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Why The U.S. Needs A New Generation Of Farmers
"America is in the middle of a farming crisis. Only about 6% of current U.S. farmers are under age 35, which means we may not be able to grow enough food to feed the country in the future."
Under your premise of a global cooling cycle or Little Ice Age, I agree that it will have a dramatic reduction in food production and hence there will not be enough food to keep people alive.
When growing up, HH, my maternal Grandpa taught me about sustainability and his emphasis was on a depletion of the world's aquifers. He also demonstrated against industrial pollution of water. I always took his word as a child and grew into the current beliefs of Peak Oil, Peak Water, Peak Soil, Peak Bee population, and now, yes, the possibility of a Little Ice Age.
For my beliefs, most people think that I'm nuts, but I counter that for whatever happens, I have great gardens that produce excellent foods and also by gardening I'm in much better physical condition than I was even at a younger age.
Thanks.
Peak Oil Review: 28 May 2018
By Tom Whipple, Steve Andrews, originally published by ASPO-USA
May 29, 2018
Editors: Tom Whipple, Steve Andrews
https://www.resilience.org/stories/2018-05-29/peak-oil-review-28-may-2018/
Graphic of the Week
Quote of the Week
“”My estimate is that about 70% of the good quality drilling locations [in the Bakken and Eagle Ford shale plays] have already been drilled. So you’re left with Tier 2, and Tier 3 quality geologic locations, and there’s a really steep drop-off in the amount of oil you get per well with those locations.” Even though technology and well completion techniques have improved per-well yields, “that doesn’t offset bad rock. I expect by the August [earnings conference] calls, to see some independents temper their 2018 growth forecasts. They’ll couch it in terms of unavailability of service equipment, difficulty getting crews or logistical issues, but that will be code for ‘I’m having disappointing well results because I’m having to drill Tier 2 and 3 geologic locations’.” Mark Papa, former CEO of shale producer EOG Resources and currently CEO of small-cap Centennial Resource Development.
1. Oil and the Global Economy
The price spike continued through last Monday and then collapsed as word spread that Russia and the Saudis were considering phasing out the 1.8 million barrel production freeze that has been in effect for nearly 18 months. From Tuesday on it was all downhill. New York futures collapsed by nearly $5 a barrel going from $72.40 to $67.88. In London the decline started on Thursday but then Brent futures fell by more than $3 a barrel to close at 76.44 Friday. The decline in London took longer as the market was reacting to the news of the US trade war with China. Many analysts are noting the $8.56 spread between US and world prices and that the two oil benchmarks are further apart than they have been since 2015 before US crude could be freely exported.
The price spread is a good indicator of how stretched global oil supplies have become even as US oil production has grown to overtake Saudi Arabia and nearing that of Russia. The spread has contributed to soaring US exports, which have hit a record of nearly 2.6 million b/d.
How long the recent price drop continues in problematic. The global economy continues to grow at a good pace, and the news from Venezuela, Iran, and Nigeria suggest we may be seeing lower exports from these countries in the next six months. Whatever Russia and the Saudis’ decide to do about their production freeze, it is likely to be lifted gradually to forestall another price plunge such as we saw last week. Some in the US Congress are already concerned about so much US produced oil going abroad that will not be available to mitigate possible supply disruptions in the future.
The OPEC Production Cut: Saudi Arabia’s and Russia’s energy ministers said on Friday they are discussing reducing the oil production cut by some 1 million b/d to calm consumer worries about supply adequacy. Saudi Arabia’s Khalid al-Falih added that any such move would be gradual so as not to shock the market. The situation has been complicated by the rapid drop in Venezuelan oil production which now has the cut at 52 percent or 2.7 million b/d more than required by the agreement. The complicated restoration of 1 million b/d would simply bring the cut back to its target level. OPEC and non-OPEC ministers are to meet in Vienna on June 22-23, and the final decision will be taken there.
Dividing up the extra barrels among deal participants could be complicated as only a few members of the coalition, namely Russia, Saudi Arabia, and the Gulf Arab states can increase production and gain the added revenue from higher prices.
In addition to complaints about the higher oil prices coming from the Trump administration, the Chinese have also complained about the danger of higher oil prices according to a Saudi statement issued by Energy Minister Falih.
US Shale Oil Production: The US oil rig count rose by 15 the week before last, the most since February as crude prices climbed to their highest since late 2014. Despite the EIA’s estimate that oil production in the lower 48 states grew by another 24,000 b/d last week, questions about how fast and for how long US shale oil production can continue to abound in the financial press.
Last week the rapid growth of the natural gas supplies in the Permian Basin where there is not enough pipeline capacity to move the gas to market became the latest concern. Producers say that unless the federal government allows increased flaring of the natural gas, then the only option is to shut in production until sufficient pipeline capacity can be built. A new problem for Permian oil and gas companies is handling and disposing of water. Earlier this year the University of Texas of the Permian Basin hosted a conference devoted to the region’s energy industry water usage needs. Once a well is producing, the ratio of water to oil can range from 3:1 to 11:1, and the cost of safely disposing of this growing volume of water has become a significant source of rising operating costs. One approach that Permian drillers are using is recycling and reusing produced water for fracking. This can save drillers the companies’ disposal costs and limits constraints on finding new water supplies.
A veteran shale oil executive, who was CEO of a large shale oil producer, EOG Resources, said US output growth “disappointed” in 2017 and will probably continue to do so near-term. “If you look at each month of the EIA [US Energy Information Administration] production growth, it’s been essentially flat for nine of the past 13 months,” he said. “We had 500,000 b/d versus early predictions of around 650,000 b/d.” He pointed out that US petroleum inventories so far this year have “built hardly at all” relative to the five-year average, he added: “We’re clearly undersupplied on a US basis.” Moreover, in the Gulf of Mexico, where production has grown by roughly 80,000 b/d annually in the last few years, we could see flat or the start of declining production growth in 2019 and further declines in subsequent years. Exploration investment in the Gulf essentially stalled from 2015 to the present, due to the industry downturn when operators turned their attention to onshore shale that brings quicker payback.
Two of the “Big Three” oil plays — the Eagle Ford Shale and Bakken Shale — have largely had their best Tier 1 acreage already drilled, much of it during relatively low oil prices that averaged about $48 per barrel between 2015-2017. “So you’re left with Tier 2 and Tier 3 quality geologic locations, and there’s a really steep drop-off in the amount of oil you get per well in these tiers.” Mark Papa expects that by August some independents will lower their 2018 growth forecasts. “They’ll couch it in terms of unavailability of service equipment, difficulty getting crews or logistical issues, but that will be code for ‘I’m having disappointing well results because I’m having to drill Tier 2 and 3 geologic locations.”
Rising interest rates also are becoming a concern for the future of the shale oil industry. Some observers say the near-zero interest rates that the Federal Reserve has mandated in recent years are mainly responsible for the shale oil boom. One analyst says the low rates allowed drillers to borrow close to $1 trillion between 2006 and 2014 which has resulted in multi-billion dollar losses by the shale oil industry. Some are warning that higher interest rates could bankrupt more shale oil drillers, darkening the prospects for higher production levels ahead.
An updated analysis of the outlook for US shale oil production using EIA output data and average well production data concludes that production will peak and start to decline about 2023 which is in line with what other analysts have been saying. The great US shale oil boom has five years or less to go.
2. The Middle East & North Africa
Iran: Supreme Leader Ayatollah Ali Khamenei on Wednesday sneered at the US demands that his country curb its military ambitions and issued his own set of demands to Europe to remain in the nuclear deal.
As could be expected, Tehran is threatening to pull out of the nuclear agreement unless Europe comes up with an “economic package” that will compensate for any economic harm done to Iran from the new US sanctions. The Iranian official who made the threat noted that hardline forces in Tehran were getting stronger and that the country would have to pull out of the non-proliferation treaty and revisit its nuclear doctrine.
Iran’s market share in Europe has already begun to slip as European refiners have started buying alternatives to Iranian crude well before new US sanctions begin later this year. Europe has been buying just under a third of Iran’s oil exports of around 2.4 million b/d. France is examining the question of whether the European Union could compensate European companies that might be facing sanctions by the US for doing business with Iran. EU rules going back to 1996 could allow the EU to intervene in this manner to protect European companies against any US sanctions.
Despite the rhetoric, however, Iran expects some disruption in its oil industry after the reintroduction of US sanctions that would make it hard to stick to its current production goals. Iranian state news agency Shana quoted Zanganeh as saying achieving its stated daily production target of 4.2 million barrels of crude would be “difficult and although it might take more time, we will not do away with it.” Tehran is relying on its two biggest buyers, China and India, to boost its production despite the sanctions.
Iraq: While waiting for a new government to be formed, a process which could take weeks or even months, little new is happening in Baghdad’s oil industry. Rosneft has discovered a new oil field in southwestern Iraq, the company said. The Russian oil firm acquired the rights to the Salman field when it bought smaller Russian oil producer Bashneft two years ago. Until recently, Rosneft was widely seen as a partner of the Kurdistan Regional Government, which is still fighting Baghdad over its share of the oil revenue.
Iraq signed a 25-year contract last week with the China ZhenHua Oil Company to develop the southern part of the East Baghdad field. “The field is very important for the capital,” said Oil Minister al-Luiebi, speaking at the signing ceremony. “It stayed undeveloped for a long time because of reservoir difficulties we faced working there.”
Saudi Arabia: Most of the news concerns the Kingdom’s discussions with the Russians over modifications to the OPEC oil production freeze. Energy Minister Khalid al-Falih confirmed on Friday that the initial public offering of a 5 percent share in Aramco had been delayed until 2019.
Libya: Agoco, a unit of the Libyan National Oil Corporation, has had to significantly reduce oil production at its fields because the hot weather has caused several turbines to stop working. The decline in production amounted to some 120,000 b/d. This is one of the first signs that high ambient temperatures could someday affect the Middle East and North African oil production.
3. China
US Treasury Secretary Mnuchin said there is a “massive opportunity” for US energy exports to China after the US and Beijing reached a hiatus in their threats of a trade war. China has become one of the biggest buyers of US oil since the government lifted an export ban in 2015. Last week Beijing announced that it would take in more natural gas from the US to satisfy growing demand as it tries to reduce the use of coal. Oil, LNG, and foods are the key products that the US has in surplus and the Chinese need. Increases in sales of these products could help mitigate the US deficit in the US-China trade balance.
