO Garland said on Friday. “We’re bringing over 500,000 barrels a day of Canadian crude in today.” (7/28)
Nat-gas exports: The US Energy Department on Wednesday cleared the way for faster approval of small-scale exports of natural gas, including liquefied natural gas to Latin American countries, by issuing a rule that does away with a public interest review of the shipments. (7/26)
Inventories of distillate fuel, a category that includes both diesel and home heating oil, were 117.7 million barrels at the end of June, the lowest end-of-June level since 2004. Relatively low inventory levels reflect growth in distillate consumption during 2018 that has not been fully offset by increased domestic refinery production or by lower net exports of distillate. EIA estimates that US consumption of distillate fuel averaged 5% higher than in the same period of 2017. This increase is largely attributable to an increase in trucking activity, which is the leading use of diesel fuel. (7/28)
Airline fuel cost blues: Many of the biggest US airlines are cutting flights and raising fares to counteract rising fuel prices that are threatening a long run of profitability. American Airlines, the world’s largest airline by revenue, on Thursday trimmed its profit outlook for 2018 and pledged to cut capacity and delay delivery of some new Airbus SE jetliners after fuel costs rose 40% in the second quarter compared with last year. (7/27)
Colorado ballot hammer? There’s a good chance that a ballot initiative to significantly expand the buffer zones between oil and gas wells and homes and other buildings could be up for voting by Colorado residents in the November election. In the politically mixed state of Colorado, residents still remember last year’s deadly explosion at a home in Firestone, and people in some towns have tried to ban fracking operations—and almost succeeded. (7/25)
Exxon exodus: Following a public spat over climate change legislation, oil giant ExxonMobil has pulled its membership from the Koch brothers-backed anti-climate-change lobbying group, American Legislative Exchange Council. Neither ExxonMobil nor ALEC has commented publicly on the reasons for the company’s departure. (7/25)
MPG rollback: Trump administration officials are preparing to issue a proposal within days to freeze fuel-efficiency standards for cars and light trucks for six years and challenge the right of California and other states to set their own standards. The move would amount to one of the biggest regulatory rollbacks of the Trump presidency. In late 2016, the agencies concluded that stricter fuel-efficiency targets would save consumers money without compromising safety. Now, the current and former officials said, the government is poised to project that these goals would boost vehicle price tags and could endanger Americans by encouraging them to stick to driving older, less-safe cars and trucks. (7/25)
Air-conditioning equipment is used in 87% of homes in the US and, according to the latest EIA Residential Energy Consumption Survey (RECS), home air-conditioning costs averaged $265 in 2015, or 12% of total home energy expenditures. (7/24)
Russia-China coal megaproject? Some 80km from the Chinese border, the tiny Russian village of Yerkovtsy might provide the setting for a new Russo-Chinese megaproject. The $10 billion coal-fueled+ 4 GW Yerkovetskaya power plant, a joint project of Inter RAO and the State Grid Corporation of China, is back on the agenda, with high-profile state-owned financial institutions ready to back the project. The transmission lines from the Yerkovetskaya plant would go all the way down to Beijing, some 1500 km southwards, a sufficient distance to keep all burning-related contaminants far away from the Chinese capital. (7/25)
India’s coal imports up: India’s 12 key state-run ports handled 28.29 million mt of thermal coal imports during April-June, up 19% year on year, latest data from Indian Ports Association released Saturday showed. (7/23)
The future of nuclear energy may well be much smaller. Dozens of companies are working on a new generation of reactors that, they promise, can deliver nuclear power at lower cost and reduced risk. These small-scale plants will on average generate between 50MW and 300MW of power compared with the 1,000MW-plus from a conventional reactor. (7/25)
Tidal power: The European Commission said Thursday it supported a French effort to work to demonstrate the potential benefits of producing electricity through tidal energy. A plant operated by British energy company EDF aims to test the potential for tidal energy. The demonstration plant in the English Channel could generate as much as 14 megawatts of energy. (7/27)
Electrify Canada: Volkswagen Group Canada has formed Electrify Canada, a new company that will build an ultra-fast electric vehicle direct current (DC) charging network across Canada. Volkswagen expects the network to be operational starting in the second quarter of 2019. (7/24)
UK’s EV pushback: Despite the many announcements for new electric vehicle models coming to the market and government initiatives to support EV adoption, UK motorists remain reluctant—if not stubborn—to make the switch to electric cars. Of 200 people surveyed, just 15 percent said they would definitely be making the switch to an EV or hybrid vehicle when they next purchase a car or choose an alternative company vehicle. Almost 50 percent said that they don’t see themselves considering switching to an EV or a hybrid vehicle for another 10 to 15 years, if not longer. (7/27)
$$ killing climate bills: Legislation to address climate change has repeatedly died in Congress. But a major new study says the policy deaths were not from natural causes — they were caused by humans, just like climate change itself is. Climate action has been repeatedly drowned by a devastating surge and flood of money from the fossil fuel industry — nearly $2 billion in lobbying since 2000 alone. (7/24)
Peak Oil Review 23 July 2018
By Tom Whipple, Steve Andrews, originally published by ASPO - USA
https://www.resilience.org/stories/2018-07-23/peak-oil-review-23-july-2018/
Quote of the Week
“Climate change is a fact of life, as is not contested by Defendants. But the serious problems caused thereby are not for the judiciary to ameliorate. Global warming and solutions thereto must be addressed by the two other branches of government.” US District Judge John Keenan in Manhattan, in dismissing a lawsuit by New York City against major oil companies
1. Oil and the Global Economy
The $3 drop in US oil prices last Monday was a signal that the forces moving the oil market are changing. Last year, the main forces pushing the oil markets higher were the agreement by OPEC and its partners to lower production and the growth of global demand. This year, an array of factors are pressuring the oil markets: the US sanctions that threaten to cut Iranian oil exports; US-China trade tensions; OPEC’s decision to raise crude output; and dwindling oil production from Venezuela. Moreover, there are supply disruptions in Libya, the Canadian tar sands, Norway, and Nigeria that add to the uncertainties as does erratic policymaking in Washington, complete with threats to sell off part of the US strategic reserve and a weaker dollar.
After the sharp drop last Monday, prices climbed about a dollar a barrel to close at $68.26 in New York and $73.07 in London. Goldman Sachs continues to expect that Brent Crude prices could retest $80 a barrel this year, but probably only late in 2018. “Production disruptions and large supply shifts driven by US political decisions are the drivers of this new volatility, with demand remaining robust so far.” Brent Crude is expected to trade in the $70-$80 a barrel range in the immediate future.
The OPEC Production Cut: Saudi Arabia plans to reduce crude exports next month by 100,000 b/d in August according to a Reuters report. Saudi Arabia—and Russia—had started to raise production even before the June 22 meeting with OPEC that sought to address the shrinking global oil supply and rising prices. Earlier this year, OPEC was over-complying with the cuts agreed to at the November 2016 meeting thanks to additional cuts from Saudi Arabia and Venezuela. The June 22nd meeting decided to increase production to more closely reflect the production cut agreement. After the meeting, Saudi Arabia pledged a “measurable” supply boost but gave no specific numbers. According to Iran’s news agency, Tehran’s oil minister warned his Saudi Arabian counterpart that the June 22nd revisions to the OPEC supply pact do not give member countries the right to raise oil production above their targets.
The Saudis, Russia, and several of the Gulf Arab states increased production in June, but seem reluctant to expand much further. During the summer months, the Saudis need to burn raw crude in their power stations to combat temperatures that will be on the order of 110o to 115o Fahrenheit during the next few weeks.
Wood Mackenzie’s latest long-term outlook for the worldwide oil supply says that OPEC and its partners will continue to play a crucial role in oil supply and prices in the global oil market through 2040, despite expectations for production increases in the US and other non-OPEC countries in the 2020s.
US Shale Oil Production: According to the EIA’s latest Drilling Productivity Report, US unconventional oil production is projected to rise by 143,000 b/d in August to 7.470 million b/d. The Permian Basin is seen as far outdistancing other shale basins in monthly growth in August, at 73,000 b/d to 3.406 million b/d. However, drilled but uncompleted (DUC) wells in the Permian rose 164 in June to 3,368, one of the largest builds in recent months. Total US DUCs rose by 193 to 7,943 in June. US energy companies last week cut oil rigs by the most in a week since March as the rate of growth has slowed over the past month or so with recent declines in crude prices.
Included with the optimistic forecast for US shale oil was the caveat that the DUC and production figures are sketchy as current information is difficult for the EIA to obtain with little specific data being provided to Washington by E&Ps or midstream operators. Given all the publicity surrounding constraints on moving oil from the Permian to market, the EIA admits that it “may overestimate production due to constraints” in oil and gas takeaway capacity and that they “have watched [well completions] filings coming in and they are disappointing” over the last few weeks.
The increasing DUC count in the Permian is an important concern. If oil and gas cannot find a way out of the basin, a growing number of wells will need to be banked for the next year or so and left uncompleted until new pipeline capacity comes online in Q3 2019. The number of DUCs has increased steadily in the last six months, with each month adding over 110 DUCs to inventory, month-on-month. Completion crews are scarce in the Permian and haven’t been able to keep up now for the last two years. Labor shortages also have helped contribute to delays in setting up facilities on site – that is, processing, pipelines, storage tanks — so some producers must wait to bring some wells online.
An EIA analyst noted that it is fair to say that the scarcity of fracking crews and labor shortages, and impending pipeline constraints will be the primary contributor to the rise in DUC counts and a plateau of rig growth. However, he would not say that the 164 DUC increase seen last month is strictly because of the pipeline constraints.” “Rather, I see it as just the continuation of an 18-month trend.”
Production in the Eagle Ford Shale of South Texas is forecasted to grow 35,000 b/d in August to 1.436 million b/d, while the Bakken Shale of North Dakota and Montana is forecast by the EIA to grow 15,000 b/d to 1.297 million b/d. The Anadarko Basin of Oklahoma and the Texas Panhandle is predicted to grow 10,000 b/d to 559,000 b/d, while the Niobrara Shale in Colorado and Wyoming is pegged to increase by 6,000 b/d to 611,000 b/d. The Appalachian Basin in Pennsylvania, Ohio and West Virginia is forecast at 4,000 b/d of oil growth in August to 118,000 b/d. The Haynesville Shale, in northeast Louisiana and east Texas, is expected to remain flat in oil output in August at 43,000 b/d.
