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The 'Abiotic Oil' Controversy
By Richard Heinberg
10-6-4
The debate over oil's origin has been going on since the 19th century. From the start, there were those who contended that oil is primordial - that it dates back to Earth's origin - or that it is made through an inorganic process, while others argued that it was produced from the decay of living organisms (primarily oceanic plankton) that proliferated millions of years ago during relatively brief periods of global warming and were buried under ocean sediment in fortuitous circumstances.
During the latter half of the 20th century, with advances in geophysics and geochemistry, the vast majority of scientists lined up on the side of the biotic theory. A small group of mostly Russian scientists - but including a tiny handful Western scientists, among them the late Cornell University physicist Thomas Gold - have held out for an abiotic (also called abiogenic or inorganic) theory. While some of the Russians appear to regard Gold as a plagiarist of their ideas, the latter's book The Deep Hot Biosphere (1998) stirred considerable controversy among the public on the questions of where oil comes from and how much of it there is. Gold argued that hydrocarbons existed at the time of the solar system's formation, and are known to be abundant on other planets (Jupiter, Saturn, Uranus, and some of their moons) where no life is presumed to have flourished in the past.
The abiotic theory holds that there must therefore be nearly limitless pools of liquid primordial hydrocarbons at great depths on Earth, pools that slowly replenish the reservoirs that conventional oil drillers tap.
Meanwhile, however, the oil companies have used the biotic theory as the practical basis for their successful exploration efforts over the past few decades. If there are in fact vast untapped deep pools of hydrocarbons refilling the reservoirs that oil producers drill into, it appears to make little difference to actual production, as tens of thousands of oil and gas fields around the world are observed to deplete, and refilling (which is indeed very rarely observed) is not occurring at a commercially significant scale or rate except in one minor and controversial instance discussed below.
The abiotic theorists also hold that conventional drillers, constrained by an incorrect theory, ignore many sites where deep, primordial pools of oil accumulate; if only they would drill in the right places, they would discover much more oil than they are finding now. However, the tests of this claim are so far inconclusive: the best-documented "abiotic" test well was a commercial failure.
Thus even if the abiotic theory does eventually prove to be partially or wholly scientifically valid (and that is a rather big "if"), it might have little or no practical consequence in terms of oil depletion and the imminent global oil production peak.
That is the situation in a nutshell, as I understand it, and it is probably as much information as most readers will need or want on this subject. However, as this summary contradicts some of the more ambitious claims of the abiotic theorists, it may be helpful to present in more detail some of the evidence and arguments on both sides of the debate.
Oil at the Core?
Gold is right: there are hydrocarbons on other planets, even in deep space. Why shouldn't we expect to find primordial hydrocarbons on Earth?
This is a question whose answer is only partly understood, and it is a complicated one. The planets known to have primordial hydrocarbons (mostly in the form of methane, the simplest hydrocarbon) lie in the further reaches of the solar system; there is little evidence of primordial hydrocarbons on the rocky inner planets (Mercury, Venus, Earth, and Mars). On the latter, possibly the hydrocarbons either volatized and escaped into space early in the history of the solar system, or - as Gold theorizes - they migrated to the inner depths. (Note: very recent evidence of methane in the atmosphere of Mars is being viewed as evidence of biological activity, probably in the distant past. (1)) There is indeed evidence for deep methane on Earth: it vents from the mid-oceanic ridges, presumably arising from the mantle, though the amount vented is relatively small - less than the amount emitted annually in cow farts (incidentally, there are persuasive biotic explanations for the origin of this vented methane).
A new study by the US Department of Energy and Lawrence Livermore Lab suggests that there may be huge methane deposits in Earth's mantle, 60 to 120 miles deep. (2) But today oil companies are capable of drilling only as deep as six miles, and this in sedimentary rock; in igneous and metamorphic rock, drill bits have so far penetrated only two miles. (3) In any attempt to drill to a depth remotely approaching the mantle, well casings would be thoroughly crushed and melted by the pressures and temperatures encountered along the way. Moreover, the DOE study attributes the methane deposits it hypothesizes to an origin different from the one Gold described.
More to the point, Gold also claimed the existence of liquid hydrocarbons - oil - at great depths. But there is a problem with this: the temperatures at depths below about 15,000 feet are high enough (above 275 degrees F) to break hydrocarbon bonds. What remains after these molecular bonds are severed is methane, whose molecule contains only a single carbon atom. For petroleum geologists this is not just a matter of theory, but of repeated and sometimes costly experience: they speak of an oil "window" that exists from roughly 7,500 feet to 15,000 feet, within which temperatures are appropriate for oil formation; look far outside the window, and you will most likely come up with a dry hole or, at best, natural gas only. The rare exceptions serve to prove the rule: they are invariably associated with strata that are rapidly (in geological terms) migrating upward or downward. (4)
The conventional theory of petroleum formation connects oil with the process of sedimentation. And, indeed, nearly all of the oil that has been discovered over the past century-and-a-half is associated with sedimentary rocks. On the other hand, it isnít difficult to find rocks that once existed at great depths where, according the theories of Gold and the Russians, conditions should have been perfect for abiotic oil formation or the accumulation of primordial petroleum - but such rocks typically contain no traces of hydrocarbons. In the very rare instances where small amounts of hydrocarbons are seen in igneous or metamorphic rocks, the latter are invariably found near hydrocarbon-bearing sedimentary rocks, and the hydrocarbons in both types of rock contain identical biomarkers (more on that subject below); the simplest explanation in those cases is that the hydrocarbons migrated from the sedimentary rocks to the igneous-metamorphic rocks.
Years ago Thomas Gold recognized that the best test of the abiotic theory would be to drill into the crystalline basement rock underlying later sedimentary accumulations to see if there is indeed oil there. He persuaded the government of Sweden in 1988 to drill 4.5 miles down into granite that had been fractured by a meteorite strike (the fracturing is what permitted drillers to go so deep). The borehole, which cost millions to drill, yielded 80 barrels of oil. Even though the project (briefly re-started in 1991) was a commercial failure, Gold maintained that his ideas had been vindicated. Most geologists remained skeptical, however, suggesting that the recovered oil likely came from drilling mud.
The Russians (I must remind the reader that I am actually talking about a minority even with the community of Russian geologists) claim successes in drilling in basement rock in the Dneiper-Donets Basin in the Ukraine. Professor Vladilen A. Krayushkin, Chairman of the Department of Petroleum Exploration, Institute of Geological Sciences, Ukrainian Academy of Sciences, Kiev, and leader of the exploration project, wrote:
The eleven major and one giant oil and gas fields here described have been discovered in a region which had, forty years ago, been condemned as possessing no potential for petroleum production. The exploration for these fields was conducted entirely according to the perspective of the modern Russian-Ukrainian theory of abyssal, abiotic petroleum origins. The drilling which resulted in these discoveries was extended purposely deep into the crystalline basement rock, and it is in that basement where the greatest part of the reserves exist. These reserves amount to at least 8,200 M metric tons [65 billion barrels] of recoverable oil and 100 B cubic meters of recoverable gas, and are thereby comparable to those of the North Slope of Alaska. (5)
However, independent assessments of the situation do not support these claims. First, the US Geological Survey does not agree that the Dneiper-Donets reserves are that large (it cites 2.7 billion barrels for total oil endowment). Second, the appearance of oil in basement rocks is unusual but not unheard of, and there are various ways in which oil can appear in basement rock. In the process of drilling through overlying sedimentary rock, oil can be expelled downward so that it appears to come from below. Then there are situations where igneous or metamorphic rocks have migrated upward, or sedimentary rocks have migrated downward, so that basement rock covers sedimentary rock (in some cases, the overthrust may be hundreds of square kilometers in extent). In his paper "Oil Production from Basement ReservoirsóExamples from USA and Venezuela," Tako Koning of Texaco Angola, Inc., cites source rocks such as marine shales in nearly all instances. (6) More to the point, numerous studies cite the existence of sedimentary source rocks in the Dneiper-Donets region. (7)
Refilling Fields?
Abiotic theorists often point out evidence of fields refilling. The most-cited example is Eugene Island, the tip of a mostly submerged mountain that lies approximately 80 miles off of the coast of Louisiana. Here is the story as related by Chris Bennett in his article "Sustainable Oil?" on WorldNetDaily.com:
A significant reservoir of crude oil was discovered nearby in the late '60s, and by 1970, a platform named Eugene 330 was busily producing about 15,000 barrels a day of high-quality crude oil. By the late '80s, the platform's production had slipped to less than 4,000 barrels per day, and was considered pumped out. Done. Suddenly, in 1990, production soared back to 15,000 barrels a day, and the reserves which had been estimated at 60 million barrels in the '70s, were recalculated at 400 million barrels. Interestingly, the measured geological age of the new oil was quantifiably different than the oil pumped in the '70s. Analysis of seismic recordings revealed the presence of a "deep fault" at the base of the Eugene Island reservoir which was gushing up a river of oil from some deeper and previously unknown source. (8)
A "river of oil" from an unassociated deep source? This does sound promising. But closer examination yields more prosaic descriptions and explanations.
According to David S. Holland, et al., in Search and Discovery, the reservoir is characterized by
1. Structural features dominated by growth faults, salt domes, and salt-related faulting.
2. Thick accumulations of predominantly deltaic deposits of alternating sand and shale.
3. Young reservoirs (less than 2.5 m.y. old) with migrated hydrocarbons whose origins are in deeper, organic-rich marine shales.
4. Rapidly changing stratigraphy, due to deposition and subsequent reworking.
5. Numerous oil and gas fields with stacked reservoirs, long hydrocarbon columns, and high producing rates. (9)
While it is true that the estimated oil reserves of Eugene have increased, the numbers are not extraordinary. The authors note that "From 1978 to 1988, these operations, activities, and natural factors [including better exploration and recovery technology] have increased ultimate recoverable reserves from 225 million bbl to 307 million bbl of hydrocarbon liquids and from 950 bcf to 1.65 tcf of gas." Other estimates now put the estimate of total recoverable oil as high as 400 Mb.
None of this is especially unusual for a North American oil field: most fields report reserve growth over time as a consequence of Securities and Exchange Commission reporting rules that require reserves to be booked yearly according to what portion of the resource is actually able to be extracted with current equipment in place. As more wells are drilled into the same reservoir, the reserves "grow." Then, as they are pumped out, reserves decline and production rates dwindle. No magic there.
Production from Eugene Island had achieved 20,000 barrels per day by 1989; by 1992 it had slipped to 15,000 b/d, but recovered to reach a peak of 30,000 b/d in 1996. Production from the reservoir has dropped steadily since then.
The evidence at Eugene Island suggests the existence of deep source rocks from which the reservoir is indeed very slowly refilling - but geologists working there do not hypothesize a primordial origin for the oil. In "Oil and Gas - 'Renewable Resources'?" Kathy Blanchard of PNL writes, "Recent geochemical research at Woods Hole Oceanographic Institution has demonstrated that the wide range in composition of the oils in different reservoirs of the Eugene Island 330 field can be related to one another and to a deeper source rock of Jurassic-Early Cretaceous age." (10) Her article explains that this kind of migration from nearby source rocks is hardly unique, and discusses it in the context of conventional biotic theory. A technical paper by David S. Holland, et al., "Eugene Island Block 330 Field - U.S.A. Offshore Louisiana," published by AAPG, notes that the Eugene Island oils show
abundant evidence of long-distance vertical migration. Based on a variety of biomarker and gasoline-range maturity indicators, these oils are estimated to have been generated at depths of 4572 to 4877 m (15,000 to 16,000 ft) at vitrinite reflectance maturities of 0.08 to 1.0% and temperatures of 150 to 170C (300 to 340F). Their presence in shallow, thermally immature reservoirs requires significant vertical migration. This is illustrated on Figure 36, which represents a burial and maturation history for the field at the time of petroleum migration, that is, at the end of Trimosina "A" time approximately 500,000 years ago. A plot of the present measured maturity values versus depth is superimposed on the calculated maturity profile for Trimosina "A" time to illustrate the close agreement between measured and predicted maturity profiles. The clear discrepancy between reservoir maturity and oil maturity is striking and suggests that the oil migrated more than 3650 m (12,000 ft) from a deep, possibly upper Miocene, source facies. Petroleum migration along faults is indicated based on the observed temperature and hydrocarbon anomalies at the surface and the distribution of pay in the subsurface. These results are consistent with those of Young et al. (1977), who concluded that most Gulf of Mexico oils originated 2438 to 3350 m (8000 to 11,000 ft) deeper than their reservoirs, from source beds 5 to 9 million years older than the reservoirs. (11)
Biomarkers
The claims for the abiotic theory often seem overstated in other ways. J. F. Kenney of Gas Resources Corporations, Houston, Texas, who is one of the very few Western geologists to argue for the abiotic theory, writes, "competent physicists, chemists, chemical engineers and men knowledgeable of thermodynamics have known that natural petroleum does not evolve from biological materials since the last quarter of the 19th century." (12) Reading this sentence, one might assume that only a few isolated troglodyte pseudoscientists would still be living under the outworn and discredited misconception that oil can be formed from biological materials. However, in fact universities and oil companies are staffed with thousands of "competent physicists, chemists, chemical engineers and men [and women!] knowledgeable of thermodynamics" who not only subscribe to the biogenic theory, but use it every day as the basis for successful oil exploration. And laboratory experiments have shown repeatedly that petroleum is in fact produced from organic matter under the conditions to which it is assumed to have been subjected over geological time. The situation is actually the reverse of the one Kenny implies: most geologists assume that the Russian abiotic oil hypothesis, which dates to the era prior to the advent of modern plate tectonics theory, is an anachronism. Tectonic movements are now known to be able to radically reshuffle rock strata, leaving younger sedimentary oil- or gas-bearing rock beneath basement rock, leading in some cases to the appearance that oil has its source in Precambrian crystalline basement, when this is not actually the case.
Geologists trace the source of the carbon in hydrocarbons through analysis of its isotopic balance. Natural carbon is nearly all isotope 12, with 1.11 percent being isotope 13. Organic material, however, usually contains less C-13, because photosynthesis in plants preferentially selects C-12 over C-13. Oil and natural gas typically show a C-12 to C-13 ratio similar to that of the biological materials from which they are assumed to have originated. The C-12 to C-13 ratio is a generally observed property of petroleum and is predicted by the biotic theory; it is not merely an occasional aberration. (13)
In addition, oil typically contains biomarkers - porphyrins, isoprenoids, pristane, phytane, cholestane, terpines, and clorins - which are related to biochemicals such as chlorophyll and hemoglobin. The chemical fingerprint of oil assumed to have been formed from, for example, algae is different from that of oil formed from plankton. Thus geochemists can (and routinely do) use biomarkers to trace oil samples to specific source rocks.
Abiotic theorists hypothesize that oil picks up its chemical biomarkers through contamination from bacteria living deep in the Earth's crust (Gold's "deep, hot biosphere") or from other buried bio-remnants. However, the observed correspondences between biomarkers and source materials are not haphazard, but instead systematic and predictable on the basis of the biotic theory. For example, biomarkers in source rock can be linked with the depositional environment; that is, source rocks with biomarkers characteristic of land plants are found only in terrestrial and shallow marine sediments, while petroleum biomarkers associated with marine organisms are found only in marine sediments.
The Bottom Line
The points discussed above represent a mere sampling of the issues; it would be difficult if not impossible for me to address all of the arguments put forward by the abiotic theorists in a brief essay of this nature. I circulated a draft of this essay on two energy-related email newsgroups and received about a dozen thoughtful comments, one defending the abiotic theory but most of the others critiquing it. About half of the comments were from physicists, geophysicists, or geologists. It quickly became apparent to me that a book-length treatment of the subject is called for.
J. F. Kenney has put forward a succinct and persuasive paper arguing for the abiotic theory (5), but there is no prominently published rebuttal piece that systematically discusses or attempts to refute his assertions. A reader of Kenney's web site might find fault with some of my statements in this essay (for example, as a counter to my description of the depth "window" of oil formation, a reader might refer to Kenneyís discussion of Russian experiments that have shown that oil can be formed at high temperatures and high pressures - conditions similar to those that must exist in the Earthís mantle). Yet among the draft comments I received from scientists were convincing criticisms of Kenney's claims (returning to my example: even if oil were formed in the mantle, as more than one commenter pointed out, abiotic theorists have suggested no plausible means by which it could rise to the depths at which we find it without passing through intermediary regions in which the temperature would be too high and pressure too low for liquid hydrocarbons to survive). Many other assertions made by Kenney and critiqued by the experts are more technical in nature and more difficult to summarize.
So, rather than continuing along these lines, I would prefer now to pull back from a focus on details and again emphasize the bigger picture.
There is no way to conclusively prove that no petroleum is of abiotic origin. Science is an ongoing search for truth, and theories are continually being altered or scrapped as new evidence appears. However, the assertion that all oil is abiotic requires extraordinary support, because it must overcome abundant evidence, already cited, to tie specific oil accumulations to specific biological origins through a chain of well-understood processes that have been demonstrated, in principle, under laboratory conditions.
Now, I like scientific mavericks; I tend to cheer for the underdog. Peak oil is itself a maverick idea, and for the past several years I have been promoting a view that the Wall Street Journal recently described as "crackpot." (14) So I feel a bit unaccustomed and even uncomfortable now to be on the side of the scientific "establishment" in arguing against the abiotic oil theorists. The latter certainly deserve their day in the court of scientific debate.
Perhaps one day there will be general agreement that at least some oil is indeed abiotic. Maybe there are indeed deep methane belts twenty miles below the Earthís surface. But the important question to keep in mind is: What are the practical consequences of this discussion now for the problem of global oil depletion?
I have not personally inspected the oil wells in Saudi Arabia or even those in Texas. But nearly every credible report that I have seen - whether from the industry or from an independent scientist - describes essentially the same reality: discoveries are declining, and have been since the 1960s. [Written before Cuba, Indonesia, Artic and Russian Siberian discoveries...] Spare production capacity is practically gone. And the old, super-giant oil fields that the world depends upon for the majority of its production are nearing or past their all-time production peaks. Not even the Russian fields cited by the abiotic theorists as evidence for their views are immune: in June the head of Russia's Federal Energy Agency said that production for 2005 is likely to remain flat or even drop, while other officials in that country have said that growth in Russian production cannot be sustained for more than another few years. (15)
What if oil were in fact virtually inexhaustible would this be good news? Not in my view. It is my opinion that the discovery of oil was the greatest tragedy (in terms of its long-term consequences) in human history. Finding a limitless supply of oil might forestall nasty price increases and catastrophic withdrawal symptoms, but it would only exacerbate all of the other problems that flow from oil dependency - our use of it to accelerate the extraction of all other resources, the venting of CO2 into the atmosphere, and related problems such as loss of biodiversity. Oil depletion is bad news, but it is no worse than that of oil abundance.
Given the ongoing runup in global petroleum prices, the notion of peak oil hardly needs defending these days. We are seeing the phenomenon unfold before our eyes as one nation after another moves from the column of "oil exporters" to that of "oil importers" (Great Britain made the leap this year). At some point in the very near future the remaining nations in column A will simply be unable to supply all of the nations in column B.
In short, the global energy crisis is coming upon us very quickly, so that more time spent debating highly speculative theories can only distract us from exploring, and applying ourselves to, the practical strategies that might preserve more of nature, culture, and human life under the conditions that are rapidly developing.
Hydrogen, solar, geothermal...I agree, use up as much oil as soon as possible so your kids can have clean renewable energy and we can put the oil age behind us. ~THG
Footnotes
1. See New Scientist www.newscientist.com/news/news.jsp?id=ns99996425
2. www.eurekalert.org/pub_releases/2004-09/dlnl-mid091304.php
3. http://wow.osu.edu/Geology/ebmf.htm
4. See Kenneth Deffeyes, Hubbertís Peak, pp. 21-22, 171; Walter Youngquist, Geodestinies, p. 114.
5. www.gasresources.net/energy_resources.htm
6. www.dur.ac.uk/react.res/RRG_web/hydrocarbons_meet.htm
7. www.911-strike.com/pfeiffer.htm (link expired; click on "cached")
8. www.wnd.com/news/article.asp?ARTICLE_ID=38645
9. #20003, 1999, www.searchanddiscovery.com/documents/97015/eugene.htm
10. www.pnl.gov/er_news/08_95/er_news/oil1.kb.html
11. www.datapages.com/97015/eugene.htm
12. See footnote 9.
13. www.giss.nasa.gov/gpol/abstracts/1997/FungFieldB.html
14. "As Prices Soar, Doomsayers Provoke Debate on Oil's Future," 9/21/2004
15. www.mosnews.com/money/2004/06/17/oilproduction.shtml
- Richard Heinberg is the author of Powerdown: Options and Actions for a Post-Carbon World and The Party's Over: Oil, War and the Fate of Industrial Societies; he is a Core Faculty member of New College of California in Santa Rosa. www.museletter.com
http://www.rense.com/general58/biot.htm
The abiotic oil debate and "peak oil"
http://www.questionsquestions.net/docs04/peakoil1.html
The following is a collection of excerpts and links concerning a recent and ongoing important debate over the contending theories of oil origins (fossil vs. abiotic) between Mike Ruppert of From the Wilderness and Dave McGowan, as well as related topics pertaining to the scientific foundation of "peak oil" predictions. I do not wish to offer any final judgements, and I'm not qualified to do so, but I do think that McGowan and others have raised a great deal of documentation and argument which deserve close attention. Everything on this page is presented for informational purposes, intended as a review of the debate thus far.
- Brian Salter, questionsquestions.net 25 Mar 04 (updated 16 Apr)
[updates, 16 April: Shell to Demolish Profitable Refinery, McGowan Newsletter #59]
The following excerpt from an article by FTW energy editor Dale Allen Pfeiffer expresses the FTW position on abiotic oil:
A WORD ABOUT ABIOTIC OIL
There is some speculation that oil is abiotic in origin -- generally asserting that oil is formed from magma instead of an organic origin. These ideas are really groundless. All unrefined oil carries microscopic evidence of the organisms from which it was formed. These organisms can be traced through the fossil record to specific time periods when quantities of oil were formed.
Likewise, there are two primal energy forces operating on this planet, and all forms of energy descend from one of these two. The first is the internal form of energy heating the Earth's interior. This primal energy comes from radioactive decay and from the heat energy originally generated during accretion of the planet some 4.6 billion years ago. There are no known mechanisms for transferring this internal energy into any secondary energy source. And the chemistry of magma does not compare to the chemistry of hydrocarbons. Magma is lacking in carbon compounds, and hydrocarbons are lacking in silicates. If hydrocarbons were generated from magma, then you would expect to see some closer kinship in their chemistry.
The second primal energy source is light and heat generated by our sun. It is the sun's energy that powers all energy processes on the Earth's surface, and which provides the very energy for life itself. Photosynthesis is the miraculous process by which the sun's energy is converted into forms available to the life processes of living matter. Following biological, geological and chemical processes, a line can be drawn from photosynthesis to the formation of hydrocarbon deposits. Likewise, both living matter and hydrocarbons are carbon based.
Finally, because oil generation is in part a geological process, it proceeds at an extremely slow rate from our human perspective. Geological processes take place over a different frame of time than human events. It is for this reason that when geologists say that the San Andreas fault is due for a powerful earthquake, they mean any time in the next million years -- probably less. Geological processes move exceedingly slow.
After organic matter has accumulated on the sea floor, it must be buried by the process of deposition. In geological time, in order for this matter to be a likely prospect for hydrocarbon generation, the rate of deposition must be quick. Here is an experiment you can conduct to get an idea how slow the rates of deposition are. Place a small stone on the bottom of a motionless pond. Take another stone of about the same size and place it at the mouth of a small stream, a stream where the current is not so great that it will sweep the stone away. Check both of these stones yearly until they have been buried by deposition. You might see the stone at the mouth of the stream covered over within a few years, but it is unlikely that you will see the stone in the pond buried within your lifetime.
It is a simple geological fact that the oil we are using up at an alarming rate today will not be replaced within our lifetime -- or within many lifetimes. That is why hydrocarbons are called non-renewable resources. Capped wells may appear to refill after a few years, but they are not regenerating. It is simply an effect of oil slowly migrating through pore spaces from areas of high pressure to the low-pressure area of the drill hole. If this oil is drawn out, it will take even longer for the hole to refill again. Oil is a non-renewable resource generated and deposited under special biological and geological conditions.
Mike Ruppert goes into greater detail in the following:
Framing the Debate on Abiotic Oil
http://www.leftgatekeepers.com/articles/FramingTheDebateOnAbioticOilByMikeRuppert.htm
Part of the above article is a response to a challenge issued by Jerry Russell:
Peak Oil"??Ý Don't buy into the hype! (3/12/04)
http://www.911-strike.com/peakoil.htm
Dave McGowan argues for the abiotic theory, which holds that oil is generated by natural processes in the earth's magma, and he also argues pointedly that the "fossil" theory has never been proven. The following is long and detailed, but a must-read:
NEWSLETTER #52
March 13, 2004
Cop v CIA (Center for an Informed America)
http://www.davesweb.cnchost.com/nwsltr52.html
excerpt:
The modern Russian-Ukrainian theory of deep, abiotic petroleum origins is not controversial nor presently a matter of academic debate. The period of debate about this extensive body of knowledge has been over for approximately two decades (Simakov 1986). The modern theory is presently applied extensively throughout the former U.S.S.R. as the guiding perspective for petroleum exploration and development projects. There are presently more than 80 oil and gas fields in the Caspian district alone which were explored and developed by applying the perspective of the modern theory and which produce from the crystalline basement rock. (Krayushkin, Chebanenko et al. 1994) Similarly, such exploration in the western Siberia cratonic-rift sedimentary basin has developed 90 petroleum fields of which 80 produce either partly or entirely from the crystalline basement. The exploration and discoveries of the 11 major and 1 giant fields on the northern flank of the Dneiper-Donets basin have already been noted. There are presently deep drilling exploration projects under way in Azerbaijan, Tatarstan, and Asian Siberia directed to testing potential oil and gas reservoirs in the crystalline basement. (http://www.gasresources.net/index.htm)
It appears that, unbeknownst to Westerners, there have actually been, for quite some time now, two competing theories concerning the origins of petroleum. One theory claims that oil is an organic 'fossil fuel' deposited in finite quantities near the planet's surface. The other theory claims that oil is continuously generated by natural processes in the Earth's magma. One theory is backed by a massive body of research representing fifty years of intense scientific inquiry. The other theory is an unproven relic of the eighteenth century. One theory anticipates deep oil reserves, refillable oil fields, migratory oil systems, deep sources of generation, and the spontaneous venting of gas and oil. The other theory has a difficult time explaining any such documented phenomena.
So which theory have we in the West, in our infinite wisdom, chosen to embrace? Why, the fundamentally absurd 'Fossil Fuel' theory, of course -- the same theory that the 'Peak Oil' doomsday warnings are based on.
I am sorry to report here, by the way, that in doing my homework, I never did come across any of that "hard science" documenting 'Peak Oil' that Mr. Strahl referred to. All the 'Peak Oil' literature that I found, on Ruppert's site and elsewhere, took for granted that petroleum is a non-renewable 'fossil fuel.' That theory is never questioned, nor is any effort made to validate it. It is simply taken to be an established scientific fact, which it quite obviously is not.
So what do Ruppert and his resident experts have to say about all of this? Dale Allen Pfeiffer, identified as the "FTW Contributing Editor for Energy," has written: "There is some speculation that oil is abiotic in origin -- generally asserting that oil is formed from magma instead of an organic origin. These ideas are really groundless." (http://www.fromthewilderness.com/free/ww3/04_04_02_oil_recession.html)
Here is a question that I have for both Mr. Ruppert and Mr. Pfeiffer: Do you consider it honest, responsible journalism to dismiss a fifty year body of multi-disciplinary scientific research, conducted by hundreds of the world's most gifted scientists, as "some speculation"?
The following is a response by McGowan to a generally hostile email from a Ruppert supporter:
NEWSLETTER #53
March 16, 2004
The 'Peak Oil' Team Sends in a Second Stringer!
http://www.davesweb.cnchost.com/nwsltr53.html
McGowan then answered a response from Ruppert, raising a critique of the terms Ruppert had set in an offer for a debate:
NEWSLETTER #54
March 18, 2004
Ruppert Responds!
http://www.davesweb.cnchost.com/nwsltr54.html
excerpt:
The biggest problem, and the most telling aspect of the 'offer,' is with the framing of the question. You have chosen (and this isn't the original topic of debate, by the way, but one that you came up with after you read my critique): "Is abiotic petroleum and natural gas readily available and making its way into commercial use in sufficient quantities to establish that there is no imminent energy shortage?î
The interesting thing about that question is that it presupposes that your side of the argument has already been proven, even though we both know that that isn't true. It is interesting to note here that whenever people such as you and Mr. Chin mention abiotic petroleum, you are usually quick to claim that it is a "disputed" theory. However, you never attach such qualifiers to mentions of 'fossil fuels.' Don't you find that odd, considering that it is actually the reverse that is true?
You have admitted that petroleum can be produced abiotically (in your response to my "kindred spirit"). In fact, no one with any credibility can deny that fact. It has been demonstrated in the laboratory and verified with unchallenged mathematical models. It is a fact. The 'fossil fuel' theory, on the other hand, cannot be verified and is disputed by, at the very least, a large community of Soviet and Ukrainian scientists. Since abiotic petroleum is not disputed and is verifiable, the logical presumption, until proven otherwise, is that all the natural gas and petroleum in commercial use, and in the ground, and in storage tanks, and anywhere else, is abiotic oil and gas.
In the following, McGowan re-prints an article by Walt Sheasby investigating the backgrounds of the main "peak oil" proponents. Sheasby's analysis is quite particular and opinionated, but his research is valuable (and I have independently verified all the main points). There are different ways to interpret the connections, but Sheasby does touch on a particularly important issue: it is incorrect to assume a priori that the more alarmist or pessimistic position in this kind of debate is automatically going to represent a more radical or "anti-establishment" position. Many people seem to have trouble recognizing this.
NEWSLETTER #55
March 19, 2004
Who Is Really Behind the 'Peak Oil' Scare?
http://www.davesweb.cnchost.com/nwsltr55.html
Note: one important aspect of the current situation which is not mentioned in the Sheasby article is that there are mixed opinions about peak oil coming from IHS Energy, with which Petroconsultants merged several years ago. See the articles by Michael Lynch below. This is something which deserves closer examination.