If US crude exports continue to grow, there will be an increasing number of very large crude carriers loaded for China in coming months. The US Energy Information Administration projects the US will average 11.9 million b/d of crude production next year, surpassing Russia as the world’s biggest producer. The light, sweet crude that comes from shale is ideal for many Chinese refineries who are desperate to import more crude as domestic production declines.
Last week PetroChina, Beijing’s top gas producer, curbed supplies of natural gas to some industrial users in its northern and western regions. This is the first sign of tight supplies only two months after China experienced one of its worst winter gas crunches. To prevent another round of winter shortages, PetroChina has already started limiting gas supplies and hiking prices for major customers, including city gas distributors and inland gas liquefaction plants.
4. Russia
President Putin said on Friday that an oil price of $60 per barrel suited Russia and that high oil prices could create problems for consumers. This is yet another sign that a significant change in the oil production freeze is in the offing. Speaking from the sidelines of the St. Petersburg International Economic Forum, Russian Energy Minister Novak said there could be a gradual increase in Russia’s oil output starting in the third quarter of the year. However, “It is premature to talk about a specific figure.”
The European Union settled its multiyear antitrust case against Gazprom last week, suggesting that cheaper and freer natural-gas flows from Russia are coming. Gazprom pledged to set gas prices in line with open Western European markets. President Trump has been pressuring the EU to buy more US energy and cut its dependence on Moscow.
The political row over Europe’s dependence on Russian natural gas is not hindering preparatory work for the subsea Nord Stream 2 gas pipeline from Russia to Germany, with dredging work starting off the Baltic coast last week. A senior US State Department official threatened sanctions for the controversial project. Washington sees the second Nordstream pipeline as a security threat because it could give Russia the chance to install “undersea surveillance equipment” in the Baltic.
Gazprom said on Saturday it has signed an agreement with the Turkish government on a planned gas pipeline across Turkey and agreed to end to a dispute over the terms of gas supplies. Turkish President Erdogan said earlier on Saturday that Turkey and Russia had reached a retroactive agreement for a 10.25 percent discount on the natural gas Ankara buys from Gazprom. Turkey had delayed issuing a permit for the Russian company to start building the land-based parts of the pipeline which would allow Moscow to reduce its reliance on Ukraine as a transit route for its gas supplies to Europe.
5. Nigeria
The recent closure of the Trans- Forcados Pipeline following the May 7th explosion may affect the ability of the federal government to fund its 2018 budget. Salvic Petroleum Resources Limited is undertaking the emergency repairs and is said to be working round the clock to bring the pipeline back up in a matter of days. However, FBNQuest Capital has predicted that Nigeria’s the crude production target of 2.3 million b/d proposed in the 2018 budget will not be achieved because of the sabotage that is taking place in the lead-up to the 2019 elections. FBNQuest sees average output this year at 2.07 million b/d, compared with 1.90 million in 2017 and the forecast of 2.30 million in the 2018 budget proposals. Oil production will be helped soon with the opening of Total’s deep offshore Egina oilfield which is due to start production in Q4 at 200,000 b/d.
The Minister of State for Petroleum Resources indicated last week that but for the timely interventions of the government with militants who resumed bombing of oil facilities in the Niger Delta three years ago, the country could have been crippled.
Nigerian oil and gas company Oranto Petroleum will be cooperating with Russia’s Rosneft to develop 21 oil properties across Africa. Rosneft does not have a significant presence in Africa except for a 30-percent stake in the giant Zohr gas field off Egypt in the Mediterranean, as well as some prospects in Mozambique. Oranto Petroleum and its sister company Atlas Petroleum International are Nigeria’s largest privately-held exploration and production firms. The companies together have 22 oil and gas licenses in 11 jurisdictions in Africa, including in producing assets in Nigeria and Equatorial Guinea.
6. Venezuela
During his inauguration speech, Maduro said he would seek the help of OPEC to double Venezuela’s oil production, which is currently at 70-year lows. Maduro also said the current production rate—about 1.5 million b/d—would need to increase by 1 million by the end of this year. While asserting that Venezuela would defeat the US sanctions and reverse its economy, he admitted that it would be a tough job because of the sanctions and the ruinous state of its oil industry.
The US imposed new economic sanctions after Sunday’s election and 14 countries including Argentina, Brazil, and Canada have recalled their ambassadors from Caracas in protest. In retaliation, Maduro ordered the expulsion of the US chief of mission in Venezuela as the US ambassador was tossed out long ago.
The critical issue remains as to whether Washington will push Venezuela to total collapse. This could happen if the US bans imports of Venezuelan oil cutting off an important source of hard currency or forbids the sale of diluents to Caracas which are vital to preparing heavy oil for export.
7. The Briefs (selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
Industry debt: One of the biggest risks to the world’s financial system is the $2.5 trillion of debt owed by oil and gas firms. After a year from hell, prices of commodities and the shares and bonds of the firms that produce them have bounced back in the past month. But the evidence of financial pain is all around. Last week Energy XXI, an explorer with $4 billion of debt, filed for bankruptcy in Houston. And JPMorgan Chase, Wells Fargo and Bank of America complained of rising energy-sector bad debts in their first-quarter results. (5/25)
The oil majors are increasingly betting their futures on a mix of downstream enterprises. Refineries, processing, petrochemical facilities and retail gasoline stations are gaining in importance, while upstream spending stalls. (5/21)
Investors are upping the ante on big oil companies over climate change, demanding they take more concrete action to help curb global warming. The issue is set to come into focus at Royal Dutch Shell’s annual meeting Tuesday where investors with nearly $8 trillion under management will call on the company to go beyond already ambitious plans to curb emissions. (5/22)
Climate lawsuits? After paying more than $65 billion in legal costs for the Deepwater Horizon catastrophe, BP is wary of the risk of lawsuits related to climate change. Chief Executive Officer Bob Dudley raised the topic of class-action lawsuits twice during the company’s annual general meeting in Manchester, England on Monday. (5/22)
The airline industry is heading for rising fuel costs as crude oil prices surge, and the weakest of the European airlines may not make it through the winter, Michael O’Leary, chief executive at Europe’s largest budget carrier Ryanair, said on Monday. (5/22)
The UK Oil and Gas Authority awarded on Wednesday 123 licenses over 229 blocks or part-blocks to 61 companies in the 30th Offshore Licensing Round in the UK North Sea, expecting the round to lead very quickly to activity and boost exploration. The new program commitments include eight firm exploration/appraisal wells. (5/24)
In the UK, Aurora Energy Research has projected that the adoption of electric cars could wipe out as much as $21 trillion in revenues for the oil, gas, and coal industry by 2040. Further, oil prices could plummet to as little as $32 a barrel. (5/24)
In India, soaring gasoline and diesel prices require urgent action, Oil Minister Dharmendra Pradhan said, and the government is trying to find a solution to the problem, which comes as a result of a substantial increase in benchmark oil prices and India’s excessive dependence on imported crude. (5/25)
Offshore Vietnam, last week sources said Rosneft Vietnam BV, a unit of Russian state oil firm Rosneft, was concerned its recent drilling in one such block could upset Beijing. That prompted Vietnam’s foreign ministry to assert the blocks are “entirely under Vietnamese sovereignty and jurisdiction,” and a warning from Beijing to respect its sovereign rights. (5/23)
The expansion of Asian populations and economies is expected to have unprecedented and unpredictable impacts on world resources. The task of meeting future energy needs is daunting. The Chinese have made the use of renewables their preferred option to increase energy production and availability. What may not be obvious is that their installation rate for renewable energy is exceedingly problematic, if not impossible. (5/25)
In Australia, a cross-country pipeline and gas imports from as far away as the US are on the drawing board as the country races to plug a domestic supply gap that is driving up east coast gas prices and threatening jobs. Although Australia is the world’s No. 2 liquefied natural gas (LNG) exporter, much of its east coast gas is tied up in long-term export contracts while mainstay supplies in the populated southeast are drying up more quickly than expected. Imports will be needed within four years. (5/21)
In Sudan, racketeering is rife in Kassala as reports from the state complain that the fuel crisis has worsened in an unprecedented manner. A gallon of diesel now cost US$21.30 on the black market. A large number of people had to stop using their vehicles because of the fuel crisis, which has caused a severe transportation problem. The queues of vehicles in front of fuel stations continue for days. (5/25)
Libya’s National Oil Corporation shipped its first cargo of propane from Zueitina port, four years after the gas processing plant at the port was closed due to protests. (5/24)
Nigeria’s oil minister stated that government intervention and back-channel negotiations during 2015 prevented a crippling of the nation’s economy. Speaking through a podcast, the minister explained that at the height of the oil militancy, Nigeria’s oil production dropped to about 800,000 b/d, a production volume inadequate to fund the national budget or investments in infrastructure. (5/24)
Angola is halving the tax rates on development of oil discoveries with less than 300 million barrels of reserves as new President Joao Lourenco is trying to incentivize oil and gas investment in the African country to stop the decline in oil production. Angola’s oil fields are maturing and are nearing depletion. Unless new investments are made in new discoveries, things will continue getting worse. (5/23)
Across Africa, ambitious operators are seeing multiple opportunities and seeking out the “elephants” – the remaining big hydrocarbon discoveries across the continent. (5/26)
In Brazil, oil prices have gone up 15 times in May alone. On Monday, truck drivers blocked dozens of roads across 19 Brazilian states. They were protesting the latest rise in diesel prices. Since July 2017, diesel users have been grappling with a 21-percent price increase. These continual price hikes are a consequence of a new pricing policy set by Petrobras, Brazil’s state-run oil and gas company, midway through last year. (5/23)
Mexico, several years on from the semi-privatization of its oil sector, has lined up tens of billions of dollars of potential investment in offshore drilling. But the entire effort is at risk as the political winds shift against it. Mexico’s oil production has been in steady decline since the mid-2000s, having peaked at just over 3.5 million b/d. The country’s oil fields are decades-old and losing production. The losses from Mexico’s aging oil fields accelerated in 2014 during the oil market downturn, and output fell below 2 million b/d last year. (5/24)