2. The Middle East & North Africa
Iran: Last week Iran’s supreme leader, Ayatollah Ali Khamenei, called on state bodies to support the government of President Hassan Rouhani in fighting US economic sanctions. The likely return of US economic sanctions has triggered a rapid fall of Iran’s currency and protests by bazaar traders usually loyal to the Islamist rulers, and a public outcry over alleged price gouging and profiteering. Khamenei said “the government’s economic team is the axis of all activity in the country, calling all the bodies to coordinate with it,” the website reported.“ He advised state radio and TV to reflect a correct image of government activities.”
This speech to members of Rouhani’s cabinet is clearly aimed at the conservative elements in the government who have been critical of the President and his policies of cooperation with the West and a call for unity in a time that seems likely to be one of great economic difficulty for Iran. In late December, demonstrations which began over economic hardship spread to more than 80 Iranian cities and towns. At least 25 people died in the unrest, the most significant expression of public discontent in almost a decade. Demonstrators initially vented their anger over high prices and alleged corruption, but the protests took on a rare political dimension, with a growing number of people calling on Supreme Leader Khamenei to step down.
The US has rebuffed high-level pleas from the European Union to grant exemptions to European companies from its sanctions against Iran. Secretary of State Pompeo said the US rejected the appeal because it wants to exert maximum pressure on Iran. He said exemptions would only be made if they benefited US national security. The EU fears that billions of dollars’ worth of trade could be jeopardized as a result of Washington’s new sanctions.
Although there is much debate over the effectiveness of the impending US sanctions, some analysts are saying that Iran’s oil exports could fall by as much as two-thirds by the end of the year putting oil markets under massive strain amid supply outages elsewhere in the world. Some of the worst-case scenarios are forecasting a drop to only 700,000 b/d with most of Tehran’s exports going to China, and smaller shares going to India, Turkey and other buyers with waivers. China, the biggest importer of Iranian oil at 650,000 b/d according to Reuters trade flow data, is likely to ignore US sanctions.
However, some in Washington now expect that China will import much of the Iranian oil that other nations won’t buy, according to a senior US government energy official. Beijing’s purchase of extra Iranian crude would dull the economic impact of Washington’s sanctions.
Iraq: Iraq’s future is again in trouble as protests erupt across the country. These protests began two weeks ago in southern Iraq after the government was accused of doing nothing to alleviate a deepening unemployment crisis, water and electricity shortages and rampant corruption. The demonstrations are spreading to major population centers including Najaf and Amirah, and now discontent is stirring in Baghdad.
The government has been quick to promise more funding and investment in the development of chronically underdeveloped cities, but this has done little to quell public anger. Iraqis have heard these promises countless times before, and with a water and energy crisis striking in the middle of scorching summer heat, people are less inclined to believe what their government says.
Over the weekend the civil unrest has begun to diminish in southern Iraq, leaving the country’s oil sector shaken but secure – though protesters have vowed to return. Operations at several oil fields have been affected, as international oil companies and service companies have temporarily withdrawn staff from some areas that saw protests. The government claims that the production and exporting of oil has remained steady during the protests.
With Iran refusing to provide for Iraq’s electricity needs, Baghdad has now also turned to Saudi Arabia to see if its southern Arab neighbor can help alleviate the crises it faces.
Saudi Arabia: Saudi Aramco’s potential acquisition of a stake in petrochemicals company Sabic will affect the timing of an initial public offering, its chief executive said, throwing further doubt on the kingdom’s plans to sell shares in its state giant. The IPO has been touted for the past two years as the centerpiece of an ambitious economic reform program driven by crown prince Mohammed bin Salman to diversify the Saudi economy beyond oil.
Saudi Arabia expects its crude exports to drop by roughly 100,000 b/d in August as the kingdom tries to ensure it does not push oil into the market beyond its customers’ needs, the Saudi’s OPEC governor said on Thursday. An industry source familiar with the matter said Saudi oil exports in June were about 7.2 million b/d, while the latest official figures show May exports at 6.984 million b/d.
The Iran-backed Houthi rebels in Yemen say that they targeted Saudi Aramco’s refinery in the capital of Riyadh with a long-range drone on Wednesday. The Houthis are saying that the “new long-range Drone, Sammad 2, that targeted Aramco in Riyadh is a successful and qualitative experience.” Saudi Aramco said later on Wednesday that “fire protection crews and Civil Defense successfully controlled a minor fire due to an operational incident at the Riyadh Refinery today. No personnel were injured and there was no impact on operations.”
Libya: Just a few days after Libya reopened its eastern oil ports and started to ramp up production that had been offline for weeks, the National Oil Corporation (NOC) declared force majeure on crude oil loadings at the Zawiya port in the west, following an attack and abduction of oil workers at the Sharara oil field. Production at Sharara was expected to drop by 160,000 b/d after oil workers were abducted and oil wells closed as a precaution.
Libya, however, is ramping up oil output at its eastern fields, offsetting the 160,000 b/d lost from the partial shutdown of the country’s biggest deposit after gunmen kidnapped workers there. Overall production rose from 650,000 to 700,000 b/d last week and is expected to rise further after shipments resume at eastern ports that re-opened after a political standoff.
3. China
China’s economy expanded by 6.7 percent in the second quarter, its slowest pace since 2016. The pace of annual expansion announced is still above the government’s target of “about 6.5 percent” growth for the year, but the slowdown comes as Beijing’s trade war with the US adds to headwinds from slowing domestic demand. The gross domestic product had grown at 6.8 percent in the previous three quarters.
The pace of growth in China’s crude imports may slow in the second half as lower runs at independent refiners, potential delays in the startup of some refineries and higher inventories curb demand. The first signs of weaker demand appeared in the June data, which showed imports falling 4.9 percent to a six-month low of 8.39 million b/d, marking the first year-on-year drop in 2018.
Higher oil prices play a role in the slowing of demand, but the main factor is higher taxes on independent Chinese refiners, which is already cutting into the refining margins and profits of the ‘teapots’ who have grown over the past three years to account for around a fifth of China’s total crude imports. Under the stricter tax regulations and reporting mechanisms effective March 1, however, the teapots now can’t avoid paying a consumption tax on refined oil product sales—as they did in the past three years—and their refining operations are becoming less profitable.
4. Russia
According to Reuters, Russia used stocks held at its oilfields to help boost crude production in June, as Saudi Arabia pushed other major producers to increase output. Russian oil production last month rose by around 100,000 b/d from May. From July 1-15, the country’s average oil output was 11.215 million b/d, an increase of 245,000 b/d from May’s production.
Amid growing speculation that President Trump will attempt to weaken US sanctions on Russia’s oil sector, US congressional leaders are pushing legislation to strengthen sanctions on Russian export pipelines and joint ventures with Russian oil and natural gas companies. These efforts, still in their early stages in the House and Senate, could increase investment risk in Russia’s oil and gas sector and, potentially, hinder some export growth, analysts said this week. However, according to congressional sources, the US oil and gas industry already is lobbying against tighter sanctions on Russia that could impact US investments there.
Ukraine and Russia said they would hold further European Union-mediated talks on supplying Europe with Russian gas, in a key first step toward renewing Ukraine’s gas transit contract that expires at the end of next year.
Gazprom is planning to develop more of the huge natural gas resources on Yamal peninsula as it would expand its northern gas transmission corridor. With more natural gas from the Arctic feeding the northern export route to European markets Gazprom would be in a better position to feed the Nord Stream pipeline and the planned Nord Stream 2 project. Last week, Gazprom approved the development of the Kharasaveyskoye gas and condensate field and the gas transmission system, expected to begin in 2019 and to ship first gas in 2023. The company is betting that Yamal will become the largest natural gas production center in Russia and replace the dwindling reserves of the Nadym-Pur-Taz region.
5. Nigeria
Constant pipeline breakages in the Niger Delta oil fields have increased oil and gas companies’ average shut down days from 45 to 160 days according to a former Director at the Department of Petroleum Resources, Osten Olorunsola. “There are operations around the world where you can almost guarantee 330 days for production. You can’t do all through the year because you have scheduled maintenance, but usually, it is not more than 30 to 45 days. “In terms of real operational shutdowns, we are seeing something between 80 and 160 days in Nigeria.”
Shell has again started talks for the $2-billion sale of two Nigerian oil licenses and their infrastructure assets, according to Bloomberg, after four years of failed attempts to offload the contentious assets. This latest round of talks are taking place with a Nigerian entity that has not secured financing for the deal, and like similar talks before this, they may collapse. Shell has been trying to refocus its Nigerian operations offshore to avoid unending local opposition to its activities, on-again-off-again militant attacks on its assets, and a quagmire surrounding accusations that it destroyed the Niger Delta with spills and failed to clean up after itself. Offshore, everything is less risky. But these remaining two onshore licenses have proven difficult to unload.
6. Venezuela
Venezuela’s Oil Minister Manuel Quevedo has been talking about plans to raise the country’s crude oil production in the second half of the year. However, no one else thinks or claims that Venezuela could soon reverse its steep production decline which has seen it losing more than 40,000 b/d of oil production every month for several months now. According to OPEC’s secondary sources in the latest Monthly Oil Market Report, Venezuela’s crude oil production dropped in June by 47,500 b/d from May, to average 1.340 million b/d in June.
In the midst of a collapsing regime, widespread hunger, and medical shortages, President Nicolas Maduro continues to grant generous oil subsidies to Cuba. After the fall of the Soviet Union, Cuba turned to Venezuela for subsidized crude oil, in exchange for sending skilled laborers and medical personnel to work in Venezuela. Havana also provided the Chavez government with intelligence and security personnel which helped the government control dissidence, which may be a factor in Maduro’s reluctance to cut ties with Havana.
Last year Venezuela cut off exports to Cuba for eight months, but then began sending shipments of light oil to Cuba in March 2017 at a great cost to their own refineries, which are running at just a small fraction of their capacity thanks to lack of funds for maintenance. Last week, there was a reported shipment of 500,000 barrels of Venezuelan crude to northwestern Cuba. It is believed that Venezuela continues to supply Cuba with around 55,000 barrels of oil per day, costing the nation around $1.2 billion per year.