At the same time, with promotion from someone like Bush energy advisor Matthew Simmons, and with coverage exploding in the mainstream media, the idea of imminent "peak oil" does not exactly qualify as a "renegade" point of view. In light of this, caution and skepticism are due.
NEWSLETTER #56
March 24, 2004
The Debate Continues (by proxy)
www.davesweb.cnchost.com/nwsltr56.html
McGowan continues the debate on several points with different correspondents, beginning with a defense of his challenge of Ruppert's radical pro-population reduction stance. The final section in which he points out the conceptual blind spots of those who fail to consider the geopolitics of scarcity-based economics in weighing the arguments, and who have not addressed the fundamental credibility of the raw statistics themselves (relying on unproven premises) is essential reading. This and newsletter #52 contain most of McGowan's most crucial arguments.
NEWSLETTER #59
April 13, 2004
Oil News Briefs
http://www.davesweb.cnchost.com/nwsltr59.html
Recent news stories bearing on some of McGowan's points. Especially revealing are reports from industry watchdogs that the consolidation in the oil industry is part of a deliberate effort to artificially raise prices — even before any supposed "peak oil" shortages hit [!]
also related to this, see Shell to Demolish Profitable Refinery
AAPG Hedberg Conference in Vienna
http://www.mail-archive.com/fogri@iagi.or.id/msg00802.html
[....]
The conveners for the conference are Michel T. Halbouty (Michel T. Halbouty Energy Co.), Peter Odell (Erasmus University), Barry Katz (ChevronTexaco) and Ernest A. Mancini (University of Alabama). The purpose of the conference is to bring together exploration and production geoscientists, engineers and researchers from oil companies, mineral exploration companies, research institutes and academia to discuss evidence and data for the organic origin and abiogenic origin of petroleum, and the types of tests that could be designated to determine the mechanism for the formation of petroleum. An understanding of the origin of petroleum is a crucial element in the design of successful hydrocarbon strategies and in oil and gas production. See attached Conference Announcement for further discussion on the history of this topic.
http://www.aapg.org/education/hedberg/vienna/
Origin of Petroleum -- Biogenic and/or Abiogenic and Its Significance in Hydrocarbon Exploration and Productions
Sponsored by American Association of Petroleum Geologists
Program Committee
Michel Halbouty, Michel T. Halbouty Energy Co. Peter Odell, Erasmus University Barry Katz, ChevronTexaco Ernest A. Mancini, University of Alabama. Conference Site and Dates July 11-14, 2004 Vienna, Austria
Conference Goals
Discuss the evidence and data for an organic and abiogenic origin of petroleum; discuss the types of tests that could be designated to determine the mechanism for the formation of petroleum; discuss the similarities and differences in exploration strategies using an organic model compared to an abiogenic model for the origin of petroleum; discuss and debate these exploration strategies; discuss the ramifications of an abiogenic origin of petroleum in estimating basin resources and in determining field reserves; and discuss the significance of an abiogenic origin of petroleum to the future supplies of petroleum.
Discussion
An understanding of the origin of petroleum is a crucial element in the design of successful hydrocarbon strategies and in their production. Such knowledge is also important in estimating sedimentary basin resources, in determining field reserves, and in predicting the future availability of petroleum supplies globally.
Most members of AAPG have been taught and accept that the origin of petroleum is organic. Therefore, exploration strategies are designed using geochemical data from sedimentary petroleum source rocks. Petroleum resources available in a given sedimentary basin are estimated based on the organic and physical characteristics of the source rock and their thermal and chemical alteration histories, similarly field reserves are determined based not only on structural and reservoir parameters but also upon source rock data. This methodology has been used widely by the petroleum industry. What if the source of petroleum is not from sedimentary source rocks, but from an abiogenic source that is not limited by the physical, chemical, and biological constraints that affect the type, quality and volume of petroleum derived from an organic source?
For half a century, scientists from the former Soviet Union (FSU) have recognized that the petroleum produced from fields in the FSU have been generated by abiogenic processes. This is not a new concept, being first reported in 1951. The Russians have used this concept as an exploration strategy and have successfully discovered petroleum fields of which a number of these fields produce either partly and entirely from crystalline basement. Is this exploration strategy limited to the petroleum provinces in Russia or does such a strategy have application to other petroleum provinces like the Gulf of Mexico or the Middle East? Some believe this is a possibility for fields in the Gulf of Mexico, and others argue for application to fields in the Middle East.
[QQ note: the preceding two paragraphs illustrate a problem in many anti-abiotic arguments, in which is issue in contention is limited to the "refilling" of existing fields; this misses the issue of exploration strategy and reserve estimates which have been based on biogenic geological criteria. This document clearly argues that the assumptions made about petroleum origins have a crucial effect on the way reserve statistics are calculated, and in past choices of where to drill.]
Along these lines, this Conference is designed to provide an opportunity to present the hypotheses, evidence and data for an organic origin of petroleum and for an abiogenic origin of petroleum through oral and poster presentations. Day 1 sessions mostly address the abiogenic side, whereas on Day 2, the organic and alternative origins are discussed. Day 3 addresses combination origins, as well as economic significance of the various exploration and production strategies discussed. Ample time is scheduled for discussion and debate of the hypotheses for the origin of petroleum, and the program will conclude in a summary panel discussion at the end of Day 3. The significance of an organic compared to an abiogenic origin of petroleum to the industry will be emphasized and demonstrated through presentations on exploration strategies using both organic models and abiogenic models. Ample time is scheduled to discuss and debate the similarities and differences of these exploration strategies. Also, the ramifications of basin resource estimations and field reserve determinations will be discussed, and the significance of these estimations and determinations in the prediction of the future world's supply and price of petroleum will be debated. Other topics include the differences in modeling approaches of petroleum origin, generation, expulsion and migration under an organic origin compared to an abiogenic origin. Presentations on petroleum migration will address the timing and distance of migration under the scenario of an organic origin and under a scenario of an abiogenic origin. Ample time is scheduled to discuss and debate the significance of migration, the timing of migration, and the migration distance given an organic origin or an abiogenic origin.
For a list of participants in the conference, see posts 236-238 at this page:
http://www.ateism.ru/cgi-bin/atheism/msgbook/tema.pl?t=m764&n=250
both sides of the oil origins argument, with a rather good summary of the abiotic theory & evidence:
Origin of oil by Tom de Booij
http://www.egoproject.nl/Links.html#link9
contrasting viewpoints on oil reserves:
http://www.egoproject.nl/Links.html#link8
The Russians and Ukranians accuse Thomas Gold of plagiarism and misrepresenting their versions of abiotic theory:
http://www.gasresources.net/Plagiarism(Overview).htm
Sometime during the late 1970's, a British-American, one-time astronomer named Thomas Gold discovered the modern Russian-Ukrainian theory of deep, abiotic petroleum origins.Ý Such was not difficult to do, for there are many thousands of articles, monographs, and books published in the mainstream Russian scientific press on modern Russian petroleum science.Ý Gold reads the Russian language fluently.
ÝÝÝÝÝÝÝÝÝ In 1979, Gold began publishing the modern Russian-Ukrainian theory of petroleum origins, as if such were his own ideas and without giving credit to the Russian (then, Soviet) petroleum scientists from whom he had taken the material.Ý Gold tried to alter the modern Russian-Ukrainian theory of deep, abiotic petroleum origins with notions of his own in order to conceal its provenance, and gave his 'ideas' the (very misleading) name the 'deep gas theory.'Ý
ÝÝÝÝÝÝÝÝÝ Worse yet, Gold's alterations of modern Russian petroleum science are utterly wrong. Specifically Gold's claims that there exist large quantities of natural gas (methane) in the Earth at depths of its mantle are completely wrong, - such claims are upside-down and backwards.Ý At the pressures of the mantle, methane is unstable, and the hydrogen-carbon system there evolves the entire suite of heavier hydrocarbons found in natural petroleum, in the Planck-type distribution which characterizes natural petroleum.Ý Methane at pressures of the mantle of the Earth will decompose to evolve octane, diesel oil, heavy lubricating oils, alkylbenzenes, and the compounds found in natural petroleum.Ý [These properties of the hydrogen-carbon system have been described at greater length and rigor in a recent article in Proceedings of the National Academy of Sciences.]Ý Regrettably, Gold is as ignorant of thermodynamics as he is of ethics.
[clearly, one must be wary of arguments which set up Gold as a straw-man, whether knowingly or not... in any case, the scientific debate seems to have suffered from a lack of attention on the Russian-Ukranian theories in the english-speaking world.]
Letter from Prof. V. A. Krayushkin to Prof. John Briggs, on Thomas Gold's plagiarism and his failure to credit Russian / Ukranian sources: http://www.gasresources.net/VAKreplytBriggs.htm
During the years 1957-1982, the leader of the Ukrainian scientific school in the field of deep abiotic petroleum origins was Professor V. B. Porfir'yev himself. Professor Porfiryev became the leader of the Soviet school of abiotic petroleum origins after the death of Professor N. A. Kudryavstev in 1972.Ý This school has during the past decade included such scientists as K. A. Anikiev, N. S. Beskrovnyi, Z. A. Buniat-Zade, I. I. Chebanenko, G. N. Dolenko, V. F. Derpgolts, V. I. Filippovskiy, I. Ya. Furman, V. A. Gorin, I. V. Grinberg, A. K. Ivanov, I. Kh. Kaveyev,Ý V. P. Klochko,Ý R. S.Ý Kopystianskiy, V. A. Krayushkin, P. N. Kropotkin, M. N. Kudryavsteva, N. R. Ladyzhenskiy, G. N. Ladyzhenskiy, A. S. Lazarenko, B. Yu. Levin, V. F. Linetskiy, V. A. Lobov, M. M. Luspey, Yu. A. Muraveynik, V. P. Palamar, L. N. Panasenko, M. Ye. Petrikovskaya, G. V. Rudakov, A. F. Shevchenko, O. I. Slenzak, V. B. Sollogub, V. I. Sozanskii, S. I. Subbotin, Je. M. Tabatadze, L. N. Yelanskiy, and V. M. Zavyalov.Ý Included among these scientist are 17 Doctors of Science, 10 Professors, 4 members of the Ukrainian Academy of Sciences, 3 corresponding members of the Ukrainian Academy of Sciences and one corresponding member of the Academy of Sciences of the U.S.S.R.
ÝÝÝÝÝÝÝÝÝÝÝ The main biographical facts (the books) and the most important events (the thoughts) from the life of V. B. Porfir'yev and his scientific school for the years between 1957-1982 were reproduced in 22 monographs, 15 symposium books, about 950 articles and in his ideas presented as papers to the three International Geological Congresses, the World Petroleum Congress, three sessions of the Carpathian-Balkan Association of the International Geological Congress, five All-Union and three Republican conferences.Ý Much about these works were published in the article, Krayushkin, V. A., 1989, 'On the way towards a new learning about petroleum', Geol. J., No. 3, p. 130-135Ý (in Russian).
For Thomas Gold's side, these are two of his books:
Power from the Earth: Deep Earth Gas, Energy for the Future (1987)
http://www.sitbot.net/re/DeepAbioticGasGold
The Deep Hot Biosphere (1999)
http://www.sitbot.net/re/DeepAbioticOilGold
Interview with Thomas Gold, 2000:
http://www.wired.com/wired/archive/8.07/gold_pr.html
Here's an endorsement of the Russian abiotic theory from Peter O'Dell, emeritus professor and former director of the center for international energy studies at Erasmus University in Rotterdam.
http://www.kkrva.se/sve/energi/odell.shtml
It must be noted that is not only proponents of abiotic theory who argue that the "peak oil" argument is over-hyped. Michael Lynch has emerged as a frequently-cited contrary voice.
Closed Coffin: Ending the Debate on "The End of Cheap Oil" A commentary
Michael C. Lynch, Chief Energy Economist, DRI-WEFA, Inc.
http://sepwww.stanford.edu/sep/jon/world-oil.dir/lynch2.html
The past five years have seen a renewed debate on the issue of oil supply and the possibility of a near-term peak in production and the concomitant adverse economic consequences. A number of articles have stated that discoveries over the past thirty years have been only a fraction of consumption and that according to the Hubbert Curve method, world oil production is close to a peak. What few people realize is that these arguments are based entirely on a very particular technical argument, and recent evidence has highlighted its fallacy.
[...] while we need be concerned about quite a number of issues related to petroleum supply -- depletion, change in reserve growth, concentration of production in politically stable areas -- a possible near-term peak in production (conventional or otherwise) is not one of them. It takes a lot of nails to close a coffin, but the size and quality of these will hopefully ensure that it remains closed.
The New Pessimism about Petroleum Resources: Debunking the Hubbert Model (and Hubbert Modelers)
Michael C. Lynch
http://www.energyseer.com/NewPessimism.pdf
excerpts:
Recently, numerous publications have appeared warning that oil production is near an unavoidable, geologically-determined peak that could have consequences up to and including ìwar, starvation, economic recession, possibly even the extinction of homo sapiensî (Campbell in Ruppert 2002) The current series of alarmist articles could be said to be merely reincarnations of earlier work which proved fallacious, but the authors insist that they have made significant advances in their analyses, overcoming earlier errors. For a number of reasons, this work has been nearly impenetrable to many observers, which seems to have lent it an added cachet. However, careful examination of the data and methods, as well as extensive perusal of the writings, suggests that the opacity of the work isóat bestóobscuring the inconclusive nature of their research.
Some of the arguments about resource scarcity resemble those made in the 1970s. They have noted that discoveries are low (as did Wilson (1977) and that most estimates of ultimately recoverable resources (URR) are in the range of 2 trillion barrels, approximately twice production to date. But beyond that, Campbell and Laherrere in particular claim that they have developed accurate estimates of URR, and thus, unlike earlier work, theirs is more scientific and reliable. In other words, this time the wolf is really here. But careful examination of their work reveals instead a pattern of errors and mistaken assumptions presented as conclusive research results.
. . . The lack of rigor in many of the Hubbert modelersí arguments makes them hard to refute. The huge amount of writing, along with undocumented quotes and vague remarks, necessitates exhaustive review and response. A later paper will provide more complete coverage of the debate, but the focus here will be on the primary substantive shortcomings.
Perhaps because they are not academics, the primary authors have a tendency to publish results but not research. In fact, by relying heavily on a proprietary database [IHS Energy], Campbell and Laherrere have generated a strong shield against criticism of their work, making it nearly impossible to reproduce or check.4 Similarly, there is little or no research published, merely the assertion that the results are good.
. . . The primary error for Hubbert modelers is the assumption of geology as the sole otivator of discovery, depletion and production. In the work of Campbell, Deffeyes, and Laherrere, they go further, equating causality with correlation. This is one ofmost basic errors in (physical or social) scientific analysis.
. . . The argument that the drop in global discoveries proves scarcity of the resource is the best example of the importance of understanding causality. While it is true that global oil discoveries dropped in the 1970s from the previous rate, this was largely due to drop inexploration in the Middle East. Governments nationalized foreign operations and cut back drilling as demand for their oil fell by half, leaving them with an enormous surplus of unexploited reserves. It is noteworthy that none of those pessimistic about oil resources show discovery over time by region, which would support this.
. . . The many inconsistencies and errors, along with the ignorance of most prior research, indicates that the current school of Hubbert modelers have not discovered new, earth-shaking results but rather joined the large crowd of those who have found that large bodies of data often yield particular shapes, from which they attempt to divine physical laws. The work of the Hubbert modelers has proven to be incorrect in theory, and based heavily on assumptions that the available evidence shows to be wrong. They have repeatedly misinterpreted political and economic effects as reflecting geological constraints, and misunderstood the causality underlying exploration, discovery and production.
The primary flaw in Hubbert-type models is a reliance on URR as a static number rather than a dynamic variable, changing with technology, knowledge, infrastructure and other factors, but primarily growing. Campbell and Laherrere claim to have developed better analytical methods to resolve this problem, but their own estimates have been increasing, and increasingly rapidly.
The result has been exactly as predicted in Lynch (1996) for this method: a series of predictions of near-term peak and decline, which have had to be repeatedly revised upwards and into the future. So much so as to suggest that the authors themselves are providing evidence that oil resources are under no strain, but increasing faster than consumption!
Michael Lynch's analysis of the recent downgrading of reserve estimates by Royal Dutch Shell:
The Shell Reserve Downgrading: Year of the Monkey Business? (January 04)
http://www.energyseer.com/Monkey%20Business.pdf
FTW has emphatically taken the side of Bush energy advisor Matthew Simmons in a debate over Saudi Arabia's oil reserves, held at the elite US think-tank CSIS:
A Tale of Two Planets
A Report on the Conference ìFuture of Global Oil Supply: Saudi Arabia" Held at CSIS, Washington DC, February 24th 2004Ý
by Julian Darley
http://www.fromthewilderness.com/free/ww3/031704_two_planets.html
A few questions: given that Washington is now increasingly filled with war-cries against Saudi Arabia, and it is an open secret that one policy being considered is the destabilization of Saudi Arabia followed by a partition into two states, with the US taking control of the oil-rich eastern section as part of a general regional strategy to control oil, isn't it worth just a little skepticism about what is coming out of an elite think-tank like CSIS (whose roster includes Henry Kissinger and Zbigniew Brzezinski), especially when any discussion of supposed Saudi overestimation of oil reserves has such an obvious political impact?
Background on CSIS: http://www.csis.org/about/index.htm#4
For the sake of argument, the Saudi response: http://www.menafn.com/qn_news_story_s.asp?StoryId=42933
Water, Water Everywhere (but not a drop to drink)
Author: Michael C. Lynch, President, Director Petroleum Services February 27, 2004 - Released: 3/6/2004 http://www.aramcoexpats.com/ArticleDetail.asp?article=701
This week saw a most unusual spectacle, resulting in a spate of news articles that may be difficult for the uninitiated to understand. Matt Simmons, an investment banker based in Houston and a longtime oil and gas price bull, presented an extremely alarmist view of Saudi Arabiaís oil production capacity and was rebutted by two officials from Saudi Aramco, which historically has been extremely reticent to release any details of its operations. The arguments presented are interesting not for their content but for the nature of the debate (reliance on inference instead of analysis) and the provision of data from Saudi Aramco about their operations.
Much of the work done by Matt Simmons in the past few years on global oil and gas has relied heavily on inference, suspicion, and concerns while containing little or no real data. Yet, he claims that his new report is based primarily on readings of nearly 200 technical papers published by Saudi engineers and various publications of the Society of petroleum engineers (SPE). Although there is no reason to doubt this, the nature of the information he has collected must be questioned. A quick perusal of the draft report shows that there are virtually no tables or diagrams relating to Saudi oil fields, and the only hard information consist of scattered numbers, anecdotes and facts. Few if any are presented in any type of context.
...
The production practices that so concerned that Simmons, such as the use of MRC Wells, reflected the behavior of a nonprofit maximizing organization, i.e., a state oil company. The Saudis are attempting to maximize recovery, not value in their fields. They are willing to produce more slowly and with the best possible technology in virtually every instance, even if that means not producing it economically optimal rates. That is to say, the net present value of production in the field is reduced by some other practices, even though the ultimate recovery of physical oil is maximized. The Saudis pointed out that the Yibal field in Oman suffered from the use of the MRC Wells, specifically because the producing company had not done the type of expensive geological modeling which is now common practice in Saudi Arabia.
Perhaps more important, the Saudis refuted several of his interpretations (similar to arguments I have made in the past). The Saudis do not produce many of their fields because they have abundant producing capacity without them for example. Also, Saudi Arabia is not intensively explored and has large areas with petroleum potential that are virtually undrilled. (Matt responded that he was referring to aerial magnetic surveys.) it was also pointed out that Mattís reference to 1975 field reserve estimates were not relevant: the fields he referred to had already produced more than was estimated as proved reserves in the 1970s, reflecting reserve growth from better reservoir modeling, more drilling, and the use of advanced technology. (Indeed, in responding to a remark about the so-called ëspurious reserve additionsí in the 1980s, when many OPEC members raised their reported reserve levels without explanation, they responded that they had gone years without revising them even as their own expectations of recovery increased, and had merely decided the time was right to report them more accurately.)
...
There literally seems to be no evidence that the Saudi oil fields are facing any unusual challenges or that Saudi production will be constrained in the future by anything other than policy. All of the concerns appear to be instances where the most pessimistic interpretation has been chosen, such as fields not operating because of technical difficulties rather than weak demand. The use of vague language (ìtiredî fields, ìchallengesî) rather than specifics about efforts and costs indicate that this is one more instance of Malthusian bias.
misc. data:
THE OIL RESERVE FALLACY: Proven reserves are not a measure of future supply
C. 2003 By Bill Kovarik
http://www.radford.edu/~wkovarik/oil/
The Middle East does not have two thirds of world oil reserves, as the oil industry claims, but only two thirds of one type of reserve. According to the US Geological Survey, the Middle East has only half to one third of world oil reserves. There is a large supply of oil elsewhere in the world which is available at only slightly higher prices.
The second item on the following page argues that the debate over drilling in Alaska's ANWR is a red herring, and questions whether US domestic oil reserves may be greater than the statistics seem to represent:
http://www.oilandgasreporter.com/stories/090101/cov_opinions.shtml
more arguments against the "fossil fuel" theory:
From The End of Fossil Fuels by Thomas Brown
http://www.borderlands.com/archives/arch/endfos.html
The Fake Oil Crisis of 1973
Some "peak oil" writers have opined that the crisis of 1972-73 was a kind of "rehearsal" for what is supposedly in our very near future. It is startling to consider, in light of this, the evidence that that crisis was likely a completely contrived affair.
In "A Century of War -- Anglo American Oil Politics and the New World Order" (1992), petroleum industry expert and economist F. William Engdahl presents evidence that the 1973 OPEC "oil shock" and the accompanying oil "shortage" were secretly planned by the highest levels of the US and British elites, with Henry Kissinger playing a key role:
http://earth.prohosting.com/~jswift/engdahl.html
A concise summary of the entire book can be found here:
http://how-the-world-really-works.prosperitydoctor.com/a-century-of-war-5.html
Corroboration of Engdahl's account was provided a few years agb by Sheikh Ahmed Zaki Yamani, who was Saudi Arabia's OPEC minister at the time:
'I am 100 per cent sure that the Americans were behind the increase in the price of oil. The oil companies were in in real trouble at that time, they had borrowed a lot of money and they needed a high oil price to save them.'
He says he was convinced of this by the attitude of the Shah of Iran, who in one crucial day in 1974 moved from the Saudi view, that a hike would be dangerous to Opec because it would alienate the US, to advocating higher prices.
'King Faisal sent me to the Shah of Iran, who said: "Why are you against the increase in the price of oil? That is what they want? Ask Henry Kissinger - he is the one who wants a higher price".'
Yamani contends that proof of his long-held belief has recently emerged in the minutes of a secret meeting on a Swedish island, where UK and US officials determined to orchestrate a 400 per cent increase in the oil price.
http://observer.guardian.co.uk/business/story/0,6903,421888,00.html
addendum:
McGowan NEWSLETTER #57
Has no direct info on oil but concerns McGowan's difficulties with the organizers of the ongoing 9-11 Internation Inquiry.
http://www.davesweb.cnchost.com/nwsltr57.html
Life After Coal: It's Sooner Than You Think
http://www.altenergystocks.com/
by Tom Konrad, Ph.D.
A couple years ago, I began to see reports that coal supplies might not last the 200+ years we've all been lead to believe, so I wrote an article about what you could do to prepare your portfolio for Peak Coal.
Now two years have passed, and Peak Coal is undeniably 2 years closer. (Did you ever wonder why people who have been saying that we have 200 years of coal for 20 years aren't now talking about 180 years of coal?) But more than being 2 years closer, the evidence continues to mount. Caltech Professor David Rutledge, has been spreading the peak coal word for most of the time since. I recommend the video of his 2007 lecture on the subject.
It's great that the NY Times is asking "Is America Ready to Quit Coal?" but the real question may be "Will we have any choice?"
On February 12th, Clean Energy Action released a report on Powder River Basin coal supplies, based in part on a 2008 USGS report. The Powder River Basin matters because Western coal has been the only source of new coal production in the US for the last two decades. Appalachian and Interior coal production has been declining, despite mostly increasing prices, and uniformly increasing prices since 2003. Northern Appalachian coal production having peaked in the middle of the last century, while Interior coal production peaked at the start of this decade. When production declines in the face of rising prices, constraints other than economics must be coming into play. Future increases in production in these regions seems unlikely.
coal by rail.bmp
Of the top 6 coal producing states in the US, only Wyoming and Montana are still increasing production. West Virginia, Kentucky, Pennsylvania, and Texas all peaked in the 1900s. With existing Wyoming mines, which dominate current production, all having less than 20 years of reserves remaining, only Montana will remain... and we simply don't know much about the geology to know how much can be recovered. Jim Hansen, author of the Master Resource Report, tells me that available rail supply lines out of Montana are likely to be another critical limiting factor on that state's production.
The 2007 report from Energy Watch Group (which triggered my earlier article), David Rutledge, and Clean Energy Action all found that what we don't know about our coal reserves far outweighs what we do know. What we do know should be very worrying to anyone who hopes that we might be able to replace our current coal fired electricity generation with any sort of "Clean Coal." Any attempt to sequester CO2 by pumping it underground or to the bottom of the sea would require considerably more energy than simply releasing it into the atmosphere, as we do now. That energy would come at a cost of less net energy from what will likely prove to be very limited coal supplies.
Peak Coal Accounting
If "Clean Coal" can be made to work, and we are able to replace part of our electricity supply with this technology, it seems increasingly unlikely that we will be able to supply as much electricity from coal 30 years from now as we do today. Coal plants are intended as 50 to 60 year investments, and part of the reason they are considered so "cheap" is that the construction costs are depreciated over more than half a century of payments. If, in reality, those construction costs must be paid over a shorter period, the effective cost of coal fired electricity will be considerably higher... even if the accounts do not yet show it.
Transitioning away from coal now makes sense both from an economic and climactic standpoint. If new coal plants will have shorter than expected useful lives simply because of the limited supply of coal, an honest accounting cannot spread construction costs 60 years, as has been done in the past. A shorter useful life means significantly raising the accounting cost of coal power per kWh, even before we place any price on carbon emissions or other environmental damage.
Carbon Capture and Storage
That is not to say that improving Carbon Capture and Sequestration technology will not be useful. Even without building new coal plants, we have a massive fleet of existing coal plants which are already spewing carbon into the atmosphere. According to a recent Inside Renewable Energy podcast, French utility EON puts current carbon capture technology costs about $40 per ton of CO2, and they hope to get the cost down to $20. This does not include the cost of pressurizing the gas and injecting it into some form of permanent storage. (Even permanent storage may not be so permanent.) Capturing CO2 for industrial uses can make economic sense today, and the economics will only get better when we begin to have reasonable prices for carbon emission. However, cleaning up the emissions of currently built fossil-fueled generation is not the same as investing new money in generation which we hope to clean up later.
We have the technologies today to begin this transition, and other promising technologies at least as near to development as "Clean Coal." Wind power is nearly as cheap as coal with current accounting. If we reassess the useful lives of prospective new coal plants, and put a price on carbon emissions, it will be much cheaper.
Building out the Smart Grid and additional Transmission capacity will allow us to integrate much more wind than skeptics currently think is possible. A recent report from the researchers at the Rocky Mountain Institute and the University of Colorado Boulder found that optimized diversified portfolios in the Midwest of wind and solar generation were 55% more reliable (measured by the variability of output) than the average individual site used in the study. For large scale baseload and dispatchable generation, Concentrating Solar Power needs only continued price improvement which will come from mass deployment, and a more robust national grid. For large-scale clean baseload power anywhere in the US, Enhanced Geothermal Systems are likely to be easier and cheaper to develop than "Clean Coal."
All of these are the right investments for the country, but they are also likely to be good moves for investors. We may still have 30 years before coal production in the US peaks. The stock market reaction will not wait until the actual peak... the stock market reaction will happen when sufficiently many investors realize it's coming.
How many more reports will that take, I wonder?
DISCLAIMER: The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.
Dangerous Oil
By Major Daniel L. Davis • on February 2, 2009
http://www.aspousa.org/index.php/2009/02/dangerous-oil/
There has been much debate recently within the defense community between adherents of the so-called “era of persistent conflict,” which posits future war will look a lot like today’s low-level wars in Iraq and Afghanistan, and those who believe we must maintain our traditional focus on large scale conflict against conventional armies. Thus far, the debate has been seen as occurring between two equally valid points of view with no real right or wrong answer. But I think such a belief is dangerously wrong because the differences between the two couldn’t be more significant, and the consequences of getting this choice wrong could be devastating for the United States owing to one crucial factor: oil and its declining availability in the near future.
Many of the factors which could cause instability around the world are fairly well known. The United Nations has been warning for many years about the probability of significant population expansion in the areas of the globe least able to sustain such increases. Concurrent with this population flux is the danger that billions of people may not have sufficient drinking water within a decade, and both of these problems are compounded by the possibility that the world may be near the limit of its ability to produce sufficient food for everyone. Add in the highly contentious and debatable factor of global warming and the future looks anything but stable.
There is another potential trouble-factor on the horizon, however, whose occurrence could result not in a low level insurgency as envisioned in an “era of persistent conflict”, but in large scale, state-on-state war: the peaking of crude oil production and the consequent irreversible imbalance between global supply and demand. We saw last year when the price of oil skyrocketed to nearly $150 a barrel how much of an economic disruption even a relatively small and short term imbalance between supply and demand could be to the global economy. Imagine the panic - and anger - that would ensue if that reduction could not be relieved by a simple opening of Saudi spigots or a modest dialing back of demand in the OECD countries.
As reported in a 2007 GAO study, the majority of the world’s leading geologists and oil experts believe that the peaking of the conventional crude will occur sometime between now and 2020. A number of these respected experts dampen concern about that fact, however, by citing the huge reserves of alternative energy sources under the earth’s surface that could conceptually be tapped to replace the crude flow. Far less known, however, are a series of reports commissioned by the Department of Energy that explains how even the expenditure of large amounts of money, difficulty, and time may be necessary to ascertain whether or not such alternatives will even be able to produce the required volume. Since 2005, Dr. Robert Hirsch, the lead author of the series, has said that if a crash program costing hundreds of billions of dollars were to begin even a full decade before the onset of the peak, severe global economic disruption would still result; if the crash program were started only after the peak were recognized, economic disaster would be a virtual certainty.