Mexico received more than half of all US motor gasoline exports during 2017. Changes to Mexico’s retail gasoline and diesel fuel markets, combined with low utilization of Mexico’s petroleum refineries, resulted in increased gasoline imports from the US (5/25)
The US remained the world’s top producer of petroleum and natural gas hydrocarbons in 2017, reaching a record high. The US has been the world’s top producer of natural gas since 2009, when US natural gas production surpassed that of Russia, and the world’s top producer of petroleum hydrocarbons since 2013, when US production exceeded Saudi Arabia’s. Since 2008, US petroleum and natural gas production has increased by nearly 60%. For the United States and Russia, total petroleum and natural gas hydrocarbon production, measured in energy content, is almost evenly split between petroleum and natural gas, while Saudi Arabia’s production heavily favors petroleum. (5/22)
The US oil rig count increased by 15 while gas rigs increased by two, according to Baker Hughes. The combined rig count now stands at 1,059—up 151 from this time last year. (5/26)
Shell has made a large deepwater exploration discovery in the US Gulf of Mexico, just 13 miles from its Appomattox project that is expected to start production by the end of 2019, the oil major said on Thursday. The Dover discovery is Shell’s sixth in the Norphlet geologic play in the US Gulf of Mexico. (5/25)
Exxon Mobil Corp. plans to reduce the amount of natural gas it burns as waste by a quarter within two years to reduce climate-changing emissions, something long demanded by environmental groups and activist investors. (5/24)
Shale natural gas serves as a bridge to a low-carbon economy, but it’s still a fossil fuel that could contribute to climate risks, a U.N. report found. (5/26)
LNG exports: BP has secured 2 million tons/year of LNG from the Venture Global Calcasieu Pass LNG export facility in Louisiana, under a 20-year sales and purchase agreement with Venture Global, the companies announced Monday. (5/22)
More LNG capacity: Cheniere Energy Inc said on Tuesday it had approved the construction of a third liquefaction unit, known as a train, at its Corpus Christi export terminal in Texas, the first new liquefied natural gas project to go ahead in the United States since 2015. The Houston-based company said it would instruct its contractors to proceed with the full build, which started in a limited fashion in late 2017. The first two trains at Corpus Christi are expected to enter service next year. (5/23)
Subtropical Storm Alberto, the first named storm of the 2018 Atlantic hurricane season, is forcing the evacuation of oil workers from the US Gulf of Mexico as it moves toward a Monday landfall between New Orleans and Florida’s panhandle. (5/26)
Hurricane season: Climate forecasters at the National Ocean and Atmospheric Administration, a division of the Commerce Department, predict a 40 percent chance of an average 2018 hurricane season and a 35 percent chance of an above-normal season. There’s a 70 percent chance for as many as four hurricanes of category 3 or stronger. (5/26)
Total California solar output hit a new record last week, placing sun-driven generation at the top of the overall California generation mix so far this month. (5/21)
In New Zealand, power shortages during winters when there is not enough water, wind or sun, remain the Achilles heel in the nation’s otherwise huge potential to move most of its fossil fuel-driven economy to renewable electricity. A new report suggests fast-starting power stations using natural gas should not be closed “without an energy storage solution” under scenarios that show the gap between supply and demand during winter is likely to balloon as the electricity system moves towards 100 percent renewable generation. None of the existing and emerging technologies for electricity storage solutions are obvious solutions since battery storage will only fill in short-term gaps in supply. (5/24)
In Dubai, MBR Solar Park recently opened. MBR, in the desert some 30 miles south of the city of Dubai, is now a massive array of solar panels that spread for miles and continues to grow. It is the largest solar park in the world that in 2016 achieved the lowest prices for solar-powered electricity in the world. (5/23)
Electric vehicles will become cheaper than the internal combustion engine in a half decade, while electric buses will completely “dominate” its sector by the late-2020s, according to Bloomberg New Energy Finance (BNEF). The firm just published its Electric Vehicle Outlook 2018 report. EV sales will top 1.6 million in 2018, up from just a few hundred thousand in 2014. Sales are expected to continue to accelerate, topping 11 million units by 2025 and 30 million by 2030. By 2040, EV sales will hit 60 million, or about 55 percent of the global market for light-duty vehicles. By 2025, China will account for roughly half of the entire global EV market, thanks to a combination of financial carrots and sticks. What is the upshot for crude oil? The penetration of EVs into the light-duty vehicle market will erase 7.3 million barrels per day of oil demand by 2040. (5/22)
EV barrier: A new study by a team from Aarhus University in Denmark has found that car dealerships pose a significant barrier to electric vehicle adoption at the point of sale. Shopping experiences at 82 car dealerships across Denmark, Finland, Iceland, Norway and Sweden found that those dealers were dismissive of EVs; misinformed shoppers on vehicle specifications; omitted EVs from the sales conversation, and pushed customers towards gasoline and diesel vehicles. (5/25)
EV HD trucks: The German Federal Ministry for the Environment gave the green light for a subsidized pilot project to conduct research and development on the electrification of long-haul trucks. The electricity supply for the heavy goods vehicles is provided by using a pantograph to contact an overhead power line. The two project partners involved are Siemens and Volkswagen Group Research. (5/25)
US EV sales sluggish: The US EIA on Tuesday said US electric vehicle sales have been sluggish, but EV proponents contend the EIA’s focus on market share misses the more important EV sales growth-rate indicator. EIA found the EV share of total light-duty-vehicle sales grew the most since 2012, but only accounted for 0.6% of 2017 sales. (5/23)
Lithium-ion batteries have come to dominate the battery market, and this domination looks like it will be a lasting one despite the numerous reports of breakthroughs in battery technology that attempt to find viable alternatives to lithium-ion technology. The search for an alternative could benefit from new regulations seeking to limit the risk of fire inherent in lithium-ion batteries, which is their biggest problem. (5/22)
Battery booster: BP Ventures has provided $20 million in funding to an Israeli startup that makes ultrafast-charging batteries, which aims to make it possible for electric cars to charge in just five minutes—in a time comparable to filling a tank with gas, the supermajor said today.
Cobalt crunch: The increasing popularity of electric vehicles may create a crunch for supplies of cobalt in the early-to-mid 2020s, miners and analysts say, adding that small operators trying to start up mines outside Africa could play a bigger role over time in satisfying demand for the metal used in rechargeable batteries. The Democratic Republic of Congo produces nearly two-thirds of the world’s cobalt as a by-product of its copper mines and is taking an increasingly confrontational stance toward foreign mining companies. (5/25)
Aussie drought: Asian flour millers are set to buy record volumes of wheat from Black Sea producers in 2018 as traditional supplier Australia faces a second year of drought and as demand continues to grow around the region. (5/23)
Southwest drought: The worst drought to hit the Southwest in decades continues to grow even worse, and many are already comparing this current crisis to the Dust Bowl days of the 1930s. The epicenter of this drought is where the states of Utah, Colorado, Arizona, and New Mexico all come together, but it is also devastating areas of North Texas, Oklahoma and Kansas as well. Portions of seven states are already at the highest level of drought on the scale that scientists use, and summer doesn’t officially arrive for another three weeks.
Peak Oil Review 21 May 2018
By Tom Whipple, originally published by ASPO - USA
May 21, 2018
Editors: Tom Whipple, Steve Andrews
https://www.resilience.org/stories/2018-05-21/peak-oil-review-21-may-2018/
Quote of the Week
“Despite the welcome improvements in efficiency and innovation from companies operating in the North Sea, the ongoing decline in our offshore gas production has meant that the UK has gone from being a net exporter of gas in 2003 to importing over half (53%) of gas supplies in 2017 and estimates suggest we could be importing 72% of our gas by 2030.”
Greg Clark, Secretary of State for Business, Energy and Industrial Strategy, and James Brokenshire, the Secretary of State for Housing, Communities, and Local Government, in a joint statement
1. Oil and the Global Economy
Brent crude traded briefly at $80.18 a barrel on Thursday before slipping back to close the week at $78.51. This was the highest that London oil futures have traded since November 2014. New York futures closed the week at $71.28 which is more than $7 a barrel lower than London giving another push to US crude exports. The price jump came amidst a burst of bullish news including a larger-than-expected drop in US petroleum stocks of 1.3 million barrels of crude and a drop of 3.8 million barrels of gasoline. The short-lived spike also came just after a new Goldman report saying the US shale oil production can’t possibly make up for the potential loss of oil from the new Iran sanctions and that prices are likely to move higher.
However, while futures markets are pushing 4-year highs, spot crude prices are at their steepest discounts to futures in years due to weak demand from refiners in China and a backlog of cargoes in Europe. Sellers are struggling to find buyers for West African, Russian and Kazakh crude. Many see the physical oil markets as a better gauge of short-term fundamentals than futures which are partly driven by geopolitical concerns.
As usual, there are divergent opinions on where oil prices are going in the next year or so. The CEO of Total says that a combination of the Iranian sanctions and the collapse of Venezuelan oil production will likely push oil to $100 a barrel. However, the CEO of BP says that growing US shale oil production and the relaxation of the OPEC production freeze could send prices back down to $50-65. The IEA is warning that high oil prices are going to cut into demand, while Morgan Stanley warns that the new international shipping regulations requiring cleaner fuel will drive oil to $90 a barrel by 2020. The UK’s Westbeck Capital predicts $100 crude shortly, with $150 coming later as the world faces a crunch similar to July 2008.
The OPEC Production Cut: The cartel’s production was up 12,000 b/d in April, but that was after February production had been revised down by 74,000 b/d and March by 39,000 b/d. Most of the recent cuts have come from Venezuela. Since September 2017, the decline there has averaged 63,000 b/d per month as compared to about a 20,000 b/d each month for the first nine months of 2017. With the likelihood of a near total collapse in Venezuelan oil production increasing, there is less need for restraint by other OPEC members who can increase production. In addition to Venezuela, other OPEC members such as Angola, Nigeria, Ecuador have been having problems keeping up production in recent weeks.
The cartel says oil’s current rally to the vicinity of $80 a barrel is a short-term spike driven by geopolitics rather than any supply shortage. This may be a sign the group is not yet ready to rethink the supply-cutting agreement. The Saudis Arabia believe that a speculator-driven jump in oil prices is not sufficient grounds for producers to boost output. For such a decision to occur, the rally would need to be driven by news data pointing to a supply crunch.