7. The Briefs (selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
Energy investment slowdown: The IEA in its world energy investment report found total global energy investments declined 2 percent from 2016 to reach $1.8 trillion last year. Of that, most went toward the electricity sector and oil and gas supply. The IEA said there were signs of a continued slowdown. Financial support for renewable energy, which accounted for about 60 percent of the total spending for power generation, declined 7 percent last year. (7/18)
Flaring down: World Bank data show the total volume of natural gas flared last year was down about 5 percent from the previous year. For Russia, the largest gas-flaring country in the world and among the world leaders in oil production, the volume of associated gas burned off declined 11 percent from 2016. From the US, on pace to pass Russia as an oil producer, flaring increased nearly 7 percent, putting it at No. 3 behind Iran and Libya, respectively, for major producers bucking the trend. (7/18)
Ireland is planning to move 200,000 tons of its oil reserves from Britain as part of its Brexit preparations and will sign off on the move this week. (7/16)
Italy’s imports of US crude oil vaulted to a record in June after attacks by armed groups shuttered two major Libyan oil ports and cut off most deliveries from the OPEC country, a key supplier to Europe, according to Thomson Reuters trade flow data and shipping intelligence firm Kpler. The flows reflected the US oil industry’s growing ability to serve as an alternative supplier when contained regional conflicts pinch oil supplies to allies. (7/21)
New Russian LNG: Russian energy company Novatek said Thursday it shipped its first batch of liquefied natural gas to China using the Northern Sea Route. The northern passageway is a shipping lane in Russia’s economic zone that runs along the Arctic coast to the Bering Strait. (7/20)
In the UAE, the Abu Dhabi National Oil Co. awarded a subsidiary of China National Petroleum Co. with a $1.6 billion contract to conduct seismic surveys covering about 20,000 square miles onshore and offshore. ADNOC said that makes it the largest survey of its kind in the world. (7/21)
The US oil rig count decreased by 5 in the week to July 20, bringing the total count down to 858, Baker Hughes energy services firm said. The number of gas rigs dipped by 2, hitting 187. Canada gained 14 oil and gas rigs for the week, 11 of which were gas rigs. Canada’s oil and gas rig count is now up just 5 year over year. Oil rigs are up by 24 year over year in Canada, while the number of gas rigs are down by 19. (7/21)
US crude oil production last week hit 11 million b/d for the first time in the nation’s history, the Energy Department said on Wednesday, as the ongoing boom in shale production continues to drive output. Note: weekly production figures from the US EIA are notorious for revisions, as monthly data, released on a lag, shows US production at 10.5 million b/d as of April. Even as production ramps up, the US, the world’s top oil consumer, still depends on imports. Net US crude imports rose last week by 2.2 million b/d to about 9 million bpd. (7/20)
Fracking sand rush: While most are busy watching all land grabs by oil and gas producers in the Permian, much less attention has been paid to the secondary land rush for the sandy wasteland that could ease some of the bottlenecks for producers who need fracking sand to make anything happen. (7/19)
New oil futures tool: Intercontinental Exchange Inc. (ICE) announced plans to launch an oil futures contract with physical delivery in Houston. The contract could launch as soon as this quarter. The Permian futures contract will provide price discovery, settlement and delivery at Magellan Midstream Partners, L.P.’s terminal in East Houston, ICE said. (7/19)
New VLCC terminal: To capitalize on the growing US exports to Asia and Europe, Houston-based Enterprise Products Partners plans to develop an offshore crude oil export terminal 80 miles off the Texas Gulf Coast. It would be able to fully load the biggest oil tankers in the world capable of carrying 2 million barrels of oil. Currently, the Louisiana Offshore Oil Port is the only oil port in the US capable of fully loading the so-called Very Large Crude Carriers (VLCC). (7/19)
Crude on rails: A shortage of pipeline takeaway capacity from the Permian Basin in West Texas is creating opportunities for Union Pacific to move crude oil in tank cars. (7/20)
Chevron’s new CEO Michael Wirth has said the company plans to maintain a tight grip on capital spending, despite the surge in oil prices over the past year and warnings that they could rise even higher over the next few years. (7/18)
Tariff relief denied: The Permian basin has run up against a bottleneck for pipeline capacity. One of the crucial pipeline projects slated to relieve the bottleneck in Permian pipeline capacity next year is the Plains All American Pipeline LP’s Cactus II 585,000 b/d project. Plains All American asked the Trump administration for an exemption from the 25 percent tariffs on imported steel. An industry estimate finds that about three-quarters of all the steel used in oil and gas pipelines comes from abroad, often because projects use a special type of steel that is hard to find domestically. The Trump administration just shot down the request from Plains All American, the first rejection for a major oil and gas project. (7/20)
In Texas, homes and businesses used record amounts of power last Wednesday and are expected to use even more in the coming days as consumers crank up their air conditioners to escape a brutal heat wave. The Electric Reliability Council of Texas (ERCOT) said demand reached 72,192 megawatts on Wednesday, topping the prior all-time high of 71,110 in August 2016. (7/20)
Nuke/coal study: Providing financial support to uneconomic US coal and nuclear power plants, as the Trump administration has ordered, could cost $16.7 billion annually, according to a study commissioned by a group of renewable energy, oil and gas trade associations and released Thursday. (7/20)
Wind winning cost war: Apart from diehard environmentalists, most consumers have been opposed to renewables on the basis they cost significantly more, and turbines are an eyesore on the landscape. Opposition has softened as we have become more familiar with the realization that its costs are falling dramatically. A recent article in The Telegraph reports on how the cost of power production from onshore wind farms has dropped so far it undercuts conventional coal, natural gas and nuclear options. (7/19)
Solar industry decline: Goldman Sachs is predicting that global solar installations will decline by 24 percent this year. And Goldman isn’t alone, even if it is throwing around the worst numbers. (7/21)
Norway’s hydro: An unusually hot, dry second quarter saw Statkraft’s hydro-based power production fall 22 percent to 11.5 TWh for the period, the state utility said Thursday. The decline mirrors a north European trend this summer with little rainfall and settled high pressure weather conditions bearing down on hydro and wind production. (7/19)
Tariffs to hit cars: Consumers should expect higher prices on imported cars if President Donald Trump’s proposed 25 percent tariff on foreign-built vehicles shipped into the US is enacted, according to car sellers. Car makers said they plan to pass on the added costs to customers, which dealers and car sellers said could lead to a decline in sales. About 44% of all U.S.-sold cars were imported into the country last year. (7/18)
Euro EVs: Sales of electric vehicles and plug-in hybrids in Europe’s top car markets rose by just 33 percent in the first half this year, compared to a 54-percent surge in the same period last year, as customers are still wary of limited driving ranges of the models and an insufficient charging network. (7/19)
Climate suit dismissed: a US judge on Thursday dismissed a lawsuit by New York City seeking to hold major oil companies liable for climate change caused by carbon emissions from burning fossil fuels. In dismissing the city’s claims, US District Judge John Keenan in Manhattan said climate change must be addressed through federal regulation and foreign policy. The City plans to appeal the position. (7/20)
CO2 and US policy: The signs don’t look favorable for carbon dioxide emissions controls under the Trump administration, which along with much of the Republican party, do not believe in climate change. However, the new acting head of the EPA, Andrew Wheeler, has conceded that the 2009 court decision that requires the EPA to regulate carbon dioxide emissions is “settled law.” How aggressively the agency interprets and ultimately enforces its mandate bears watching. (7/20)
Carbon capture: A British task force said Thursday that carbon capture and storage (CCUS) is ready for deployment, provided investments materialize by the early 2020s. Their report states that CCUS can already be deployed at a competitive cost, through the development of CCUS clusters in key UK regions. (7/20)
Big Dairy emissions? A new report by two agricultural players found that the five largest meat and dairy corporations combined—JBS, Tyson, Cargill, Dairy Farmers of America, and Fonterra—are already responsible for more annual greenhouse gas emissions than ExxonMobil, Shell, or BP. (7/19)
Biogenic solar cells: Researchers at the University of British Columbia have found that a genetically modified E. coli could soak sunlight just as well under an overcast sky as under a sunny one. This means bionic solar cells could be used in places where the weather conditions are not suitable for synthetic PV panels. (7/16)
Confusion Looms As Iran Claims Control Over Key Oil Waterway
Profile picture for user Tyler Durden
by Tyler Durden
Mon, 08/27/2018
https://www.zerohedge.com/news/2018-08-27/confusion-looms-iran-claims-control-key-oil-waterway-stoking-tensions
‘We Bleed Diesel:’ Truckers Nearing Worst Price Shock Since 2008
By Erin Douglas
August 15, 2018, 5:00 AM EDT
*Tighter ship-fuel rules seen boosting diesel demand, prices
*‘Everyone missed this in our industry’: trucking association
https://www.bloomberg.com/news/articles/2018-08-15/truckers-asleep-at-the-wheel-as-diesel-price-shock-creeps-closer
The One Oil Industry That Isn't Under Threat
Profile picture for user Tyler Durden
by Tyler Durden
Thu, 08/16/2018
https://www.zerohedge.com/news/2018-08-16/one-oil-industry-isnt-under-threat
With sub-$60 oil, fracking and tar sands losses threaten the whole financial system
Paul Mobbs
17th December 2014
A new financial crisis is threatening to dwarf the 'subprime' mortgage debacle, writes Paul Mobbs. Cheap money from central banks has fuelled some $1.3 trillion of risky investments in high-cost 'unconventional' oil and gas. Now, with oil sinking below $60, all that paper is turning to junk - and that's putting the entire economic system at risk.
https://theecologist.org/2014/dec/17/sub-60-oil-fracking-and-tar-sands-losses-threaten-whole-financial-system
Old Oil Is New Again
Companies say conventional wells can be profitable, no fracking required
Conventional drilling in old fields is starting to look more attractive as low crude prices make some fracking operations too expensive to pursue. Shown, an oil well outside Bakersfield, Calif.
Conventional drilling in old fields is starting to look more attractive as low crude prices make some fracking operations too expensive to pursue. Shown, an oil well outside Bakersfield, Calif. Photo: Getty Images
By Lynn Cook
Aug. 20, 2017 6:00 a.m. ET
https://www.wsj.com/articles/old-oil-is-new-again-1503223201
From California’s Central Valley to the Native American lands of Oklahoma, more small- and mid-sized oil firms—many backed by private equity—are forgoing expensive shale drilling projects and opting for old-school wells instead.
As crude prices languish under $50 a barrel, and with increasing costs for land, labor and infrastructure, some shale fracking operations are starting to look expensive. That has some investors turning to conventional drilling to make a profit.
Tapping shale involves fracking, drilling horizontal wells that extend for more than a mile, then using a highly pressurized mixture of water and chemicals to break open underground rock layers. The process has attracted billions of dollars in capital because it can unleash huge volumes of oil, but at today’s prices most producers are losing money on every barrel they pump.
Some oil companies are choosing instead to apply newer technology and methods to vertical wells in century-old American oil fields, betting they can wring out faster and safer returns. The trick, they say, is finding the special locations where stranded oil can be profitably extracted from conventional wells, which are cheaper. They tend to cost less than $1 million, compared to between $6 million and $8 million for an average shale well.
As a result, smaller outfits drilling traditional wells in and around California and Oklahoma say they can make the investments work even at $10 to $30 a barrel.