One of the more respected sources of information on global energy in the world today is the International Energy Agency (IEA). In a report the agency issued two months ago called World Energy Outlook 2008 (WEO) there were two critical facts that should get the attention of every serious-minded individual in this country.
First, the report projected that the decline rate of the world’s producing oil wells would increase from today’s average annual decline of 6.7% to 8.6% by 2030. Concurrently, the WEO projected that due to continued population increases and the development of the Chinese and Indian economies into first world status, global daily production would need to increase from today’s 85 million barrels per day (mbd), to approximately 104 mbd (a considerable reduction from previous IEA projections). Buried deep in the WEO study, however, is the staggering confession that in order to produce that 104 mbd by 2030 an additional 64 mbd will have to be found over and above what is being pumped today. To put that in perspective, the report explains that such an increase would require “six times the current capacity of Saudi Arabia.”
The IEA and other organizations assure the world that the production equivalent of those “six Saudi Arabias” will come from a combination of enhanced oil recovery (whereby technology will allow more oil to be retrieved from old fields previously considered exhausted), the discovery of new oil fields, and the development of alternative sources.
But the application of even the latest and most expensive technology has not reversed the continual decline in new discoveries, and it will take decades to develop the infrastructure necessary to produce meaningful volumes of alternatives once a concerted effort has begun - and no such effort is presently even considered. By all accounts, the peaking of conventional oil will begin an irreversible decline in just a few years - assuming we’re lucky and it doesn’t occur sooner. If we don’t immediately begin these crash programs we are condemning ourselves to a near-term future of great peril.
A report looking at future threats and dangers published last November by the Department of Defense and signed by the Commander of Joint Forces Command General J.N. Mattis warned that, “The implications (of insufficient supplies of oil) for future conflict are ominous. If the major developed and developing states do not undertake a massive expansion of production and refining capabilities, a severe energy crunch is inevitable.” In a normal time this challenge would be enormous. But when the nation is already suffering from the worst economic recession since the Great Depression and thus far trillions of dollars have been allocated to right the financial ship, where will the significant additional money, leadership and political will be found to address this challenge?
The likely answer is: they won’t be found until the crisis is upon us. Numerous studies and governmental reports over the past several years have issued warning after warning, all to no avail. Now in early 2009 the evidence of a peak continues to grow and the time available to take mitigating action continues to shrink. If we wait until the peak of conventional oil becomes evident as a result of an insufficient supply to satisfy growing global demand (once it recovers), no amount of money, leadership, or political will at that time will prevent severe crisis. If this crisis is not handled with the greatest of care and wisdom, we could find ourselves involved in a major state-on-state war as national populations the world over demand their governments take action to safeguard their own national interests, regardless of the impact on other countries.
The looming decline of world oil production is not some hypothetical possibility; it is a geological certainty that oil fields begin irreversible depletion once the peak of production has been reached and as the IEA reports, that depletion rate is likely to increase in the coming years. Given these facts, action is not simply a necessity; it is a serious national security imperative.
(Note: Commentaries do not necessarily represent ASPO-USA’s positions; they are personal statements and observations by informed commentators.)
Will Waste Heat Be Bigger Than Solar?
http://www.greentechmedia.com/articles/will-waste-heat-be-bigger-than-solar-5577.html
Sean Casten, the crown prince of waste heat, tells us how the U.S. can ameliorate its energy consumption problems with better factory and facilities management.
by: Michael Kanellos
Bullet Arrow January 26, 2009
Not everything improves with time.
The typical industrial power plant in the U.S. is only about half as energy efficient as those used in 1910, according to Sean Casten, CEO of Recycled Energy Development (RED).
In fact, the ones Thomas Edison designed were more efficient. The problem? Waste heat. Edison's plants weren't actually very efficient as making electric power, Casten noted, but he sold the heat generated during operations, which boosted the overall. A full two-thirds of the fuel burned to generate power in today's power plants – which for the most part were built in the mid-1960s with 1850s technology – gets lost he asserts.
"Edison's were 50 percent efficient," he said.
Although it can be tricky and expensive to harness, waste heat is getting increased focus as a source of power in both the U.S. and China, mostly because of the quantities of heat out there. A study conducted by Lawrence Berkeley National Labs estimated in 2005 that the U.S. alone has 100 gigawatts of untapped electrical capacity in the form of waste heat that annually could produce 742 terawatt hours of power. That's bigger than the solar fleet, which gets measured in megawatts. UC Berkeley's Arun Majumdar estimates that the U.S. consumes 100 quads (100 quadrillion BTUs) of energy a year and 55 to 60 percent of it gets dissipated as waste heat (see Tapping America's Secret Power Source).
Generating that heat, naturally, also means excess greenhouse gases. Approximately 42 percent of carbon dioxide emissions come from power plants, said Casten. If power plants are truly only 33 percent efficient, that means that 28 percent of the carbon dioxide output in the U.S. could be eliminated without crimping the national lifestyle. Cars only account for 19 percent.
ot;>Some companies, such as Cypress Semiconductor and GMZ Energy, are trying to develop thermoelectric materials. These are semiconductors that, wrapped around a steam pipe, could convert ambient heat to electricity.
Companies like Israel's Ormat and Westmont Ill.-based RED – which raised a $1.5 billion fund with Denham Capital Management to take on waste heat projects – are largely focusing on the more traditional techniques. Namely, exploit excess steam pressure and heat to turn a turbine, power heating systems or boil more water. It all depends on the circumstances on the ground. Waste fuels can also be harvested.
"Everything is custom," Casten said.
While the bulk of waste heat is generated in large plants, there are also smaller pockets. Natural gas pipelines are equipped with booster stations which maintain the pressure inside the pipeline as the gas travels from one point to another. Each one on average requires 10 megawatts of power but gives off about 3 megawatts worth of waste heat.
"There are opportunities all over the place – silicon manufacturers, cement, steel," he said. "They have high volumes of fairly high quality waste heat."
One of the company's more dramatic projects will go online in 2010. West Virginia Alloys, a silicon manufacturer, will install a waste heat recovery system that will generate 45 megawatts of electrical power. The company only uses 120 megawatts right now. (Put another way, the company only really needs 75 megawatts for its operations and is currently burning off 45 megawatts.)
To date, the big challenge has been cost. Most industrial-scale waste heat projects cost between $5 and $50 million. That's too high for most to pay out of capital budgets and too low for a public financing project.
"There's a huge Goldilocks problem," he said. To get around this, RED pays for any waste heat recovery system it installs and then gets paid for energy savings under long-term contracts.
"It is becoming mostly easier for a whole lot of reasons," Casten said.
The peak oil crisis: what of 2009?
http://www.energybulletin.net/node/47807
by Tom Whipple
Our wish has been granted for we are indeed living in interesting times. The world's economy is either collapsing or is putting on a very good imitation of doing so.
Production of cheap, abundant fossil fuels is peaking and will soon be withering away, yet gasoline for our cars has almost never been inflation-adjusted cheaper. Around the world, numerous sovereign governments are close to becoming dysfunctional -- likely with very bad consequences. We are pumping so much of the wrong kinds of gases into the atmosphere that the poles are melting, the seas are rising, the land is drying out and some day soon this planet is going to be very tough to live on. On top of all this, the world seems to be acquiring a fair number of people who are convinced that only they understand God properly and that the rest of us deserve to be done in. The only good news is that, so far as we know, there are no large meteors heading towards earth that would render the foregoing problems irrelevant.
The purpose of reciting a list of woes is to remind ourselves that we are living on one big interrelated, interconnected earth. Attempting to solve one problem will either mitigate or perhaps exacerbate the others, for nothing much remains static these days. Economic growth has come to a halt in most countries and even China's meteoric growth is subsiding towards half what it was a couple of years ago.
How long this will last is anybody's guess. While Wall Street babbles on about rebounds in six or maybe nine months, others are convinced that the damage done to the world's financial systems in recent years is so great that, despite the trillions in bailouts and stimuli, there is no hope for recovery in the foreseeable future. Those of us who worry about such things are concerned that low oil prices have stifled new investment to such an extent that in a few years the oil industry will find it impossible to stem declining production from natural depletion.
In recent weeks, the idea of a short recession that will be over in a quarter or two seems to have been replaced by near-universal pessimism. If part of your job is to be eternally optimistic in order to sell things, then you will say that the economic situation will start to get better next year. If you are allowed the freedom to expound on realities, you will say we are in for an unknown, likely lengthy, period of unknown hardships.
In the last six months, oil prices have fallen by an unprecedented amount and are currently bouncing around $40 a barrel depending on the news of the day. This decline clearly is because supply began outpacing demand last summer and there is a widely held belief that as the world economy contracts, the demand for oil will contract faster. While it is true that the demand for oil is no longer growing, the available numbers do not suggest that, as yet, it is exactly "collapsing" either.
This week the U.S. demand for oil is officially reported to be down about 4 percent as compared to last year. Gasoline consumption is down only 2.1 percent, which does not seem to be much for a country that is laying off people by the millions and where all but the poorest of the poor drive cars as part of their daily existence. A fair guess is that the consumption of gasoline is so deeply imbedded in the American way of life that the economy is going to have to get a whole lot worse, and prices are going to have to get a whole lot higher, before we see more impressive declines in oil and gasoline consumption - say on the order of 10 or 20 percent.
Although the growth in China's demand for oil is slackening, it is still up, with December 2008 consumption 12 percent higher than December 2007. Actually Beijing knows a bargain when it sees one and is busily buying up crude to stash away in its new strategic reserve.
The International Energy Agency, which is sort of the official keeper of the world's oil statistics now acknowledges that a global recession is in progress but only sees world oil consumption for 2009 falling by 500,000 barrels a day (b/d) to 85.8 million. While these projections will be revised again and again during the year, at the minute they do not suggest anything that could be characterized as a "plunge" in the demand for oil. Despite rather impressive increases in U.S. stockpiles that have many convinced that demand is disappearing, the IEA reports that total stocks in the OECD countries, while above normal, actually went down by 2 million barrels in November and likely dropped another 8 million in December.
As prices plunged this fall, OPEC met, and met, and met again, each time announcing production cuts which they all swear they will implement. Considering that the unprecedented drop in oil prices has shattered their leaders' plans for power, prestige, glory, and economic development, they appear to be so desperate that they are likely to make a substantial portion of the announced 4.2 million barrel production cut. Some OPEC members are becoming so desperate that they are already calling for another cut that would bring the total to 5 or 6 million b/d.
Thus, the big unknowns for 2009 are just how far and how fast the world's GDPs are going to fall and just how fast the demand for oil will fall with them. It is obvious that if demand falls by only the officially projected 500,000 b/d, or anything close to that number, and production actually goes down 4 or more million b/d, then by every known law of economics oil is not going to stay at $40 a barrel, but is going to rise, perhaps even soar. For now we can only wait and watch.
Palm oil frenzy threatens to wipe out orangutans
http://www.google.com/hostednews/ap/article/ALeqM5h9o2SE_tEvBAHt3Odkr4gM1_o9OAD95PN2UG0
By ROBIN MCDOWELL – 3 days ago
TANJUNG PUTING NATIONAL PARK, Indonesia (AP) — Hoping to unravel the mysteries of human origin, anthropologist Louis Leakey sent three young women to Africa and Asia to study our closest relatives: It was chimpanzees for Jane Goodall, mountain gorillas for Dian Fossey and the elusive, solitary orangutans for Birute Mary Galdikas.
Nearly four decades later, 62-year-old Galdikas, the least famous of his "angels," is the only one still at it. And the red apes she studies in Indonesia are on the verge of extinction because forests are being clear-cut and burned to make way for lucrative palm oil plantations.
Galdikas worries many questions may never be answered. How long do orangutans live in the wild? How far do the males roam? And how many mates do they have in their lifetime?
"I try not to get depressed, I try not to get burned out," says the Canadian scientist, pulling a wide-rimmed jungle hat over her shoulder-length gray hair in Tanjung Puting National Park. She gently leans over to pick up a tiny orangutan, orphaned when his mother was caught raiding crops.
"But when you get up in the air you start gasping in horror; there's nothing but palm oil in an area that used to be plush rain forest. Elsewhere, there's burned-out land, which now extends even within the borders of the park."
The demand for palm oil is rising in the U.S. and Europe because it is touted as a "clean" alternative to fuel. Indonesia is the world's top producer of palm oil, and prices have jumped by almost 70 percent in the last year.
But palm oil plantations devastate the forest and create a monoculture on the land, in which orangutans cannot survive. Over the years, Galdikas has fought off loggers, poachers and miners, but nothing has posed as great a threat to her "babies" as palm oil.
There are only an estimated 50,000 to 60,000 orangutans left in the wild, 90 percent of them in Indonesia, said Serge Wich, a scientist at the Great Ape Trust of Iowa. Most live in small, scattered populations that cannot take the onslaught on the forests much longer.
Trees are being cut at a rate of 300 football fields every hour. And massive land-clearing fires have turned the country into one of the top emitters of carbon.
Tanjung Puting, which has 1,600 square miles, clings precariously to the southern tip of Borneo island. Its 6,000 orangutans — one of the two largest populations on the planet, together with the nearby Sebangau National Park — are less vulnerable to diseases and fires.
That has allowed them, to a degree, to live and evolve as they have for millions of years.
"I am not an alarmist," says Galdikas, speaking calmly but deliberately, her brow slightly furrowed. "But I would say, if nothing is done, orangutan populations outside of national parks have less than 10 years left."
Even Tanjung Puting is not safe, in part because of a border dispute between the central government, which argues in favor of a 1996 map, and provincial officials, who are pushing for a much smaller 1977 map. If local officials win, the park could be slashed by up to 25 percent.
Galdikas, of Lithuanian descent, was an anthropology student at the University of California in Los Angeles when she approached Leakey, a visiting lecturer, in 1969. She follows on the heels of Goodall, who today devotes virtually all of her time to advocacy for chimps, and Fossey, who was brutally murdered in her Rwandan hut in 1985.
Two and a half years later, she and her then husband, Rod Brindamour, arrived in Tanjung Puting and settled into a primitive thatch hut in the heart of one of the most biodiverse regions on the planet, with millions of plant and animal species.
Twice featured on the cover of National Geographic Magazine, she wrote an autobiography, "Reflections of Eden," describing how she fell in love with the sound of cicadas, and marveled at the sudden shifts of light that in an instant transformed drab greens and browns into translucent shades of emerald.
Her first challenge was simply finding the well-camouflaged orangutans in 100-foot-high trees. But eventually she was able to track them, sometimes for several weeks at a time.
She discovered that female orangutans give birth when they are around 15 and then only once every eight or nine years, making them especially vulnerable to extinction. They also have one of the most intense maternal-offspring relationships of all mammals, remaining inseparable for the first seven or eight years.
While orangutans are at first very gregarious, as adults they live largely solitary lives, foraging for fruit or sleeping. Orangutan" means "man of the forest."
One of her main projects today is her rehabilitation center in a village outside Tanjung Puting, overflowing with more than 300 animals orphaned when their mothers were killed by palm oil plantation workers.
With forests disappearing, the red apes raid crops, grabbing freshly planted shoots from the fields.
"Many come in very badly wounded, suffering from malnutrition, psychological and emotional and even physical trauma," says Galdikas, as she watches members of her staff prepare six young orangutans for release one overcast Saturday afternoon.
It is a three-hour journey along bumpy roads to the release site. By the time they arrive, it is raining and the last gray light is feebly pushing its way through the deep canopy of trees.
After years of being cared for, fed and taught the ways of the woods, the young orangutans scramble nimbly to the tops of trees. Branches snap as they make their nests for the night.
"It is getting harder and harder to find good, safe forest in which to free them," says Galdikas, who today spends half her time in Indonesia and most of the rest teaching at Simon Fraser University in British Columbia.
Forestry Minister Malem Kaban says the government is committed to protecting Indonesia's dense, primary forests and that no permit should be granted within a half-mile of a national park. Even so, one palm oil company has started clearing trees within Tanjung Puting's northern perimeter, leaving a wasteland of churned-up peat and charred trunks. Four others are seeking concessions along its eastern edge.
Derom Bangun, executive chairman of the Indonesian Palm Oil Association, says while his 300 members have vowed to stay clear of national parks, others have been known to operate within areas that should be off-limits. Sometimes it is not their fault, he notes, pointing to the need for better coordination between central and local government on border issues.
Galdikas, a passionate field researcher, says one of her great regrets is that she does not share Goodall's skills in raising awareness and funds for the great apes. But she is happy Tanjung Puting has over the years grown into a popular tourist destination. She says there's no better advertisement for conservation than being in a rain forest.
Some visitors are even lucky enough to come face to face with an orangutan on a slippery jungle trail.
"As he passes you, you nod and he nods back to you and continues on his way," she says, adding that looking in the eyes of a great ape, it instantly becomes clear that there is no separation between humans and nature.
"If they go extinct, we will have one less kin to call our own in this world," says Galdikas, who is also president of the Los Angeles-based Orangutan Foundation International. "And do we really want to be alone on this planet?"
On the Net:
* Orangutan Foundation International: http://www.orangutan.org
Exxon and Indonesia Reach Accord on a New Oil Field
http://www.nytimes.com/2006/03/14/business/worldbusiness/14exxon.html
Peak oil review - Jan 19
http://www.energybulletin.net/node/47780
by Tom Whipple
1. Contango
Oil prices fell into the upper $30s early last week and stayed there. As it has for many weeks, the drumbeat of bad economic news and rising stockpiles competed with the OPEC’s efforts to cut crude supplies. For now, the sagging global economy has the markets convinced that demand for oil is dropping faster than OPEC can reduce supplies.
Oil storage is at a 25-year high as stockpiles continue to build. At the major US commercial stockpile at Cushing, Okla. stocks hit an all-time high of 33 million barrels. Estimates of oil in floating storage aboard charted tankers continue to increase. A Norwegian company estimates that 40 to 45 large tankers anchored around the world may currently be storing about 80 million barrels. Although world inventories are well above average, the IEA says that preliminary numbers for December suggest that OECD inventories contracted by 8 million barrels despite the large increase in US stocks.
Currently the oil markets are in a posture known as contango. While oil for February 2009 delivery is trading at $36 a barrel, oil for February 2010 delivery is trading for nearly $60 a barrel and for February 2013 over $70 a barrel. In this situation, the spread in prices far outweighs the monthly storage charges so that making money is a sure thing so long as one can find a place to store the oil. With little storage still available, the need to sell contracts to avoid taking delivery is forcing technical distortions into markets that tend to keep short term oil prices low.
Platts reported last week that OPEC production in December fell by 640,000 b/d while the IEA is saying that production slipped by only 330,000 b/d from November. Neither of these cuts is enough to clear the crude surplus and force an increase in prices. As Platts Global Director for Oil said last week, “the most important number to watch in coming weeks is OPEC’s actual production in January.”
2. OPEC’s progress
Raising prices by cutting back on global oil production is turning out to be more difficult than many imagined. Gone are the days when even a hint of a production cut would send prices surging, for after decades of experience with OPEC’s “cuts” many have grown skeptical of the cartel’s propensity to talk prices higher without suffering the pain of reduced revenue and lost markets.
This time the process has become even more difficult because an unprecedented drop in oil prices has left many OPEC members unable to pay their obligations and a major economic downturn is cutting the demand for oil at some unknown rate. Cartel members are piqued by major non-OPEC exporters such as Russia, Norway, Canada, and Mexico who are making no efforts to cut production yet will benefit when prices rise again.
It has now been nearly 5 months since OPEC began talking of and announcing production cuts. Given the nature of oil exports, which involve long-term contracts, tanker chartering, loading schedules, and long voyages, cuts may take several months to become effective. In a period when demand apparently continues to drop, this balance is difficult to perceive.
From all reports OPEC members appear to be making actual cuts. The Saudis are again leading the way by saying they will cut 300,000 b/d more in February than called for by their quota and Angola says its exports will be under its target by March. OPEC’s Secretary General claimed last week that there has been nearly 100 percent compliance with the production quotas.
In the last week however, there are indications that some OPEC members are starting to panic. Market observers now are talking of oil prices slipping into the $20s and staying there until a global economic recovery increases demand. Venezuela is reported to be nearly $1 billion behind in the payments it owes oil service companies such as Schlumberger and Halliburton. Even more interesting is the report that Caracas is making discreet inquiries to the hated international oil companies about the possibility of investing in its oil projects again.
Suggestions of an oil embargo to support the Palestinian cause in Gaza were quickly dismissed. The last thing the Arab oil exporters want is an embargo-sized drop in production possibly leading to worldwide economic chaos.
Talk of a fourth production cut at the March OPEC meeting is already coming from Iran, Venezuela, and Algeria and there are occasional suggestions that a special meeting in February might be in order if prices continue to fall. OPEC’s Secretary General said last week that we won’t know the effect of the current production cuts until February 15th.
3. Forecasts
As the global recession deepens, the agencies which prognosticate about future demand for oil are starting to back off on optimistic projections for 2009. The IEA which had been predicting an actual increase in the demand for oil in 2009 now says that production will fall by 0.6 percent or 500,000 b/d during the year. This estimate is based on the International Monetary Fund’s projection that the world economy will now grow by only 1.2 percent this year as opposed to its November estimate of 2.1 percent. The IEA now projects that Chinese demand for oil this year will still grow, but at only 1.1 percent for an increase of 320,000 b/d.
The US’s EIA however is more pessimistic seeing worldwide demand drop by 800,000 b/d during 2009 and then rebounding in 2010 when economic recovery is projected to begin. The OPEC secretariat is more optimistic than either the EIA or the IEA. They are estimating that total world demand for oil will only fall by 180,000 b/d this year.
There clearly is a major disconnect between the “official” estimates of only modest declines in demand and the popular perception, backed up by falling oil prices and growth in stockpiles, that the demand for oil is dropping rapidly. OPEC is believed to already have cut production by 2 million b/d from summer highs and appears to be in the process of cutting by at least an additional 2 million b/d. Yet the IEA says that global production was flat in December at 86.2 million b/d with OPEC production cuts offset by gains elsewhere.
4. Briefs (clips from recent Peak Oil News dailies are indicated by date and item #)
* An Israeli company announced that it has discovered what may be a deposit of over 3 trillion cubic feet of natural gas off of Israel’s Mediterranean coast. (1/18, #8)
* Approximately 48% of U.S. E&P chief financial officers believe that the world has reached its peak petroleum production rate or will reach it within the next few years, while another 52% disagree with that statement, according to a new survey by a Chicago-based national professional services firm. (1/14, #18)
* Fredonia College professor Gary Lash rocked the geology world when he and Terry Engelder of Pennsylvania State University reported more than 500 trillion cubic feet of natural gas lies within the Marcellus Black Shale that stretches from New York through West Virginia. New research suggests that amount is a drop in the bucket compared to what may exist. (1/15, #10)
* Scorpion Offshore, a drilling service company, canceled plans to build a $700 million rig that is to be leased for $485,000 a day by Brazil’s state oil company Petrobras after it was unable to secure financing. (1/16, #10)
* The American Petroleum Institute reports that America’s demand for crude oil during 2008 decreased by 6 percent, to 19.4 million barrels a day. API, the oil industry’s trade association, also said U.S. crude oil production last year dropped below 5 million barrels a day for the first time since 1946. That’s largely attributable to lower Alaskan output and disruptions caused by hurricanes Gustav and Ike. (1/16, #12)
* President-elect Barack Obama has vowed to axe greenhouse-gas emissions 80% by 2050, a feat that experts say requires putting a premium on controlling carbon dioxide and pumping hundreds of billions of dollars into energy sectors that aren't yet competitive with crude oil and coal. (1/16, #13)
* As a result of having seven in-state biodiesel plants that can now each process 2,000 barrels/day, a year from now at least 2 percent of every gallon of on-road diesel fuel sold in Pennsylvania must come from biodiesel. (1/16, #14)
* US Rep. Roscoe Bartlett (R-MD) reintroduced a resolution to Congress that states it “should establish an energy project with the magnitude, creativity, and sense of urgency that was incorporated in the `Man on the Moon' project to address the inevitable challenges of `Peak Oil'. (1/16, #15) (Editors’ note: the man is indefatigable; we salute his effort.)
* When oil was $20/barrel in 1999, deepwater rigs rated for 4,500+ feet of water were utilized at 85% of capacity. Today, deepwater rig utilization is 92%; and day rates for these rigs have risen from $122,000 a day to $376,000 a day -- even as the supply of these rigs has increased. (1/16, #16)
* A detailed study by Mark Jacobsen, Stanford University, has ranked 11 types of non-fossil fuel alternatives to oil, according to their total ecological footprint and their benefit to human health. Jacobson says it would take 30 times more space to grow enough corn to power the US automobile fleet than would be needed to erect enough wind turbines to run it on electricity. Additionally, bioethanol would produce more greenhouse gases than wind power. (1/16, #18)
* Mexico is just getting started in its exploration of their deep water Gulf of Mexico. It expects to see its first barrels from fields in waters deeper than 1,640 feet in 2015. By 2017 the company forecasts 92,000 barrels a day in deepwater output, not nearly enough to offset declines it expects to see at the giant Cantarell oil field. (1/17, #10)
* The number of drilling rigs actively exploring for oil and natural gas in the US dropped by 21 this week to 1,568. Of the rigs running nationwide, roughly 80% were exploring for natural gas and 20% for oil. The rig total peaked at 4,530 in 1981, during the height of the oil boom. The industry posted several record lows in 1999, bottoming out at 488. (1/17, #15)
* Doubling the nation's production of alternative energy in three years will be "extremely difficult" given the technological and financial barriers facing the industry, outgoing US Energy Secretary Samuel Bodman said Wednesday. (1/15, #9)
* Natural gas prices in New York fell to the lowest level in more than two years on signs of slowing demand from factories and power plants as the recession deepens. (1/15, #13)
* German Chancellor Merkel said there's the risk that Russia will lose trust due to the current gas dispute with the Ukraine which has also disrupted gas deliveries throughout Europe. (1/15, #17)
* Transport Secretary Geoff Hoon has told MPs the government has approved controversial plans to build a third runway at Heathrow Airport. (1/15, #19) (Editors’ note: we think general lack of awareness of peak oil is most damaging to planning for long term infrastructure.)
* Tumbling oil prices are forcing many of the richest Persian Gulf states to record budget deficits and limit a critical source of investment for poorer Arab countries. Crude is now selling at below the budget break-even point for seven of the Arab world’s 10 top oil producers and Saudi Arabia, the world’s biggest exporter, is forecasting its first deficit in at least seven years. (1/14, #3)
* Chinese automakers looking to make the jump into the U.S. market are facing increasingly strong headwinds, including a global financial crisis that has slowed growth where they already sell cars and sapped the potential for partnerships that would ease their expansion. But BYD Auto Co. and Brilliance Auto are making China's most prominent appearance yet at this year's North American International Auto Show. (1/14, #13)
* Post Carbon Institute announced last week the release of "The Real New Deal: Energy Scarcity and the Path to Energy, Economic, and Environmental Recovery," a proposal to the incoming Obama Administration. (1/14, #14)
* A corroded pipeline ruptured on Christmas Day at ConocoPhillips' Kuparuk oil field in Alaska, causing one of the biggest spills—94,920 gallons—of oil-laced water at the field in years, the Alaska Department of Environmental Conservation said on Tuesday. (1/14, #15)
* Oil prices are likely to stay below $50 a barrel this year unless the U.S. economy rebounds, said Mohammed al-Rumhy, oil minister of Oman, the Middle East’s largest non-OPEC crude producer. (1/13, #9)
* China, the world's second-largest energy user, increased crude-oil imports by 9.6 percent, the slowest pace in three years in 2008, as a slowdown in the economy cut demand for the raw material used to produce auto fuels and chemicals. (1/13, #11)
* A Democratic senator reintroduced legislation that would allow the US Justice Department to bring legal action against OPEC and others it believes collude to push up the price of oil. (1/13, #13) (Editors’ note: the world of Washington D.C. is never short of idiotic proposals that purportedly deal with our long-term energy problems.)
* Transocean, the world’s largest offshore oil driller, canceled a record $550,000-a-day rig lease and said a second vessel has been idled after the client ran out of cash. (1/13, #14)
Quote of the Week
* “I do not believe low commodity prices and rig counts will be here for long. Simply put, our industry rises and falls with the price of oil and gas, and two simple truths will provide upward pressure on prices for decades to come. Those truths: 1.) supply is finite, and 2.) the world population continues to grow at a tremendous rate.”
-- David Kent, President of Rigzone
He better move fast....
ConocoPhillips plans to cut 4 percent of work force
http://www.chron.com/disp/story.mpl/Business/6215681.html
Bush Seeks Offshore Drilling in Former Off-Limits Areas
http://online.wsj.com/article/SB123211817360590363.html
Oil languishes near $35 on weakening US economy
By GEORGE JAHN – 1 day ago
VIENNA, Austria (AP) — A weakening U.S. economy and falling global demand kept benchmark oil prices near $35 a barrel Friday — about 30 percent off last week's highs.
The softness of the crude market was underscored by an International Energy Agency report predicting that demand will fall for the second straight year in 2009 — the first two-year decline in 26 years.
Light, sweet crude for February delivery was down 17 cents at $35.23 a barrel by afternoon in Europe in electronic trading on the New York Mercantile Exchange. The contract fell $1.88 overnight to settle at $35.40, after trading as low as $33.20, a five-year low.
Nymex oil prices have fallen about 30 percent since touching $50.47 a barrel last week as dismal economic and corporate results stoked investor fears that a drop-off in crude demand may be worse than expected.
Concerns center on the U.S., the world's largest consumer of oil, where falling consumer demand and rising unemployment are undermining demand for crude — and spilling over to the rest of the world.
In its highly watched monthly survey Friday, the International Energy Agency predicted that the worsening global economy will leave demand at 85.3 million barrels a day — 0.6 percent lower than 2008. Demand last year is estimated to have slid 0.3 percent.
The IEA said it lowered its forecast because it has nearly halved its estimate for global economic growth to 1.2 percent.
In the U.S., the Labor Department reported Thursday that first-time requests for unemployment insurance jumped to a seasonally adjusted 524,000 in the week ending Jan. 10. Analysts had expected 500,000 new claims. The department last week said the unemployment rate jumped to 7.2 percent in December, a 16-year high.