OPEC and its collaborators are meeting next month to discuss the progress of their production cut and what they should do next. Publicly, all the parties to the deal are committed to its continuation until the end of the year. However, there are signs that the situation could change in the next seven months. Russia pumped more than its allotment in March and April and Energy Minister Novak recently hinted that Moscow might like to see the deal terminated earlier now that the global oil glut is eliminated.
Citigroup analysts estimate that Russia currently has 408,000 b/d in idled capacity, about 4 percent of its estimated 11.3 million b/d total productive capacity. That is a lot less than Saudi Arabia’s idle capacity, of 2.12 million b/d; however, most Russian oil producers are eager to expand production. Thanks to the new pipelines to China, Russian oil companies will soon be able to sell China all the oil they can produce. Rosneft has said that it is in a position to restore its production to pre-cut levels within two months.
US Shale Oil Production: The Wall Street Journal reports that US shale oil drillers are still spending more money than they are making, even with higher oil prices. The top 20 shale oil drillers by market capitalization collectively spent almost $2 billion more in the last quarter than they took in from operations. This was largely due to bad bets hedging crude prices, as well as transportation bottlenecks, labor and material shortages that raised costs. Despite the higher selling prices, the drillers spent about $1.13 for every $1 they took in. Oasis Petroleum spent $3.27 for every $1 it made in cash, while Parsley Energy spent almost $2 for every $1 it made in cash, according to the Journal.
This is not a new story; most drillers were losing money when oil was selling above $100 a barrel. Although the 2014 price drop saw lower production costs, most of these came from lower wages and service company fees and not from the much vaunted “technological improvements.”
According to the Energy Information Administration’s latest Drilling Productivity Report, US shale oil production is slated to rise by a record-breaking 144,000 b/d from May to June, hitting 7.178 million b/d. The Permian Basin will lead the way with a 78,000-b/d increase in production, from 3.199 million b/d this month to 3.277 million b/d in June. The Permian will be followed by Eagle Ford, with a 33,000 b/d increase and the Bakken with a 20,000 b/d increase.
It is interesting to note that recent North Dakota figures on the Bakken’s actual oil production show it falling by 13,000 b/d between February and March, although some of the Bakken’s production comes from Montana. The rig count in the Bakken has grown by only eight rigs since last December and now stands at 60 as compared to 218 back in 2012. North Dakota also reports that last week oil producers were only getting $59 a barrel at the well-head as compared to the $71 futures price. A similar situation obtains in the Permian Basin where there is not enough pipeline capacity to move all the oil that is being produced to market.
The financial press reported last week that shale drillers are ramping up production in regions other than the Permian as higher oil prices might make it more profitable to drill in less productive oil fields. This move has been sparked by high lease costs, congested pipelines and shortages of labor and materials in the Permian region where production has surged to roughly three million b/d from just below two million in early 2016. Although rig counts in the smaller shale oil basins have more than doubled in the two years, they are still well below where they were at the peak of the shale oil boom four years ago. There are good reasons to be skeptical that there will be significant increases in production in the older shale oil basins as most of the sweet spots have already been drilled.
2. The Middle East & North Africa
Iran: Most of the discussion last week focused on how much oil Washington’s new sanctions on Iran will remove from the markets after they are implemented later this year. The White House memo issued last week said that global oil supplies are plentiful enough to withstand a “significant reduction” in petroleum exports from Iran.
Many types of US sanctions have been announced and there is a “wind down” which is intended to allow companies doing business with Iran to finish up that varies between 90 and 180 days. Also, the Treasury is to re-list Iranian individuals and entities in the Specially Designated Nationals (SDN) list, thus revoking special licenses and exceptions previously granted to individuals and companies to deal with Iran. This is intended to make it all but impossible for foreign firms with a US presence to deal with Tehran. The measures were drawn up by the US Treasury to cover shipping, insurance, and the gamut of financial and logistical support for Iran’s oil industry. Any European or Asian company that falls afoul of this will be shut out of the US capital markets and the international payments system transacted in dollars. Many believe that no European company with major operations in the US would dare cross such a line.
There are two sides to the sanctions issue: How much Iranian oil exports will be slowed and how much foreign investment will be cut? Estimates of how much Iranian oil exports drop range from nearly zero to as much as a million b/d. The median current guess is that Tehran will lose exports of 500,000 b/d by the end of the year with more later. The cut in investment, especially from the EU, is likely to be more significant.
Total SA has announced it will not go ahead with its South Pars Gas Project in Iran unless it is granted a specific project waiver by the United States. The contract for the SP11 contract was signed in July 2017, and Total will unwind all operations related to the project by November 4, 2018, unless the waiver is granted.
The EU announced a package of measures last week to counter US sanctions on Iran. Analysts say there will be limits to the effectiveness this action, and European leaders have said they do not want a trade war with the US over Iran. “As long as the Iranians respect their commitments, the EU will, of course, stick to the agreement of which it was an architect,” said Jean-Claude Juncker, European Commission president. “But the American sanctions will not be without effect. So we have the duty, the commission and the European Union, to do what we can to protect our European businesses.”
As long as Europe continues to comply with the nuclear agreement and does its best to bypass the US sanctions Tehran will probably adhere to the deal. The Iranians still see political and economic benefits from the deal and as long as the US sanctions do not become too onerous will continue to let the agreement stand. Iranian Oil Minister Zanganeh reiterated over the weekend that President Trump’s decision to quit a multinational nuclear deal would not affect Tehran’s oil exports if the EU could salvage the pact.
Iraq: A bloc led by Shi’ite cleric Moqtada al-Sadr has won the country’s parliamentary election. Sadr himself, a long-time adversary of the United States who also opposes Iranian influence in Iraq, cannot become prime minister because he did not run in the election. There are concerns that the election of a new government will delay further development of Iraq’s oil industry until after new coalitions are formed. Forming a new government will likely take months to be negotiated, and this will impact Iraq’s new oil contracts and leave international oil companies waiting to see what the investment and contract climate will be like.
Russia’s Lukoil has signed a development plan for the West Qurna-2 oil field with the local Basra Oil Company, targeting to increase oil production from the field from 400,000 b/d to 800,000 by 2025. Lukoil holds a 75 percent interest in West Qurna-2 where the first commercial oil was produced in March 2014. Current production is about 9 percent of Iraq’s total oil output.
Saudi Arabia: On Friday Energy Minister al-Falih said he is consulting other oil producers in and outside OPEC to ensure the world has adequate supplies to support economic growth after prices hit $80 a barrel. The minister also said he had reassured the executive director of the International Energy Agency of “commitment to the stability of oil markets and the global economy” and that he would contact others over the next few days.
The Houthis launched yet another ballistic missile at Saudi Arabia’s state-run oil company Saudi Aramco last week. While no damage was reported, it is unlikely that the Saudis permit such news to be reported. The Houthis targeted an Aramco facility in the Jizan province that has a 400,000 b/d refinery. That is close to the Yemeni border and an easy target for shorter-range missiles.
3. China
China’s oil demand growth has so far this year exceeded expectations, and could be even “higher than currently estimated”. According to Goldman Sachs, global oil demand growth in the first quarter of 2018 is likely to have seen the strongest yearly growth since the fourth quarter of 2010. China’s domestic crude oil production has been languishing near 2011 lows, prompting higher imports to meet growing demand. Crude oil production in March was around 3.76 million b/d, about the same as in January and February.
In 2017, China expanded refining capacity and reduced restrictions on oil imports and refined oil product exports. Chinese refineries processed 12.13 million b/d in March, beating the previous record of 12.03 million b/d. Refinery runs in April and May are expected to be lower due to maintenance. China is crucial to global oil demand growth, and if it keeps its current growth pace, it could be a major factor in forcing higher prices.
PetroChina has begun cutting natural gas deliveries to some industrial clients suggesting that the tight supply situation that caused rather severe shortages in northern China last winter is still a major concern. In preparation for next winter, state-run PetroChina has already started to limit gas supplies and is hiking prices for major customers, including city gas distributors. In the first quarter, China’s gas consumption increased by 14 percent to 71.1 million tons, which has driven LNG prices even higher on the spot market.
Gazprom is moving quickly on the construction of its Power of Siberia pipeline to China, which is now 83 percent complete. This pipe will supply cheaper pipeline natural gas to the Chinese market, where demand is expected to surge in the coming years due to the switch from coal to gas for winter heating and industrial production.
China’s thermal coal futures rose to a six-week high on last week as traders anticipate a supply crunch due to lower hydro-power output and forecasts of a summer heat wave. China’s air quality problems take place during the winter heating season when thousands of coal warmed buildings spew particles across urban areas making them nearly uninhabitable. Burning of more coal in the summer months to support increased air conditioning is not yet seen as a problem.
Rosneft earlier this week announced that it had started drilling a production well off the coast of Vietnam in the South China Sea. However, there are concerns there about China’s possible reaction to the drilling. The well is located in the Lan Do gas field and falls within the territory that Beijing claims in the South China Sea. The Lan Do field is estimated to contain 23 billion cubic meters of natural gas. Whether Beijing is ready to mess with Russia over Vietnam-claimed waters remains to be seen. Considering that China is becoming increasingly dependent on Russian gas and oil, this seems unlikely.
4. Russia
Despite speculation that major changes were afoot, President Putin approved a new government little changed from the previous one, signaling he is sticking to a course that has delivered weak growth and sent relations with the West to post-Cold War lows. Energy Minister Aleksandr Novak, who negotiated the deal with the OPEC to lower oil production, was reappointed. Speculation that former Finance Minister Aleksey Kudrin would be appointed to a senior position to spur Russia’s weak economy and improve ties with the West does not seem to be happening.
The fuss over the Nord Stream 2 pipeline that is to bring still more Russian gas to Germany, bypassing Ukraine, continues. The existing Nord Stream pipeline extends from Russia through the Baltic Sea and then makes landfall in Germany. Gazprom plans to double the existing Nord Stream and its partner in the project, Austrian energy company OMV, said the network is “of critical strategic importance … as it will secure consistent, long-term gas supplies to Europe.” A German official warned the US about the risks of placing “America First”, accusing Washington of seeking to block the expansion of the Nord Stream gas pipeline to shore up its own exports. The expansion is opposed by many East European countries as well as the US, who say that by circumventing Ukraine the pipeline will increase Russia’s leverage over the EU.