White Knight Production LLC, a driller based in Lafayette, La., is re-activating 60-year-old wells in Louisiana and Texas that were turned off in the 1980s, when the last major oil bust dropped prices to $10 a barrel.
It made sense to turn them back on and invest in newer artificial lift systems and other technology that can push more oil to the surface, said White Knight Chief Executive Jerry F. Wenzel.
In California, the company was able to get some old wells that were producing just five or 10 barrels a day up to 100 barrels a day by using gravel packs to keep silt and sand from building up inside flow lines. The cost of the packs: $100,000 a well, which White Knight recouped in a few months.
White Knight also has drilled new wells in California for roughly $800,000 each, finding that many spots were tapped extensively, but only shallowly, last century, leaving 20 to 30 different layers that can produce crude.
“That’s the real magic,” Mr. Wenzel said.
He estimates that reactivating old wells costs about $15 a barrel in direct expenses like leasing land, lifting oil out of the ground and transporting it to market. After covering other costs including staff, debt, taxes and general overhead, these projects typically pay off and are profitable in less than a year.
Most U.S. oil still comes from conventional wells. In 2016, 4.6 million barrels, or 52% of the U.S. total, was pumped from conventional wells while 4.25 million barrels a day, or 48%, was pumped from shale wells, according to the federal Energy Information Administration.
Will McMullen, founder of Bayou City, a private equity firm with $1 billion to deploy, and which has backed White Knight, said with all the focus on shale in recent years, it has become a crowded space.
The Kern River Oil Field near Bakersfield, Calif. Photo: MARK RALSTON/Getty Images
“And we don’t know where the price of oil is going to be in 10 years,” he said, arguing that it is risky to favor shale based on a hope of longer-rate returns.
Petro River Oil , a small New York-based company traded over the counter, is reprocessing old data and making new underground maps in California to find overlooked crude. It recently scoured an old prospect near Bakersfield known as Sunset Boulevard, and found several additional oily zones to tackle this summer.
“We’re taking new technology and going in and looking for what they missed,” said Stephen Brunner, president of Petro River.
Mr. Brunner, who ran Constellation Energy Partners , a shale company that fracked in Oklahoma before Sanchez Energy Partners took it over in 2014, said he understands why many investors are drawn to shale: unlike conventional drilling, there’s little risk of a dry hole.
Even so, he said Petro River’s goal is to find untapped oil in old fields and get it out of the ground for roughly $20 a barrel, allowing the company to achieve as much as a 100% return in a year, at current prices.
Such investment looks attractive to some in light of the costs to lease shale land in places like the Permian Basin in Texas and New Mexico, which has topped $50,000 per acre.
But it is hard to generate huge-scale production picking over old fields, said Robert Clarke, an analyst with Wood Mackenzie.
“For a company looking to generate a return on capital the opportunity is tremendous,” Mr. Clarke said. “But it can’t move the production needle for a bigger company.”
Still, some big companies sense opportunity in older fields.
What is peak oil, and will fracking buy us time?
Why do so few see what is so obvious?EOM
On Oil
Author Rob Mielcarski Posted on July 29, 2018
Categories Denial, Economy, Energy, Essay, Favorite, Overshoot
https://un-denial.com/2018/07/29/on-oil/
JT Roberts recently made an important and insightful observation which I paraphrase and elaborate here.
Oil is a non-renewable resource that we extract from the earth. Oil companies are motivated by profit so they start with low-cost reservoirs and as those deplete they move to increasingly higher cost sources like water injection, offshore, tar sands, and fracking.
All economic activity depends on energy, as the laws of thermodynamics explain, and as the near perfect correlation between GDP and energy consumption confirms.
Oil is the keystone energy because oil is required to extract or capture all other forms of energy including coal, natural gas, wood, solar, wind, nuclear, and hydroelectric energy.
The cost of oil can be viewed as a tax on economic activity. Our economy is configured to operate profitably on about $20 per barrel oil. We have already captured most feasible energy efficiency gains making it difficult for our economy to operate profitably on oil over $20.
Thus, as the cost of extraction due to depletion of low-cost reserves pushes the price of oil above $20, the difference must be made up with debt.
At today’s $70 oil, which we burn about 96 million barrels per day, that works out to 96 * 365 * ($70-$20) = $1.8 trillion, which as predicted, is about the rate that global debt is increasing.
If you believe we have many years of oil left, then you must also believe that debt can increase exponentially for many years without consequence on the value of money.
Money has value because we have confidence that the debt which creates our money will be repaid with interest, which can only occur when the economy grows, which can only occur when the quantity of energy we burn grows, which due to continually increasing extraction costs, can only occur when debt grows faster than the economy, which at some point will erode our confidence, which will reduce the value of money, which will reduce the amount of energy we can afford to burn, which will reduce economic activity, which will further erode our confidence in the value of money.
Do you see our energy and climate predicament?
Do you see why our leaders deny we have a problem?
Do you see why the longer we deny the problem the worse the outcome will be?
Soylent Green Opening Titles
Peak Oil Review 16 July 2018
By Tom Whipple, Steve Andrews, originally published by ASPO - USA
https://www.resilience.org/stories/2018-07-16/peak-oil-review-16-july-2018/
Quote of the Week
Our goal is to increase pressure on the Iranian regime by reducing to zero its revenue from crude oil sales.” Brian Hook, US State Dept, director of policy planning
1. Oil and the Global Economy
Oil prices dropped suddenly last Wednesday on the news that yet another dispute in Libya had been settled so that the traditional Libyan National Oil company was back in business exporting oil from its major terminals. New York futures fell by $3.50 a barrel on the news, and the London price decreased by $6.50, with New York closing out the week at $71 and London at $75.33.
The underlying forces moving the oil markets are still firmly in place. Demand still seems fairly strong supporting the estimates that the demand for oil will increase by circa 1.5 million b/d for 2018 and at least through 2019. Russia, Saudi Arabia, and the Gulf Arab states are increasing production again as the production freeze seems to be of less interest now that oil is selling in the $70’s again. Most OPEC members have peaked out and can do little to increase oil production in the immediate future, if ever.
Production from the US’s Permian Basin, which has been increasing rapidly in recent years, seems to be topping out due to the lack of pipeline capacity to move the oil from new wells to market. The pipelines should be close to full by the end of summer, and it will be another 18 months before new pipelines are ready to move oil out of the Permian Basin. Any significant increases in world oil production in the next year or so will have to come from Russia and the Gulf Arabs, although production from Iraq is moving up steadily.
The most important downside to global production in the immediate future is Iran, which will come under sanctions from Washington, and those states with problems of political instability – Venezuela, Nigeria, and Libya. Flare-ups in any or all of these counties could cut global oil exports by 1 or 2 million b/d in the next year or so. If the IEA is to be believed, then three or four years from now the lack of sufficient investment in finding and developing more oil production will lead to shortages. This is about the timeframe when independent observers say US shale oil production will be peaking and begin a rapid plunge.
The big unknown, however, is the course of the trade wars that Washington has launched with China, North America, and Europe. The dispute with China is particularly troublesome as many believe that it could result in a measurable drop in global GDP and demand for oil if the dispute continues indefinitely.
The IEA’s Warning: The International Energy Agency warned on Thursday that spare oil production capacity risks being “stretched to the limit” as supply disruptions and US sanctions against Iran tighten the market. “Rising production from Middle East Gulf countries and Russia comes at the expense of the world’s spare capacity cushion, which might be stretched to the limit.” The agency sees no sign of higher production from elsewhere that might ease market tightness. Indeed, the problems in Venezuela, Nigeria, and Libya could easily take additional oil off the market.
The IEA says there are only 2.1 million b/d of quickly available spare capacity in three OPEC members: Saudi Arabia, Kuwait, and the United Arab Emirates. If the Saudis increase output towards record levels of near 11m b/d this summer, as it has indicated, it would cut the kingdom’s spare capacity to “unprecedented” levels.
In the past low spare global oil production capacity has led to spikes in oil prices as was last seen in 2008 when prices touched $140 a barrel. There are so many forces in play today that it is nearly impossible to predict whether or not we will see a large price spike in the next two years.
US Shale Oil Production: In last week’s Petroleum Status Report, the EIA estimated that US oil production remained steady the week before last at 10.9 million b/d after having grown by 1.5 million b/d during the last 52 weeks. As these weekly production figures are estimates rather than actual reported production, it is difficult to say whether or not problems moving oil out of the Permian Basin have brought the rapid growth in US oil production to at least a temporary halt.
Increasing crude oil and natural gas production in the Permian Basin and not enough pipeline capacity to move the products to market has widened the discounts at which oil and natural gas produced in the basin are trading relative to the US benchmarks. Pipeline companies continue to announce plans for more oil and natural gas pipeline projects in the area to ship oil and gas from the Permian to the Gulf Coast. However, many of those pipelines will not come on stream before late in 2019 and 2020. Analysts believe that the WTI vs. Midland, Texas price discount and the Waha natural gas discount to Henry Hub prices will become worse before they become better, at some point in 2020.
Analysts at Morgan Stanley are saying that crude oil production growth in the Permian could shrink by nearly two-thirds next year because of limited pipeline capacity that will increase the already wide price differentials in the region. At the same time, the EIA is saying that US oil production will average 11.8 million b/d next year, up from the current 10.9 million.
If these analysts are right, pipeline constraints will cap 2019 output growth in the Permian at 360,000 b/d, well below Wall Street expectations of about 634,000 b/d, and down from this year’s projected 960,000 b/d growth. The inability to move oil to market will push 12-month forward Midland-to-WTI differentials to a discount of $25 to $30 a barrel, from the prompt month $15.50 a barrel discount now.
A side effect of the Permian shale oil boom is the voracious demand for fracking sand to prop open the cracks in the shale made by high-pressure water. In the last twelve months, 11 firms that dig and supply fracking sand have opened within sight of each other in West Texas, and another 10 or so are hustling to get started.
Together, these new firms will mine and ship some 22 million tons of sand this year to shale drillers all around them in the Permian Basin. This amount of sand is equal to almost a quarter of the total US supply. Within a couple of years, industry experts say, the figure could climb to over 50 million tons, provided the boom continues and there is as much oil that can be economically extracted from the Permian as the industry and EIA predicts.
2. The Middle East & North Africa
Iran: Washington government continues its attempts to shut down Iran’s oil exports, and there are indications that it may be having some success. In recent week, the general consensus of how much Iranian exports will be hurt by the US sanctions has been changing from a loss of around 500,000 b/d by the end of the year, to something more like 1 million b/d, or even as high as 2.0 million in a worst-case scenario in which all countries comply.