Corporate news was not much better, with the U.S. government forced to bail out the country's largest lender, Bank of America, to keep it from collapse.
"Market pessimism about the international economic outlook is still weighing on the oil price," said David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney. "History has shown that these things can move more than you anticipate."
U.S. petroleum deliveries — a measure of demand — fell 6 percent to 19.4 million barrels a day last year, with declines for all major products made from crude, according to the American Petroleum Institute.
The Organization of Petroleum Exporting Countries has also lowered its energy demand forecast for 2009, saying in its January report that it expects world demand for crude will fall 180,000 barrels per day in 2009 from the previous year.
"All eyes are focused on demand," said Gavin Wendt, head of mining and resources research at consultancy Fat Prophets in Sydney. "Markets are looking for some sort of indication of demand stability, and they aren't getting that yet."
OPEC has announced 4.2 million barrels a day of production cuts since September, moves that investors have so far ignored. But markets may be anticipating those output cuts will start to tighten oil supplies later in the year, Moore said.
The May contract trades at $50.82 a barrel, with the September contract at $55.90.
"The OPEC production cuts are going to take time to widdle away the build up in inventories," Moore said. "But if compliance is high, that could support prices looking further out."
The wild card is oil producers outside OPEC — whether they increase output and if so, how much that will compensate for reduced supplies from OPEC nations.
Noting that Moscow planned to lower the duty on oil exports, Vienna's JBC Energy said: "As this will increase the profitability of exports, Russia could ship higher volumes in February."
In other Nymex futures trading, gasoline slipped by more than 2 cents to $1.15 and heating oil by less than a penny to $1.48 a gallon, while natural gas for February delivery rose by nearly 7 cents to $4.91 per 1,000 cubic feet.
Bucking the NYMEX trend, Brent crude for March delivery — was fetching $48.39 — up 71 cents. The price difference is due in part to the strong stock build of NYMEX crude compared to Brent, which traded on London's ICE exchange.
Associated Press writer Alex Kennedy contributed to this report from Singapore.
http://www.google.com/hostednews/ap/article/ALeqM5i5TtajgUpSm7KY5jf-lCJGHBB-tAD95O9C4O5
Sun catchers tuned to crank out the juice
R. Colin Johnson November 22, 2004
http://archives.eetimes.com/sun-catchers-tuned-to-crank-out-the-juice/110225.html?utm_source=facebook&utm_medium=cpc&utm_term={keyword}&utm_campaign=13810736
PORTLAND, Ore. — EEs are turning a 19th-century invention into a 21st-century alternative-energy source.
The last leg of a two-decades-long effort by the U.S. Energy Deaprtment to unleash superefficient solar power by 2011 is homing in on the so-called Stirling engine, which is being used to drive solar generators. DOE test site measurements suggest the setup could bring the cost of solar power on a par with traditional fossil fuels and hydroelectric sources — assuming the project engineers can balance the separate power feeds from farms of thousands of simultaneously online 25-kilowatt Stirling solar dishes.
The heart of the design, the engine itself, was invented by the Scottish minister Robert Stirling in 1816.
"The Stirling engine makes solar power so much more efficiently than photovoltaic solar cells can," said Robert Liden, chief administrative officer at Stirling Energy Systems Inc. (Phoenix). "That's because the Stirling solar dish directly converts solar heat into mechanical energy, which turns an ac electrical generator." The bottom line, he said, "is that large farms of Stirling solar dishes — say, 20,000-dish farms — could deliver cheap solar electricity that rivals what we pay for electricity today."
Under a multiyear Energy Department contract that started in 2004, Stirling Energy Systems will supply Sandia National Laboratories with solar dishes for integration into full-fledged power-generation substations capable of direct connections to the existing U.S. power grid. Right now about 20 EEs, including more than a dozen from Stirling Energy Systems, are working full time at Sandia to create the electrical-control systems to manage these sunshine stations.
By the end of 2005, they plan to have six dishes connected into a miniature power station capable of supplying enough 480-volt three-phase electricity to power about 40 homes (150 kW). The next step, in 2006, is a 40-dish power plant that will transform the combined output of the farm from 480 to 13,000 V, for distribution of industrial-level power to an existing substation. From 2007 to 2010, the program proposes mass-producing dishes to create a 20,000-dish farm supplying 230,000 V of long-haul power from its own substation directly connected to the grid.
If the project succeeds, the DOE predicts that by 2011, Stirling solar-dish farms could be delivering electricity to the grid at costs comparable to traditional electricity sources, thereby reducing the U.S. need for foreign sources of fossil fuels.
Eventually, according to DOE estimates, an 11-square-mile farm of Stirling solar dishes could generate as much electricity as the Hoover Dam, and a 100 x 100-mile farm could supply all the daytime needs for electricity in the United States. By storing the energy in hydrogen fuel cells during the day, Stirling solar-dish farms could supply U.S. electrical-energy needs at night too, as well as enough juice for future fuel-cell-powered automobiles, the DOE believes.
Power today costs from about 3 cents to 12 cents per kilowatt-hour, depending upon the customer's location and the time of day. The average is 6.6 cents/kW-hr for the industrial sector in 2004, according to DOE. In contrast, the Stirling solar-powered substations operate only during peak hours (daytime) but at potentially the same or less than the peak rates paid today — or "about 6.5 cents per kilowatt-hour during peak periods," said Liden of Stirling Energy Systems.
Prior DOE tests settled on the Stirling solar dishes by comparing traditional solar power with three kinds of "focused thermal" solar energy — all of which operate in a manner similar to the solar-power generator in the James Bond movie The Man with a Golden Gun. There, Roger Moore narrowly escapes being fried by the concentrated beam from a focused solar mirror that uses the same principle whereby leaves are set on fire with the focused sunlight from a magnifying glass.
The DOE compared the Stirling solar dish, parabolic troughs, power towers and concentrated photovoltaics. The study, conducted at Sandia National Laboratories' Solar Thermal Test Facility, concluded that Stirling dishes outperformed all other sources of solar power.
Today Stirling-powered solar dishes at the Sandia test facility operate at 30 percent efficiency while delivering grid-ready alternating current. In contrast, 30-percent-efficient solar cells are direct current and drop to 16 percent efficiency by the time they generate grid-ready ac. And that's on a hot day. Efficiency can drop as low as 10 percent on a cool day.
"Tests have already shown that the Stirling engine can be made into a very efficient power generator," said Chuck Andraka, project leader at Sandia's Solar Technology Department. "Now what we need to show is that many small Stirling engines can be coordinated in farms that together rival traditional power sources."
Time for a change
Historically, the Stirling engine could never compete with the bigger bang per cubic inch of a gas-guzzling internal-combustion engine. However, dependence on foreign oil, increasing pollution and America's seemingly unquenchable thirst for more energy hint that it might be time for a turnaround.
Youtube has all manner of vids like this:
OIL AT 33.28....lol...could have got back in at 50 and rode it down 16 more bucks but I didn't have the guts for that...
Gas has continued dropping after a short spike....
Watch for Yourself: 60 Minutes Oil Story Was Spot On
by: Allen Phatimer January 13, 2009
http://seekingalpha.com/article/114521-watch-for-yourself-60-minutes-oil-story-was-spot-on?source=article_lb_articles
| about stocks: BCS / DBO / GS / JPM / MS / OIL / USO
Allen Phatimer
Everyone seems to be bashing the 60 Minutes story about speculation causing oil to surge to $147. After reading the articles published here; I felt compelled to see how bad this segment was, so I went to the 60 minutes website to take a look see. I expected to see a chop job; but what I saw was an excellent laymen's explanation of how speculators and investors with fiduciary duties turned speculators contributed to a bubble which helped send billions of Americans' hard earned money to Saudis, Iranians, Venezuelans and others who laughed all the way to the bank.
These CBS bashers here either have no idea how energy markets work or are spinning the truth because they have an axe to grind with CBS. It's a shame, because for people that have a cursory interest, these clowns just effectively made a very enlightening report questionable to those honestly uninformed who would like to understand the issue better. And all they say to support their position is that the EIA has a graph that sort of makes it look like price tracks demand very closely. The truth is EIA estimates change with the wind - if your memory is that short you too should check the record. The EIA makes intermediate and long term energy supply and demand estimates that are awful - they failed to anticipate the CYCLICAL market tightness and failed to anticipate the cyclical downswing.
One of the first lines in the report asserted that the oil price spike was not caused by oil company CEOs or sheiks but speculators and other so called institutional investors like Hedge Funds (like Citadel, Amaranth and Ospraie), Commodity Traders in Chicago and Europe, Morgan Stanley (MS), Goldman Sachs (GS), J.P. Morgan (JPM), Barclays (BCS), Sovereign Wealth Funds, Yale, Harvard, as well as Pension Funds like CALPERS and others. That this is debatable is crazy. It is a FACT that these entities entered the oil market in a big way during the bull market in oil. The story asserted that over a 5 year period the amount of energy futures traded went from $13B to $300B - this too is a fact. It is a fact that Enron lobbied aggressively for changing the rules so they could control the market more and got what they wanted. It is a fact that Morgan Stanley owns more pipeline, storage, production and refined product than most oil & gas companies; this wasn't the case in past cycles.
You don't have to be a forensic scientist to understand they did it because the asset class was going up for a long time. You can delude yourself with rationalizations if you please but this is no different than what pension funds did when they doubled and tripled their allocations to unseasoned and excessively leveraged "alternative investment" strategies. Yale did it first and looked like a genius, everyone else felt either inadequate or couldn't deal with missing out. It really is that simple. Allocations to commodities increased because they did well for a long time. MBAs, CFAs and Quants everywhere fabricated a few correlations graphs and an articulate pitch and presto, the blind followed the blind.
The story mentioned that there is very little physical demand in the futures market relative to the total, and by far more than there has ever been. This too is a fact, bearish oil analysts which had seen a cycle before pointed this out many times. Sell side Wall Street analysts talked about this in research reports, Barron's did stories about it, analysts from Sanford Bernstein, Oppenheimer and ISI pointed this out at congressional hearings on the subject. A J.P. Morgan official denied speculation played any part at the same hearing, claiming it was pure supply and demand while another JPM strategist spoke about speculation taking over the energy markets in an email the same day. 60 Minutes had the email and showed it. It was obvious to anyone who bothered to check.
The 60 Minutes story asserted that there were 27 barrels worth of futures contracts traded for every barrel of physical demand and a fraction of those ever took delivery. This too is a FACT - 60-70% of the futures contracts which were (as the story indicated) initially created to help users hedge were held by either small or large specs - I.e. CTAs, hedge funds commodity day traders. You can look at commercials as a percentage of open interest and see how bullishly involved speculators were. Not unlike the real estate market, easy money (institutions that could borrow easily and lever themselves up 20 to 1) and a market that never seemed to go down sucked the suckers in and they got what they deserved.
People told me I was crazy when I told them that demand destruction was already taking hold and the economy was already slowing so it was a matter of time till oil collapsed. I looked like an idiot as I told my friends that I thought we'd fizzle a little past par; figuring that oil would look like it lost momentum near $100, suck some premature shorts in and then proceed to spank us on a move to $110. So I got cute and shorted some black gold at $109 and covered at $117. I got lucky there as I should have also known that we'd go parabolic before the collapse. I could have easily got smoked. But that's another story. $25/bbl increase in a day on NO significant news? $10 moves in each direction? That's not the sort of volatility you see in the middle of moves but rather at tops and bottoms of speculative exhaustion. It seems to always happen that way. Markets that go parabolic are almost always driven by speculation. Permanent supply and demand shocks are rare.
My message is that if it looks like a duck, quacks like a duck and acts like a duck, don't let some clown who can't or won't deal with the facts tell you different. If you didn't watch the story, go see it for yourself. If we were running out of oil or couldn't produce enough to meet demand, you would see the kind of lines and rationing we saw in the 70s. Anyone who was around back then recalls what shortages look like - people waiting for an hour or more in line at gas stations and couldn't even fill up. To even suggest it was all supply and demand is laughable. The crash is proof in and of itself - markets driven by fundamentals do better to sustain price advances.
Nothing in the 60 Minutes story was news to anyone with a clue. I'm really shocked at how it came across and appalled at how some "professional money managers" writing here spun it - super weak arguments that by and large missed the point. So I felt compelled to try to set the record straight so others less versed wouldn't get bamboozled.
The fact is that no one really knows when the world will run out of oil. Many factors influence energy prices over the long run, including production costs, the dollar, supply, demand and competition from alternatives, etc. But bubbles are usually borne of cyclical (and ALWAYS temporary) supply/demand imbalances exacerbated by analysts and pundits who con otherwise unsuspecting investors and traders with new paradigm type stories. There's a saying in the commodity markets that goes "price cures price", in other words, high prices are the cure for high prices. This has been and always will be true because of the economic sensitivity of commodities and the ability of commodity producers to always race to make hay while the sun shines. OPEC didn't cut production while prices surged, so thankfully we don't have to hear the blame thrusted at OPEC which surely would have been the case. That's all some would need to hear. The laws of supply and demand are called laws for good reason but much more than that affects all markets.
Disclosure: no positions
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The age of oil is ending
http://www.canada.com/montrealgazette/news/saturdayextra/story.html?id=153514b8-0a4f-47d8-a68f-24e779264fcd
For more than a century, it has been cheaper than coffee and as constant as ocean waves.
WILLIAM MARSDEN, The Gazette
Published: Saturday, January 10
Getting it is simple. You select the grade, insert the nozzle, squeeze the handle and gasoline comes out. A hundred years and the pump has never let us down. Gasoline is always available. There seems no end to it.
Until now.
On top of the other problems plaguing the world such as global warming and the current financial meltdown, there's a third pressing issue that threatens to bring the good life to an end. It's the fact that the world is fast running out of oil.
Oil derricks in Siberia: The world is fast running out of oil and some experts say the beginning of the end struck last summer when oil hit $147 a barrel.View Larger Image View Larger Image
Oil derricks in Siberia: The world is fast running out of oil and some experts say the beginning of the end struck last summer when oil hit $147 a barrel.
Given that crude oil makes up 36.4 per cent of the world's energy consumption, the seriousness of shortages cannot be underplayed. Our reliance on oil is almost total. It fuels 100 per cent of air and sea transport and most of our land transport. Without oil there is no petrochemical industry. Agriculture, manufacturing, building materials, the clothes we wear, the food we eat and the medicines we take depend on oil.
Some experts, like Normand Mousseau, a physics professor at Université de Montréal who has written a book on the end of oil, say the beginning of the end struck last summer.
"This is why the prices jumped to $147 a barrel," said Mousseau, author of At the End of Oil: All You Need to Know about the Energy Crisis. "As soon as the economy comes back, they will be right back up."
Others say the crunch will come in three to 10 years depending on our rate of consumption.
"I hate being an alarmist about it, but our entire lifestyle is dependent on cheap oil and there just isn't very much left in the ground," Andrew Miall, professor of geology at the University of Toronto, said in an interview.
Most petroleum geology experts contend that we have already discovered the world's giant fields and what's left over will not keep the age of oil alive much longer.
"It's safe to say we have pinpricked the Earth thoroughly enough that it is very unlikely we have missed any Middle Easts," Miall said. "There may be another North Sea or two, but nothing that is going to really change the energy scene."
Matt Simmons, chairman and CEO of Simmons and Company International, which is a private energy investment banker based in Texas, said he believes the world's oil reserves have already peaked and we are on the downward slide.
"I think basically we are now in the early days of a very serious pending scarcity of oil and natural gas," he said. "Because we don't know we are, we are not putting any clamps on demand."
Simmons has been studying world oil production and reserves for decades. His company helps finance exploration and production.
He predicted - accurately as it turned out - that the North Sea fields would peak between 1998 and 2000. Now he has turned his attention to Mexico, Kuwait and Saudi Arabia, warning that their fields also have hit the downward slide.
"All the major oil fields of the world have peaked and we are going to see soon some precipitous collapses," he said.
Because production flows still can keep pace with demand, the price has remained deceptively low, giving the erroneous impression there's still lots of oil out there. Even at its record high of $147 a barrel, crude oil was still only 22 cents a cup, which is a fraction of the cost of a regular coffee at Tim Hortons.
Simmons called the price of oil absurdly low: "Let's say you and five fat friends run out of gas and you see a guy coming down the street riding a donkey and pulling an old messy cart and you say, 'Hey pull over here. Can you take me and my five fat friends a couple of miles for 22 cents,' which is what that much gas will get you. And the guy's going to flip you the bird. 'Are you stupid?' "
Oil prices, Simmons said, have to skyrocket to have an impact on demand.
"If demand doesn't slow down, we will end up having shortages and we will basically run out of motor gasoline."
Our recent consumption rates are the most voracious in history. By the end of 2007, the world had consumed about 1.1 trillion barrels of oil. Half of this was consumed over the last 25 years alone. So far, we have consumed about 50 per cent of the total recoverable oil, according to the World Energy Council.
Simmons's pessimistic view is shared by oil companies like BP and Shell plus a number of international studies including the World Energy Council's 2007 Survey of Energy Resources.
It concluded "the world is rapidly approaching the end of the First Half of the Age of Oil."
It went on to state: "The evidence suggests that the peak of world discovery was in the 1960s, meaning that the corresponding peak of production for 'conventional oil' (oil from oil wells as opposed to synthetic oil from tar sands, shale or coal) is approaching. The world started using more than it found in 1981 and that gap has widened since."
The study warns: "Given the central position of oil in the modern economy, the onset of decline threatens to be a time of great economic and geopolitical tension."
The study suggests production will peak around 2011 when the age of oil will begin its inevitable decline.
The International Energy Agency claims peak oil is about 15 years away.
But as the IEA states in its 2007 report, "What matters, and matters greatly, is the vision of the long decline that comes into view on the other side of (the peak)."
Chris Skrebowski, a London-based member of the Energy Institute in Britain and consultant editor of the Petroleum Review, which is considered the oil industry bible, said he believes world oil reserves will peak "no later than 2012."
In other words, as of this writing there are 1,095 days to peak.
He paints a doomsday scenario of a world blithely unaware that in a few years its oil-based lifestyle will begin to end.
What is meant by peak? "Peak oil is when delivery flows can't meet the demand," Skrebowski said. Demand will outstrip production primarily because of a lack of sufficient reserves. Once that happens, we are on an unbroken downward slide.
For Skrebowski, signs of the approaching peak are clear. High oil prices as well as the enormous price fluctuations we're seeing are ultimately the result of emerging bidding wars over oil by oil-deficit countries.
So how much oil is left in the world and how long will it last? The math is simple.
It is generally accepted by energy experts that world crude oil reserves number about 1.2 trillion barrels. The level of certainty in this number is fixed at about 90 per cent.
Our annual consumption is about 30 billion barrels a year. So as long as we don't increase consumption, those reserves will last about 39 more years.
But how accurate are the reserve estimates?
Most experts don't believe the reserve figures published by the Gulf states, which control 62 per cent of world reserves. Experts note that despite years of production increases and no new significant discoveries, Iran, Kuwait, Iraq and Saudi Arabia have left their reserve estimates largely unchanged since the early 1980s. In some cases, they have even increased them without proof or independent auditing.
Consequently, the experts believe that at least 25 per cent of world reserves are overstated.
"A lot of these figures that come from the Third World countries and the Mideast you really can't trust them at all because much of the hard data is rarely made public," Miall said.
What's more, exploration drilling has not yielded any new major fields. New wells, which are small and increasingly difficult to find, yield only one barrel for every three we consume, which means that we are using three barrels to every new barrel we find.
Conventional oil discoveries - the kind we find in wells at the end of a drill bit - take at least seven years to bring on stream. So even if major new fields were discovered, which experts say is a remote possibility, they could not be brought into production fast enough to meet rising demand.
The most important discoveries have been in ultra-deep water, such as the recently discovered oil fields off the coast of Brazil. But cost estimates for extraction vary from $200 billion to $600 billion U.S. Whether it is even possible to extract it is questionable. Should drilling prove successful, it will take about a decade to bring on stream. Preliminary estimates indicate the wells contain 15 to 30 billion barrels of high quality oil. That will keep us going only for another year. These reserve estimates, however, are not based on solid evidence since no one has flow-tested these wells, Simmons said.
The high Arctic is said to contain about 90 billion barrels. There is, however, no proof of this. Miall, who has surveyed the Arctic, said decades of drilling has yielded little more than moderate amounts of natural gas.
Hope that unconventional oil, most of which is in Canada's tar sands, will fill the void left by declining conventional stocks remains empty.
Measuring future oil production is not just a question of reserves. It's also a question of flow: how much oil can we produce and get to market in time to meet demand.
Converting tar sands bitumen into synthetic crude oil and getting it to market in sizeable enough quantities to make up for losses in conventional oil production so far has proven too tough a challenge.
Skrebowski notes that even though tar sand reserves are equal to the total reserves of non-OPEC countries, the tar sands constitute barely 2 per cent of the non-OPEC flow rate.
"Non-OPEC reserves flow at nearly 50 million barrels a day," he said. "Canadian tar sands after 30 years of reasonably heavy investment is 1.4 to 1.7 million. And that's the problem. There is a huge volume of stuff within the Canadian tar sands. No one doubts it. But we have so far found it impossible to really flow that at any significant rate without totally destroying the environment, although you are doing quite a good job of that already."
Despite dwindling reserves, demand for oil is expected to continue to rise in China, India and other Asia countries. This will only hasten the moment of peak oil.
In most of the oil producing countries, production has already peaked. New important discoveries are doubtful.
Canada's conventional oil production peaked in about 1995. U.S. production peaked in the 1970s. North Sea wells peaked in 2000. Mexico peaked in 1997 and Venezuelan production is peaking.
In all, Skrebowski said, about 28 significant producers are in decline. This represents about 35 per cent of global production. Once that figure reaches 51 per cent, "we reach global peak oil," he said.
The only place where production continues to hold up is in the Persian Gulf.
But the elephant wells of Saudi Arabia are showing signs of exhaustion and the Saudis are indicating that they want to begin preserving their oil for their children.
The idea that the world will run out of oil in this century was first posited in the 1940s by U.S. geologist M. King Hubbert, who created a mathematical formula for calculating reserves versus demand. Initially, he was considered a nut as oil companies insisted that the world was awash in oil. His predictions, however, have come true and no longer do geologists and oil executives blithely dismiss the notion that the age of oil is drawing to a close. Yet politicians have not addressed the issue.
"They are terrified of it," Skrebowski said. "They don't know what to do. There are no pat solutions. The way the world grabbed onto biofuels and then proved that it wasn't a very good idea seems to be an attempt to find an easy way out of the box. If you think about it, since the Second World War, the politics of the western world has been about divvying up the sweeties. Now you have to get up on your hind legs and say, 'Well, we have to start taking the sweeties away. Maybe you can have some sweeties later but you can't have any sweeties now.' That's hardly a recipe for getting yourself elected."
Unless we address the issue now, he said, oil shortages will be ruinous for the economy.
Skrebowski warns: "One of the reasons peak oil could really get out of hand is if a lot of the existing producers suddenly decide that the best return is leaving this oil in the ground, saving it for later generations. Then you could get a sudden dramatic shortfall in supply. It is a perfectly reasonable thing for any nation state to say, 'Of course these are our resources. Surely we should be using them for the benefit of our people.' "
Consider this: Eighty per cent of the world's oil is controlled by governments through their national companies. Most of those countries are run by gangster democracies, oligarchies and highly unstable regimes. Should any one of these countries reduce flow, the impact on the world economies could be catastrophic. That's how tight the situation is.
Imagine Canada cutting off or reducing oil and gas exports to the U.S. The result would be catastrophic for not only the U.S. economy but the world economy and could lead to war.
Skrebowski says: "One thought I would impart ... is that this is a valuable and ultimately scarce resource and therefore there is always an obligation that whenever we use it, we use it as efficiently as possible for the maximum benefit. It's almost a moral imperative, like not wasting food when food is scarce."
wmarsden@thegazette.canwest.com
Crude Oil Tumbles Below $40 as Demand Drops Faster Than Supply
http://www.bloomberg.com/apps/news?pid=20601087&sid=a4lNCsQWk4fI&refer=home
By Mark Shenk
Jan. 12 (Bloomberg) -- Crude oil fell below $40 a barrel in New York on concern output cuts by the Organization of Petroleum Exporting Countries will fail to counter a slump in demand.
Oil consumption will drop by 1 million barrels a day this year as the U.S., Europe and Japan face their first simultaneous recessions since the Second World War, Deutsche Bank AG said last week. OPEC members signaled last week they will curb sales to refiners in February.
“The market will remain under pressure because almost all of the news about the economy is awful,” said Michael Lynch, president of Strategic Energy & Economic Research, in Winchester, Massachusetts. “It appears that OPEC is making a concerted effort to cut output but it’s unclear whether this will be enough.”
Crude oil for February delivery fell $2.76, or 6.8 percent, to $38.07 a barrel at 12:12 p.m. on the New York Mercantile Exchange. Futures touched $37.60, the lowest since Dec. 31. Oil is down 59 percent from a year ago.
Goldman Sachs Group Inc. said that “weak underlying economic fundamentals” will dominate the oil market. The bank maintained its forecast that oil will fall to $30 a barrel this quarter, in a report dated Jan. 9.
Oil inventories in Organization for Economic Cooperation and Development nations will likely rise to a 10-year high in the next two months, Goldman analysts Giovanni Serio and Jeffrey Currie said in the note.
“The health of the global economy is the dominant consideration in the short term, and that is weighing down on prices,” said Harry Tchilinguirian, senior market analyst at BNP Paribas SA in London. “OPEC cuts may prove to be supportive in future but it’ll take time for them to take effect.”
OPEC Production Target
OPEC, supplier of more than 40 percent of the world’s oil, agreed last month to slash production quotas by 9 percent to revive prices as the global recession erodes demand. Oil has plunged more than $100 in the past six months.
Saudi Arabian Oil Co., the world’s biggest state oil company, sent notices to refiners in Asia on Jan. 9 that it would lower crude supplies to the region by about 10 percent in February. This was the third straight month that the company reduced sales.
“The numbers coming out of OPEC show that there is strong compliance,” said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. “When the economy and demand start to turn during the second half of the year we might be in for a nasty shock. There won’t be a lot of oil on hand because of the OPEC cuts.”
More Production Cuts
OPEC may trim production further should crude prices continue to decline, Iran’s OPEC governor, Mohammad Ali Khatabi, said yesterday. OPEC is scheduled to meet next in Vienna on March 15. Iran is the group’s second-largest producer, after Saudi Arabia.
“Something in the $30-to-$34 area is probably where we are going,” Charles Maxwell, senior energy analyst at Weeden & Co. LP in Greenwich, Connecticut, said in a Bloomberg television interview. “I think it’s not a sustainable price. We have a lot of pressures, including the OPEC cuts.”
Brent crude oil for February settlement declined $1.77, or 4 percent, to $42.65 a barrel on London’s ICE Futures Europe exchange.
U.S. Stockpiles
U.S. crude-oil supplies rose 6.68 million barrels to 325.4 million barrels in the week ended Jan. 2, the highest since May, the Energy Department reported on Jan. 7. It was the 13th gain in 15 weeks.
Inventories at Cushing, Oklahoma, the delivery point for crude oil traded at Nymex, climbed to 32.2 million barrels, the highest since the Energy Department started tracking the supplies in 2004.
Oil for March delivery in New York is at a more than $5 a barrel premium to the front-month contract, while the December 2009 future is more than $18 above February-delivered supplies. The situation where near-term crude oil is cheaper than later- dated oil is called contango.
“When the front months are so weak, one is going to see inventories rise,” Mueller said. “It’s a no-brainer, you will buy oil now and store it if you have the storage capacity.”
Gasoline futures for February delivery dropped 3.51 cents, or 3.2 percent, to $1.0761 a gallon in New York. Heating oil for February fell 3.66 cents, or 2.5 percent, to $1.4511 a gallon.
Regular gasoline at the pump, averaged nationwide, declined 0.2 cent to $1.79 a gallon, AAA, the largest U.S. motorist organization, said on its Web site today. Prices have dropped 56 percent from the record $4.114 a gallon reached on July 17.
Oil prices also fell on speculation that OAO Gazprom, Russia’s natural-gas exporter, will resume fuel shipments to Europe. The European Union said Russia and Ukraine signed a natural-gas monitoring deal that may pave the way for the resumption of flows “by tomorrow morning.”
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
Last Updated: January 12, 2009 12:28 EST
Ukraine-Russia gas spat: some background and context
http://europe.theoildrum.com/node/4929
Posted by Jerome a Paris on January 3, 2009 - 9:40am in The Oil Drum: Europe
Topic: Policy/Politics
Tags: natural gas, original, pipelines, russia, ukraine [list all tags]
As we enter yet another episode of worried or sanctimonious articles about the gas conflict between Russia and Ukraine, it's worth remembering a few simple facts:
1) The conflict started in 1992, not in 2006;
2) Russia cannot win a gas war against Ukraine and knows it;
3) the real underlying stakes are not about Russia or Ukraine.
1) The conflict started in 1992, not in 2006
A given in most of the coverage of this episode is that these things have been happening over the past few years only. Everybody remembers the 2006 episode 3 years ago, which brought the issue to global awareness, and most coverage seems to think that this is when it all started. It's not. Russia and Ukraine started squabbling about gas as soon as the Soviet Union broke up, ie from 1992. There were cuts to gas deliveries to Western Europe in 1992 and 1993, which led the major importers - the GDFs, Ruhrgas and SNAMs - to set up offices in Kiev to try to understand what was going on and to bring pressure on the then new country of Ukraine to not interrupt gas deliveries.
I spent half a year in GDF's Kiev office in 1994, where I painstakingly collated local sources to prepare a report on the Ukrainian gas industry, and picked up most of the content for my PhD dissertation on the independence of Ukraine and its relationship with Russia, both of which were defined largely by gas. I've never been able to ascertain that Ukraine actually ever paid anything for gas to Russia then or since.
The reality is that the Soviet gas industry was born in Ukraine in the 1930s, and the infrastructure was built from there and Ukraine is still a central part of the gas pipeline network even as the focus of activity moved to Western Siberia. Splitting the Soviet Union along Republic borders made for an often unworkable allocation of physical assets, and nowhere was this more true than for gas. The consequence is that vital assets for Gazprom are located in Ukraine and thus no longer under its direct control.