It was announced last week that Ukraine would offer Gazprom discounted fees for natural gas transit to ensure a flow from Russia to Europe after 2020. Several years ago a dispute over the fees and the prices Moscow is charging Ukraine for gas resulted in shortages across the EU.
5. Nigeria
Shell has declared force majeure on Bonny Light exports because of the shutdown of the Nembe Creek pipeline, which transports 150,000 b/d of crude to the Forcados terminal. The reason for the shutdown of the pipeline was not disclosed; however, the Nigerian government has a long-standing policy that damage caused by insurgent attacks not be disclosed. The situation is further complicated by delays be related to the shutdown of another large pipeline, the Trans-Forcados which also brings oil to the Forcados terminal. This pipeline, which can transport between 200,000 and 240,000 b/d, was shut down earlier last week after a “leak.”
Since militant attacks on oil facilities in the Niger Delta slowed in the second half of last year, Nigeria has gradually ramped up production, but its oil and condensate output dipped in March due to what officials attributed to illegal tapping of pipelines in the oil-producing region. Nigeria’s oil production, including condensates, increased to 2.07 million b/d in April from 2.02 million in March. This is up by more than 200,000 b/d from April 2017.
Another problem for Nigeria is that at least half of the 60 cargoes available at the Forcados terminal have still not been sold because of higher shipments of low-cost US shale oil to Europe and slower demand from China and India.
The Nigerian National Petroleum Corporation, that dominates Nigeria’s energy industry, has recorded losses for at least three years, culminating in a total loss of US$1.5 billion in the last three years. This is likely due to a combination of mismanagement and the need to import expensive petroleum products due to the near-collapse of the country’s four main oil refineries.
6. Venezuela
The most important issue for Venezuela’s future this week is how the US will react after the official results of the Venezuelan Presidential election are known. According to one observer, “if US refineries are forbidden from buying Venezuelan crude then you’d have to imagine the country is in trouble.” The US has so far refrained from slapping sanctions on Venezuelan oil because US refineries along the Gulf Coast import large quantities of oil from there; however, Washington is saying there is enough oil supply on the global market to make up for potential fuel disruptions. “The US Department of State remains in contact with our partners in the Caribbean to reduce the risk of supply disruptions.”
Last week ConocoPhillips embargoed two cargoes of crude oil and fuel at a storage terminal in Aruba operated by Venezuelan PDVSA’s US subsidiary Citgo. The embargo included one tanker loaded with 500,000 barrels of crude oil and another carrying 300,000 of jet fuel, gasoline, and diesel. Citgo went to court in an attempt to remove the embargo, arguing the cargoes belong to it and not its parent company. The courts on Curacao and Bonaire decided that the attachments must be lifted to the extent that this is necessary for the fuel and/or electricity supply on both islands. The proceeds from the fuel sales to local distributor must be transferred to a specially designated account, where the money will remain until it is established who will be entitled to it.
With Venezuela’s exports close to falling below 1 million b/d, the prospect for higher energy prices improves as creditors of PDVSA threaten to seize more overseas assets. A drop in both Venezuelan and Iranian supply could provide the “perfect cocktail” for oil at $100 a barrel next year or sooner. Venezuela’s foreign oil sales fell 40 percent from a year ago to 1.1million b/d in April, according to data from tanker trackers. The country’s exports are expected to drop further as troubles, such as “an avalanche” of lawsuits over unpaid bonds, continue.
7. The Briefs (selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
Sixty large global investors—representing a combined US$10.4 trillion worth of assets under management—urged oil and gas companies on Friday to start acting responsibly in tackling climate change, putting pressure on Big Oil ahead of several upcoming annual general meetings. (5/19)
Spain’s oil and gas company Repsol will stop pursuing production growth in its upstream oil and gas division as it is getting ready for the energy transition in what would be a first such move by a primarily oil and gas company. Bloomberg reports that Repsol will unveil a revised business plan in June that would cap its future oil and gas production at the current levels and would prohibit it from keeping more than eight years of oil and gas reserves on its books. The eight-year reserve life would be shorter than those of many of the bigger oil companies. Rosneft has 21 years of reserves life, Exxon 15 years, BP 14 years, Total and Chevron 12 years, and Shell 9 years of reserves life. (5/17)
Brussels is to propose a 15 percent cut to trucks’ emissions within seven years, rejecting calls from companies, campaigners and some EU member states for more ambitious targets to help meet climate change commitments. Transport produces a quarter of EU carbon emissions and is the only area of the bloc’s economy in which emissions are still growing, after cuts in sectors such as electricity and agriculture. (5/14)
An oil cost factor: The International Maritime Organization has new rules coming into effect at the start of 2020 requiring shipowners to dramatically lower the concentration of sulfur used in their fuels from 3.5 percent to 0.5 percent. The switchover will have enormous ramifications for the oil market. The shipping industry represents about 5 percent of the global oil market, using about 5 million barrels of oil per day. Swapping out one form of oil for others will have ripple effects across the refining industry, rewarding some and dealing losses to others. Diesel fuel will likely spike during 2020, possibly by as much as 20-30 percent; US shale oil, at the light end of the distillation spectrum, won’t be able to help. (5/17)
The UK government announced on Thursday plans to facilitate timely decisions on shale gas exploration planning applications in England as part of a plan to reduce dependence on gas imports amid an ongoing decline in the UK North Sea’s conventional gas production. The British economy could also get a major boost by tapping into domestic resources of shale natural gas. (5/18)
In the UK, a gas distribution company, Cadent, announced it will invest more than $1.2 billion in the construction of the first large-scale hydrogen fuel station network in the country. The UK wants to reduce its dependence on oil and gas. Hydrogen could be made using the excess energy produced by wind and solar installations and then stored in the national gas grid. (5/14)
In Norway, the ticker symbol for energy major Statoil, STL, leaves the market this week when the company officially changes its name to Equinor, it said Monday. A vote is expected Tuesday in favor of the name change, which would then take effect Wednesday. (5/15)
The Eastern Mediterranean will face a security threat should Cyprus continue its unilateral operations of offshore oil and gas exploration in the region, Turkey’s President Recep Tayyip Erdogan said. Tensions in the area flared up earlier this year, after Turkish Navy vessels threatened in February to sink a drilling ship that oil major Eni had hired to explore for oil and gas offshore Cyprus—the divided island whose northern part is run by Turkish Cypriots and is recognized only by Turkey. (5/15)
India is set to receive its first crude oil consignment for storing in the newly built strategic oil reserve at Mangaluru. It will take three very large crude carriers to first fill the strategic oil storage facility at that site. India has built a strategic reserve capacity of 5.3 MT across three different locations, with a total capacity of over 41 million barrels. (5/14)
Mexico has auctioned off more than 100 contracts to foreign and local companies since President Enrique Pena Nieto started opening the nation’s oil fields to foreign investment in 2013. A new oil regulatory framework, much of it adapted from existing rules, has kept most of that oil in the ground. That’s delaying potential benefits to Mexico and could make the reforms that much easier to unwind if voters elect an anti-reform candidate for president. (5/18)
Mexico’s Pemex expects to begin testing light crudes as soon as July for possible import, looking to boost margins at its domestic refineries. Pemex has for decades exported crude oil but has hardly ever imported the commodity, preferring to process domestic crudes at its six refineries in Mexico. Pemex CEO Carlos Trevino said the company would likely seek imports resembling its proprietary Isthmus grade of light crude, the production of which has been declining in Mexico. (5/16)
In Canada, construction on TransCanada Corp’s Coastal Gaslink pipeline will start in early 2019, pending a positive investment decision on the LNG Canada liquefied natural gas project, the head of the pipeline project said on Wednesday. (5/17)
In Canada, US investors’ difficulties in financing a second wave of LNG export projects have given Western Canada the chance to prove it can be more competitive than the Gulf Coast as a supply source to Asia and able to satisfy domestic producers’ demand for new outlets. The market’s eyes have turned north to see if one or two export projects may reach a positive final investment decision later this year. (5/16)
In Canada, Justin Trudeau’s pipeline nightmare may be only getting started. As Kinder Morgan Inc. drives a hard bargain in Canada’s attempt to save the Houston-based company’s embattled Trans Mountain project, the prime minister could end up fighting for an asset that hardly anybody wants. Pipeline giant Enbridge Inc., for one, signaled it doesn’t. (5/19)
The US oil rig count held steady at 844 this week after rising for six weeks in a row even as crude prices soared to multi-year highs. So far this year, the total number of oil and gas rigs active in the US has averaged 987, up sharply from 2017’s average of 876. (5/19)
April saw the US produce a record 10,543,000 barrels of oil, according to data from the American Petroleum Institute. The first four months of this year also saw US petroleum demand average 750,000 b/d over the same period in 2017 despite higher prices. This was the strongest April monthly demand since 2007. (5/18)
US crude export constraint: Last year, exports more than doubled to reach an average of 1.1 million b/d. Already this year, total US crude oil exports are at 1.6 million b/d. But there may be limitations for US crude oil exports to long-distant economies because of limited port access for large carriers. (5/18)
Alaska, a major oil and gas producer, is crafting its own plan to address climate change. Ideas under discussion include cuts in state emissions by 2025 and a tax on companies that emit carbon dioxide. While many conservative-leaning states have resisted aggressive climate policies, Alaska is already seeing the dramatic effects of global warming firsthand, making the issue difficult for local politicians to avoid. The solid permafrost that sits beneath many roads, buildings, and pipelines is starting to thaw, destabilizing the infrastructure above. (5/16)
US drivers might be feeling flush after getting tax cuts as they embark on the summer driving season, but road trips will cost more this year. Drivers are already paying an average of $2.90 for a gallon of regular gasoline. There may be no relief in sight as oil in London topped $80 a barrel Thursday on tightening global supplies. (5/19)
SUVs + trucks still strong: Oil analysts predict the price per barrel will continue to rise in months ahead, but market dynamics in new vehicle sales aren’t expected to change course anytime soon. Trucks and SUVs are expected to continue doing quite well. (5/18)
Tectonic shift in autos: with the money that Asia and in particular China is putting behind the EV revolution, it may mean that Europe’s dominance of the car sector is nearing an end. (5/19)