There are several reasons why the Trump administration may not succeed in cutting Iran’s exports by a significant amount, say 1 million b/d or more. These mostly center on the EU, Russia, and China seeking to shield Iran from the US sanctions, but only the Chinese government has the ability to decree purchases from Iran should exports slow elsewhere.
Last week, the US restated its intentions to drive Iranian oil from the market, when Treasury Secretary Steven Mnuchin told Congress that the United States intends to impose sanctions on all customers of Iranian oil, including China, the EU, and Russia. Washington initially said that it might refuse to issue waivers, but later clarified that position by saying that it would “work with those countries importing Iranian crude oil to get as many of them as possible down to zero by Nov. 4.”
During the past week, there were indications that South Korea, Japan, India, and some European refiners and associated companies are already cutting back on dealings with Tehran. French-based CMA CGM, one of the world’s largest cargo shippers, announced it would be pulling out of Iran for fear of being entangled in US sanctions. CMA CGM operates the third largest container shipping fleet in the world, with 445 ships, capturing 11 percent of global container ship capacity. The French company’s move comes as international firms have left Iran amid pressure from Washington. It seems that harshly enforced sanctions may have more impact than many initially believed.
The sanctions are having repercussions in Iran where hopes for a brighter economic future have been curtailed. President Rouhani based his presidency on the nuclear treaty and more investment from the West so his political survival is now in question. Rouhani is sounding a lot like Iran’s hard-liners. During a visit to Switzerland he threatened to disrupt the flow of Middle Eastern oil through the Persian Gulf.
Iran, which has few places to turn these days, has been touting $50 billion worth of potential Russian investments in its oil and gas sector as it seeks to deepen its relationship with Moscow amid mounting US pressure. Ayatollah Ali Khamenei’s top diplomat used a media interview during his visit to say that a Russian oil company had already signed a $4 billion deal with Iran that “will be implemented soon.” He added that: “Two other major Russian oil companies, Rosneft and Gazprom, have started talks with Iran’s oil ministry to sign contracts worth up to $10bn.” Moscow is hard pressed for cash these days, and it seems unlikely that it would be investing large amounts of money in Iran unless the terms were very favorable.
Iraq: In Basra, security forces fired on protestors frustrated by a lack of jobs and services, as well as the salty water that shut down the Basra refinery. One demonstrator was confirmed dead, and at least two others and five members of security forces were injured outside the West Qurna 1 oil field last week. The lack of steady work, electricity, and potable water have been compounded by 120 degrees Fahrenheit heat and the reduced quantity and quality of water flowing from the Euphrates and Tigris rivers and tributaries. Increased salinization in the Shatt al-Arab – the confluence of the Tigris and Euphrates Rivers – shut down the country’s largest operational refinery.
Five days of protest came to an end on Thursday after the government promised jobs, electricity and clean water. Oil production stayed normal, and ExxonMobil, Lukoil, and BP remained in control of the respective fields, according to Oil Ministry and Basra Oil Company officials.
In the north, production has fully resumed at the Bai Hassan field outside Kirkuk. The field is part of a complex of oilfields in Northern Iraq that were shut down mid-October 2017 after the Kurdistan Regional Government unilaterally voted for independence from Baghdad, causing Iraqi troops to move in on the oil facilities in the Kirkuk area under Kurdish control.
Saudi Arabia: Oil and gas analysts at BMI Research say “The Kingdom has reaffirmed that it holds 2 million b/d of spare capacity”, which implies a total production capacity of around 12 million b/d. “However, bringing all its spare capacity into play would incur a significant cost, while production would take time to bring fully online.” “Increasing crude output from 11 million to 12 million b/d would likely take on the order of six to 12 months.” BMI added that it was unclear that there will be a market for the additional barrels, and how sustainable that market would be.
In early 2016, Crown Prince Mohammed bin Salman said he planned to sell shares in Saudi Aramco, the company that produces 10 percent of the world’s oil and finances the Saudi state. The initial public offering—planned for 2018—would raise more than $100 billion for a new sovereign wealth fund, creating the world’s most valuable listed company, and funneling hundreds of millions of dollars in fees to Wall Street’s elite banks. The company would be worth at least $2 trillion and perhaps as much as $2.5 trillion.
However, Saudi Arabia’s willingness and preparedness for a stock market listing of Saudi Aramco is now in doubt amid concerns about legal exposure and an inability to generate the $2tn valuation sought by crown prince bin Salman. “It is a sovereign decision.” Amin Nasser, chief executive of Saudi Aramco, said that Riyadh had yet to determine whether an IPO would take place.
For some time now the Saudis have reiterated what the IEA has been saying about the future of the global oil industry — there is not enough investment going on and shortages will develop. Amin Nasser, chief executive of Saudi Aramco, said rising investment into a short-cycle output, which ebbs and flows faster than conventional projects, would not be enough to meet rising crude demand. “Something like shale oil . . . it is not going to really create a major dent in total global supply requirements up until 2040.”
International energy majors are prioritizing cutting costs and returning money to investors through dividends and share buybacks after the industry downturn. “It is an indication that companies are worried about meeting shareholder requirements,” said Mr. Nasser of a reluctance to invest in projects that are costly and take more time to develop but tend to last longer.
Libya: On Wednesday Libya lifted its force majeure on the Ras-Lanuf, Es Sider, Marsa, El Hariga, and Zueitina oil terminals, according to a statement by National Oil Corporation Chairman Mustafa Sanalla. Libya’s oil production slowed significantly at the beginning of July after the Tripoli-based NOC declared force majeure on crude oil loadings at the Hariga and Zuetina oil terminals, adding to the force majeure at the Ras Lanuf and Es Sider terminals. The NOC said on July 2 that the total daily production loss amounted to 850,000 b/d of crude oil.
After the ports reopened, the NOC said that the company and its subsidiaries “are concentrating on managing the buildup of operations, to maximize production, and overcome obstacles and losses incurred during the crisis of the last four weeks.”
The NOC also lifted the force majeure at the El-Feel oil field, which had been in place since February 23, 2018, over a dispute over pay and benefits. Oil pumping at the field—operated by a joint venture of Italy’s Eni and NOC—is expected to resume to 50,000 b/d within two days, and to 72,000 b/d three days later. With these announcements, Libya’s oil production should be back over 1 million b/d.
3. China
The trade war between Washington and Beijing remains the top issue affecting the world oil market. Last week China warned it would hit back after the Trump administration raised the stakes in their trade dispute, threatening 10 percent tariffs on $200 billion of Chinese goods. US officials on Tuesday issued a list of thousands of Chinese products to be hit with the new duties. The top items by value were furniture at $29 billions of imports in 2017, network routers worth $23 billion last year and computer components to the amount of $20 billion. The list is subject to a two-month public comment period.
As the US does not sell China a sufficient quantity of goods to fully retaliate, Beijing is looking at ways to harass US firms doing business in China by withholding licenses and audits. Beijing has already cut back on imports of US crude oil but is leaving LNG imports from the US alone because of its desperate need for more natural gas.
China’s crude oil imports fell for the second month in a row in June to the lowest since December, as shrinking margins and volatile oil prices led some independent refiners to scale back purchases. Beijing has always been patient in waiting for lower crude prices before making purchases for its strategic reserves.
How the Chinese economy will fare if exports to the US are substantially curbed due to the new US tariffs is another great unknown. In recent weeks Beijing seems to have relaxed its efforts to keep a lid on debt as it faces a softening economy and the trade tensions with the US. The State Council has started urging local governments speed up already approved investment projects to re-energize growth.
An air monitoring report last week by the Chinese government showed particulate matter in the air of major urban areas declined by nearly 23 percent last year when compared with 2013. The report attributed the change in part to an 8.1 percent decline in the use of coal and the 6.3 percent increase in clean energy consumption over the last five years.
The Chinese government recognizes that controlling air pollution is one of its tougher goals as it looks to continue industrialization and economic growth at the same time. Last week, legislators held a two-day extraordinary session to consider additional air pollution controls. The reduction in the use of coal has been largely confined to cities, and its use continues to grow elsewhere to provide the electric energy needed for economic growth.
4. Russia
Moscow’s energy minister, Alexander Novak, was busy last week holding press conferences and prognosticating on the state of the oil markets. On Friday Novak said that Russia and other leading oil producers might boost oil output further if supply shortages hit the global oil market. He also said Russia might surpass the 200,000 b/d production increase that is currently underway if there is a need for it. Novak said higher crude prices this year would add $40.14 billion to Russian state revenues this year.
Novak is also concerned that higher oil prices brought on by the US sanctions on Iran and various production shortfalls around the world will be negative for the global economy. Russia’s Finance Ministry also warned last week that if prices remain at their current level, another collapse could be coming soon.
5. Nigeria
For the foreseeable future, Nigeria is likely to remain a concern to the global oil markets because of the volatility of its roughly 2 million b/d of oil production. The country’s population is projected to grow from more than 190 million today (50 million greater than that of Russia) to 392 million in 2050. The country is composed of more than 250 ethnic groups and has developed a tradition of government corruption since gaining independence in 1960. Very little of the revenue from 2 million b/d of oil sales makes its way down to Nigeria’s villages, and every year billions in oil revenue paid by foreign oil purchasers disappear so that not even the world’s best auditors can track it.
Nearly every day attacks by thieves, vandals, and dissidents take place along some portion of thousands of miles of pipelines carrying crude, natural gas, and finished oil products. Last week the Nigerian National Petroleum Corporation issued a rare report outlining the cost to the country of the “vandalism” to the pipelines and the lack of money to perform necessary maintenance on oil facilities. The company says that last February Nigeria’s oil sector lost over 754,000 b/d due to production shut-in occasioned by pipeline vandalism.
Not all of this loss is due to thieves drilling holes in pipelines to steal oil or militants blowing them up to pressure the federal government for a larger share of the revenue, but simply from lack of timely maintenance on facilities. According to the report, about 160,000 b/d were shut-in throughout February due to the aging facilities/integrity issues at the Qua Iboe Terminal. This situation of constant oil theft, insurgent sabotage, and lack of maintenance is unlikely to end soon. In recent years, the major international oil companies have been quietly selling off their interests in onshore Nigerian oil production in favor of offshore production which is relatively secure from thieves and dissidents.
Last week The British Foreign and Commonwealth Office issued a warning to Nigerian states in the delta region ahead of the coming elections. The head of the Africa research program at Verisk Maplecroft told UPI that “The multibillion-dollar question is whether militant groups in the Niger Delta will resume their pipeline bombing campaign to hurt the Buhari government ahead of the elections,” he said. “Some of these groups are capable of carrying out highly sophisticated attacks, and in 2016 they succeeded in slashing Nigeria’s oil production by at least one third.”