The ties between the industry in the two countries are thus massive, impossible to unwind, and highly constraining. Effectively, as soon as there is a conflict between the two countries, the temptation to use the "gas weapon" (ie to hurt the other by, in the case of Russia, withholding gas or, in the case of Ukraine, withholding export infrastructure) is large - and it has happened repeatedly, until, each time, cooler heads prevail.
So you could go back and look into Ukrainian and Russian papers from any date over the past 17 years and find that they have articles about unpaid Ukrainian debts for gas (which, since 1992, have for some reason always been in the $1.5-2 billion range) and bilateral brinkmanship. Yet somehow the gas continues to flow every year.
So why do we think that the conflict started in 2006? Well, it's just that we started to care that year, for some easy-to-identify reasons:
* The 2004 orange revolution put Ukraine on the map, as a new, spunky member of the "democratic world" against the axis of evil and other assorted dictatorships, a group that Russia was beginning to join in the White House view. Never mind that Yuschenko was initially more pro-Russian than Yanukovich, hardliners in both the US and the Kremlin were happy to play this as a West vs Russia fight and it de facto became one. Suddenly, the arcane gas disputes that only a few buyers cared about became the battlefront between two large blocs, and one that the WestTM cared about.
* The run up in oil prices since 2003 has had an impact on gas prices (Russia's gas is sold to Europe at prices indexed, with a lag, to oil prices) and more generally on how much attention we give to energy-related issues. For Russia, the urge to get more money out of the gas delivered to Ukraine was growing; for the West, the attention paid to energy supplies similarly got more priority.
* More importantly, 2006 is the year when the UK became, it seems unexpectedly for its political leadership, a gas importer rather than a gas exporter. Suddenly, for the first time ever, security of gas supply became an issue for English-language experts. Somehow, this turned into Europe's dependency on Russian gas and Ukrainian transit being a big deal - never mind that Western Europe has been importing Russian gas for 40 years and that companies like GDF and Ruhrgas have been aware of the delicate situation of Ukrainian transit for 15 years.
* Almost at the same time, 10 Central and Eastern European countries joined the EU. As the majority were former Soviet satellites (or even Soviet Republics), they are very wary of Russia and most of them are highly dependent on Russian gas, because their supply infrastructure was built in the context of the COMECON. While they are not all in the same situation (in particular, transit countries have a lot more leverage), they have certainly encouraged the EU to focus on Russian gas supplies a lot more closely, and a lot more adversarially.
While these recent factors can explain why it's not unreasonable to care more today than in the past about the underlying conflict, there is no excuse not to provide the relevant context, ie that this is a long, simmering dispute that has no good guys and no bad guys and which has very little to do with us.
2) Russia cannot win a gas war against Ukraine and knows it
The most important bit of information that would need to be provided is why this conflict happens in the first place, and how it's been resolved in the past.
The reality of Soviet legacies is that Ukraine has a lot of vital Soviet-times gas infrastructure (the pipelines are an obvious item, but, just as significantly, Ukraine controls most of the storage capacity of the Russian export system, something rather important when you know that winter gas demand is 2-3 times summer demand and pipelines can be made smaller if you can ship gas all year long and store it close to markets for winter use). It is also a heavy-industry country, with very high gas demand. It has also mostly depleted its gas reserves, making it heavily dependent on gas from Siberia.
So there is a strong co-dependency, with Russia needing Ukrainian infrastructure to honor its export contracts to Europe, and Ukraine needing Russian gas. In the early years, there were additional constraints, such as the only Soviet manufacturer of large pipes used by Gazprom being in Ukraine, the only manufacturer of medium sized pipes (needed by the Ukrainians) being in Russia, and gas going to Southern Russia needing to flow through Ukrainian territory. I have written in detail about this co-dependency in this article: Ukraine vs Russia: Tales of pipelines and dependence (Dec. 30, 2005).
Ukraine used to get its gas allocation from Soviet planners, and continued to expect the same after independence. When Russia first tried to get payment fors its deliveries in the early 90s, it failed; when it first cut off gas to Ukraine to enforce payments, Ukraine simply tapped the gas sent for export purposes in Ukrainian-controlled pipelines; when European buyers howled, Russia relented and restored gas supplies without having managed to be paid by Ukraine. This happened repeatedly in 1992-1994 until both sides learnt not to make their disputes as public (ED: "not" added in last sentence).
The exact same thing happened over the years, but more discreetly. 2006 marked a change in that the dispute was thrust into the limelight once again, but fundamentally the same thing as before happened. The proof of this in January 2006, Russia restored deliveries before an agreement was announced. This was mostly overlooked in Western coverage of the crisis, as was the fact that the announced agreement was absurd on its face - everybody should have realised it was a sham (the price Russia claimed to be getting and the price Ukraine agreed to "pay" were not compatible, even with the inclusion of ultra cheap gas from Turkmenistan - and nobody asked why Turmenistan would agree to such a low price).
The hard fact is that Russia cannot cut off Ukraine for any period of time, because that endangers its exports (Kiev has always retaliated by siphoning exports), and Gazprom knows it perfectly well. The other hard fact is that, in practice, giving roughly 20% of its gas shipments to Ukraine as payment for transit (over an average of more than 1,000km) is an acceptable transaction for both sides. Of course, when prices for gas go up, as in recent years, the temptation to change the balance of the trade is tempting, but Russia simply has no practical way to do so.
If that is the case, why on earth does Russia play this charade every year - especially now that critical Western eyes are firmly locked on the issue?
I have a simple theory: it's all a distraction from what's really at stake.
3) The real underlying stakes are not about Russia or Ukraine
The leadership of Gazprom has long ago understood that it could not get any money out of official deliveries to Ukraine. It "solved" that problem in a completely different way, by privatising a portion of the gas trade to Ukraine - the portion going to customers able to pay for their gas. These customers used to pay the central Ukrainian gas company, which did not pass on that money to Gazprom. What was put into place was a mechanism whereby these customers would pay less for their gas, but would pay another supplier directly, formally unrelated to either Ukrainian gas authorities or Gazprom.
Of course, only gas coming from Russia could be delivered, and it still needed to use Ukraine's gas infrastructure, so the active cooperation of Gazprom, Russian and Ukrainian senior people was required to put that Trade in place (you can't move 30 billion cubic meters of gas per year without the approval of senior management, and cover from senior politicians) - but the very real money generated did not need to go either to Kiev or to Moscow. Thus the top people that enable that Trade are able to personally benefit massively from it - and effectively cut out both Kiev and Gazprom. (I have described this Trade in a long article for French think tank IFRI here: Gazprom as a Predictable Partner. Another Reading of the Russian-Ukrainian and Russian-Belarusian Energy Crises )
Now, such a juicy business attracts others keen to get in on the action. In Ukraine, political infighting can largely be understood, in my view, by the fight over who will be the Ukrainian counterparty to that Trade. (It's no coincidence that Yulia Timoschenko made her fortune in gas trading in the 90s, and that Yanukovich represents some of the largest gas-users from heavy-industry in Eastern Ukraine). In Russia, similarly, one has to go beyond the image of a monolithic Kremlin with its faithful Gazprom arm - both are rife with infighting and coalitions within both centers of power that come and go (as an example, just look how the 50% of Gazprom formally owned by the Russian State is split between at least two public bodies controlled by different senior Kremlin insiders).
So while the world is focused on the predictable public brinkmanship between Ukraine and Russia (Russia threatens, Ukraine appears to cave in at the last minute, but really doesn't, Russia cuts gas, Ukraine siphons gas, Russian is indignant, both sides make their case to Europe, Russia restores gas supplies, another meaningless agreement is announced), the real fight over the loot is taking place more discreetly between a few oligarchs in Moscow and Kiev. But nobody is talking about that. Which is the whole purpose of the theater show we are "offered."
Worries about Russia or Gazprom using the "gas weapon" against Europe are misplaced. In their official capacity, both are keenly aware of their absolute dependency on exports to Europe for a huge chunk of the country's income, and on the need for stable, reliable long term relationships to finance the investments needed in gas infrastructure (and they know their clients share that need). They are happy to play power politics with the West's worries as this goes down well with their own domestic audiences, but fundamentally they will not rock the gas boat.
Now, what is a lot more worrisome is that governments in Ukraine and Russia can tolerate--and indeed encourage--such blatant breaches of their authority and such large scale theft of what are effectively public resources. That the highest levels of government in both countries, and major bits of their infrastructure can be instrumentalised in what are disputes between unknown oligarchs only shows how little rule of law and accountability there is in these countries, and how powerless Putin really is when dealing with competing power factions.
Russian Gas Cuts: US-Afghanistan Connection?
http://www.middle-east-online.com/english/?id=29650
Russia has made a serious mistake on this occasion both in hasty action and in failing to perceive the probable hand of the US and a trap, notes Christopher King.
You will probably have heard of the present situation – you might well be suffering from it. Russian gas for Europe is being disrupted in transit through Ukrainian pipelines. Ostensibly it is about payment by Ukraine for its gas and renewal of the Ukraine-Russia contract for transit of the gas.
Russia says that Ukraine has not paid for its gas and in retaliation has reduced the amount pumped into the pipeline by the Ukraine proportion. Ukraine, it is said, nevertheless continued to “steal” gas from the pipelines, so reducing the amount available to European Union customers. As a further escalation, Ukraine restricted the quantity of transit gas to the EU and, Russia says, finally closed the pipelines.
The Ukrainians say that they are not stealing gas and there are “technical difficulties” that have caused problems with the onward flow of gas. Russia, they say, has now shut down the pipelines.
Ukraine does seem to have been using gas after Russia reduced supplies by its proportion but it is a legal question as to whether Ukraine is paying and complying with terms of its contract etc. It is not clear whether Russia believes that Ukraine is taking more than its contractual proportion, which would in fact be theft. As it is mid-winter, this is the best time for Ukraine to attempt to force more favourable gas prices and transit terms from Russia. There was a similar dispute in the winter of 2006. By reducing the supply of gas to the pipeline and expecting Ukraine to stop using gas, the Russians have been heavy-handed and unwise even if all they say is correct. What is more important is who has closed down the pipeline. Russia and Ukraine accuse each other. This is question of fact that will be determined on investigation. Pipeline issues rely entirely on the integrity of the participants. Gas, oil or whatever is put into the pipeline at one end and hopefully it arrives at the other end as expected.
We should note, however, that it is absolutely not in Russia’s interests to close off the pipelines to the EU since the reliability of Russian gas supplies was an important issue in the 2006 dispute. Russia has been at pains to reassure the EU on this. The Ukrainian position is not so clear. Apart from a cash shortage, Ukraine has other issues with Russia, for example, Russia’s use of Sevastopol for its Black Sea Fleet. If the EU were to find alternative gas supplies due to Russian unreliability, so reducing Russia’s European market, Ukraine would be in a stronger position as a buyer of Russian gas. Ukraine is also engaged in discussions for joining the EU and NATO so a dispute with Russia might have advantages. In these circumstances the Russian version of the pipeline closure is more credible. This might be the entire position.
I wish to examine, however, if other parties might benefit from this dispute. It would be a simple matter to plan this dispute and to predict Russia’s response. It is a re-run of the 2006 dispute but has been made more severe than 2006 by the closure of the pipelines. The extreme concern in the EU, I repeat, is far from Russia’s best interests. However, from an EU viewpoint it is irrelevant whether the unreliable party is Russia, Ukraine or both. If the supply is unreliable the EU will seek alternative supplies. Who could gain from this?
As it happens, the United States wants to build a gas/oil pipeline through Afghanistan and, as you read, is slaughtering its inhabitants to gain control of that country for this purpose. As it also happens, the US’s new president ,Barack Obama, has stated that he will increase US troop levels and will ask the EU and NATO to contribute more troops to Afghanistan. The EU countries are increasingly reluctant participants. By contrast, our unelected prime minister, Gordon Brown, has already rushed to send 300 additional UK soldiers to risk their lives and kill more Afghans in this occupation that, along with Iraq, has disgraced the UK.
A perfectly credible scenario, therefore, is that the US is behind this dispute, with the objective to renew wavering EU support for its war in Afghanistan.
Why should anyone believe this? As I have outlined previously, Russia and the EU have developed close economic links and have been on track to create greater economic integration. It is in the interests of the US to prevent what could become an EU-Russian economic and military superstate. The US seeks confrontation with Russia, as evidenced by bringing former Soviet satellites into NATO, contrary to agreements, abrogation of the ballistic missile defence treaty with Russia, installation of a missile system in Poland and the Czech Republic on Russia’s borders and support for the Georgian invasion of South Ossetia. The US needs trouble in Europe to maintain its own military and failing economic position. NATO officers and ministers are happy to support the US’s trouble-making in Europe and elsewhere, since peace means loss of jobs, promotion prospects and careers. NATO ministers, of course, get lucrative directorships and consultancy contracts with the defence industry after their periods in office. This is why NATO is in Iraq and Afghanistan and is rearming Georgia, none of which is in EU interests. There can be no doubt that the US is following a “spoiling” strategy with regard to EU-Russian relations.
One can easily see that wherever in the world there is trouble, the US is there as well, with troops, advisors, weapons or money. The US needs enemies, not only to feed its military-industrial complex that efficiently transfers public funds to private pockets, but because wars give opportunities. Peaceful business competition has now become very difficult for the US now that Asia has taken over most of the world’s manufacturing and it has undermined its own and the rest of the world’s financial system with its debt and worthless securities. For the time being, the US has an unchallengeable military force. Well, unchallengable in nuclear terms anyway, as the Afghans with a military budget of almost zero are demonstrating. It is seeking means of turning this to economic advantage. This is, after all, the only justification for having such a force. It needs to be used and preferably show a return.
We have seen how the US has used military power to its advantage in Iraq, where it has been stealing oil since the invasion. There is Afghanistan and US ambitions for Iran, stalled for the moment due to the good work of the International Atomic Energy Agency and the Israeli-Palestinian conflict, the US’s firmest foothold in the Middle East. All trouble. This is before we consider Pakistan, India, the rest of Asia, North Africa and South America. The US creates trouble everywhere.
The Russians have probably fallen into an American trap. They were predictable because of the way they dealt with the 2006 dispute and that was used against them to get EU support for the war in Afghanistan for America’s pipeline there. Merely a conspiracy theory? On the US’s record of lies and deceptions that gave rise to the invasions of Afghanistan and Iraq, absurd charges against Iran and the ruthless killing of people in their own countries everywhere – the pattern fits.
The reality is that the US is no-one’s friend. It seeks only its own interests. Here’s a UK example. UK and US soldiers fought together from their bases in the UK against Germany and spilled blood as comrades during World War II. The UK entered into a lend-lease purchasing agreement for equipment and supplies from the US that exhausted the UK Treasury. After the war, the UK did not have the funds to rebuild. The UK government sent the eminent economist J.M. Keynes to the US to attempt to have these obligations converted to a grant. Keynes and the UK government believed that the Americans would be sympathetic to their plight due to their recent experience as comrades-in-arms. Keynes wanted either a grant to cover the balance of payments deficit or an interest-free loan. The US negotiators were entirely unsympathetic, gave Keynes a very difficult time (he was ill and died soon after) and would only agree to giving the UK interest-bearing loans, although at a low 2 per cent interest. These, equivalent to about GBP 50 billion, were repaid in 2006.
Germany, which had created the trouble, received about GBP 20 billion (2005 RPI basis) of which 60 per cent was grants, 30 per cent economic loans and 10 per cent military aid. The Germans had cleverly argued that it was in the US’s interests to give them grants. Japan received about GBP 10 billion (2005 RPI basis) of which 77 per cent was grants and 23 per cent loans. That the US gave no consideration to the relationship forged in war between the US and UK appears to have affected Keynes deeply. This is the key to understanding US strategic considerations. It does nothing unless to its own perceived benefit.
It is highly probable, therefore, perhaps 90 per cent probability, that the US has offered inducements for Ukraine to disrupt gas transit to the EU in order to create insecurity about Russian supplies and gain support for its Afghanistan war. This would be very easy. One million dollars each in the Swiss accounts of, say, 20-40 key politicians and officials and Ukraine’s performance is guaranteed. And cheap. Paul Craig Roberts, who was assistant secretary of the Treasury in the Reagan administration, says that in post he learned that simply giving cash is the preferred means of getting other countries, including Europe, to do what the US wants.
Perhaps I am too harsh on Ukrainian politicians. If they are true patriots the US can offer them strong support in joining the EU and NATO, as it has given the other former Soviet Union (FSU) countries. These countries, still recovering from Soviet occupation, have not thought through their obligations in the EU. They all have a grudge against Russia so a US offer of cash or benefits to land a punch on Russia would be irresistible.
Here’s an example of how the FSU politicians think. Recently, the Czech parliament voted to bring the country’s troops home from Afghanistan and Kosovo. Prime Minister Mirek Topolanek condemned the vote and declared that he was “ashamed of being Czech”. On 18 December I attended a lecture by Mr Topolanek at the London School of Economics (LSE). (This lecture has not been made available on the LSE website) Unhappily, it was very general and uniformative. In the course of responding to a question from the audience, however, Mr Topolanek said, through an interpreter, “It was in 1991 that the last Russian soldier left my country. I lived 30 (?) years under communism and repression. The missiles are now my security.” This is a reference to the US missile system to which Russia objects so strenuously. Now Mr Topolanek is a mechanical engineer. It is possible that he really believes that there is a simple, mechanistic system by which a Russian attack on his country will be met by an automatic NATO attack on Russia. That scenario is extremely unlikely. Whatever else might happen in that event, he can be certain that if NATO does respond militarily, there would be a devastating, possibly nuclear war on Czech territory. Russia and NATO will choose their battleground carefully. He is either gravely politically naïve or has been bought (bought = 20 per cent probability. Fairly low) Watching him, I concluded that he:
• Dislikes the Russians intensely
• Believes that the US stands for freedom and democracy
• Has received specific defence assurances from the US and believes them. He has made deals with the US on the missiles, on Afghanistan and will doubtless support the US in the United Nations and in other respects
• Thinks of the EU purely in terms of economic benefits without regard to the underlying rationale that the EU’s purpose is to make war in Europe impossible through economic integration
• Will pursue his own objectives irrespective of the wishes of other EU members
Mr Topolanek is not a good European and seems to be typical of FSU politicians, whether these are their natural inclinations or whether they have been bought by the US. Mr Topolanek is “ashamed of being a Czech” because he cannot deliver on his deal with the Americans.
If the “Old European” members of the EU do not address these problems, the EU will fail and until they are addressed it should take in no new members:
• NATO acting as an arm of US foreign policy
• The US making unilateral deals with EU members
• The failure of former FSU countries to understand the purpose and implications of EU economic integration
• Formulating a Russia policy independently of the US, both for NATO and in terms of further Russian integration.
Russia also has problems that need to be addressed. Unless it moves in the direction of political reform, further integration will become difficult. Russia also needs to consider the perceptions of the EU countries more carefully. After the South Ossetian debacle it should be clear that the US’s political supporters, for their various reasons, will always put the worst possible interpretation on Russia’s actions. These, particularly our UK politicians, are supportive of the US to a dangerous extent. Their accusations against Russia over Georgia’s invasion of South Ossetia were factually incorrect. This was a critical test case in which our politicians did not base their statements on facts. They rushed around for weeks shouting threats and blame without any knowledge of facts at all. Nor did they base their decisions on facts in their Iraq war vote. It is clear, therefore, that in the event of a real emergency these people will be worse than useless; they will be dangerous to the UK. We could find ourselves in a nuclear war because of their stupidity, as might have been the case if Georgia had been a member of NATO. This scenario, in which one of the FSU NATO members provokes a military response from Russia, conceivably influenced by the US, should be given urgent consideration by the EU.
Russia’s responses do lack subtlety and strategic thought. As its own responses were predictable, so were those of Ukraine. It should not have reduced gas supplies to Ukraine in the middle of winter, no matter what the provocation. It should have maintained supplies under loud protest and sorted the matter out in summer when it would have EU sympathy and appreciation. Clearly, Russia wants to be seen as independent and believes itself to be right in this dispute. It probably is. Nevertheless, its actions do not reassure the EU on energy security.
Here’s a strategy for Russia: This is really a marketing issue. Russia must create a strong brand or reputation that should be for predictability, reliability and factual correctness. It has an advantage here because the US and UK have squandered their trust and are believed by no-one. Russia should create a small informal consultancy group of trusted ministers or former ministers from Old Europe, perhaps Germany, Holland and Belgium – members of the former Iron and Coal Community. I would also include France if President Sarkozy were not a committed Zionist and US supporter, so France after Sarkozy has gone. It should be possible for ministers or Gazprom executives to call a video conference at short notice for the discussion of trade problems. This would be a kind of marketing focus group that would not only advise Russia, but also educate its executives and politicians about EU thinking, which is consultation before confrontation. Russia must learn to work more closely with the EU and with more trust if further economic integration is to occur. Former Russian Prime Minister, Yegor Gaidar’s account (Days of Victory and Defeat) of the reform of the Russian political system and economy gives an indication of the thinking that probably persists in Russia.
I am aware that Russians will consider that this suggestion is asking them to behave with weakness and indecision. They want to project confidence, strength and independence, etc. The position is that everyone knows that Russia is strong militarily and is in a powerful position with regard to energy supplies. It does not need to respond aggressively to every provocation. In this case, consideration for the people of Ukraine’s welfare rather than an attempt to punish their probably bribed politicians would have gained enormous goodwill both in that country and the EU. This is what the true spirit of the EU must be. Russia must develop a more measured, considered and consultative approach. What does if matter if Ukraine is creating problems? The EU should be involved in sorting them out and if there is duplicity, let everyone see it. Russia has made a serious mistake on this occasion both in hasty action and in failing to perceive the probable hand of the US and a trap. It should attempt recovery by immediately restoring gas supplies as far as it can and by adopting measures to avoid similar problems in future.
Christopher King is a retired consultant and lecturer. He lives in London, UK. This article appeared in Redress Information & Analysis.
The Peak Oil Crisis: Cars - Redux
Written by Wayne Besen
Thursday, 08 January 2009 12:32
http://www.fcnp.com/index.php?option=com_content&view=article&id=3962:the-peak-oil-crisis-cars-redux&catid=17:national-commentary&Itemid=79
I hate to keep coming back to cars, but in the last hundred years they have come to be one of the most significant facets of civilization - yet their future is in doubt.
Here in America they are clearly the fundamental implement of life for most of us. Their manufacture, financing, care and feeding provides employment for millions. They bring us to work, food, entertainment, shopping, education, love, friendship. In short. nearly all of American life is intimately involved in unrestricted access to our cars. This, of course, is why we have some 250 million of them running around our country and some 900 million running around the world.
Cars have been much in the news lately. New ones have not been selling too well in recent months and their manufacturers, at least in the U.S., are bankrupt. For the next few weeks, the companies will live off government handouts until the new President and Congress decide just how to let them die. GM just announced that for the first quarter of 2009 it plans to produce 420,000 vehicles. This is 180,000 fewer vehicles than it planned to produce just two weeks ago and is down 53 percent from the first quarter of 2007. With numbers like these, it is clear that the end is coming soon.
Unless you are employed in the automobile industry or indirectly make a living from the manufacture or sale of motor vehicles, the demise of Detroit-as-we-know-it will probably not make too much difference to our mobility. Our inventory of about 250 million registered passenger vehicles is about 50 million more vehicles than we have licensed drivers. We can obviously stop adding to the fleet, jack up vehicle maintenance a bit, cut annual mileage, and get along for decades without seriously impairing the important aspects of the nation's mobility.
Shortly, the problem, of course, will not be the cars, but the gasoline and diesel to power them. At the minute, gasoline prices are hovering around an all-time inflation adjusted low; however, this situation is reversing again. OPEC is in the midst of cutting its production by 4.2 million barrels a day (b/d) and U.S. gasoline consumption seems to be inching up again despite increasingly severe economic problems. Within a year or two we could be back over $100 a barrel again and given the likely condition of the economy by then, demand for motor fuel will fall.
The future of the car has become the subject of much debate. It seems likely that most large gas-guzzlers will be out of production within a year or so. Nearly all automobile manufacturers around the world are working on all-electric or plug-in hybrid electric cars that are due to start coming on the market in two or three years. If it were possible to replace the world's light vehicle fleet quickly with cars that ran at least partially on electricity or got over 100 miles per gallon, then there is a chance that the demand for liquid fuels would fall faster than depletion and the problem could be put off for several decades.
For many observers, the notion of replacing our current fleet of cars with some form of electric ones is absurd. Their argument is that there will simply not be enough resources to make the transition. There will not be enough lithium for the batteries; global warming carbon caps will limit industrial production; and consumers impoverished by the continuing financial meltdown will not be able to afford what are likely to be expensive replacements for our current cars. If as seems likely, much of the world's capacity to produce automobiles is going to be shut down in the next couple of years, the likelihood of gearing up and replacing hundreds of millions of cars before sizeable declines in the world's oil production sets in is remote.
Plug-in electric cars of various stripes, of course, will come onto the market and it is likely that millions will be produced and sold in coming decades, but this will only make a minor dent in the U.S. fleet of 250 million passenger vehicles, not to mention the 900 million or more that will be running around the world. So what is likely to happen?
With increasing gasoline prices and falling family incomes, unlimited use of private cars that nearly all in America now enjoy will start moving back up the socio-economic tree. The fortunate, who can afford the new generations of ultra high-mileage plug-in cars, will not have to worry about increasing gasoline prices, shortages or rationing. For the rest, use of the aging fleet of our current car inventory will gradually be reduced. Car pools and public transit are likely to become far more prevalent. Efficient cars will become more desirable as gasoline approaches unaffordable prices.
The very nature of the car will likely evolve to a smaller more utilitarian device to compensate for declining incomes and high gas prices. Consumer perceptions about what constitutes a desirable car that grew up in last 50 years will no longer matter. Various forms of government intervention into the automobile and oil industries - ranging from tax policies to ownership -- will have a major influence in the evolution of cars during the coming decades. In Europe, 30 years of high liquid fuel taxes have resulted in a civilization that uses about half the oil per capita that we use in America. There are already calls in the U.S. for much higher, possibly varying, gasoline taxes to stem roller coaster gasoline prices.
This situation cries out for Presidential leadership if the mobility and freedom and economic benefits of the ubiquitous personal car are going to last much longer. With the U.S. automobile industry in a death spiral and with neither the America's consumer nor the industry leadership basing decisions on much more than wishful thinking, the new President will have to set a new sustainable course and soon. The objective of course would be to start producing a passenger car fleet that will run on a fraction of the current energy and be affordable in the troubled times ahead.
Gas was $1.35 here on Friday and then Saturday jumped to $1.51.
Venezuela’s Chavez Scraps U.S. Heating Oil Program (Update2)
http://www.bloomberg.com/apps/news?pid=20601086&sid=aWgTFFoO7G4w
By Steven Bodzin
Jan. 5 (Bloomberg) -- Venezuelan President Hugo Chavez, under pressure to maintain domestic social programs as his country’s oil income falls, ended a three-year-old program that provided heating oil to low-income households in the U.S.
Citgo Petroleum, the U.S. refining unit of state oil company Petroleos de Venezuela SA, is suspending deliveries of the oil “until further notice,” Joseph P. Kennedy II, president of Citizens Energy Corp., said today on his company’s Web site. Boston-based Citizens Energy handled logistics for Citgo’s program and will keep providing below-market-rate oil to some customers, he said.
Chavez on Dec. 31 reduced foreign currency allotments as the first step to address the effects of the decline in Venezuela’s oil price, which plunged 75 percent since reaching a record in July. Caracas, Venezuela-based Petroleos de Venezuela, the biggest oil exporter in the Americas, is reviewing “everything” to save money, Rafael Ramirez, the company’s president, told reporters Oct. 30 in Caracas.
The heating oil program is the latest philanthropy to fall victim to a global financial crisis that has slashed endowments and donations. In December, National Public Radio cut 64 jobs and forecast a 2009 deficit, and the collapse of U.S. money manager Bernard Madoff closed New York’s JEHT Foundation.
“We’ve seen foundations getting socked big time,” Monica Wroblewski, spokeswoman for the Washington-based Council on Foundations, said in an interview. “We’ve calculated that this year they’ve lost an estimated $200 billion in assets” based on stock market performance in 2008.
Social Programs
Chavez promised not to cut social programs, which receive about half their funds from oil revenue.
Crude oil futures traded in New York fell by half last year, the first annual decline since 2001. Oil rose today 4.5 percent to $48.43 a barrel at 2:47 p.m. local time.
Oil prices “are coming along, recuperating, seeking stability,” Chavez said today in remarks on state television. “The oil-exporting countries are very united” in the effort to raise prices to a stable level, he said.
The Organization of Petroleum Exporting Countries agreed to a record 2.46 million-barrel-a-day cut at a meeting in Oran, Algeria, on Dec. 17. OPEC’s 13 members produce more than 40 percent of the world’s oil.
Petroleos Venezuela’s suspended program provided 2.67 million barrels of oil at a 40 percent discount last winter, according to Citgo’s Web site. Fernando Garay, a spokesman for Houston-based Citgo, had no immediate comment.
Serving Shelters
The program served 180,000 U.S. households, 250 shelters and 37 Native American tribes, in the winter of 2006 into 2007, Citgo said on its Web site. It expanded last winter, when heating oil rose above $3 a gallon. The price fell to $2.33 a gallon as of Dec. 29, according to the U.S. Department of Energy.
Chavez started the program after meeting the Reverend Jesse Jackson, a U.S. civil rights leader. The program formed the basis of advertising campaigns still visible at the program’s Web site.
“Thanks to oil donated by the people of Venezuela at Citgo, there’s finally help,” Kennedy said in one of the ads.
To contact the reporter on this story: Steven Bodzin in Caracas at sbodzin@bloomberg.net.
Last Updated: January 5, 2009 15:38 EST
European gas supplies disrupted
http://news.bbc.co.uk/2/hi/europe/7812860.stm
Ukraine has denied taking any of the gas meant for Europe for its own use
Several European countries say their supplies of Russian gas have been cut or sharply reduced amid an energy price dispute between Moscow and Ukraine.
Serbia, which has had its supply completely cut, said it was a "critical" situation.
Countries as far west as Italy and Austria say they have received only 10% of their expected supply.
Amid cold weather across the continent, the European Commission said the supply cut was "completely unacceptable".