China’s EV boom: China’s government is driving up electric car sales. The nation’s annual EV sales are on track to hit a one-million-unit milestone this year. Chinese EV sales doubled in April and dealers sold 225,310 EVs in the first four months of this year, for a whopping 149-percent increase over the same period in 2017. In terms of EV sales worldwide, China’s sales accounted for nearly 50 percent of all EV sales in the first quarter of 2018. (5/16)
Mercedes EV: Mercedes-Benz Cars is expanding its production capacities for electric cars in Europe. Mercedes plans to launch more than ten electric cars by 2022 throughout all segments, from smart cars to large SUVs. The company assumes that unit sales of electric models will represent a share of somewhere between 15 and 25 percent of total Mercedes sales by 2025. (5/19)
In Cornwall, Cornish Lithium has partnered with the state-backed Satellite Applications Catapult to use satellite imaging to detect the signatures left by lithium deposits deep underground. Lithium is present in brines up to 1 kilometer underground, according to a Telegraph article. Cornwall Cornish Lithium hopes the survey will identify economic deposits, and Innovate UK agrees, investing well over a $1 million in a pilot that could eventually help meet battery power needs for the expanding European EV market. (5/14)
The new era of big home batteries has already drawn scrutiny after fiery electric-car crashes across America and Europe. Now, US city planners are worried about the same risk of hard-to-control blazes as these power-storage units make their way into basements and onto rooftops. (5/19)
The world’s energy mix in the power production sector has evolved substantially over the past 20 years. Since 1997, global cumulative installed solar photovoltaic (PV) and wind power have climbed from less than 8 GW to nearly 800 GW, according to the BP Statistical Review of World Energy. According to the International Energy Agency (IEA), renewables were responsible for almost 165 GW of new global power capacity in 2016—nearly two-thirds of the global total. (5/14)
The spread of air-conditioning in hot countries is set to create a huge increase in demand for electricity, threatening efforts to curb greenhouse gas emissions, according to the International Energy Agency. Over the next 30 years, air-conditioning could increase global demand for electricity by the entire capacity of the US, the EU and Japan combined, unless there are significant improvements in the efficiency of the equipment. (5/16)
Arctic stop sign: An architect of the Paris climate agreement urged governments on Tuesday to halt oil exploration in the Arctic, saying drilling was not economical and warming threatened the environmentally fragile region. (5/15)
In Finland, a research group from the University of Turku has discovered an efficient way for transforming solar energy into the chemical energy of biohydrogen through the photosynthesis of green algae that function as cell factories. Molecular hydrogen is regarded as one of the most promising energy carriers due to its high energy density and clean, carbon-free use. (5/14)
Emissions of CFC-11, one of the chemicals most responsible for the Antarctic ozone hole, are on the rise despite an international treaty that required an end to its production in 2010. Once widely used as a foaming agent, production of CFC-11 was phased out by the Montreal Protocol in 2010. A new study, published in Nature, says the unexpected increase in emissions of this gas is likely from new, unreported production. (5/17)
Peak gold: Ian Telfer, chairman of Goldcorp Inc., is the latest industry magnate to predict the world has reached “peak gold,” saying that from here on out, mine production will continue to decline because all the major deposits have been discovered. He said gold produced from mines has gone up fairly steadily for 40 years but that either this year or during the next two years production will start to decline or may already be declining. (5/17)
Compressed air energy storage is the sustainable and resilient alternative to batteries, with much longer life expectancy, lower life-cycle costs, technical simplicity, and low maintenance. Over their lifetimes, chemical batteries store only two to ten times the energy needed to manufacture them. Small-scale CAES systems do much better than that, mainly because of their much longer lifespan. (5/19)
Peak Oil Review 14 May 2018
By Tom Whipple, Steve Andrews, originally published by ASPO-USA
May 14, 2018
Editors: Tom Whipple, Steve Andrews
https://www.resilience.org/stories/2018-05-14/peak-oil-review-14-may-2018/
Quote of the Week
“Debt has made things seem affordable by selling our energy future forward. This led to the miracle of tight oil and shale gas… The best years are behind us. The growth is done.”
Art Berman, geologist, commenting on shale oil production in Texas
1. Oil and the Global Economy
Oil prices rose more than 3 percent last Wednesday after President Trump abandoned the Iranian nuclear deal and announced the “highest level” of sanctions against Tehran. The price surge stalled on Friday, however, after it looked likely that Europe would try to maintain the deal with Iran, which could keep that country’s crude exports on global markets. Crude futures closed the week just below multi-year highs with London at $77.12 and New York at $70.70, up 2.8 percent and 1.2 percent respectively.
The announcement of sanctions sent off a storm of speculation as to how much higher oil prices will move in the coming months. Even though the US is already asking importers of large amounts of Iranian oil, such as China and South Korea, to cut their imports, this seems unlikely to happen. Even with some reluctant help by US allies, most observers are saying that at best all unilateral US sanctions could do would be to cut Iran’s exports by 500,000 b/d.
The US Energy Information Administration said last Tuesday that US crude oil production is expected to rise more than previously expected to 12 million b/d by the fourth quarter of 2019. The new forecast says US crude oil output will rise by 1.14 million b/d to an average of 11.86 million next year.
Fatih Birol, Executive Director of the International Energy Agency, said last week that the oil market is currently driven by fundamentals. There has been very strong demand growth in 2017 and so far in 2018, plus a significant drop in Venezuela’s oil production. Coupled with geopolitical developments, prices could move higher in coming months. Goldman’s is forecasting that oil prices will hit $82.50 this summer and Deutsche Bank is talking about $85-90 oil next year. Bank of America says global demand growth, falling inventories, and geopolitical issues could push oil prices to as high as $100 a barrel in 2019.
Gasoline prices are at their highest in years, up over 21 percent in the last year. Retail prices are expected to reach $3 for regular in many more states in coming weeks. With most analysts projecting crude oil demand to outpace supply for the remainder of the year, more price gains could be coming. Higher gas prices are on track to cost Americans an extra $38 billion in 2018, wiping out about one-third of the direct benefit from the new tax law.
The OPEC Production Cut: There is no agreement on just how the US decision on the Iranian nuclear agreement might affect the OPEC production cut. Estimates of how much the US sanctions will hurt Tehran’s exports range from essentially nothing to a high of 1 million b/d. As nobody other than the US seems interested in slowing Iranian exports, the issue may turn out to be moot.
Of more significance is the ongoing collapse of Venezuelan oil production which seems on course to drop more than the expected 500,000 b/d this year. If Caracas’ production should fall well below 1 million b/d later this year, the global oil balance will become very tight and prices are likely to rise significantly. This situation could prompt the OPEC+ alliance to start lifting the production caps out of fear that prices could spike to the point where demand destruction would set in. This could happen no matter how much Iran is forced to cut oil shipments due to the US sanctions.
US Shale Oil Production: US oil output continues to break records with production in the lower 48 states jumping to 10.703 million in the last week in April. The Texas Railroad Commission, which regulates the state’s oil and gas industry, issued 1,221 original drilling permits in April, up 34 percent from last year. Drillers added 10 active oil rigs and 3 active gas rigs last week The oil and gas rig count now stands at 1,045—up 160 from this time last year. However, Canada lost seven rigs for the week suggesting that it is more productive to drill in Texas.
The future of US oil, and indeed much of the additional oil output for the entire world, is predicated on what happens to production from the Permian Basin. The EIA expects US production will be close to 12 million b/d by the end of next year.
A growing share of Permian crude oil gets stranded due to bottlenecks shipping the oil to the Gulf Coast refineries and export terminals. The pipeline capacity out of the Permian region has become so tight that the spot price of Midland, Texas, crude was trading early last week at a discount of nearly $16 a barrel to prices in Houston. This discount is now large enough to cover the cost of sending crude to the coast by rail, as this typically costs only $6 to $8 a barrel.
Energy Transfer Partners announced last Thursday that they plan to build a crude pipeline from the Permian Basin to the Houston Ship Channel and Nederland, Texas, which will have an initial capacity of up to 600,000 b/d. The pipeline will be “easily expandable” to 1 million b/d. This project will likely take two or more years to complete; however, other pipelines are due to be completed sooner. From the amount of investment being sunk in pipelines to the Gulf Coast, it is clear the industry expects that large amounts of crude will be produced from the Permian for many years to come.
In contrast to the increasing production and optimistic productions that enough oil will be coming from the Permian Basin, Art Berman, a Texas geologist, gave a pessimistic presentation to the Texas Energy Council’s 30th Annual Symposium last week. For years, Berman has been skeptical about estimates that the Permian will still be producing prodigious amounts of crude 30 years from now. He was described by Bloomberg as “shale’s public enemy No. 1” in its story about the talk.
Berman makes the case that, despite increasing production from the Permian, its estimated reserves are only enough to last until 2022. Using similar analysis, Berman concludes there is only enough oil at Eagle Ford to last another seven years. “The reserves are respectable but they ain’t great and ain’t going to save the world.”
In reporting the story, Bloomberg said, “Berman’s grim outlook, based on analyses of reserves and production data from more than a dozen prominent shale drillers, flies in the face of predictions from the US Energy Department, Chevron, and others that the Permian is becoming one of the dominant forces in global crude markets.”
In this presentation and the press report is the crux of the peak oil story today. Either Berman is right, and serious problems are coming in the next few years, or the EIA, IEA, and the industry is correct and there will not be a serious problem with the US and global oil supply for at least two decades. Until some sort of undeniable trend sets in, there is little to do but wait warily.
2. The Middle East & North Africa
Iran: Oil prices hit 3-year highs last week due to expectations that renewed US economic sanctions would restrict Iran’s oil supply and increase regional tensions. However, estimates are all over the map as to how successful new US sanctions will be in restricting Iranian oil exports and reigning in what Washington considers to be Iran’s aggressive foreign policy. Some believe the drop in Iran’s oil exports could rival the 1 million b/d drop in exports seen during the last embargo, while others say any decline will be insignificant.
China and Russia likely will do everything possible to maintain Iran’s exports. Beijing is already the largest purchaser of Tehran’s oil and could step up its imports if necessary. Moscow has talked about bartering and oil swaps for Iranian oil to avoid US financial sanctions. The US’s allies in the EU and the Far East are unhappy with Washington’s actions and are likely to keep up pressure for relief from US sanctions which could do more harm to their economies than to Iran.