6. Venezuela
Venezuela’s oil production fell by another 47,500 b/d in June, compared to a month earlier. An exodus of workers and field shutdowns were reported for the month, pointing to a grim near-term future that could see total production dip below 1 million b/d by the end of the year. Officials from state-owned PDVSA said unofficially that workers are fleeing operations. “More production wells are being shut down, the skilled oilfield labor force declined in all upstream divisions by at least a combined 1,000 workers in June, and scheduled maintenance continues to be postponed.”
A separate official said that production continued to fall in the first 11 days of July as more rigs were scrapped and more wells were shut down. PDVSA is “dying operationally,” the official said. While OPEC’s secondary sources estimated average output at 1.34 million b/d in June, the Venezuelan government reported production figures at 1.531 million, the same as May levels.
“Output from Venezuela’s aging conventional oil fields is in rapid decline and upgraders operated by foreign joint-venture partners in the Orinoco heavy oil belt are malfunctioning and running below capacity,” the IEA said in its latest Oil Market Report. “In total, upgrading projects in Venezuela can turn roughly 600 kb/d to 700 kb/d of extra-heavy Orinoco crude into export grades. Recently they have been largely out of action due to bottlenecks at loading facilities.”
More than $9 billion in bond payments fall due this year; inflation is set to top some 13,000 percent this year, and GDP could shrink by a further 15 percent. By the end of the year, GDP will have contracted by nearly 50 percent since 2013.
Venezuela has been losing around 50,000 b/d of its oil production each month so far this year, which means it could lose another 300,000 b/d before the end of 2018. The losses are tightening the oil market; others will have to increase production to make up for the declines.
7. The Briefs (selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
International shipping owners may, in 18 months, be instructing their ship captains to slow their vessels down. The reason? A rule to combat the merchant fleet’s emissions of sulfur oxides starting in January 2020. While such a slowdown might shave billions of dollars off shipowners’ single largest expense — fuel — it would also effectively limit the number of available vessels, risking an upward spiral in freight costs. (7/13)
Dire freight rates are pushing shipowners to scrap a record number of the biggest oil tankers this year, making it a bumper period for recycling yards in South Asia. Very large crude carriers, or VLCCs, move much of the world’s oil across the oceans. But there are far too many in operation in a shrinking market. Major oil producing countries have curbed production in recent years, and the US is importing less crude as it increasingly covers its needs with local oil. (7/9)
India’s oil products demand rose almost 9 percent in June on the year to 17.99 million tons, or 4.7 million b/d, primarily driven by higher consumption of diesel (+7.8%) and gasoline (+15%). The higher demand is a reflection of buoyant local consumption for oil and oil products due to the Indian government’s thrust on infrastructure development and surging auto sales. India’s oil demand is set to grow by 300,000 b/d in 2018, compared with only 120,000 b/d in 2017. (7/13)
In northeast China, the expansion of underground gas storage could alleviate distribution network bottlenecks in the country’s key winter demand centers, and help stabilize seasonal demand and price fluctuations in the wider Asian LNG markets. (7/13)
Vietnam exported 1.88 million tons of crude oil in the first six months, down 49.9 percent from a year ago, mostly to China, Thailand, and Australia. State-owned PetroVietnam has said that production from major aging fields will continue to shrink this year while complex geographical conditions at the remaining marginal fields are creating difficulties for the company. (7/12)
In Egypt, a new oil discovery in the Western Desert could unlock a new area for productivity gains in the country, Italian energy company Eni said Monday. Eni said it made its second oil discovery in the B1-X exploration area in the Western Desert. (7/11)
In Sudan, a fuel crisis has returned to the three states of Kordofan, affecting transportation within towns and travel to other states. Rationing is common. Black market prices for fuel are high. (7/12)
Offshore Mozambique, liquefied natural gas will be processed from a field by 2024 now that the government has the development plans, partners Exxon Mobil and Italian energy company Eni said. (7/10)
Mexico’s President-elect Andres Manuel Lopez Obrador will seek to end the country’s massive fuel imports, nearly all from the US, during the first three years of his term while also boosting refining at home. The winner of the country’s recent election told reporters that he will also prioritize growing crude oil production domestically, which has fallen sharply for years. (7/9)
In Canada, Syncrude on Friday told buyers it would cut crude deliveries in August by about 35 percent after an outage last month at its oil sands site in northern Alberta. Canada is the world’s fourth-largest oil producer and Syncrude’s nameplate capacity of up to 360,000 barrels per day represents about 10 percent of the country’s supply. (7/14)
Canadian energy company Suncor said its Syncrude oil sands facility, crippled by a June power outage, will be back at full capacity by September. The company said a preliminary investigation indicated a transformer tripped. (7/10)
The US oil rig count stayed flat at 863 while the gas rig count increased by two to 189, according to Baker Hughes. The combined oil and gas rig count now stands at 1,054—up 102 from this time last year, with the number of oil rigs accounting for 98 of that 102. Canada gained 15 oil and gas rigs for the week, 13 of which were oil rigs. Canada’s oil and gas rig count is now up just six year over year. Oil rigs are up by 33 year over year in Canada, while the number of gas rigs is down by 27. (7/14)
The US Gulf of Mexico has begun to stir recently after three years of low prices, attracting private equity money alongside a new set of players. The US Gulf — which had been expected to fade silently into the background — continues to grind forward and will reach a peak this year. Currently, total US Gulf production is projected at 1.725 million b/d of crude in July, nearly 18 percent of current domestic production. The figure is expected to rise to a peak of 1.874 million b/d in January 2019 before declining slightly and ending that year at 1.825 million b/d. (7/14)
GOM mega-lease: The US government put millions of acres on the table for drillers looking to tap into the billions of barrels of oil yet to be discovered offshore. Deputy Interior Secretary David Bernhardt said the next lease in a five-year plan includes 79 million acres off the coast of Alabama, Florida, Louisiana, Mississippi and Texas. All told, the US waters of the Gulf of Mexico hold about 48 billion barrels of undiscovered technically recoverable oil and 141 trillion cubic feet of natural gas. (7/14)
LNG futures: CME Group Inc said on Tuesday it would develop the first physically deliverable US liquefied natural gas futures contract as growing worldwide demand has made the US a key LNG exporter. Overall world LNG consumption has risen to a record 39.0 billion cubic feet per day (bcfd) in 2017 from just 29.1 bcfd in 2010 and is expected to keep growing by about 3 percent a year through 2050. (7/11)
So-called “orphan” oil and gas wells, which have been abandoned by defunct companies that can no longer pay to plug them, are a growing problem in many states thanks to a recent slump in energy prices that has forced marginal operators out of business. (7/11)
Exxon Mobil faces many challenges, including investigations of its accounting and tax practices as well as lawsuits by cities and states seeking funds to pay for the effects of climate change. Its biggest problem is one the giant has seldom faced in its 148-year history: It isn’t making as much money as it used to. (7/14)
Gas vs. coal: EIA expects natural gas-fired power plants to supply 37 percent of US electricity generation this summer (June, July, and August), near the record-high natural gas-fired generation share in summer 2016. EIA forecasts the share of production from coal-fired power plants will drop slightly to 30% in summer 2018, continuing a multi-year trend of lower coal-fired electricity generation. (7/12)
Wind costs: Between 2010 and 2016, the capacity-weighted average cost (real 2016$) of US wind installations declined by one-third, from $2,361 per kilowatt (kW) to $1,587/kW, based on analysis by the US DOE. The reasons for this decline include improving technology and manufacturing capability and an increasing concentration of builds in the regions of the US with the lowest installation costs. (7/14)
China imported 146 million tons of coal and lignite in the first half of 2018, up 9.9 percent from the previous year and a three-year high. This rebound in coal demand is underpinned by tight supply stemming from ongoing safety and environmental checks at major coal mines amid firm summer electricity demand. (7/13)
China’s dominant role in electric vehicle manufacturing and sales has yet to be curtailed by the trade war launched by President Donald Trump. The lack of impact can be demonstrated by Tesla CEO Elon Musk’s trip to Shanghai this week to sign a factory deal. (7/13)
China’s BYD recently delivered five electric buses to the Vineyard Transit Authority (VTA) in Martha’s Vineyard, Massachusetts; a sixth is scheduled to be delivered by the end of the July. VTA had placed the order for the buses in August 2017. The BYD buses will replace six diesel buses as part of the VTA’s plan to convert its fleet. VTA is the first transit agency in Massachusetts to commit to going all-electric. (7/12)
EV leader: A policy adviser to Washington Gov. Jay Inslee said the state wants to be as prolific as low-carbon Norway when it comes to electric vehicle deployment. There are around 28,000 electric vehicles on state roads now. The goal is to nearly double that to 50,000 by 2020. The Norwegian government said electric vehicles make up about 5 percent of the passenger fleet, compared with 3.7 percent at the end of 2016. Norway is a global leader in oil and gas production but leans on renewable resources for the domestic market. (7/13)
Downfall of US nukes? A new, shocking report by researchers at four universities discovered that the US nuclear power industry could be on the verge of collapse — a reality that many have yet to realize. Published in Proceedings of the National Academy of Science (PNAS), “US nuclear power: The vanishing low-carbon wedge” examined 99 nuclear power reactors in 30 states, operated by 30 different power companies. As of 2017, there are two new reactors under construction, but 34 reactors have been permanently shut down as many plants reach the end of their lifespan. (7/13)
The UK should back renewables and support only one more nuclear plant after Hinkley Point C before 2025, because renewable energy is the safest bet for a low-cost energy system for Britain in the long-term, the National Infrastructure Commission—an independent advisory group set up in 2015 to give recommendations to the UK government—said in its first report on Tuesday. (7/11)
The Uzbekistan government and Rosatom have reached an agreement to build the first nuclear power plant in the country, with commercial operations targeted to start by 2028, to free up natural gas for export. The nuclear power plant would comprise two 1,200-MW units. Uzbekistan needs the nuclear power plant to decrease the share of natural gas used in the domestic power generation industry. Currently, 85% of the country’s estimated 69 billion kWh of demand is met by coal- and gas-fired generators, the statement added. (7/12)
Germany’s RE: For the first time in history, renewable power sources have overtaken coal in Germany’s energy mix, the German Association of Energy and Water Industries reports, saying the share of wind, solar, hydro, and biomass in the country’s energy production mix reached 36.3 percent as of end-June this year, versus a combined 35.1 percent for hard coal and lignite coal. (7/13)
CA erosion nightmare: Like an ax slowly chopping at the trunk of a massive tree, waves driven by sea-level rise will hack away the base of cliffs on the Southern California coast at an accelerated pace, a recent study says, increasing land erosion that could topple some bluffs and thousands of homes sitting atop them. California officials from Santa Barbara to San Diego will face an awful choice as the sea rises: save public beaches enjoyed by millions, or close them off with boulders and concrete walls to armor the shore and stop the waves in a bid to save homes. (7/13)
Western drought: Arizona is the odd state out in agreeing to dramatically curtail water use from the Colorado River, raising tensions in the Southwest as extreme drought conditions return. At issue are falling water levels at the West’s biggest reservoir, Lake Mead. Having already dropped by more than 150 feet over the past two decades to 1,077 feet, the Nevada reservoir is two feet shy of falling below a federal threshold that can trigger mandatory cutbacks by US officials. (7/9)
Future climate impacts worse: A recent assessment of past warm periods shows that future global warming may be twice as warm as projected by climate models and sea levels may rise six meters or more with 2°C of warming. (7/9)
Climate research finding: Thirteen thousand years ago, an ice age was ending, the Earth was warming, the oceans were rising. Then something strange happened – the Northern Hemisphere suddenly became much colder and stayed that way for more than a thousand years. Based on new research—from measurements taken off the northern coasts of Alaska and Canada in the Beaufort Sea–scientists say they detected the signature of a huge glacial flood event that occurred around the same time. The research underscores that as the Earth warms and its ice melts, major changes can happen in the oceans. And could happen again. (7/13)
The Long Emergency up Close and Personal - with Author James Howard Kunstler
That die-off between 2040-2050 will be a high price to pay for the oil abundant life of prior generations! Steps could be take to abate the situation, but the speeding train of modern life cannot be stopped!!