The EU depends on Russia for about a quarter of its total gas supplies, some 80% of which is pumped through Ukraine.
Ukraine's main energy company, Naftogaz, says talks with Russian counterpart Gazprom aimed at resolving the crisis are due to resume in Moscow on Thursday.
Naftogaz chairman Oleh Dubyna made the announcement, but it has not yet been confirmed by Gazprom.
Russia stopped supplying gas to Ukraine on New Year's Day in a row about unpaid bills. The row comes amid a cold snap across Europe likely to push up demand for gas. EU GAS IMPORTS FROM RUSSIA
100% dependent on Russia: Latvia, Slovakia, Finland, Estonia
More than 80% dependent: Bulgaria, Lithuania, Czech Republic
More than 60% dependent: Greece, Austria, Hungary
Source: European Council on Foreign Relations, 2006 figures
Pressure rising as gas supplies fall
Europe's need for Russian gas
Gazprom accuses Ukraine of an "unprecedented" shutdown of transit pipelines. It says only 40m cubic metres of gas is getting through to Europe, instead of 225m cu m.
Serbia's Srbijagas, which imports 92% of its natural gas from Russia, said it had about 10 days' of gas left, Reuters reported.
Slovakia says it will declare a state of emergency over the drop in gas supplies, though it aims to prevent the shortage hurting key public services and ordinary consumers.
The Austrian energy company OMV said it would now have to tap into its gas reserves after its supply fell to 10% of the expected level.
Bulgaria, almost wholly dependent on Russian gas via Ukraine, says it has sufficient supplies for just a few days. It says no more gas is flowing through a pipeline that also supplies Turkey, Macedonia and Greece.
Bulgarian President Georgi Purvanov said the situation was grounds for restarting a nuclear reactor, shut as part of Bulgaria's accession to the EU in 2007.
Gazprom decided to cut exports through Ukrainian pipelines by a fifth in a row over unpaid bills.
Wide impact
Early on Tuesday, Ukraine's Naftogaz said Russia had cut gas transit supplies by more than two-thirds and listed nine countries, including Germany, Poland, and Hungary which would receive reduced supplies as a result.
Gazprom's Alexander Medvedev said gas flow through Ukraine was a fraction of its usual level
"Naftogaz of Ukraine considers that in such a case if European users receive less volumes of natural gas, all claims of the noted countries must be directed to Gazprom," said a statement on the company's website.
Russian gas supplies to Turkey via Ukraine have been completely cut, the Turkish government said.
The Turkish government announced it was increasing the flow through an alternative pipeline, under the Black Sea, to compensate.
Turkey gets about 65% of its gas from Russia and about one-third of its daily supply has now been cut, the BBC's Sarah Rainsford reports. But the government says it has sufficient gas stocks to avoid immediate economic hardship.
Czech supplies also fell significantly overnight, and Croatia, which imports 40% of its gas, said supply of Russian gas via Ukraine had completely halted.
EU deplores quarrel
In a statement on Tuesday, a European Commission spokesman said that "without prior warning and in clear contradiction with the reassurances given by the highest Russian and Ukrainian authorities to the European Union, gas supplies to some EU member states have been substantially cut - this situation is completely unacceptable".
"The Czech EU presidency and the European Commission demand that gas supplies be restored immediately to the EU and that the two parties resume negotiations at once with a view to a definitive settlement of their bilateral commercial dispute."
The new EU member states in Central and Eastern Europe are heavily - and in some cases entirely - dependent on Russian gas imports. Yet Germany and Italy together account for nearly half of the Russian gas consumed in the EU.
German Economy Minister Michael Glos called on Russia and Ukraine to resume talks, and is due to hold talks with senior Gazprom officials later on Tuesday.
But he said Germany could cope with any shortages. "Gas storage sites are full. And Germany gets its gas from different sources, for example from Norway or the Netherlands. Supplies from there could be increased," he said.
Many other countries are now tapping strategic reserves, built up to cope with just such a development, says the BBC's Europe correspondent Nick Thorpe.
Gazprom has promised to pump extra supplies through other pipelines - the Yamal from Arctic Russia through Belarus to Germany, and the Blue Stream to Turkey under the Black Sea.
'Gas stolen'
The move to reduce supplies going through the Ukraine by a fifth came after Russian Prime Minister Vladimir Putin held talks with Gazprom CEO Alexei Miller.
Mr Miller recommended that deliveries via Ukraine should be reduced "by the amount stolen by Ukraine, that is 65.3 million cubic metres of gas".
Ukraine has denied stealing gas, saying technical problems are disrupting the onward flow of gas to Europe.
The row between Russia and Ukraine has been simmering for weeks. Gazprom says Ukraine owes it more than $600m (£413m); Ukraine says it has paid its debt. The two sides have also failed to agree on the price Ukraine should pay for gas in 2009.
A similar row between Gazprom and Ukraine at the beginning of 2006 led to gas shortages in several EU countries.
EU officials have been meeting in Brussels to discuss the dispute and a delegation has also been sent for talks with both Ukrainian and Gazprom officials.
Gazprom wants Ukraine to pay $450 per 1,000 cu m of gas - more than double what Kiev says it is willing to pay, yet still less than what most EU states pay.
thx to mbc
IRANIAN COMMANDER CALLS ON ISLAMIC WORLD TO CUT OIL EXPORTS TO ISRAEL'S SUPPORTERS...
http://africa.reuters.com/wire/news/usnDAH452978.html
Cut oil sales to Israel's backers-Iranian commander
Sun 4 Jan 2009, 15:47 GMT
TEHRAN, Jan 4 (Reuters) - An Iranian military commander called on Islamic countries to cut oil exports to Israel's supporters in response to the Jewish state's offensive in Gaza, the official IRNA news agency reported on Sunday.
IRNA said commander Bagherzadeh described oil as "one of the powerful elements of pressure" on the Jewish state's Western backers in the "unequal war" faced by Palestinians in the coastal strip.
"Pointing at Westerners' dependence on the Islamic countries' oil and energy resources, he (Bagherzadeh) called for cutting the export of crude oil to the Zionist regime's supporters the world over," IRNA said, referring to Israel.
IRNA gave only the commander's last name but it may have been referring to Mirfeysal Bagherzadeh, a brigadier-general of Iran's elite Revolutionary Guards. There was no immediate comment from other Iranian officials.
Iran, which often rails against the United States and Israel, is the world's fourth-largest oil producer and a leading member of the Organization of the Petroleum Exporting Countries (OPEC). Top exporter Saudi Arabia is a U.S. ally.
Israeli soldiers and Palestinian militants battled in Gaza on Sunday after Israeli troops and tanks invaded the coastal enclave in the most serious fighting in the conflict in decades.
Israel's attacks on Gaza have sparked repeated protests in Iran, an Islamic state which does not recognise Israel.
In 1973, Arab countries directed an oil embargo at Israel's supporters in the Arab-Israeli war, causing the first oil shock. Primarily the United States but also Japan, the Netherlands, Portugal and South Africa were affected. The price of oil quadrupled to almost $12 a barrel and inflation infected the economies of other industrialised countries.
Crude is now trading at about $46 after plunging by some $100 since July on the global financial crisis and a weakening world economy.
IRNA, which did not provide direct supporting quotes, said Bagherzadeh was speaking about the measures Islamic countries could take in response to Israel's attacks on Gaza.
"Among the tactics the world of Islam can use to help the innocent Palestinian people, Bagherzadeh called oil one of the powerful elements of pressure on the Zionists' European and American supporters in the unequal war," IRNA said.
Bagherzadeh is the director of Iran's Foundation for the Preservation of Works and Publications of Sacred Defence Values, IRNA said.
Iran is embroiled in a row with the West over its nuclear programme and has in the past threatened to close the Strait of Hormuz, a strategic transport route for global oil supplies, if it is attacked by the United States or Israel. (Reporting by Hashem Kalantari; Writing by Fredrik Dahl; Editing by Janet Lawrence)
© Reuters 2008. All Rights Reserved. | Learn more about Reuters
2009 - Year of all economic lows according to Saxo Bank predictions
http://www.ibtimes.com/articles/20081230/saxo-bank-predictions.htm
30 December 2008 @ 02:35 pm EST
Next Politics & Policy Article
Saxo Bank has made a series of gloomy economic predictions for the year ahead.
Crude trading is predicted to hit as low as $25 per barrel. S&P 500 will fall 50% to 500. China's GDP growth will fall to zero. EURUSD will fall to 0.95. These are some of the more shocking predictions for the year ahead.
According to Saxo Chief Economist, David Karsbol, 2009 will be a turning point as things can't get much worse than what they already are.
Saxo Bank's Outrageous Claims for 2009:
1. There will be severe social unrest in Iran as lower oil prices mean that the government will not be able to uphold the supply of basic necessities.
2. Crude will trade at $25 as demand slows due to the worst global economic contraction since the great Depression.
3. S&P will hit 500 in 2009 because of falling earnings, vaporizing housing equity and increased cost of funds in the corporate sector.
4. The EU is likely to crack down on excessive government budget deficits in several member states, and Italy could live up to previous threats and leave the ERM completely.
5. The AUDJPY will drop to 40. The decline in the commodities markets will affect the Australian economy.
6. EURUSD will fall to 0.95 and then go to 1.30 as European bank balances are under tremendous pressure because of exposure to the faltering Eastern European markets and intra-European economic tensions.
7. Chinese GDP growth drops to zero. The export driven sectors in the Chinese economy will be hurt significantly by the free fall economic activity in the Global Trade and especially of the US.
8. Pre-In's First Out. Several of the Eastern European currencies currently pegged or semi-pegged to the EUR will be under increasing pressure due to capital outflows in 2009.
9. Reuters/ Jefferies CRB Index to drop to 30% to 150. The Commodity bubble is bursting, with speculative excesses so large they have skewed the demand and supply statistics.
10. 2009 will see the first Asian currencies to be pegged to CNY. Asian economies will increasingly look towards China to find new trade partners and scale down their hitherto US-centric agenda.
Russia shuts off gas to Ukraine
http://therearenosunglasses.wordpress.com/2009/01/01/russia-shuts-off-gas-to-ukraine/
My Top 10 Energy Stories of 2008
LOTS of hypertext:
http://www.theoildrum.com/node/4896
Posted by Robert Rapier on December 29, 2008 - 9:52am
Topic: Miscellaneous
Tags: barack obama, cellulosic ethanol, ethanol production, oil prices, original, peak oil, windfall profits, xethanol [list all tags]
Tis the season for Top 10 stories, and here are what I think were the Top 10 energy stories of the year.
1. Unprecedented volatility in the energy markets
Oil prices raced to nearly $150 a barrel, and then fell to the $30's by year end. This marks the highest ever prices for oil, followed by the lowest prices in four years. Gasoline, diesel, and natural gas prices demonstrated the same kind of volatility. There are multiple factors behind the volatility. The role of speculation was hotly debated, and the economic collapse - fueled by cash-strapped consumers who had overextended themselves - resulted in a sharp drop in demand. Some even argued that the real reason behind the plunge in prices was closure of the so-called "Enron loophole."
2. Oil price volatility fallout
A consequence of the incredibly volatility was the economic damage done at both ends of the price spectrum. At the upper end, airlines were going bankrupt and car companies were in deep financial trouble as consumers stopped buying the higher profit margin SUVs. After oil prices plunged, some non-integrated oil companies found themselves in financial trouble, including Flying J who declared bankruptcy.
3. Barack Obama elected
In a normal year, this would have been my #1 story, considering that the new administration has put such a major focus on energy and is likely to attempt a major shift away from fossil fuels. My prediction is that reality is going to collide with enthusiasm, and while gains are likely to be made along several fronts, aggressive renewable energy targets will not be met.
4. Ethanol producers struggle
Despite production mandates and generous federal subsidies, ethanol producers struggled to make a profit. A combination of high corn prices followed by falling fuel prices pushed even some of the largest ethanol producers to bankruptcy. Corn growers fared much better, as higher prices and mandated demand from the ethanol industry provided them with the same sort of windfall seen recently by the oil industry (prompting some to ask whether a windfall profits tax on corn would be good for consumers). Xethanol finally ceased operations, as I had predicted in early 2007.
5. Somali pirates hijack supertanker
Somali pirates, emboldened by recent multi-million dollar ransom payments, hijacked a Saudi supertanker carrying $100 million worth of oil. At the time of this writing, the situation remains unresolved, although the value of the oil at current market prices is now considerably less than $100 million.
6. 2nd generation ethanol is delayed
The story this year was supposed to be "2nd generation ethanol production begins", but alas the over-promise, under-deliver meme that I have been critical of continues. Range Fuels had initially intended to start producing in 2008, but that was delayed to 2009 and now production isn't forecast to begin until 2010. Meanwhile, other 2nd generation ethanol companies continue to promise the world, including Coskata who claims they can make ethanol for "under US $1.00 a gallon anywhere in the world." (I took a good look at those claims here.) Finally, according to this source (another here), of the six cellulosic ethanol projects selected to receive $385 million in federal funding in February 2007, almost two years later only one plant is actually under construction (Range Fuels).
7. Peak oil becomes fashionable, then unfashionable again
High oil prices demanded an explanation, and peak oil was ready to provide that explanation. 2008 was probably the year that the mainstream began to seriously discuss and debate peak oil. However, when prices began to plunge, the peak oil skeptics began to say "I told you so." Others suggested that this was just a continuation of the normal cycles.
8. Gas stations in the southeast run out of gasoline in the wake of Hurricanes Gustav and Ike
Some major oil refineries that shut down in the face of Hurricane Gustav had to remain shut down with Hurricane Ike following closely behind. Gasoline inventories heading into the hurricanes were low, so it wasn't long before spot outages began to show up across the southeast. As I predicted during a panel session at this year's ASPO conference, the outages were likely to be short-lived, and inventories would recover as refineries came back online. This was in response to wide-spread concern, partially fueled by Matt Simmons' presentation, that the outages were the beginning of something much more widespread. (I think my answer was literally "This situation is temporary. I expect inventories a month from now to be substantially higher.")
9. "Drill here, drill now"
Momentum for more exploration and production in U.S. waters increased along with oil prices. This became a campaign theme for Republicans, who adopted the slogan "Drill here, drill now." President Bush lifted a moratorium on offshore drilling. Democrats initially responded with calls for oil companies to be forced to drill on current leases before opening up new ones. However, Congress - facing constituents unhappy with high gas prices - ultimately followed suit and allowed the 25-year moratorium to expire. The response from then candidate Obama was that he wasn't happy to see the moratorium expire, and that he favored "responsible" drilling as part of a broader energy package. My own proposal was to allow drilling and funnel the lease proceeds to alternative energy, mass transit, and other initiatives designed to reduce oil consumption. This proposal later received quite a lot of attention when Paris Hilton proposed the same thing.
10. Record profits by US energy companies
On the back of high oil prices, the integrated oil companies (those who produce both oil and refined products like gasoline and diesel) once again saw record profits. There was an interesting dichotomy, however, as downstream profits in the refining sector vanished as gasoline consumption fell. Pure refiners like Valero saw their profits crash.
That's more or less what I think were the Top 10 stories of 2008. There were quite a few in the honorable mention category, such as T. Boone Pickens energy plan, the decision by OPEC to reverse direction and propose big production cuts, falling oil production in Russia and Mexico, and postponed investments in the wake of lower prices.
So, what did I miss? Which stories do you think should be ranked in a significantly different order?
In closing, Happy Holidays to all readers. I am going to be offline for a while to spend some good family time. Here's hoping that you all have the same opportunity.
The Coming Oil Train Wreck
First stop: Mexico?
BY TONY ALLISON
GOOD. We must have pain in order to get off oil. HEMP? Nah. Abundance? We want you to believe in lack so we will start with oil. First law of nature is ABUNDANCE. No exception for energy.
http://www.financialsense.com/Market/allison/2008/1222.html
Only a true contrarian can worry about high oil prices, shortages and global economic shockwaves when the price of oil has fallen from $147 to under $40 per barrel in less than six months and gasoline is now less than $2 a gallon! I should be singing “Happy (driving) days are here again,” but I’m not. The facts speak otherwise, and the time for preparation and mitigation is growing short.
Aside from a few Paul Revere’s such as Matt Simmons, there is precious little media alarm or urgency over an issue that is historic in nature and monumental in scope. The stark IEA (International Energy Agency) report released this fall was mostly ignored in the media, other than to highlight that 2009 will feature “demand destruction.” Other headlines touted “Goodbye to the oil supercycle.” The message sent to the public; lower oil prices ahead, problem solved. Unfortunately, the critical message of 9.1% global oil depletion was ignored.
The first line of the IEA report set the tone. “The world’s energy system is at a crossroads. Current global trends in energy supply and consumption are patently unsustainable- environmentally, economically, socially.” The last line of the report set the agenda. “Time is running out and the time to act is now.”
Permanent supply destruction
The global oil depletion crisis will last much longer than the current credit crisis, severe as that may be. Credit can be created, and savings can be rebuilt over time. Sadly, oil, created over millions of years, is finite. Oil is a one-time gift that will likely be wrapping up its brief lifespan as an energy source some time late this century. The problems begin, however, when global oil production peaks, and evidence is building that the peak may have occurred in 2005. The average age of the top 20 oil fields in the world is now 59 years.
Oil prices may not rise significantly in 2009, as economies deflate and weaken around the globe. However, temporary demand destruction does not hold even a small candle to permanent supply destruction. To add to the problem, exploration and production around the world is downsizing, as the dramatically lower oil prices make projects uneconomical. Looking at the current 9.1% estimate of global depletion, combined with shrinking levels of drilling and exploration, the medium term outlook is daunting. According to the IEA report, “There remains a real risk that underinvestment will cause an oil supply crunch. The gap now evident between what is being built and what is needed to keep pace with demand is set to widen sharply after 2010.”
The red line (oil prices) is now considerably lower (approximately $40 a barrel for the February contract), and if the trend follows, domestic investment (blue line) will be much lower in 2009. This does not bode well for future supply.
Ugly math
Looking out longer term, to 2030, the math gets ugly. Current global oil production is 72 million barrels per day. According to Simmons, if the world spends a fortune (many trillions) trying to mitigate the depletion rate, it is estimated global production will fall to 25 million barrels per day by 2030. Without the mitigation, world production will plunge to 9 million barrels per day. If those numbers are not a wake-up call to the world, the coming shortages will certainly provide it.
Simmons has stated that we need to find “four new Saudi Arabia’s” just to keep global production flat in the coming decades. The best geologists in the world with the latest high-tech exploration equipment haven’t been able to find one Saudi Arabia. The chances of them finding multiple super-giant oil fields, and soon, are not overly promising.
Mexico- the first domino to fall?
Mexico has long relied heavily on Cantarell, the super-giant discovered in 1976, and until recently the world’s second largest oil field. Cantarell is unique in that it formed as a result of a massive meteor that crashed into the ocean off the Yucatan Peninsula over 60 million years ago, forming the Chicxulub crater. This is thought to be the meteor that radically changed the earth’s climate, killing off 75% of the species on earth, including the dinosaurs. Over millions of years, the massive crater eventually produced over 30 billion barrels of oil.
In the mid-1970’s angry shrimp fishermen, led by Senor Cantarell, stormed the Pemex offices in Veracruz, complaining about oil oozing out of the sea bed, ruining their shrimp nets and demanding compensation. Pemex had no wells in the area, but that was soon to change, along with the fortunes of Mexico.
As of May 2005, Cantarell was producing 2.2 million barrels of oil per day (65% of total Mexican production). Today the figure is roughly 900,000 barrels per day. The most troubling aspect is that the decline rate is accelerating, estimated at 2.5% per month currently, or 30% annually.
No oil exports after 2009?
According to Matt Simmons, by the end of 2009, Mexico will no longer be an oil exporter. If Simmons is correct, it will be very difficult to replace the oil revenue that has supported 40% of the Mexican budget. The Mexican government has recently taken the unprecedented step of voting to allow foreign oil companies to explore for oil in Mexico. In a country that celebrates the 1938 nationalization of its oil industry as a federal holiday, it was clearly an act of desperation. Promising offshore discoveries in Mexico will likely take decades to bring to production, according to Simmons, due to the extreme depths and massive technical challenges.
Unfortunately, it may be too little too late to replace the rapidly disappearing Cantarell production. In as little as 12-24 months, the effects may be felt both in Mexico and the US. Replacing the 1.3 million barrels per day the US now imports from Mexico won’t be easy (the US imports 1.4 million barrels per day from Saudi Arabia by means of comparison). For Mexico, the problems run much deeper, as they must quickly diversify their economy or face wrenching economic and social dislocations. The adjustment period will likely bring great change and tumult, perhaps across the border as well.
A crossroads coming
Be it late 2009, 2010 or even 2011, the price of energy is virtually a lock to head back to its old highs and likely well beyond. Deleveraging and psychological forces can rule the markets for any short term period. Looking ahead, the fundamentals will prevail, as they always do. As economies around the world are printing money for huge stimulus programs, oil companies are shuttering production. Combined with a 9.1% depletion rate, the imbalances are growing. A crossroads is coming, where demand will re-ignite at some point and supply will have difficulty catching up. We have a liquid fuel crisis. We are decades from electrifying the transportation system, and wind, solar and nuclear will not solve a liquid fuel shortage. At least in the US, the best opportunity appears to be rapid conversion to natural gas-powered transportation.
Investment Implications
It seems almost nonsensical to speak of high energy costs and shortages in this deflationary environment. But given that the global economy recovers one day, the seeds of higher prices have already been sown. An investor with a longer term time horizon should own well-managed oil production, exploration and service companies, especially at these much lower valuations. The resource these companies bring to market is growing ever scarcer, and will be desperately needed for decades to come. The peak-oil train wreck will be a crisis for many, but a great opportunity for others. While the current recession/depression may be long and hard, investors must look beyond and invest on the coming geological realities. As a citizen, it is also important to begin preparing for a difficult energy future, whenever it arrives.
Hit the ground running
The new Obama administration wants rapid change into renewable energy sources. Those changes are expensive and will be difficult to sell at low oil prices. Government policies will likely encourage higher oil prices. Of course official acknowledgement of global oil depletion carries many political risks and would raise havoc with many of his supporters. As dire as the longer term situation appears, would any politician take severe political measures before shortages strike? Not likely. Thus, don’t expect to hear much about peak oil or global depletion from the next administration, at least initially. However, they will know the facts as well, and must begin working on all aspects of energy creation on day one. It would be politically wise for President Obama to link fossil fuel depletion and global warming and work on the issues as one package.
Enjoy the holidays, and the inexpensive gas at the pump. But keep a watchful eye out for the train heading our way.
Today’s Market
U.S. stocks extended losses Monday, with the consumer-discretionary and energy sectors hit hardest after Walgreen Co., the nation's largest drugstore chain, reported disappointing results and Toyota Motor Corp. forecast a loss for the year.
The Dow Jones Industrial Average fell 73.27 to close at 8870.54. The S&P 500 Index was down 11.78 to close at 919.21. The Nasdaq also closed lower, ending at 1616.74, down 30.66.
Crude-oil futures fell Monday to below $40 a barrel as demand concerns outweighed news that the Organization of Petroleum Exporting Countries could cut production further.
Gold for February delivery, the most active contract, closed up $9.80, or 1.2%, at $847.20 an ounce on the Comex division of the New York Mercantile Exchange. It rose 2.1% last week.
Tony Allison
Registered Representative
Copyright © 2008 All rights reserved.
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The Price Is Not Right
http://321energy.com/editorials/cohen/cohen122008.html
Oil falls as demand concerns outweigh OPEC
http://www.marketwatch.com/news/story/oil-falls-demand-concerns-outweigh/story.aspx?guid={5292D6D5-3774-4479-BD8C-C68F3F76C284}&siteid=yahoomy
By Moming Zhou, MarketWatch
Last update: 12:30 p.m. EST Dec. 22, 2008
NEW YORK (MarketWatch) -- Crude-oil futures fell Monday to below $41 a barrel as demand concerns outweighed news that the Organization of Petroleum Exporting Countries could cut production further.
Crude for February delivery was last down $1.35, or 3.2%, at $41.01 a barrel on the New York Mercantile Exchange. It had dropped to as low as $40.68 earlier.
Crude-oil imports to China and Japan slowed in November, and inventories in the U.S. rose to their highest in seven months. Meanwhile, OPEC is mulling more production cuts, on the heels of the reduction of 2.2 million barrels a day that cartel members agreed to last week.
Video: Lump of Coal Awards
Chuck Jaffe announces his annual Lump of Coal Awards for 2008, and there's a lot of to be handed out to the miscreants of the mutual-fund industry this year. (Dec. 21)
How low oil prices could go "depends in large part on OPEC's efforts to rein back output," wrote Edward Meir, an analyst at MF Global. "Should the cartel get its act together, we could be close to bottoming out by the end of January.
"In the meantime," he said, "prices could remain under further pressure."
China imports slow
Crude imports to China, the world second-largest oil consumer, fell to their lowest level this year, the General Administration of Customs said Monday.
The country imported 13.36 million tons of crude in the last month, or 3.25 million barrels a day, down 1.9% from a year ago.
To bolster the economy, China's central bank said Monday it will cut its key lending and deposit rates by 0.27 percentage point each, effective Tuesday. The move follows rate cuts by the Bank of Japan and the U.S. Federal Reserve last week.
In Japan, the No. 3 oil consumer, crude imports fell 17% in November from a year ago, the Ministry of Finance said Monday. Toyota Motor Corp. on Monday forecast an operating loss for the current year, the first in the auto manufacturer's post-Second World War history. See full story on Toyota's loss.
Total petroleum-products supplies in the United States, the world's biggest oil consumer, stood at 19.6 million barrels a day in the four weeks ended last week, down nearly 5% from a year ago, the Energy Information Administration reported last week. U.S. crude inventories rose to 321 million barrels last week, the highest level in seven months.
Stocks at Cushing, Okla. -- the delivery point for the crude contract used by the New York Mercantile Exchange -- climbed 4.7 million barrels for the week ended Dec. 12, to 27.5 million barrels, the EIA reported. This marked the highest level since April 2007.
OPEC cuts
OPEC President Chakib Khelil said Sunday that the cartel is willing to further reduce output as much as necessary to stabilize oil prices, the Associated Press reported.
The organization, which controls about 40% of the world's oil production, agreed at a meeting in Algeria last week to reduce members' quotas by 2.2 million barrels a day starting in January. The cut, however, failed to prevent oil's futures-market slide.
Saudi Arabian Oil Minister Ali Naimi on Friday had repeated previous assertions that $75 a barrel was a "fair and reasonable" price for oil. Naimi said the steep fall in prices is causing "havoc" with investment plans in oil-producing countries and jeopardizes future supplies, according to a report by Reuters.
In other energy trading Monday, January reformulated gasoline fell 2.8% to 94.24 cents a gallon, and January heating oil slid 0.4% to $1.387 a gallon. January natural-gas futures fell 0.8% to $5.29 per million British thermal units. End of Story
Moming Zhou is a MarketWatch reporter based in New York.
Prices holding around here at $1.45
U.S. Retail Gasoline Falls to $1.66 a Gallon, Lundberg Says
http://www.bloomberg.com/apps/news?pid=20601103&sid=ac7awTOtQMZU&refer=us
By Samantha Zee
Dec. 21 (Bloomberg) -- The average price of regular gasoline at U.S. filling stations fell to $1.66 a gallon as the nation’s recession sapped demand.
Gasoline slipped 9 cents, or 5.1 percent, in the two weeks ended Dec. 19, according to oil analyst Trilby Lundberg’s survey of 7,000 filling stations nationwide.
“It is not high price any longer, obviously, that is cutting into our gasoline demand,” Lundberg said in a Bloomberg Radio interview. “It is in fact the weaker economy and fewer people working.”
Crude oil, which accounts for about 59 percent of gasoline’s pump price, has tumbled 77 percent from a record $147.27 a barrel reached July 11 on the New York Mercantile Exchange.
AAA, the nation’s biggest motoring club, said today that regular gasoline at the pump averaged $1.668 a gallon, down 59 percent from the record $4.114 in July.
The Organization of Petroleum Exporting Countries, which pumps 40 percent of the world’s oil, agreed on Dec. 17 to cut output by 2.46 million barrels a day starting Jan. 1 in an effort to bolster slumping prices.
OPEC’s supply cuts may be outpaced by waning demand for fuel as the recession in the U.S. deepens. A gauge of leading indicators posted its biggest annual drop since 1991 in November, the Conference Board said last week.
Crude Drops
Crude oil for January delivery on the Nymex dropped $2.35, or 6.5 percent, to $33.87 a barrel on Dec. 19.
Oil futures fell as rising crude stockpiles at Cushing, Oklahoma, leave little room to store inventories for delivery next year.
Supplies at Cushing, where oil that’s traded in New York is stored, rose 21 percent to 27.5 million barrels last week, the highest since May 2007, the Energy Department said on Dec. 17.
U.S. gasoline demand dropped 5.4 percent in the week ended Dec. 12, the most since Oct. 24, as the recession sapped demand, a MasterCard Inc. report Dec. 16 showed.
Motorists bought an average 9.098 million barrels of gasoline a day, down from 9.617 million a year earlier, MasterCard, the second-biggest credit-card company, said in its weekly SpendingPulse report.
The highest average price for self-serve regular gasoline in the U.S. was $2.41 a gallon in Anchorage, Alaska, Lundberg said. The lowest was in Cheyenne, Wyoming, at $1.37 a gallon. On New York’s Long Island, the price was $1.92 a gallon.
[EXCUSE ME, Last I checked 2.71 was the best price on Maui which is last I checked still part of the USA...]
To contact the reporter on this story: Samantha Zee in Los Angeles at szee@bloomberg.net
Last Updated: December 21, 2008 17:15 EST
Crude hits $34 despite prospect of output cuts
By Chris Flood
http://www.ft.com/cms/s/0/9e9da2fa-cdba-11dd-8b30-000077b07658.html?nclick_check=1
Published: December 19 2008 11:11 | Last updated: December 19 2008 18:36
Oil prices this week plunged to their lowest level since April 2004, in spite of Opec’s latest effort to steady the market with an agreement to implement the largest supply cut in the cartel’s history, which was announced on Wednesday.
The benchmark US crude price sank below the $34-a-barrel level on Friday. Nymex January West Texas Intermediate dropped to $33.44, a four a-half-year trough, before recovering to trade 75 cents lower at $35.47, down 23.4 per cent this week.