President Rouhani said last Tuesday that Iran would remain committed to a multinational nuclear deal. He reiterated on Sunday that his government would remain committed to its 2015 nuclear deal: “If the remaining five countries – Britain, China, France, Germany, and Russia – continue to abide by the agreement and can ensure it is protected from sanctions against key sectors of Iran’s economy, we will remain in the deal.” The US sanctions have a 180-day period during which buyers should “wind down” oil purchases, meaning any loss of supply will not be immediately felt – and companies don’t have to rush to find alternatives.
Rouhani, however, may not have an easy time in the months ahead. Iran’s economy is not doing well despite higher oil prices. The President has been the recipient of much criticism from hardliners in Tehran who believe the nuclear agreement was a mistake. On top of this, renewed skirmishing between Iran and Israel in Syria resulted in heavy Israeli air raids on Iranian military installations supporting the Assad government. All this raises the possibility that the sanctions issue may be overtaken by other events in coming months.
Thus Washington’s abandonment of the nuclear agreement seems likely to result in a continuing series of disagreements between the US and some of its closest allies. South Korea already said it would seek US exemptions to buy Iranian oil, and many other purchasers of Iranian oil such as India and Italy are likely to follow.
Iraq: Over the weekend Iraq held its first parliamentary elections since the defeat of ISIS last year. While the results will be known this week, negotiations over the formation of a new government are expected to drag on as no single alliance is expected to able to win the 165 seats required for an outright majority. The bloc that wins the most seats will have to rely on the support of smaller groups to achieve a majority.
Sources in the international oil companies working in Iraq say a new government could delay project approvals. Plans for expanding the country’s oil production capacity could also be affected, including the South Integrated Project managed by Exxon and PetroChina, which would be instrumental in allowing Iraq to boost production to 8 million b/d in the future. Refinery construction and export capacity expansion could also see delays or changes if a new government takes over.
Baghdad has signed an agreement with BP that would triple the oil production from the Kirkuk oil fields in northern Iraq to more than 1 million b/d. The oilfields around Kirkuk were returned to federal government management last October after the Iraqi army seized the fields from the Kurds following an independence referendum in Kurdistan.
Russia’s Lukoil signed a development plan for the West Qurna-2 oil field last week aimed at doubling production from the field to 800,000 b/d by 2025.
Saudi Arabia: Riyadh will not act unilaterally to increase oil supplies following renewed US sanctions on Iran’s energy industry. Any rise in output is to be coordinated with Russia and other producers. Khalid al-Falih, the kingdom’s energy minister, said Saudi Arabia would “work closely” with big OPEC countries and those outside the cartel to “mitigate the effects of any supply shortages.” The Saudis are no longer interested in taking sole responsibility in managing the global oil market and remain committed to the OPEC+ deal.
With oil prices rising rapidly, the Saudis economic prospects should be improving. However, the kingdom still has a big budget deficit and lots of expenses. The IMF says the Saudis still need $88 oil before its budget is balanced again.
The war in Yemen rolls on with the Iranian-backed Houthis firing missiles at Riyadh and an oil facility in southern Saudi Arabia close to the Yemen border. The Yemeni rebels have been firing missiles into Saudi Arabia for the past three years, but they have caused little damage, and many of those missiles have been intercepted by the Saudi military. The New York Times reports that a team of US special forces are inside Yemen, helping the Saudis locate and destroy caches of ballistic missiles and their launch sites.
Saudi Energy Minister al-Falih said last week he was concerned about possible shortages of spare crude oil productive capacity. Spare capacity will be among the topics discussed when OPEC and non-OPEC energy and oil ministers meet next month in Vienna, the minister said.
In contrast to a May 4 report in The Wall Street Journal that Riyadh wants to oil to hit at least $80 a barrel this year, al-Falih said Saudi Arabia is not targeting a specific price for oil. He said that Saudi Arabia’s objective all along has been to “bring stability, rebalancing, and equilibrium back to the oil markets.”
3. Russia
President Putin began his fourth term last Monday with a new weapon in his fight against Western sanctions: higher oil prices. With oil at its highest since 2014, much-needed money is pouring into government coffers giving the Russian government extra room to maneuver amid growing tensions with the West and protests at home.
Moscow has exported less crude oil to Europe this year as the quality of the fuel offered for sale has deteriorated and worsening diplomatic relations with Europe caused Russia to send more oil to China. Pipeline exports to China increased by almost 50 percent in January-April from a year earlier to 12.4 million tons, according to a spokesman for the Transneft oil pipeline monopoly.
Despite worsening political relations, European countries continue to buy increased amounts of Russian gas. Gazprom is boosting production and exports and is obtaining approvals in individual countries for its Nord Stream 2 gas pipeline that has divided the EU over fears of a tightening Russian grip on gas supplies. Moscow already supplies around one-third of Europe’s gas and due to very cold weather this past winter continues to ship higher volumes as gas importing countries replenish gas storage supplies that had been drained amid the cold snaps. Gazprom deliveries to Europe reached an all-time high in March, and gas deliveries to European countries continued to grow in April, even after the winter heating season ended.
Norway had to cope with an unplanned outage at the Skarv gas field and Kollsnes processing plant in April. In the south, Libyan gas flow from the Greenstream pipeline to Italy was halted on April 2 due to maintenance, but the resumption of gas supplies was postponed several times, so Italy received no gas from Greenstream for the whole month of April.
On May 3, Germany became the first EU country to begin building its portion of Nord Stream Two at the Baltic Sea port of Lubmin. The construction started before Sweden and Finland signed off on the pipeline running through their waters, so the work was an affront to both the European Commission and European Parliament. Both of these bodies oppose the project which would increase the EU’s dependence on Russian gas and deprive Ukraine of the transmission fees.
4. Nigeria
Nigeria’s oil production increased to 2.07 million b/d in April after it slipped to 2.02 million b/d in March. Industry officials attributed the drop in March to “pockets of illegal tapping into pipelines in the delta.” Ministry figures showed that oil production including condensates averaged 2,069,784 b/d in April, about 11 percent higher than 1.85 million b/d produced in April of last year. Oil production has been increasing following the lull in militancy in the country’s main oil-producing Niger Delta region.
Hopes of reducing importation of petroleum products has been rekindled by assurances from the Nigerian National Petroleum Corporation that the nation will achieve at least 90 percent refining capacity by the end of next year. The corporation says, “we are in talks with the original builders of the refineries to return them to at least 90 percent capacity utilization before the 2019 deadline”. The government has been trying to get Nigeria to transform from being a net exporter of crude to being a net exporter of petroleum products. We have heard this story for several years, but now with higher oil prices, the country may be able to afford the foreign expertise it needs to refurbish its refineries.
Nigeria’s refineries have been operating far below their combined capacity of 445,000 b/d due to years of neglect, as well as theft from pipelines and sabotage, thus forcing the country to import nearly all the fuel it consumes.
6. Venezuela
Every week the country draws nearer to the day when it will no longer be exporting crude oil to the world markets. Two weeks ago Conoco began legal actions in the Caribbean to enforce a $2 billion arbitration award by the International Chamber of Commerce over the 2007 nationalization of its projects in Venezuela. The legal action has disrupted fuel deliveries throughout the Caribbean, as Conoco attempts to seize PDVSA assets such as the tankers which move oil to refineries. The processing, storage, and blending assets that Conoco is eyeing are located on three Caribbean islands—Curacao, Bonaire, and St. Eustatius—and account for about a quarter of PDVSA’s annual oil exports. The 335,000 b/d Isla refinery in Curacao has not received new shipments from PDVSA for two weeks and will be shutting down soon.
PDVSA has told customers they must send their own ships to pick up oil cargoes in Venezuelan waters, rather than wait for the company to deliver the oil. That keeps PDVSA’s ships out of Conoco’s grasp. The country’s oil ports are snarled with vessels waiting to load for exports. On Thursday Venezuela rejected Conoco’s efforts to seize the country’s foreign assets to collect on the $2 billion arbitration award, but in a sign the pressure might be working, Caracas also suggested it was ready to pay the judgment.
“Petrocaribe” was a mechanism created in 2004 to promote energy cooperation and integration between Venezuela and numerous states in the Caribbean basin. Venezuela supplied the Petrocaribe member states with daily shipments of oil and products (around 300,000 b/d) offering payment facilities and discounts, with the ultimate goal of displacing the US and European oil companies throughout the region. This worked well as long as Venezuela could afford it, but as PDVSA nears collapse and is unable to supply cut-rate oil to the member states, the organization is coming apart.
If PDVSA has to lower exports over fears of asset seizure, oil storage will fill up “in a matter of days,” as PDVSA cannot afford the cost of floating storage. Attorneys for Conoco say that from their point of view, the asset seizures are less about gaining compensation from the sale of the facilities themselves and more about putting the squeeze on PDVSA in order to pressure the company into paying Conoco the money awarded from arbitration.
7. The Briefs (selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
The offshore sector will increasingly focus on natural gas instead of oil over the next few decades, while policy support and technology improvements could also see offshore investment shift in favor of wind power. However, in the short run, offshore drilling is set for a resurgence. The oil market downturn in 2014 hit offshore drilling hard. Today, a quarter of the world’s oil supply comes from offshore at about 26-27 million b/d, a figure that has remained steady over the past decade, which translates into a declining share of the overall market as total supply continues to grow.