thanks
sumi
"Conclusion and prognosis – peak oil is here".Yes it is and so is the new Little Ice Age which is going to quickly pressure food production and prices leading to game over for life as we know it.
Peak Oil,Peak Food,Peak Debt and Peak Growth = Peak Population
IMO the die-off will be fast and by 2040-2050 1-2 billion will be the population adapting to a new world.
What, is peak oil dead?
Then show me the body!
(of statistical evidence)
ecolonomics no.16
Paul Mobbs, Mobbs' Environmental Investigations
May 2015
http://www.fraw.org.uk/mei/ecolonomics/01/ecolonomics_16-peak_oil_dead-show_me_the_body.shtml
The title of this board, Peak Oil - Epochal Event of Our Lives, purposely includes the word epochal, meaning without parallel.
Why will Peak Oil be without parallel?
Look at past events in the Middle East, which interrupted the supply of oil throughout the world and especially in the United States. These disruptions were geopolitical events and were ultimately resolved with diplomacy.
Peak Oil, on the other hand, will be a geological event, something that mankind has never faced before and certainly cannot control. It will inevitably occur when world oil production has reached its maximum capacity, as oil is a finite resource.
Illustrated below is Hubbert's Curve, which shows the growth, peak, and decline of worldwide, regional, and individual wells. This sequence continues to occur as world population dramatically increases and as Asia, in particular, accelerates its industrialization and its citizenry expands car ownership.
HUBBERT CURVE
Regional Vs Individual Wells
Peak Oil will adversely affect many aspects of our lives. For example, over the last 100 years, gas powered engines have contributed to the discovery and expansion of the automobile and airplane industries. Recently the population of the United States reached 300 million and vehicles now total 225 million. Future population growth, with a corresponding increase in vehicles, will further deplete oil supplies.
Agriculture has changed from numerous labor and animal-intensive family farms to a machine-intensive industry primarily controlled by corporations. Further, much of the increased productivity of farm soil emanates from petroleum-based fertilizers.
Transportation and agriculture are just two segments of society that must adjust to prospective oil declines. The critical question is how will our entire society adjust to a worldwide oil scarcity.
M. King Hubbert, a Shell geologist, predicted in 1956 that oil production in the United States would peak between 1965 to 1970. In hindsight, it did peak in 1970.
Mr. Hubbert's warning was given, yet it has been largely ignored. Oil discoveries and plentiful oil reserves in Alaska and the North Sea made many people complacent. In addition, new technologies were developed, so that oil was sucked up from the earth as if by giant straws. Although oil was abundant in the 1980's and 1990's, reserves in this century are in demonstrable decline.
China, in particular, recognizes the potential shortage of oil. It canvasses the world making oil deals to secure its energy future. It is also currently building 30 nuclear reactors and 7 hydroelectric dams to supplement its energy needs.
Sadly, the United States lingers behind. Its attitude seems to be that oil will always be abundant, probably because it has been in the past. Even with the dramatic crude oil price increases of the past three years, there still is a reluctance to confront this potential problem.
PURPOSE OF THIS BOARD
One purpose of this board is to provide I-Hub members with a repository of Peak Oil articles. Hopefully these will stimulate interest in the topic and I invite readers to post their thoughts.
Another important purpose of this board is to help people in preparing for or coping with the Peak Oil event. To this end, various links by category have been supplied below.
Good luck!
sumisu
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TABLE OF CONTENTS :
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GETTING READY FOR PEAK OIL & SUSTAINABLE LIVING
A companion #board-9881 titled "SUSTAINABLE LIVING FOR CHALLENGING TIMES" was spun off from this board to provide an archive of postings and sources of information which will aid individuals and communities to adopt and survive in a world of declining energy resources.
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PEAK OIL READING LIST FROM JIM PUPLAVA
http://www.financialsense.com/resources/peakoil.html
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PEAK OIL SITES, BLOGS, & ORGANIZATIONS
Peak Oil Clock http://sydneypeakoil.com/peak_oil_clock/
ASPO - USA http://www.aspo-usa.com/index.php?option=com_frontpage&Itemid=35
ASPO - INTERNATIONALhttp://www.peakoil.net
Beyond Oil, The View from Hubbert's Peak by Kenneth S. Deffeyes http://www.princeton.edu/hubbert/index.html
Dry Dipstick http://www.drydipstick.com
Energy Balance http://tinyurl.com/42awvh
Energy Bulletin http://www.energybulletin.net/
Energy Bulletin: Peak Oil Primer and Links http://www.energybulletin.net/primer.php
Energy Outlook http://energyoutlook.blogspot.com/
Global Public Media - Public Service Broadcasting For A Post Carbon World http://globalpublicmedia.com/
Life After the Oil Crash http://www.lifeaftertheoilcrash.net/
National Petroleum Council http://www.npc.org
NEI Nuclear Notes http://neinuclearnotes.blogspot.com/
Peak Oil Design http://peakoildesign.com/
Peak Oil News & Message Boards http://www.peakoil.com/
PLENTY http://www.plentymag.com/
Post Carbon Institute http://www.postcarbon.org/
Simmons & Company International http://www.simmonsco-intl.com/research.aspx?Type=msspeeches
The Coming Global Oil Crisis http://www.oilcrisis.com
The Oil Drum http://www.theoildrum.com/
The View From The Peak http://www.theviewfromthepeak.net
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NARRATIVE LINKS
Peak Oil FAQ #msg-33046927
Peak Oil Report by Peak Oil Associates International #msg-32147901
Evolutionary psychology and peak oil #msg-30634038
Roscoe Bartlett Discusses His Special Order Speeches #msg-29893771
OIL SHOCK AND ENERGY TRANSITION by Andrew McKillop, May 7, 2008 #msg-29196735
Energy Bull Market Fundamentals Remain Strong, Chris Puplava, 2008 http://tinyurl.com/5nze3h
The Truth About Oil by Vasko Kohlmayer, 05 08 08 http://tinyurl.com/3guotj
The Gospel According to Matthew, by Mimi Swartz, 02/01/08 #msg-26286577
Another Nail in the Coffin of the Case Against Peak Oil, Matt Simmons, Nov 2007
http://www.simmonsco-intl.com/files/Another%20Nail%20in%20the%20Coffin.pdf
Megaprojects update: Just how close to Peak Oil are we? 10/18/07 Chris Skrebowski: Trustee of the Oil Depletion Analysis Centre http://tinyurl.com/33rl3q
Crisis, what energy crisis? Euan Mearns, The Oil Drum: Europe. 07/03/07 Over 50 links to Oil Drum articles from the past year are provided which combined provide a comprehensive overview of the issues surrounding peak oil and energy decline. http://www.energybulletin.net/31608.html
On the Precipice: Energy Security & Economic Stability on the Edge - by Daniel Davis 07/17/07 http://www.aspo-usa.com/assets/documents/Danny_Davis_On_the_Precipice.pdf
Evolutionary psychology and peak oil: A Malthusian inspired "heads up" for humanity. by Dr. Michael E. Mills http://www.drmillslmu.com/peakoil.htm
Peak oil: Facts converge with theory http://tinyurl.com/2gtud4
11 incontrovertible truths of oil production & peak oil arguments by PeakEngineer, 05/23/07 #msg-19902674
Peak Oil, Carrying Capacity and Overshoot: Population, the Elephant in the Room, © Copyright 2007, Paul Chefurka http://www.paulchefurka.ca/Population.html
CRUDE OIL Uncertainty about Future Oil Supply Makes It Important to Develop a Strategy for Addressing a Peak and Decline in Oil Production, GAO Report, 03/29/07 http://www.gao.gov/new.items/d07283.pdf
DIE OFF - a population crash resource page http://www.dieoff.com/index.html
Portland, Oregon City Council unanimously creates a peak oil task force - 05/10/06 http://www.portlandpeakoil.org/
Testimony before the Australian Senate by Dr. Samsam Bakhtiari, a senior expert employed by the National Iranian Oil Company (NIOC), 07/11/06 http://www.aph.gov.au/hansard/senate/commttee/S9515.pdf
The Hirsch Report - February 2005 #msg-10310387
The Financial Sense Energy Resource Page http://www.financialsense.com/energy/main.htm
Financial Sense Big Picture Archive http://www.financialsense.com/fsn/2006.html
OIL: A TRAVELOGUE OF ADDICTION by Chicago Tribune, 07/29/06 (Suggested viewing: Open link and click on Watch documentary, left-hand column). http://tinyurl.com/h78ve
Exploring emotional reactions to peak oil by Kathy McMahon http://www.energybulletin.net/19718.html
Denial Of Energy Crisis Is A Conditioned Response, By Dave Wheelock #msg-25561271
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Hubbert peak theory From Wikipedia, the free encyclopedia http://en.wikipedia.org/wiki/Peak_oil
A Tribute To M. King Hubbert http://www.hubbertpeak.com/Hubbert/
Outlook for Fuel Reserves http://www.mkinghubbert.com/files/hubbert_1974.pdf
Nuclear Energy and the Fossil Fuels by M. King Hubbert, 1956 Published on 8 Mar 2006 by Energy Bulletin. Archived on 8 Mar 2006. http://www.energybulletin.net/13630.html
Shell Execs Briefed on Peak Oil in 1956
EXPONENTIAL GROWTH AS A TRANSIENT PHENOMENON IN HUMAN HISTORY
http://www.hubbertpeak.com/Hubbert/wwf1976/
Are we at the peak of oil production? #msg-39230370#msg-29389791
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ROBERT L. HIRSCH
The Hirsch Report - February 2005 #msg-10310387
Robert L. Hirsch from Wikipedia - http://en.wikipedia.org/wiki/Robert_L._Hirsch
Robert Hirsch - Peak Oil Video - #msg-33832912
FSN: Energy Roundtable: Jim Puplava, Matthew Simmons, Robert L. Hirsch, & Jeffrey G. Rubin Discussion - 02/02/08 http://www.financialsense.com/Experts/roundtable/2008/0202.html
Dr. Robert Hirsch: "We Are Staring Directly Into An Energy Storm in The Next 2-3 Years"
#msg-69993495
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Simmons & Company web site
http://www.simmonsco-intl.com/research.aspx?Type=msspeeches
Book Review: Twilight in the Desert - The Coming Saudi Oil Shock and the World Economy by Matthew R. Simmons
Read more: http://blogcritics.org/books/article/book-review-twilight-in-the-desert/#ixzz0nXMuOsbg
Peak Oil Solution: The Simmons Plan
http://blogs.forbes.com/energysource/2010/02/10/peak-oil-solution-the-simmons-plan/
Presentation at 2006 Boston World Oil Conference, 10/26/2006
http://video.google.com/videoplay?docid=-429585738009344102#
President Carter's Address to the Nation On Energy Policy (April 18, 1977) Video: http://www.youtube.com/watch?v=4Y6pPF_lzsU
Transcript: http://www.pbs.org/wgbh/amex/carter/filmmore/ps_energy.html
Energy Policy and Conservation Executive Order 12003, July 20th, 1977
http://www.presidency.ucsb.edu/ws/index.php?pid=7842
Carter's Brave Vision on Energy by David Morris, Monday, October 10, 2005 by the Minneapolis Star Tribune
http://www.commondreams.org/views05/1010-27.htm
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Congressman Bartlett is leading efforts to change U.S. energy policy to address the challenges of peak oil. U.S. oil production peaked in 1970 and is in permanent decline. World oil production will also peak - perhaps disastrously soon. http://bartlett.house.gov
Congressman Roscoe Bartlett video on Peak Oil in 7 parts. . .