EDITOR’S CHOICE
In depth: Oil - Dec-11
Record oil cut fails to lift prices - Dec-17
Traders gamble oil price yo-yo is on way up - Dec-11
Lex: Sliding oil prices - Dec-09
Rubber producers unveil export cuts - Dec-15
The January contract expired at the close on Friday, so there was significantly more trading in the February WTI contract, the benchmark from next week, up 73 cents at $42.40 a barrel, recovering from a low of $40.90. ICE February Brent rebounded 64 cents to $44 a barrel, down 10.4 per cent this week.
Opec pledged to cut output by 2.2m barrels a day, on top of cuts totalling 2m b/d agreed earlier this year. But doubts that the cartel’s members would fully comply with the agreement and concerns about the outlook for demand ensured downward pressure on oil prices.
“Those in the market with a very pessimistic view on the global economic outlook and the prospects for oil demand thought the supply cut was not enough and the rest will be saying, well let’s see if Opec actually delivers,” said Mike Wittner, global head of oil research at Société Générale.
Mr Wittner noted that the supply cut that Opec announced in November was only now starting to show up in shipments and inventories data.
Gold fell 2.1 per cent to $836 a troy ounce on Friday, under pressure from a recovery in the dollar. Over the week, gold rose 1.9 per cent, touching a two-month high of $881.20 on Wednesday after the Federal Reserve cut the main US policy interest rate to virtually zero.
Investor interest in gold remains strong, with holdings in exchange traded funds standing at a record 1,165 tonnes (around 47 per cent of mine output in 2007).
Among the base metals, copper sank below the $3,000 a tonne level for the first time since May 2005 with the red metal dropping 7.7 per cent to $2,930 a tonne over the week, under pressure from rising stock levels.
Copyright The Financial Times Limited 2008
World Coal Reserves Could Be a Fraction of Previous Estimates
By Alexis Madrigal
December 17, 2008 | 6:29:35 PMCategories: AGU 2008, Clean Tech, Energy, Geology
http://blog.wired.com/wiredscience/2008/12/world-coal-rese.html
SAN FRANCISCO — A new calculation of the world's coal reserves is much lower than previous estimates. If validated, the new info could have a massive impact on the fate of the planet's climate.
That's because coal is responsible for most of the CO2 emissions that drive climate change. If there were actually less coal available for burning, climate modelers would have to rethink their estimates of the level of emissions that humans will produce.
The new model, created by Dave Rutledge, chair of Caltech's engineering and applied sciences division, suggests that humans will only pull up a total — including all past mining — of 662 billion tons of coal out of the Earth. The best previous estimate, from the World Energy Council, says that the world has almost 850 billion tons of coal still left to be mined.
"Every estimate of the ultimate coal resource has been larger," said ecologist Ken Caldeira of Stanford University, who was not involved with the new study. "But if there's much less coal than we think, that's good news for climate."
The carbon dioxide emitted when humans burn coal to create usable energy is primarily responsible for global warming. Leading scientists think that the stability of Earth's climate will be dictated by how the world uses — or doesn't use — its coal resources. And the thinking has been that the world has more than enough coal to wreak catastrophic damage to the climate system, absent major societal or governmental changes.
So the new estimate, which opens the slim possibility that humankind could do nothing to mitigate carbon dioxide emissions and still escape some of the impacts of climate change, comes as quite a shock.
Rutledge argues that governments are terrible at estimating their own fossil fuel reserves. He developed his new model by looking back at historical examples of fossil fuel exhaustion. For example, British coal production fell precipitously form its 1913 peak. American oil production famously peaked in 1970, as controversially predicted by King Hubbert. Both countries had heartily overestimated their reserves.
It was from manipulating the data from the previous peaks that Rutledge developed his new model, based on fitting curves to the cumulative production of a region. He says that they provide much more stable estimates than other techniques and are much more accurate than those made by individual countries.
"The record of geological estimates made by governments for their fossil fuel estimates is really horrible," Rutledge said during a press conference at the American Geological Union annual meeting. "And the estimates tend to be quite high. They over-predict future coal production."
More specifically, Rutledge says that big surveys of natural resources underestimate the difficulty and expense of getting to the coal reserves of the world. And that's assuming that the countries have at least tried to offer a real estimate to the international community. China, for example, has only submitted two estimates of its coal reserves to the World Energy Council — and they were wildly different.
"The Chinese are interested in producing coal, not figuring out how much they have," Rutledge said. "That much is obvious."
The National Research Council's Committee on Coal Research, Technology, and Resource Assessments to Inform Energy Policy actually agrees with many of Rutledge's criticisms, while continuing to maintain far sunnier estimates of the recoverable stocks of American coal.
"Present estimates of coal reserves are based upon methods that have not been reviewed or revised since their inception in 1974, and much of the input data were compiled in the early 1970’s," the committee wrote in a 2007 report. "Recent programs to assess reserves in limited areas using updated methods indicate that only a small fraction of previously estimated reserves are actually mineable reserves.”
And don't look to technology to bail out coal miners. Mechanization has actually decreased the world's recoverable reserves, because huge mining machines aren't quite as good at digging out coal as human beings are.
With Rutledge's new numbers, the world could burn all the coal (and other fossil fuels) it can get to, and the atmospheric concentration of CO2 would only end up around 460 parts per million, which is predicted to cause a 2-degree-Celsius rise in global temperatures.
For many scientists, that's too much warming. A growing coalition is calling for limiting the CO2 in the atmosphere to 350 parts per million, down from the 380 ppm of today, but it's a far cry from some of the more devastating scenarios devised by the Intergovernmental Panel on Climate Change.
"Coal emissions really need to be phased out proactively — we can't just wait for them to run out — by the year 2030," said Pushker Kharecha, a scientist at NASA's Goddard Institute for Space Studies. "There is more than enough coal to keep CO2 well above 350 ppm well beyond this century."
The Intergovernmental Panel on Climate Change uses economic models that assume that the world will not run out of coal. Some IPCC scenarios show 3.4 billion tons of coal being burned just through 2100. That's more than five times what Rutledge thinks will be possible — and a good deal higher than the WEC's estimate for recoverable coal reserves, too.
On the other hand, if the world were really to encounter a swift and steep decline in accessible coal resources, it's unclear how humans could retain our current levels of transportation, industry and general energy-usage.
So, even if coal were to run out and the most dangerous climate change averted, the imperative to develop non–fossil-fuel energy sources would remain.
"Peak Oil and peak gas and peak coal could really go either way for the climate," Kharecha said. "It all depends on choices for subsequent energy sources."
When will the oil run out?
Comes with a vid:
http://www.guardian.co.uk/business/2008/dec/15/oil-peak-energy-iea
George Monbiot puts the question to Fatih Birol, chief economist of the International Energy Agency - and is both astonished and alarmed by the answer
Comments (145)
* George Monbiot
*
o George Monbiot
o The Guardian, Monday 15 December 2008
o Article history
George Monbiot meets Fatih Birol, chief economist of the International Energy Agency Link to this video
Can you think of a major threat for which the British government does not prepare? It employs an army of civil servants, spooks and consultants to assess the chances of terrorist attacks, financial collapse, floods, epidemics, even asteroid strikes, and to work out what it should do if they happen. But there is one hazard about which it appears intensely relaxed: it has never conducted its own assessment of the state of global oil supplies and the possibility that one day they might peak and then go into decline.
If you ask, the government always produces the same response: "Global oil resources are adequate for the foreseeable future." It knows this, it says, because of the assessments made by the International Energy Agency (IEA) in its World Energy Outlook reports. In the 2007 report, the IEA does appear to support the government's view. "World oil resources," it states, "are judged to be sufficient to meet the projected growth in demand to 2030," though it says nothing about what happens at that point, or whether they will continue to be sufficient after 2030. But this, as far as Whitehall is concerned, is the end of the matter. Like most of the rich world's governments, the UK treats the IEA's projections as gospel. Earlier this year, I submitted a freedom of information request to the UK's department for business, asking what contingency plans the government has made for global supplies of oil peaking by 2020. The answer was as follows: "The government does not feel the need to hold contingency plans specifically for the eventuality of crude-oil supplies peaking between now and 2020."
So the IEA had better be right. In the report on peak oil commissioned by the US department of energy, the oil analyst Robert L Hirsch concluded that "without timely mitigation, the economic, social and political costs" of world oil supplies peaking "will be unprecedented". He went on to explain what "timely mitigation" meant. Even a worldwide emergency response "10 years before world oil peaking", he wrote, would leave "a liquid-fuels shortfall roughly a decade after the time that oil would have peaked". To avoid global economic collapse, we need to begin "a mitigation crash programme 20 years before peaking". If Hirsch is right, and if oil supplies peak before 2028, we're in deep doodah.
So burn this into your mind: between 2007 and 2008 the IEA radically changed its assessment. Until this year's report, the agency mocked people who said that oil supplies might peak. In the foreword to a book it published in 2005, its executive director, Claude Mandil, dismissed those who warned of this event as "doomsayers". "The IEA has long maintained that none of this is a cause for concern," he wrote. "Hydrocarbon resources around the world are abundant and will easily fuel the world through its transition to a sustainable energy future." In its 2007 World Energy Outlook, the IEA predicted a rate of decline in output from the world's existing oilfields of 3.7% a year. This, it said, presented a short-term challenge, with the possibility of a temporary supply crunch in 2015, but with sufficient investment any shortfall could be covered. But the new report, published last month, carried a very different message: a projected rate of decline of 6.7%, which means a much greater gap to fill.
More importantly, in the 2008 report the IEA suggests for the first time that world petroleum supplies might hit the buffers. "Although global oil production in total is not expected to peak before 2030, production of conventional oil ... is projected to level off towards the end of the projection period." These bland words reveal a major shift. Never before has one of the IEA's energy outlooks forecast the peaking or plateauing of the world's conventional oil production (which is what we mean when we talk about peak oil).
But that is as specific as the report gets. Does it or doesn't it mean that we have time to prepare? What does "towards the end of the projection period" mean? The agency has never produced a more precise forecast - until now. For the first time, in the interview I conducted with its chief economist Fatih Birol recently, it has given us a date. And it should scare the pants off anyone who understands the implications.
Birol, the lead author of the new energy outlook, is a small, shrewd, unflustered man with thick grey hair and Alistair Darling eyebrows. He explained to me that the agency's new projections were based on a major study it had undertaken into decline rates in the world's 800 largest oilfields. So what were its previous figures based on? "It was mainly an assumption, a global assumption about the world's oil fields. This year, we looked at it country by country, field by field and we looked at it also onshore and offshore. It was very, very detailed. Last year it was an assumption, and this year it's a finding of our study." I told him that it seemed extraordinary to me that the IEA hadn't done this work before, but had based its assessment on educated guesswork. "In fact nobody had done this research," he told me. "This is the first publicly available data."
So was it not irresponsible to publish a decline rate of 3.7% in 2007, when there was no proper research supporting it? "No, our previous decline assumptions have always mentioned that these are assumptions to the best of our knowledge - and we also said that the declines [could be] higher than what we have assumed."
Then I asked him a question for which I didn't expect a straight answer: could he give me a precise date by which he expects conventional oil supplies to stop growing?
"In terms of non-Opec [countries outside the big oil producers' cartel]," he replied, "we are expecting that in three, four years' time the production of conventional oil will come to a plateau, and start to decline. In terms of the global picture, assuming that Opec will invest in a timely manner, global conventional oil can still continue, but we still expect that it will come around 2020 to a plateau as well, which is, of course, not good news from a global-oil-supply point of view."
Around 2020. That casts the issue in quite a different light. Birol's date, if correct, gives us about 11 years to prepare. If the Hirsch report is right, we have already missed the boat. Birol says we need a "global energy revolution" to avoid an oil crunch, including (disastrously for the environment) a massive global drive to exploit unconventional oils, such as the Canadian tar sands. But nothing on this scale has yet happened, and Hirsch suggests that even if it began today, the necessary investments and infrastructure changes could not be made in time. Birol told me: "I think time is not on our side here."
When I pressed him on the shift in the agency's position, he argued that the IEA has been saying something like this all along. "We said in the past that one day we will run out of oil. We never said that we will have hundreds of years of oil ... but what we have said is that this year, compared with past years, we have seen that the decline rates are significantly higher than what we have seen before. But our line that we are on an unsustainable energy path has not changed."
This, of course, is face-saving nonsense. There is a vast difference between a decline rate of 3.7% and 6.7%. There is an even bigger difference between suggesting that the world is following an unsustainable energy path - a statement almost everyone can subscribe to - and revealing that conventional oil supplies are likely to plateau around 2020. If this is what the IEA meant in the past, it wasn't expressing itself very clearly.
So what do we do? We could take to the hills, or we could hope and pray that Hirsch is wrong about the 20-year lead time, and begin a global crash programme today of fuel efficiency and electrification. In either case, the British government had better start drawing up some contingency plans.
monbiot.com
• Watch George Monbiot talking to Fatih Birol as part of the Monbiot Meets video series, in which Britain's leading green commentator challenges the world's top environmental policy-makers guardian.co.uk/environment/series/monbiot-meets
Towns and cities should prepare for the peak oil energy crisis
by Clifford J. Wirth, Ph.D.
BE AFFRAID. The first law of the niverse is abundance but we are all about lack. You will shrivel and die without our energy source. There are no alternatives. Bow down before us, we control the energy...
http://www.energybulletin.net/node/47469
Liquid Fuels and Heating Oil Crises
The U.S. is highly dependent on oil for transportation, food production, industry, manufacturing, and residential and institutional heating. Oil is unique in providing gasoline and diesel, which are relatively inexpensive and portable. Oil also provides heating for many of the nation’s homes, institutions, and businesses. Despite advances in battery technology, battery powered tractors/combines and trucks do not provide a range that is practical. The so-called electric economy is not even in a planning stage of development. There are no alternatives that will replace oil. OTHER THAN HEMP.
Peak Oil is the term given for the point of maximum global production of oil, after which oil production will decline over a period of years until all recoverable oil is depleted. Peak Oil is a geological reality that is recognized by the National Academy of Sciences, National Academy of Engineering, General Accountability Office, Congressional Research Service, Army Corps of Engineers, and the National Petroleum Council.
Future oil production from off shore locations, Brazil, the Arctic, and the Gulf of Mexico etc., as well as future oil discoveries, will not provide enough new production to offset declining production in the largest oil fields. HEMP.
In 2005, the U.S. Department of Energy released a Peak Oil study, “Peaking of World Oil Production: Impacts, Mitigation and Risk Management.” This report warns that
“as peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented. Viable mitigation options exist on both the supply and demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking. Unfortunately nothing like the kind of efforts envisaged has yet begun.”
The report concludes that
“the world has never faced a problem like this. Without massive mitigation more than a decade before the fact, the problem will be pervasive and will not be temporary. Previous energy transitions were gradual and evolutionary. Oil peaking will be abrupt and revolutionary.”
In 2007, the Government Accountability Office (GAO), with the assistance of a panel of 13 scientists of the National Academy of Sciences, published a study on Peak Oil, “Crude Oil: Uncertainty about the Future Oil Supply Makes it Important to Develop a Strategy for Addressing a Peak and Decline in Oil Production.” The study concludes:
“Because development and widespread adoption of technologies to displace oil will take time and effort, an imminent peak and sharp decline in oil production could have severe consequences. The technologies we examined [ethanol, biodiesel, biomass gas-to-liquid, coal gas-to-liquid, and hydrogen] currently supply the equivalent of only about 1% of U.S. annual consumption of petroleum products, and DOE [Department of Energy] projects that even under optimistic scenarios, these technologies could displace only the equivalent of about 4% of annual projected U.S. consumption by around 2015. If the decline in oil production exceeded the ability of alternative technologies to displace oil, energy consumption would be constricted, and as consumers competed for increasingly scarce oil resources, oil prices would sharply increase.
In this respect, the consequences could initially resemble those of past oil supply shocks, which have been associated with significant economic damage. For example, disruptions in oil supply associated with the Arab oil embargo of 1973-74 and the Iranian Revolution of 1978-79 caused unprecedented increases in oil prices and were associated with worldwide recessions. In addition, a number of studies we reviewed indicate that most of the U.S. recessions in the post-World War II era were preceded by oil supply shocks and the associated sudden rise in oil prices.
Ultimately, however, the consequences of a peak and permanent decline in oil production could be even more prolonged and severe than those of past oil supply shocks. Because the decline would be neither temporary nor reversible, the effects would continue until alternative transportation technologies to displace oil became available in sufficient quantities at comparable costs. Furthermore, because oil production could decline even more each year following a peak, the amount that would have to be replaced by alternatives could also increase year by year.”
A 2007 study by the Congressional Research Service, “Ethanol and Biofuels: Agriculture, Infrastructure and Market Constraints Related to Expanded Production” concludes:
“While recent proposals have set the goal of significantly expanding biofuel supply in the coming decades, questions remain about the ability of the U.S. biofuel industry to meet rapidly increasing demand. Current U.S. biofuel supply relies almost exclusively on ethanol produced from Midwest corn. In 2006, 17% of the U.S. corn crop was used for ethanol production. To meet some of the higher ethanol production goals would require more corn than the United States currently produces, if all of the envisioned ethanol was made from corn.
Due to the concerns with significant expansion in corn-based ethanol supply, interest has grown in expanding the market for biodiesel produced from soybeans and other oil crops. However, a significant increase in U.S. biofuels would likely require a movement away from food and grain crops. Other biofuel feedstock sources, including cellulosic biomass, are promising, but technological barriers make their future uncertain.
Issues facing the U.S. biofuels industry include potential agricultural “feedstock” supplies, and the associated market and environmental effects of a major shift in U.S. agricultural production; the energy supply needed to grow feedstocks and process them into fuel; and barriers to expanded infrastructure needed to deliver more and more biofuels to the market. There are limits to the amount of biofuels that can be produced and questions about the net energy and environmental benefits they would provide.
Further, rapid expansion of biofuel production may have many unintended and undesirable consequences for agricultural commodity costs, fossil energy use, and environmental degradation. As policies are implemented to promote ever-increasing use of biofuels, the goal of replacing petroleum use with agricultural products must be weighed against these other potential consequences.”
An independent scientific energy research organization, Energy Watch Group, concludes in a 2008 report, “Peak Oil Could Trigger Meltdown of Society:”
"By 2020, and even more by 2030, global oil supply will be dramatically lower. This will create a supply gap which can hardly be closed by growing contributions from other fossil [including natural gas and coal], nuclear, or alternative energy sources in this time frame."
Independent studies (reviewed in the Peak Oil Report by Clifford J. Wirth) conclude that Peak Oil production will occur (or has occurred) between 2005 to 2010 (projected year for peak in parentheses), as follows:
* Association for the Study of Peak Oil (2007)
* Rembrandt Koppelaar, Editor of “Oil Watch Monthly” (2008 to 2010)
* Tony Eriksen, Oil stock analyst (2008)
* Matthew Simmons, Energy investment banker, (2007)
* T. Boone Pickens, Oil and gas investor (2007)
* U.S. Army Corps of Engineers (2005)
* Kenneth S. Deffeyes, Princeton professor and retired shell Geologist (2005)
* Sam Sam Bakhtiari, Retired Iranian National Oil Company geologist (2005)
* Chris Skrebowski, Editor of “Petroleum Review” (2010)
* Sadad Al Husseini, former head of production and exploration, Saudi Aramco (2008)
* Energy Watch Group in Germany (2006)
Independent studies conclude that global crude oil production will now decline from 74 million barrels per day to 60 million barrels per day by 2015. During the same time, demand will increase. Oil supplies will be even tighter for the U.S. As oil producing nations consume more and more oil domestically they will export less and less. Because demand is high in China, India, the Middle East, and other oil producing nations, once global oil production begins to decline, demand will always be higher than supply. Because the U.S. represents one fourth of global oil demand, whatever oil we conserve will be consumed elsewhere. Thus, conservation in the U.S. will not slow oil depletion rates significantly.
With increasing costs for gasoline and diesel, along with declining taxes and declining gasoline tax revenues, state and local governments will eventually have to cut staff and curtail highway maintenance. Eventually, gasoline stations will close, and state and local highway workers won’t be able to get to work. We are facing the collapse of the highways that depend on diesel and gasoline powered trucks for bridge maintenance, culvert cleaning to avoid road washouts, snow plowing, and roadbed and surface repair. When the highways fail, so will the power grid, as highways carry the parts, large transformers, steel for pylons, and high tension cables from great distances. With the highways out, there will be no food coming from far away, and without the power grid virtually nothing modern works, including home heating, pumping of gasoline and diesel, airports, communications, and automated building systems.
Although the GAO recommended that the DOE provide a risk management study for Peak Oil, no such study has been published. No federal or state agency provides any planning for Peak Oil impacts.
Although Peak Oil has been discussed briefly in a few popular sources (such as Fortune Magazine, BusinessWeek, The Times (London), The Wall Street Journal, MoneyWeek, Scientific American, and the Wikipedia Encyclopedia), television and public radio have avoided coverage of Peak Oil. Consequently, the public and most leaders are not aware of Peak Oil.
Problems Facing the Towns and Cities
Local governments face the following problems from Peak Oil impacts: (1) declining revenues due to declining property values and declining family incomes; (2) increasing costs for gasoline, diesel, and heating oil; (3) inflation in the costs of equipment, materials, products, services, and electric power; (4) increasing unemployment and homelessness; (5) increasing crime; and (6) resource constraints in providing basic services, social services, and emergency services. As needs and problems expand the resources available to state and local governments will shrink.
What Can Towns and Cities Do?
Town and city managers should promptly inform elected and other appointed officials at the local level (including county boards and school boards) about the Peak Oil issue. Forwarding them this article would be one way to do this, and this article could be used to focus discussions on Peak Oil planning. All government officials should be informed so that they can begin planning and so that they are able to respond to questions from constituents and the press about what their government is doing to plan for Peak Oil impacts.
Local governments should establish a Peak Oil committee in their government to provide advice regarding Peak Oil risk management and contingency planning. This committee should concentrate on what the town or city can do to address the problems that the town or city faces. The Peak Oil committee should establish a state wide means of communicating with other local governments in the state. One suggestion is to establish a free Google blog for discussions and announcements, and every local government and citizen advisory committee can be authorized to add to this blog. Local libraries should be involved in this effort so that they can order relevant books and hold local community discussions.
Local government officials should also establish a Peak Oil citizen advisory committee that can advise the public and town/city government, as well as inform state government and congressional leaders. Because Peak Oil is a very controversial and emotional issue, it is wise that an independent blue ribbon committee of citizens advise the media, the public, and local and state governments about Peak Oil problems and plans. The selection of members to this committee is critical. People with general knowledge and community service experience are preferable to those who might want to work to solve national energy problems, instead of focusing on the problems facing the town, city, county, and state. There is also a tendency to focus on energy conservation to plan for Peak Oil. Conservation of individual and local government resources is important, especially if it saves town resources, but local conservation is not a solution to most problems that communities face. Similarly, there is a tendency to focus on ways of generating energy, such as purchasing expensive solar panels or wind turbines. In general, these are not solutions. When the power grid fails, local electric power is not very useful, and it will be useful only as long as storage batteries last. A focus on risk management and contingency planning must be maintained.
Some Ideas for Risk Management and Contingency Planning
1. Studying Peak Oil impacts carefully will enable sensible risk management and contingency planning. The Peak Oil Report provides an excellent review of Peak Oil impacts.
2. Develop contingency plans for a power grid failure, which can occur at anytime (the possibility of a power grid failure is discussed in the Peak Oil Report in the section “Multiple Crises and a Gridlock of Crises” toward the end of the report).
3. Plan for government revenue reductions.
4. Guard financial resources.
5. Review the capital budget for possible cuts. For example, some state and local governments are widening highways, although traffic on these highways will decline in the future.
6. Plan ahead for very expensive oil and natural gas in the future. For example, many town or city offices may have to reduce operations to 3 or 4 days a week to cut costs in heating and transportation. Public schools use much heating oil (or natural gas) and diesel for transportation. Should the school calendar be adjusted to avoid the most expensive months: December, January, and February? Should classes meet 3 or 4 days a week? These changes require action by state board of education and changes in union contracts, etc. This example shows that government officials and the public need to be informed about Peak Oil now so that they can plan ahead. The pressure for changes in the school calendar would have to come from the local level, as there are no signs that state governments are planning for Peak Oil impacts.
7. Plans should be made for reductions in the personnel budget, as choices will have to be made between reductions-in-force and across the board reductions-in-pay.
8. Develop an extensive library of books that will provide useful technology for after the time when the power grid has failed permanently. Although this time is years away, these books could be sold out quickly following a national energy related emergency, and then the books may not be available later. An example: penicillin is not difficult to make, if you know how; but if you don’t know, it would be very difficult to invent the process for making penicillin.
9. Certain hand tools should be purchased and stored in quantities. Today they are inexpensive and plentiful, but in the future, they won’t be available, for example: 2 man wood saws, bow saws, and axes.
Where to Go for More Information
There are very few good sources of information for governments concerning Peak Oil planning, but Surviving Peak Oil blog is a portal to relevant websites and blogs. Town and cities will have to create their own plans to prepare for Peak Oil impacts. A Peak Oil blog for town governments (mentioned above) is a good way to share information. Also, local and state governments across the nation can add their plans and ideas to the Wiki Site for “Peak Oil Preparation:”
Everyone is welcome to email or call me if they have questions or want comments on plans. I also provide presentations on these topics. My email address and telephone number can be included in any web posting of this article.
Cliff Wirth
clifford dot wirth at yahoo dot com
Telephone USA: (603) 668-4207
References
“Crude Oil: Uncertainty about the Future Oil Supply Makes it Important to Develop a Strategy for Addressing a Peak and Decline in Oil Production”
“Peak Oil Could Trigger Meltdown of Society”
“Peaking of World Oil Production: Impacts, Mitigation and Risk Management”
“Peak Oil Report”
Peak Oil Preparation Wiki Site
Surviving Peak Oil blog
About the Author
Cliff Wirth holds a Master of Public Administration degree (MPA) and a Ph.D. in Policy Analysis. He taught in three MPA programs, including the MPA program at the University of New Hampshire from 1981 to 2008, where he directed the MPA program for many years and implemented the extension MPA program in Manchester, NH in 1999. He has worked closely with hundreds of local, state, and federal officials on many projects. A number of his former students are current town and city managers in New Hampshire, Vermont, Maine, and Massachusetts.
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Original article available here
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Change you won’t believe
http://www.24hgold.com/news-gold-silver-Change-you-won-t-believe.aspx?langue=en&articleid=354128_James_Howard_Kunstler
By : James Howard Kunstler
www.kunstler.com/
The peak oil story has not been nullified by the scramble to unload every asset for cash -- including whomping gobs of oil contracts -- during this desperate season of bank liquidation. The main implication of the peak oil story is that we won't be able to generate the kind of economic growth that defined our way of life for decades because the primary energy resources needed for it will be contracting.
Just as global oil production peaked, our economy evolved into a morbid hypertrophy, and the chief manifestation of it was the suburban sprawl-building fiesta that has now climaxed in the real estate bust. By the early 21st century, when so much American manufacturing had been swapped out to Asia, there was no business left except sprawl-building -- a manifold tragedy which wrecked the banks that financed it, and left the ordinary people mortgaged to it with ruinous liabilities.
That economy is now in its death throes. The "normality" it represents to so many Americans is gone and can't be brought back, no matter how wistfully we watch it recede. Even so, it was obviously not good for the country. The terrain of North America has been left scarred by unlovable objects and baleful futureless vistas that, from now on, will shed whatever pecuniary value they once had. It represents the physical counterpart to the financial mess that has been left to the young generations to clean up -- and the job will take a very long time.
We have to, so to speak, get to place mentally where we can face the kinds of change that are now necessary and unavoidable. We're not there yet. It's not clear whether the elected new national leadership knows just how severe the required changes will really be. Surely the public would be shocked to grasp what's in store. Probably the worst thing we can do now would be to mount a campaign to stay where we are, lost in raptures of happy motoring and blue-light-special shopping.
The economy we're evolving into will be un-global, necessarily local and regional, and austere. It won't support even our current population. This being the case, the political fallout is also liable to be severe. For one thing, we'll have to put aside our sentimental fantasies about immigration. This is almost impossible to imagine, since that narrative is especially potent among the Democratic Party members who are coming in to run things. A tough immigration policy is exactly the kind of difficult change we have to face. This is no longer the 19th century. The narrative has to change.
The new narrative has to be about a managed contraction -- and by "managed" I mean a way that does not produce civil violence, starvation, and public health disasters. One of the telltale signs to look for will be whether the Obama administration bandies around the word "growth." If you hear them use it, it will indicate that they don't understand the kind of change we face.
It is hugely ironic that the US automobile industry is collapsing at this very moment, and the ongoing debate about whether to "rescue" it or not is an obvious kabuki theater exercise because this industry is hopeless. It is headed into bankruptcy with one hundred percent certainty. The only thing in question is whether the news of its death will spoil the Christmas of those who draw a paycheck from it, or those whose hopes for an easy retirement are vested in it. But American political-economy being very Santa Claus oriented for recent generations, the gesture will be made. A single leaky little lifeboat will be lowered and the chiefs of the Big Three will be invited to go for a brief little row, and then they will sink, glug, glug, glug, while the rusty old Titanic of the car industry slides diagonally into the deep behind them, against a sickening greenish-orange sunset backdrop of the morbid economy.
A key concept of the economy to come is that size matters -- everything organized at the giant scale will suffer dysfunction and failure. Giant companies, giant governments, giant institutions will all get into trouble. This, unfortunately, doesn't bode so well for the Obama team and it is salient reason why they must not mount a campaign to keep things the way they are and support enterprises that have to be let go, including many of the government's own operations. The best thing Mr. Obama can do is act as a wise counselor companion-in-chief to a people who now have to leave a lot behind in order to move forward into a plausible future. He seems well-suited to this task in sensibility and intelligence. The task will surely include a degree of pretense that he is holding some familiar things together and propping up some touchstones of the comfortable life. But the truth is we are all going to the same unfamiliar new territory.
The economy we're moving into will have to be one of real work, producing real things of value, at a scale consistent with energy resource reality. I'm convinced that farming will come much closer to the center of economic life, as the death of petro-agribusiness makes food production a matter of life and death in America -- as opposed to the disaster of metabolic entertainment it is now. Reorganizing the landscape itself for this finer-scaled new type of farming is a task fraught with political peril (land ownership questions being historically one of the main reasons that societies fall into revolution). The public is completely unprepared for this kind of change. We still think that "the path to success" is based on getting a college degree certifying people for a lifetime of sitting in an office cubicle. This is so far from the approaching reality that it will be eventually viewed as a sick joke -- like those old 1912 lithographs of mega-cities with Zeppelins plying the air between Everest-size skyscrapers.
The crucial element in the transformation underway will be emotion. The American experience for a few generations has produced an adult population with very childish instincts, increasingly worse each decade. For instance, the desperate power fantasies among the younger tattooed lumpenproles -- those with next-to-zero real economic power -- suggest a certain unappetizing playing-out of resource competition when the supply of Cheez Doodles and Pepsi starts to dwindle. But even the heretofore gainfully employed middle classes are pretty lost in fantasies at least of comfort an convenience. For years now, I have wondered how their sense of grievance and resentment will be expressed when the supermarket shelves run bare and the cardboard signs get taped over the local gas pump and the cable TV gets cut off for non-payment. You wonder, to put it bluntly, how far gone we really are.
James Howard Kunstler
www.kunstler.com/
My new novel of the post-oil future, World Made By Hand, is available at all booksellers.
James Kunstler has worked as a reporter and feature writer for a number of newspapers, and finally as a staff writer for Rolling Stone Magazine. In 1975, he dropped out to write books on a full-time basis.
His latest nonfiction book, "The Long Emergency," describes the changes that American society faces in the 21st century. Discerning an imminent future of protracted socioeconomic crisis, Kunstler foresees the progressive dilapidation of subdivisions and strip malls, the depopulation of the American Southwest, and, amid a world at war over oil, military invasions of the West Coast; when the convulsion subsides, Americans will live in smaller places and eat locally grown food.
You can purchase your own copy here : The Long Emergency . You can get more from James Howard Kunstler - including his artwork, information about his other novels, and his blog - at his Web site : http://www.kunstler.com/
Oil erases gains as demand worries outweigh OPEC
Futures pull back after topping $50 a barrel for the first time in two weeks
http://www.marketwatch.com/news/story/oil-tops-50-first-time/story.aspx?guid={1C00DB8C-CC02-45ED-8CC4-EE53F6141A9B}&siteid=yahoomy
Crude Oil: A Gusher Of An Opportunity
http://www.elliottwave.com/freeupdates/archives/2008/12/12/Crude-Oil-A-Gusher-Of-An-Opportunity.aspx
CLUE: Lukoil Profit Rises 40% on Oil Prices, Hedging Gain (Update2)
Ask yourself some questions...
http://www.bloomberg.com/apps/news?pid=20601085&sid=agSwsgnOap1Y&refer=europe
By Stephen Bierman
Dec. 11 (Bloomberg) -- OAO Lukoil said third-quarter profit advanced 40 percent as Russia’s largest non-state oil producer benefited from hedging after crude prices fell from a July record.
Net income rose to $3.47 billion, or $4.09 a share, from $2.48 billion, or $3 a share, in the same period last year, the Moscow-based company said today in a statement. That beat the $3.16 billion median estimate of six analysts surveyed by Bloomberg News.
“Results came in much stronger than expected, the main reason being the company posted a hedging gain of $623 million in the third quarter,” Igor Kurinnyy, an oil and gas analyst with ING Groep NV, said by telephone from London.
Lukoil had a $719 million loss through hedging practices in the first half of 2008, as Urals crude export prices grew, which contracted to $96 million in the first nine months of the year, the company said. Revenue in the quarter increased 52 percent to $32.6 billion.
Lukoil rose 30.28 rubles, or 3.2 percent, to 978.30 rubles on Moscow’s Micex Stock Exchange at 3:56 p.m. The 30-stock Micex index advanced 2.1 percent.
Operating expenses grew 25 percent on the previous quarter to $2.2 billion, driven by costs for labor, water pumping, fuel and electricity. Second-quarter net income was $4.13 billion.
“Some trends should not be ignored in 2009 where lower oil prices are expected,” Artyom Konchin, an energy analyst with UniCredit SpA in Moscow, said by telephone. “The ability to control costs will be the primary focus.”
Falling Oil Price
Urals crude, Russia’s export blend, climbed to a record $142.50 a barrel on July 3. It traded at $40.32 a barrel today after averaging $113.48 in the third quarter, according to data compiled by Bloomberg.
OAO Rosneft, Russia’s largest oil producer, cut operating expenses in the third quarter in comparison with the previous three months, Konchin said, adding that the company’s younger resource base requires less spending.
Lukoil exported 765,000 barrels of oil a day in the third quarter, 8 percent less than the previous year, as domestic refining increased. The company boosted processing 10 percent to 13.96 million tons of products.
Prime Minister Vladimir Putin’s government increased the oil export duty to $495.90 a metric ton on Aug. 1 from $398.10. It has since slashed the tax and may reduce it further to as little as $117 a ton from Jan. 1, the Finance Ministry said yesterday.
Arctic Production
The producer said the Aug. 28 start of production at the Arctic Yuzhno-Khylchuyu field will compensate for declines at units in western Siberia. Naryanmarneftegas, the joint venture with ConocoPhillips that operates the field, expects output to increase to 150,000 barrels a day next year, driving the company’s production growth plans.
Lukoil paid an installment of $250 million on Nov. 24 for Turkey’s Akpet, whose 693 filling stations account for about 5 percent of the Turkish retail market. The Russian company agreed in July to buy the retailer for $555 million to expand downstream plans overseas. It also paid 600 million euros ($778 million) Dec. 1 as the first of four parts for 49 percent of a refining venture in Italy with ERG SpA.
To contact the reporter on this story: Stephen Bierman in Moscow sbierman1@bloomberg.net.
Last Updated: December 11, 2008 08:22 EST
Canada’s Dollar Drops as U.S. Currency Climbs, Crude Oil Slumps
http://www.bloomberg.com/apps/news?pid=20601082&sid=a8T7Ae3AdY3o&refer=canada
By Chris Fournier
Dec. 12 (Bloomberg) -- Canada’s currency fell for the first time in three days after the U.S. Senate blocked a bailout for General Motors Corp. and Chrysler LLC, pushing the U.S. currency higher and crude oil back below $45 a barrel.
“News about the automakers is not good for Canada or for the Canadian dollar,” said Aaron Fennell, a Toronto-based futures and currency broker at MF Global Canada Co., a unit of MF Global Ltd., the world’s largest broker of exchange-traded futures and options. “If we’re not selling goods to the U.S., that undermines the value of the Canadian dollar.”
The Canadian dollar fell 1 percent to C$1.2488 per U.S. dollar at 4:48 p.m. in Toronto, from C$1.2365 yesterday. One Canadian dollar buys 80.07 U.S. cents. Gains were briefly pared after the U.S. Treasury said it is willing to provide financing to the automakers until Congress reconvenes.
The U.S. dollar rose against most of the 16 major currencies tracked by Bloomberg including the Canadian dollar. The exceptions were the yen, euro, Swiss franc and Danish krone.
“News about the U.S. carmakers has raised the level of risk aversion on the markets,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “The dollar is rallying but it’s rallying against weaker currencies more.”
The Canadian currency may weaken beyond C$1.30 per U.S. dollar in the next quarter if oil makes a “a sustained break below $40 a barrel,” Gallo said.
Fennell predicts the loonie, as Canada’s dollar is known, will strengthen next year to at least C$1.11 because Canada’s economy is in better shape than that of the U.S.
Job Losses
U.S. automakers, which make more vehicles in Ontario than in Michigan, already cut employment by 40 percent between 2002 and 2007. Job losses are spreading beyond the auto factories in Ontario to parts suppliers, reducing the industry’s total employment to about 181,000 last year, down 18 percent from the high in 2002, according to the Conference Board of Canada.
Crude oil for January delivery fell as much as 9.7 percent, to $43.32 a barrel on the New York Mercantile Exchange, before paring its loss to 1.4 percent. Oil is the largest component of the Bank of Canada’s Commodity Price Index, accounting for 21 percent.
Canadian industrial capacity -- a measure of the share of plants in use -- fell to the lowest since at least 1987, when records started, Statistics Canada said today in Ottawa.
The two-year government bond’s yield fell two basis points, or 0.02 percentage point, to 1.48 percent in Toronto. The yield touched 1.466 percent on Dec. 5, the lowest since Bloomberg began compiling the data in 1989. The price of the 2.75 percent security due in December 2010 rose 3 cents to C$102.44.
To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net
Last Updated: December 12, 2008 17:08 EST
Increases in Gasoline Consumption Are Kept to a Minimum by Recession
http://online.wsj.com/article/SB122895520588496473.html?mod=googlenews_wsj
DECEMBER 10, 2008, 9:25 P.M. ET
By ANA CAMPOY
U.S. gasoline consumption is showing a glimmer of strengthening now that prices at the pump have tumbled to levels not seen since 2004.
New data show that demand for the fuel ticked up week over week for the second week in a row. Christmas already is a typically heavy driving time, and the lower prices might encourage consumers to travel. Still, energy experts predict there will be no sizable rebound in gasoline consumption until the economy perks up.
Gasoline demand edged up almost 1% last week from the previous week, according to a U.S. Energy Department report Wednesday. It was still 3.6% lower than last year, according to weekly data, but the drop was less severe than the average year-over-year declines of 3.8% in October and 4.2% in September.
Another indicator, the SpendingPulse data based on gasoline-station purchases compiled by MasterCard Advisors, showed that consumers pumped 0.3% more gasoline last week than in the same period last year, the first time that has happened since April.
The improvement, though, is minimal considering the dramatic drop-off in gasoline prices. The national average price for a regular gallon has collapsed by almost 60%, to $1.68 a regular gallon Wednesday from a peak of $4.11 a gallon in July, according to data from the auto group AAA.
"You would expect to see a huge increase in demand," said Doug MacIntyre, an energy analyst with the U.S. Energy Information Administration. "The reason you don't see it is simply the economy."
Lackluster gasoline demand will help keep oil prices low, bringing relief to consumers, retailers and industries that burn up large amounts of oil-based fuels. Crude-oil futures rose 3.5%, or $1.45 a barrel, to $43.52 Wednesday on the New York Mercantile Exchange.
As the holidays approach, it will become clearer how cash-strapped consumers are. Usually, shopping and travel inflate gasoline consumption by about 100,000 barrels a day from November to December, Mr. MacIntyre said. This year, however, the agency is predicting that consumption will decline by an average 20,000 barrels a day during that period. It also is forecasting that demand will remain lower year over year in 2009.
The nation's retailers will derive some benefit from lower gasoline prices as consumers are freed to spend a little more with the money they are saving on gasoline, said Bill Martin, co-founder of ShopperTrak RTC Inc., which monitors shopper behavior. His company expects holiday retail sales, excluding gasoline, to rise 0.1% from last year -- the smallest increase in years.
Lower oil prices are also a break for chemical makers that use oil-based raw materials. They saw profits squeezed when crude was more than $100 a barrel. Now, though, the recession has reduced demand for their products and sharply cut into their sales.
Write to Ana Campoy at ana.campoy@dowjones.com
OPEC Faces Steeper Cuts in Output as Stockpiles Rise
DECEMBER 11, 2008, 2:15 P.M. ET
http://online.wsj.com/article/SB122898702731197823.html?mod=googlenews_wsj
By BENOîT FAUCON
LONDON -- A deteriorating global economy and shrinking oil demand have the Organization of Petroleum Exporting Countries poised to cut deeper into production when it meets Wednesday.
Oil prices have fallen since OPEC last met Nov. 29 in Cairo and deferred any more output adjustments until mid-December. Oil futures dropped 25% last week before recouping some losses and trading at $46.70 a barrel Thursday morning.
Meanwhile, fresh data confirm the economic contagion is spreading not only through the U.S. and Europe, but to the emerging Asian economies that had boosted oil prices to records as recently as July.
Analysts now say OPEC ministers gathering in Oran, Algeria, on Wednesday may need to agree to cut production by as much as 2.5 million barrels a day, in addition to roughly two million barrels a day of already-pledged cuts, to convince the oil market that it can balance the market and turn around prices.
Indeed, OPEC Secretary General Abdalla Salem El-Badri said Dec. 1 that the cartel may decide on a "major" output cut when it meets in Algeria.
Some OPEC members may face additional pressure from the world's leading oil producer, Saudi Arabia, to improve compliance with quotas. Furthermore, the producers' group is likely to renew calls for Russia and other non-OPEC producers to join in restricting oil supply, though it is unclear whether they will cooperate.
OPEC countries "will want to hit the market hard and fast," said John Hall, managing director of U.K. consultancy John Hall Associates, who predicted a cut of as much as 2.5 million barrels a day. "They need shock tactics to frighten the markets."
Mr. Hall said OPEC members will need to justify the reduction with inventory numbers, typically the days of oil inventories available to nations that are members of the Organization for Economic Cooperation and Development.
OPEC President Chakib Khelil has said the cartel wants to bring the number down to 52 days. That compares with 56.8 days at the end of October, according to International Energy Agency data released Thursday. Stocks are likely to rise further, the IEA forecast.
Peter Hutton, head of research at NCB Stockbrokers, estimated that OPEC would need to cut 1.8 million barrels a day on average in the first quarter to reduce OECD stocks by three days of forward consumption.
Ehsan Ul-Haq, head of research at Vienna oil consultancy JBC Energy, said OPEC also will put a "lot of emphasis on compliance [with previous cuts] as some countries have been complaining that Iran and Venezuela are not complying fully." The two producers deny that and say they are implementing the cuts.
But "pushing for higher prices will be a challenge given sharply decelerating economic activity," said Harry Tchilinguirian, a senior oil-market analyst at BNP Paribas SA.
Economic indicators have signaled further deterioration since OPEC met Nov. 29, followed by worsening forecasts for oil demand.
The World Bank warned Tuesday that growth in global gross domestic product would slow to 0.9% in 2009 from 2.5% this year, the weakest since records became available in 1970. The organization warned that a deep global recession couldn't be ruled out.
The macroeconomic estimates are being matched by downgraded forecasts for oil demand.
The IEA, in its monthly oil-market report for December, forecast 2008 global oil demand to slide 0.2%, or 200,000 barrels a day, to 85.8 million barrels a day on average. The outlook, published Thursday, represents the first demand contraction since 1983.
But the IEA remains more optimistic about demand next year than many other analysts, forecasting consumption to increase 0.5%, or 400,000 barrels a day, from 2008.
Some non-OPEC oil producers are considering reducing their own production in response to a call by the cartel to join the effort.
Russia will outline its decision on cutting oil production Wednesday, the Interfax news agency said, citing Energy Minister Sergey Shmatko. Mr. Shmatko is expected to attend the OPEC meeting in Algeria as an observer. Russia is the world's largest non-OPEC oil producer and has pledged close cooperation with the group.
—Spencer Swartz contributed to this article.
Write to Benoît Faucon at benoit.faucon@dowjones.com
Man-Made Bacteria Produces a Fuel That’s Better Than Gas
Author photo Written by Nick Chambers
Published on December 9th, 2008
http://gas2.org/2008/12/09/man-made-bacteria-produces-a-fuel-thats-better-than-gas/
* » Read more on Biogasoline
Researchers reported Monday that they have re-engineered a common bacteria to produce complex and energy-dense alcohols similar to the hydrocarbon compounds found in fuels such as gasoline. This is the first time these types of alcohols have been synthesized by bacteria (man-made or otherwise) in the lab.
E. coli is normally found in the guts of most warm-blooded animals (yes, even yours) and if you’ve had an encounter with it that you remember, chances are you spent the weekend on the toilet wishing you were dead. Yet, while it’s true that some strains of e. coli can cause food poisoning in humans, most are actually quite harmless.
Not only are most strains harmless, they’re turning out to be key for making the next generation of biofuels. Scientists have been studying and isolating strains of e. coli for years that can synthesize various types of biofuels from many different sources, such as plant material and garbage.
But until now, these e. coli strains could only synthesize simple alcohols like ethanol. While this is a good start, the energy density and stability of these types of alcohols is relatively low, which leads to lower fuel economy in your car and the need for special handling equipment when compared to regular old gasoline.
To get around this problem, a research team housed at the University of California Los Angeles and headed by James Liao, has harnessed e. coli’s particularly active enzymatic production system and inserted some chromosomes into the bacteria’s DNA to “trick” it into making longer and longer chains of alchols with its existing “plumbing.” The result is that the modified e. coli can now produce complex and energy dense alcohols of 8 carbons in length. Blah.
So what the hell does that actually mean?
Gasoline is a mixture of many types of complex substances called long chain hydrocarbons. In a typical gasoline mixture these hydrocarbon chains range in length from 5 to 12 carbon atoms, with an average of about 8. The length of these chains is the secret to gasoline’s high energy density compared to its volume as well as the reason why it’s a relatively stable liquid. In comparison, ethanol is made up of alchol chains 2 carbons in length.
That’s why the ability of this new man-made e. coli strain to synthesize long-chain alcohols in the lab is so groundbreaking. If we could use this engineered e. coli to make fuel that was nearly indistinguishable from gasoline, but do it out of non-food plant material and garbage, that would be a game-changer, no?
Granted, the fuel produced by these organisms isn’t actually better than gas when it comes to energy density or stability. But when looked at as a whole, the fact that it’s not being mined out of the ground from organisms that have been dead and buried for hundred of millions of years is what, in my mind, makes it better than gas.
James Liao’s team has been working on this method for quite some time, and reported back in January on some initial breakthroughs. They say there is still much work to be done before the organism can start producing commercial quantities of fuel. The next step will be to get the process to a point where a development lab can take over and start optimizing it for commercial scale.
If you are so inclined, and either want to pay for access or have access through a university library, the study can be found in the most recent issue of the Proceedings of the National Academy of Sciences journal.
Update 12/10/2008: Minor changes were made to the post text to differentiate clearly between long chain alcohols and long chain hydrocarbons as per suggestions of the commenters.
Oil contango pays most in decade; stockpiling earns 11%
Submitted by cpowell on Mon, 2008-12-08 03:30. Section: Daily Dispatches
http://www.gata.org/node/6965
By Robert Tuttle and Alexander Kwiatkowski
Bloomberg News
Monday, December 8, 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=aCStCdOsonHc&refer=h...
In the worst year ever for oil, investors can lock in the biggest profits in a decade by storing crude.
Traders who bought oil at the $40.81 a barrel on Dec. 5 could sell futures contracts for delivery next December at $54.65, a 34 percent gain. After taking into account storage and financing costs investors would earn about 11 percent, according to Andy Lipow, president of Houston consultant Lipow Oil Associates LLC. The premium, known as contango, is the biggest for a 12-month span of futures since 1998, when a glut drove crude down to $10.
Stockpiling crude may provide higher returns than commodities, stocks, and Treasuries as the U.S., Japan, and Europe endure simultaneous recessions for the first time since World War II. Crude sank 72 percent in New York since peaking at $147.27 in July. The Standard & Poor’s 500 Index fell 40 percent this year and two-year government notes yield 0.9 percent.
"The bottom line is that you buy crude at a low price and lock in a profit by selling it forward," said Mike Wittner, head of oil market research at Societe Generale SA in London. "It's low risk. The contango can definitely pay for storage and the cost of capital and leave plenty left over."
Royal Dutch Shell Plc sees so much potential in the strategy that it anchored a supertanker holding as much as $80 million of oil off the U.K. to take advantage of higher prices for future delivery. The ship is one of as many as 16 booked for potential storage instead of transporting crude, said Johnny Plumbe, chief executive officer of London shipbroker ACM Shipping Group Plc.
... Oil Storage
The tankers, if full, hold about 26 million barrels worth about $1 billion, more than the 22.9 million barrels sitting in Cushing, Oklahoma, where oil is stored for delivery against Nymex contracts. U.S. crude inventories rose 11 percent this year to 320.4 million barrels, according to the Energy Department.
"All the market operators keep placing oil in storage," said Francisco Blanch, head of global commodities research at Merrill Lynch & Co. in London. "Even though the contango is steep, it could get steeper."
Blanch said last week that oil may fall to $25 a barrel should the Chinese economy slip into recession and the Organization of Petroleum Exporting Countries fail to take enough crude off the market.
The Hague-based Shell, Europe's largest oil company, last month chartered the supertanker Leander with an option to store North Sea Forties crude, according to Paris shipbroker Barry Rogliano Salles. The vessel arrived at Scotland's Hound Point, the loading port for Forties, on Nov. 20, according to tracking data compiled by Bloomberg. Sally Hepton, a London-based spokeswoman at Shell, declined to comment.
... Shell, Koch
Shell and Koch Industries Inc. of Wichita, Kansas, also hired four supertankers to hold oil in the U.S. Gulf Coast to take advantage of rising prices in the months ahead. They took Very Large Crude Carriers, or VLCCs, to move oil from the Middle East, said Bruce Kahler, a broker at Lone Star, R.S. Platou in Houston.
Koch Supply & Trading LP spokeswoman Katie Stavinoha declined to comment.
The cost to store crude at Cushing averages about 35 cents a barrel a month, Lipow said in an interview. The cost of financing the crude would also be about 35 cents a month. A trader would have to take ownership of the oil in January 2009 and deliver it during December, according to Nymex rules.
... Supertanker Storage
A supertanker would cost about 90 cents a barrel per month for storage, according to data from shipbroker Galbraith's Ltd. The amount varies, depending on the duration of the storage.
"The economics make sense if you can find somewhere to store the oil," said Tony Quinn, managing director of Lincolnshire, U.K.-based Global Storage Agency Ltd., a bulk liquid storage terminal consultant. With depots in Europe almost full, "companies don't have anything else they can do, so are chartering commercial tankers for floating storage."
The reduced availability of credit may make it harder for traders and companies to purchase and store oil, said Merrill's Blanch and Societe Generale’s Wittner.
"With this sort of contango, we would probably have seen a larger stock build were it not for the credit crunch," said Olivier Jakob, managing director of consultant PetroMatrix in Zug, Switzerland.
The opportunity to benefit from the storage trade may disappear in weeks should OPEC cut output after its Dec. 17 meeting in Algeria. The group postponed a decision on production at its Nov. 29 gathering in Cairo.
"It's still quite profitable as long as inventories are ample and OPEC does not remove the barrels from the market," said Johannes Benigni, chief executive officer at Vienna-based consultancy JBC Energy GmbH.
* * *
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Crude Oil Forecast 2009- Time to Buy?
Commodities / Crude Oil Dec 08, 2008 - 10:51 AM
By: Nadeem_Walayat
http://www.marketoracle.co.uk/Article7664.html
Commodities
Diamond Rated - Best Financial Markets Analysis ArticleNo one could have imagined a little over 4 months ago with crude oil trading at $147, that crude oil would have crashed by 70% and be threatening to break below $40 so soon. Therefore this analysis seeks to to evaluate the prospects for crude oils future trend over the next 12months in determining whether crude oil today is a good buy or not.
Crude Oil Inflation Hedge Unwinding and the Recession.
China and other emerging markets are eyeing the fall in crude oil price to utilise huge trade surplus foreign currency reserves to buy up crude oil reserves exposure wherever possible, this has resulted in less of a decline for oil majors stock prices despite the 70% oil price crash. Crude oil as with all asset classes is being hit by the reversal of the inflation hedging that took place going into mid 2008 that saw crude oil bust through $100 towards $150, the original expectation was for the whole of this inflation hedging to unwind back through $100 and down towards a target of $80 with possible overshoot to the downside once the scale of the credit crisis fully manifested itself. As the oil price rally fed into much higher inflation statistics on the upside, so deleveraging of the inflation hedge is leading to self feeding deflation on the downside which is acting on pushing crude oils to much lower levels than could originally have been estimated.
The deep recession ensures that crude oil demand is being cut faster than that taken up by the emerging economic giants of China and India, also the stronger dollar has ensured that the actual falls in foreign currency terms has been less than for the United States. This implies continued weak trend for crude oil for the duration of the U.S. recession which is the key to crude oils trend for 2009, which given last months job losses of 533,000, the worst data in 34 years illustrates that the U.S. economy is a long way away from recovery with Europe not far behind in terms of economic contraction and therefore precludes a quick sustainable recovery for crude oil prices. However as always traders and investors need to concentrate on the actual price trend rather than the economic data as the price will move long before a change in the economic fundamentals becomes apparent.
Strike Against Iran Rumours
Still rumours persist of a possible attack against Iran's nuclear infrastructure that will drive crude oil prices higher, these rumours are nothing new for they tend to pop up every few months and have been doing the rounds for several years. This is more wishful thinking for perma oil bulls that last occurred in the lead up to the crude oil peak of $147 in July 2008, which at the time I concluded of being an extremely low probability event and which remains so. Those that have clung on to crude oil positions on the basis of this rumour have seen their bull market profits totally wiped out, therefore the key for any market participant remains to watch the oil price and not be mislead down the path of the wishful thinking rumour mill.
Crude Oil Supply / Demand Fundamentals
According to the International Energy Agency world oil demand growth is expected to slow to an average of 86.3 mln bpd during 2009 down from earlier forecasts that approached 87 miln bpd, meanwhile supply is expected to growing at an annual rate of 1.2% and expected to hit 87 mln bpd in 2009, which is less than the previous forecast for global supply growth of 1.6% per annum as the supply growth now reflects the 70% crash in the global oil price. However going forward demand from developed countries is expected to continue to contract at the average rate of 200,000 barrels per day that implies the full impact of peak oil will be put off for as long as another 5 years, implying crude oil volatility during this period where a future sentiment driven crude oil bull market could yet again lead to another price crash as we have witnessed over recent months. Therefore it is important for investors especially in oil price ETF funds to always have in place price targets and mechanisms for exiting out of positions so as to ensure future bull market gains do not evaporate in the face of bear markets.
Crude Oil Technical Analysis
Trend Analysis - Crude oil is clearly in the overshooting to the downside phase, having plunged through the original target of $80, then overshot support at $60, with the final break of the low of $50 and now assaulting on the $40 support level. Further immediate support exists along decades old resistance areas generated during the 1980's in the region of $35. Therefore this suggests further crude oil downside is limited. However the deep retracement suggests a wide trading band of between $80 and $35, therefore expectations of much price volatility during the base building process during much of 2009.
Therefore those now calling on crude oil to head towards $20 are reminiscent of calls for crude oil to hit $200 earlier this year, the overshoot that was going to occur has occurred with the expectations there there is little further downside remaining in future price action. However a bottom has to be formed that will take time to occur.
MACD - The MACD indicator is extremely oversold which implies that further immediate downside is extremely limited which suggests a significant multi month corrective rally is imminent.
Elliott Wave Theory - The peak of July 2007 marked the 5th wave Crude Oil Bull market peak with the subsequent expected pattern to form an ABC correction, that has been confirmed by preceding crude oil bear market outcomes. The current trend lower is clearly an A wave decline which suggests a B wave rally, that could retrace 38.2% of the decline today which projects to $80 and confirms trend analysis for a volatile crude oil trading range during 2009.
US Dollar bull market - The trend in crude oil and most commodities, is not so surprising in that the Dollar bull market remains in tact that will continue to bear down on all commodities during 2009. Previous updates: March 2008 - U.S. Dollar bottom called; August 2008 - U.S. Dollar base building breakout; October 2008 - U.S. Dollar correction into late November expected before continuation of the bull market into early 2009 towards a target of USD 92. More to follow on the U.S. dollar's prospects during 2009 in my fourth US Dollar bull market update later this month.
Crude Oil Forecast 2009
Crude oil is still in a downtrend, that means investors and traders need to WAIT for a buy trigger which normally means the break of a recent high or a significant resistance area ($50) before scaling into a position, and I mean scaling in because it will take much time for crude oil to formulate a bottom that I expect will form a very volatile double or even triple bottom pattern i.e. protracted bottom formation punctuated with very sharp short-covering rallies that could see crude oil spike higher to $80 and declines back to below $50 over the next 12 months as the below graph illustrates. What this anticipated scenario means is that there is TIME for investors to buy into crude oil positions as the base building confirmation takes place, as any strong rallies will likely be followed by tests and probable breaks of the previous low so as to enable the creation of the overall saucer shaped double bottom pattern.
However the long-term trend for crude oil remains higher, when I mean long-term I am looking at well beyond the next 12months towards 5 to 10 years, when I would not be surprised given the peak oil fundamentals that we will actually be visiting the $200 crude targets that were loudly pronounced during mid 2008 as being imminent when crude oil was trading at $147. This scene rios should not be surprising given that the US Dollar bull market remains in tact that will continue to bear down on all commodities during 2009, but more on the dollar in my next (fourth) US Dollar bull market update.
GOLD Quick Update - My previous analysis that envisioned a sideways trend for gold for 2009 of between $930 and $700 still stands with little price action to date to suggest otherwise. Chris Vermeulen has also prepared an excellent in depth analysis for the outlook for gold and gold stocks trend that readers maybe interest in.
Your PATIENT crude oil long-term exposure accumulating analyst.
By Nadeem Walayat
http://www.marketoracle.co.uk
Copyright © 2005-08 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.
Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 150 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.
Attention Editors and Publishers! - You have permission to republish THIS article. Republished articles must include attribution to the author and links back to the http://www.marketoracle.co.uk . Please send an email to republish@marketoracle.co.uk, to include a link to the published article.
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Remember the little boy in the 1970's?
They ran an ad campaign "Please America, don't be fuelish."
We were supposed to be "out" by now.
Peak Oil is slick packaging along the lines of global warming...used for political purposes, and control.
Find out more.
Oil down to 50 frns will bankrupt any wildcatters in the USA...enjoy it while it lasts which could be several years...they will smoke screen new discoveries with the story that the period of high oil prices spurred exploration which led to the price decline.
Some Info comes from SI board respect to dvdw©:
http://siliconinvestor.advfn.com/readmsg.aspx?msgid=24820452
Would you like to me an assistant? PM me.
50, here we come...hit 50...hit 35...hit 50...up for the summer...sheep never learn.
USE THE INFO ON THIS BOARD TO MAKE MONEY.
CONFESSIONS OF AN "EX" PEAK OIL BELIEVER
by F. William Engdahl
September 25, 2007
Only slightly different from
http://investorshub.advfn.com/boards/read_msg.asp?message_id=23262399
http://financialsense.com/editorials/engdahl/2007/0925.html
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