The House of Representatives formed a Peak Oil caucus in 2005 with 8 members: #msg-30864250
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NATIONAL GEOGRAPHIC ON PEAK OIL
"Tapped Out" by Paul Roberts, August 2008 http://ngm.nationalgeographic.com/2008/06/world-oil/roberts-text
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AUDIOS & VIDEOSPeak Oil - Chris Martenson http://www.chrismartenson.com/peak_oil
Twilight In the Desert http://www.youtube.com/watch?v=QfEO3PCEeis
Peak Oil - Robert Hirsch http://www.youtube.com/watch?v=qSbfvZiJ9g0
Peak Oil - Crude Impact #msg-30619202
CNN Special Investigation - OUT OF GAS #msg-30188572
91 86 90 - Peak Oil Number-Crunching http://www.youtube.com/watch?v=oC-koGwRu_A
Oil and the 'New International Energy Order' - Michael Klare, 04 14 08 http://tinyurl.com/59947u
"A conversation with John Hofmeister" - Charlie Rose, 03 25 08 http://tinyurl.com/23o8py
Video: A High-Risk Barrel, September 28, 2007 http://novakeo.com/?p=1054&jal_no_js=true&poll_id=10
Matt Savinar - Coast to Coast, 10/07 http://klrietmann.bingodisk.com/bingo/public/Savinarc2c111.mp3
A Crude Awakening http://tinyurl.com/yp88uu
Matthew Simmons on Peak Oil, ASPO Conference at Boston University 10 27 06 http://video.google.com/videoplay?docid=-429585738009344102&q=peak+oil'
Dr. Kenneth Deffeyes on Peak Oil, 2005 Energy Conference - http://video.google.com/videoplay?docid=2992397199507996758&hl=en
Peak Oil, Richard Heinberg, 09/11/06 http://video.google.com/videoplay?docid=-2141508903056009420
Peak Oil: Fireside Chat with Julian Darley - http://video.google.com/videosearch?hl=en&q=julian%20darley%2C%20boston%20world%20oil%20conference&um=1&ie=UTF-8&sa=N&tab=wv#q=julian+darley&hl=en&emb=0
Peak Oil & The Party's Over http://www.youtube.com/watch?v=0Xl3J4Kpy88&feature=PlayList&p=F39AC0DCDA7ADEC2&index=0&playnext=1
Peak Oil: Gas Prices, Supply Depletion & Energy Crisis: From NewCulture.org, 07 27 06 http://www.youtube.com/watch?v=DMQd5nGEkr4&mode=related&search
The Long Emergency: Surviving Catastophies of the 21st Century, 10 30 05 http://tinyurl.com/2g6p35
Real Oil Crisis - 11 24 05 (Video Presentation) http://www.abc.net.au/catalyst/stories/s1515141.htm
The Geopolitical Consequences of Peak Oil: Michael Klare, 10 27 06 http://video.google.com/videoplay?docid=-3121561902567229690&hl=en
The End of Suburbia http://www.youtube.com/watch?v=Q3uvzcY2Xug&feature=related
World Made By Hand (Video Promo) http://www.youtube.com/watch?v=PbEe8v4YpgA
T. Boone Pickens on CNBC [discusses alternative energies] http://www.youtube.com/watch?v=ylI4iQ-5iXg
Dr. Al Husseini, retired head of exploration and production for Saudi Aramco, interview with CNBC on 03/27/08: http://www.cnbc.com/id/15840232?video=697807590&play=1
RICHARD HEINBERG on OUR POST-CARBON FUTURE http://tinyurl.com/636juw
Megan Quinn Bachman - Peak Oil, Community & The Future in four parts:
Calm Before the Storm, Richard Heinberg http://www.youtube.com/watch?v=ajqgOCxGEAo
Running on Empty: Life Without Cheap Oil http://www.youtube.com/watch?v=Jqg3P3wOV60
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A 10% Reduction in America's Oil Use in Ten to Twelve Years An Overlooked, Practical, and Affordable Approach Using Mature Existing Technology by Alan S. Drake, May 2006 • Rev. October 2006 http://www.lightrailnow.org/features/f_lrt_2006-05a.htm
Electrification of transportation as a response to peaking of world oil production by Alan S. Drake 12/19/05 in Light Rail Now http://www.energybulletin.net/14492.html
Public Transport Industry Issues http://www.lightrailnow.org/industry_issues.htm#electrification
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COMMUNITY SOLUTIONS & NEW URBANISM
The Community Solution http://www.communitysolution.org/
WORLD CHANGING http://www.worldchanging.com/about/
How to Wean a Town Off Fossil Fuels http://www.worldchanging.com/archives/005135.html
A Community Solution to Peak Oil: An interview with Megan Quinn http://www.energybulletin.net/5721
Sustain Lane | The Healthy, Sustainable Living Community Resource http://www.sustainlane.com/
Culture Change http://culturechange.org/cms/index.php
Communities, Refuges, and Refuge-Communities by Zachary Nowak http://www.energybulletin.net/21172.html
Karavans - Moving Toward a New World of Self-Sufficiency, Sustainability, and Genuine Community http://www.karavans.com/peakoil.html
New Urbanism http://www.newurbanism.org/
The New Urbanisn http://www.newurbannews.com/AboutNewUrbanism.html
Online NewsHour - New Urbanism http://www.pbs.org/newshour/newurbanism/
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OTHER NATIONS - STATUS FOR PEAK OIL
Closing the 'Collapse Gap': The USSR was better prepared for peak oil than the US - by Dmitry Orlov, 12/04/06
http://www.energybulletin.net/node/23259
The power of community: How Cuba survived peak oil - by Megan Quinn, 02/25/06 http://www.energybulletin.net/13171.html
"Flush With Energy" By THOMAS L. FRIEDMAN August 10, 2008 #msg-31394853
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FSN: Lutz Kleveman, 01/24/04 - "The New Great Game: Blood and Oil in Central Asia"
http://www.financialsense.com/Experts/2004/Kleveman.html
FSN: Michael T. Klare, 01/15/05 - "Blood and Oil" http://www.financialsense.com/Experts/2005/Klare.html
FSN: Michael T. Klare, 6/21/08. "Rising Powers, Shrinking Planet: The New Geopolitics of Energy" http://www.financialsense.com/Experts/2008/Klare.html
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CANTARELL OIL FIELD & DEPLETION
Cantarell Field by Wikipedia
http://en.wikipedia.org/wiki/Cantarell_Field
Cantarell, The Second Largest Oil Field Is Dying, by G.R. Morton, 08 14 04
http://www.energybulletin.net/node/1651
Cantarell Decline Perspective, Jim KIngsdale's "Energy Investment STRATEGIES" 07 08 08
http://www.energyinvestmentstrategies.com/2008/07/08/cantarell-decline-perspective/
A Storm Called Cantarell by Sean Brodrick, "Money and Markets' 09 03 08
#msg-31902352
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Export Land Medel by Wikipedia
http://en.wikipedia.org/wiki/Export_Land_Model
What the Export Land Model Means for Energy Prices By: Doug Casey, Casey Research LLC, 06 04 08 http://www.321energy.com/editorials/casey/casey060508.html
An Update on Mexico Export Land Model by GraphOilogy 01 22 08
http://graphoilogy.blogspot.com/2008/01/update-on-mexico-export-land-model.html
Oil Outlook: "Export Land Model" by Jeff Rubin on CNBC, October 2007
http://www.youtube.com/watch?v=9Ed9jsKAOHU
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CHARTS AND ILLUSTRATIONS OF INTEREST
A significant example of collapsing oil production is Cantarell, recently the largest oil field in the Western Hemisphere. From over 2 million barrels per day in 2004-2005, Cantarell is now producing at around 700,000 barrels per day. [credit chart to energycrisis.com]
The amount of oil you can produce can only ever equal the amount of recoverable oil you discover. The area under both curves must eventually be equal. [ http://futureproofkilkenny.org/?page_id=110 ]
[source: http://tonto.eia.doe.gov/oog/info/gdu/gasdiesel.asp
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