But offshore costs have declined significantly over the past four years, so much so that the industry is starting to step up spending once again. Whereas a typical offshore project in the North Sea or in the US Gulf of Mexico had a breakeven price between $60 and $80 per barrel prior to 2014, these days those costs have plunged to $25 to $40 per barrel, according to the IEA. An estimated 100 offshore projects could receive a greenlight this year, according to Rystad Energy, up from just 60 last year and 40 in 2016. Oil companies are going to shift away from shallow water drilling, which tends to be mature, and move into deeper waters. (5/7)
Oil companies are now turning to robots and drones to perform dangerous tasks in harsh offshore environments. Those gadgets save costs and improve performance, and improve safety by reducing the exposure of people to dangerous tasks and situations. (5/7)
European gas and LNG stocks were drawn down to record low levels at the end of the winter on freezing temperatures, leading to an expectation that LNG supplies would rise over the summer to help refill the depleted stocks. US LNG from the Cheniere-operated Sabine Pass terminal and the newly operational Cove Point facility were seen as likely candidates to help Europe recover its stock levels in time for next winter. (5/12)
In Poland last year, the share of its oil imports from Russia dropped to 76 percent compared to 96 percent back in 2012. Yet its bid for energy independence came at higher import costs for Poland, because Russian oil prices averaged $59.70 a barrel in December 2017, compared to $60.20 per barrel for oil from Kazakhstan and $65.60 per barrel for US oil. (5/10)
Saudi Arabia would supply Sudan’s energy needs for five years on credit under an agreement being discussed by both governments. The deal would provide about 1.8 million tons of oil a year to Sudan, which in recent months has been hit by a sharp foreign currency crisis and an acute fuel shortage that has forced people to queue at gas stations for hours. (5/8)
In Qatar, despite an ongoing blockade by its neighbors, the state oil and gas company plans to increase its daily production capacity to 6.5 million b/d of oil equivalent in eight years from the current 4.8 million b/d. (5/9)
Algeria plans to raise its budget expenditure by 6 percent this year to capitalize on the higher oil prices ahead of presidential elections next year, but economists warn that boosting spending would mean that the North African OPEC member would need even higher oil prices to balance its budget. (5/8)
Offshore Angola, Italian energy company Eni said it reached a production plateau of 24,000 b/d at its Ochigufu field less than two months after operations began. This allows for Eni’s operated production from the regional block to hold steady at more than 150,000 b/d. (5/10)
In Canada, Shell has closed an underwriting agreement with a group of investment banks for the sale of its 8-percent interest in Canadian Natural Resources for about $3.3 billion, the company said today. The sale is part of a $30-billion divestment program that Shell approved after its acquisition of BG Group that made it a leading player in natural gas but cost it more than $50 billion and swelled its debt burden. (5/9)
In Alaska, residents should review a draft climate plan that balances the need for oil and gas revenue against environmental issues. Alaska Gov. Bill Walker and Lt. Gov. Byron Mallot published a draft climate policy that states developing oil and gas resources can be part of a responsible and diverse economic plan. (5/11)
Alaska LNG: The Alaskan division of British supermajor BP reached a natural gas sales agreement with the Alaska Gasoline Development Corp. for a product from the North Slope. The project includes an 807-mile pipeline across Alaska. (5/9)
California lawmakers reached out to major automobile manufacturers to counter federal efforts to weaken fuel economy standards. California was authorized to implement its own rules and dozens of states have adopted those standards. After the EPA’s proposal to roll back higher MPG standards, California and a coalition of more than a dozen other states and the District of Columbia sued in an effort to prevent the rollback. (5/10)
CA MPG showdown: The leaders of the world’s biggest car companies arrived at the White House on Friday, and it may be their last chance to stop the Trump administration from a head-on collision with California. The Trump administration wants to dramatically cut back on Obama-era emissions regulations, which are supported by California and other states. But while the president and his senior advisers have signaled willingness to confront the resistance from California and its allies, they are also frustrated by what they describe as tepid support from car makers for the administration’s initiative to roll back rules. (5/11)
Biofuels change coming: The Trump administration will propose sweeping changes to the nation’s biofuel policy, including expanding it to exports and cutting the number of waivers for small refineries. It has become a battleground for entrenched corn and oil interests, one that President Donald Trump has waded into in recent months. (5/12)
Biofuels: US President Donald Trump is considering allowing exported ethanol and other biofuels to count towards the annual volumes mandated by the EPA. The president also backed off plans to put a price cap on compliance credits refiners must submit to the EPA and supports lifting restrictions on the sales of higher ethanol blends of gasoline. (5/9)
CO2 study cut: President Donald Trump’s administration has quietly axed NASA’s monitoring system for greenhouse gases. Science magazine reports that this loss jeopardizes the ability to measure national emission cuts – as agreed to by nations in the Paris climate deal. The US plans to withdraw from the deal. However, until a pullout is formalized in 2020, the US continues to be part of the international climate accord. (5/11)
New US generation mix: EIA expects about 21 GW of natural gas-fired generators will come online in 2018. If this happens according to their reported timelines, 2018 will be the first year since 2013 in which renewables did not make up a majority of added capacity. In 2017, renewables accounted for 55% of the 21 GW of US capacity additions. (5/8)
Japan’s coal push: As the developed world moves farther and farther away from coal-fired energy, one major economy is breaking the trend. Japan, in a move that few could have foreseen, has opened at least eight new coal-burning power plants in the last two years and has plans for at least 36 more in the next ten. This move directly contradicts a previous directive to cut back coal usage to just 10 percent of total electricity. One major reason for the turnaround in policy is the 2011 meltdown at the Fukushima Daiichi Nuclear Power Station. (5/8)
“Exported emissions”: Maryland has analyzed the emissions of every coal-fired power plant east of the Mississippi River and identified 36 in five states as top contributors to Maryland’s smog-producing ozone. (5/8)
RE jobs: Oil, natural gas, and coal may still be the dominant fuel sources in the world’s energy mix, but renewable energy is growing and creating more and more jobs worldwide. In 2017, employment in renewable energy globally topped 10 million jobs for the first time ever, the International Renewable Energy Agency (IRENA) said. (5/10)
Asia’s RE market: The International Renewable Energy Agency estimates that 60 percent of all renewable energy jobs are in the Asian economies. For the solar panel industry, China has about 60 percent of the payroll, representing about 2.2 million employees. China also accounts for 44 percent of the payroll in the wind energy industry. (5/9)
Battery storage R&D: When Secretary of Energy Rick Perry announced US$30 million in funding for energy storage projects at the beginning of this month, he drew praise from renewable energy-focused media as the latest indication that energy storage is so important and attractive that even fossil fuel-friendly Washington is throwing its weight behind it. (5/11)
Better battery? A team of scientists from Stanford says they may have come up with the Holy Grail: a battery that is simultaneously energy dense, cheap, and durable. An important bonus is that the battery is easily scalable. The battery uses manganese as the electrolyte in a water-based solution. When the battery charges, electrolysis breaks down the water from the solution into hydrogen and oxygen. (5/7)
Audi EV plan: Audi aims to sell approximately 800,000 fully electric cars and plug-in hybrids in the year 2025. To enable about every third customer to decide in favor of an e-model by the middle of the next decade, there is to be an electrified variant in each model series by then—most of them are to be fully electric, with a smaller proportion as plug-in hybrids. (5/10)
E-bus coming: Motor Coach Industries (MCI), the largest transit bus and motorcoach manufacturer and parts distributor in North America, announced that its all-electric J4500e prototype—a battery-electric version of the J4500 coach—successfully completed its phase one testing. MCI said that the coach ran flawlessly at both low and high speeds up to a sustained 70 mph (113 km/h) on the highway. The all-electric J4500e coach is on schedule for January 2020 production and orders are being taken now. (5/10)
CA solar requirement: California just mandated that nearly all new homes have solar, starting in less than two years. Now, it’s going to have to figure out what to do with all of that extra energy. Already, the state is flooded with so much solar power during the day that it has to turn off some of its sun-fueled plants at times and often needs to ship excess green energy to neighboring states. (5/10)
Multi-Billionaire Hugo Salinas Price Just Predicted This Will Be Catastrophic For Humanity
June 13, 2018
https://kingworldnews.com/multi-billionaire-hugo-salinas-price-this-will-be-catastrophic-for-humanity/
Farming underground in a fight against climate change
By Inma Gil Rosendo BBC Mundo
15 June 2018
https://www.bbc.com/news/business-44398472
Sounds like a great plan in staggering the starting of onion seeds!
You're always planning ahead!
Thanks
A Beginner's Guide to Onions
https://tinyurl.com/yaedbz89
Bulbs have not been growing out of the ground yet. The greens are growing well, but now there is lack of rain in New Endland. The picture below is dated June 3.
PS: I leave the Borage herb in the onion and all garden beds to assure a home for bees to visit.
I get my onions from Dixdondale Farms in Texas. They present three categories of onions: short-day, intermediate-day, and long-day onions, which corresponds to the amount of daylight in your area. The short-day onions are for the south while the long-day are for the north.
The map for daylight by geographic are is illustrated in the following article:
http://www.dixondalefarms.com/category/onion_plants
Good luck,
sumi
Yes, HH, I've always found your posts interesting and worth saving for future reference.
In retrospect, your thoughts have influence some of my garden decisions and will again in the future. Your climate cycles discussion has awakened me to possibly devote a section of land to a small green house with two cold frames inside of it to allow winter "harvesting." Regardless of the arrival of the next cycle change, living in New England is like a mini ice age compared to say Charlotte, NC.
You're not afraid of looking at trends. People tend to ignore trends, when they're not our friends, but ignoring does not resolve anything or prepare us for the future.
When I began the Peak Oil board, you were one of my earliest supporters. Same with the SUSTAINABLE LIVING FOR CHALLENGING TIMES. I thank you for your past and current support.
Keep up the great work and your posting your conclusions and recommendations. [Now I have to work on food storage.]
sumi
HH, if you're following all of the recommendations that you post on the SUSTAINABLE LIVING FOR CHALLENGING TIMES board and on the Dare To Prepare Board, then I have to say that you're one prepared wise dude.
I've disseminated your information among my friends after I've had them read your posts and I'm glad that your efforts have not gone for naught: one guy is building a small farm; another who once hated gardening now has four raised beds, planning on more, with his two rain barrels, two composters, a compost tea maker; and perhaps ten other people who I've persuaded to either start gardens or expand existing gardens.
In the United States, 2 percent of the people supply the other 98% of the people with food. This is an intolerably risky setup in bad or desperate times. I hope that our little steps will set a trend.
Thanks and I have saved this post too.
sumi
Excellent points, HH.
Thanks
"Statoil Chief Economist Eirik Wærness says expectations of higher electric-vehicle adoption are the main reason that his company’s peak-demand forecast of 2030 is earlier than BP’s. Statoil has shifted its long-term investment portfolio to reflect its forecast of demand peaking around 2030."
These type of articles seem to miss three and maybe more points:
Where does the electricity come from to charge up the electric car?
AND
Oil and coal will still need to be used in the manufacturing of cars.
AND
Asphalt, the sticky, and highly viscous liquid or semi-solid form of petroleum, is the binder used on road surfaces. HH, you and I know that the latter cannot be replaced by windmills, solar power, .....
Oil is still key despite what we want.
Thanks
The Dakota Fire Hole - Stealth Fire
Dick Proenneke's video and book of the same name is outstanding.
I have an older friend is just has an old TV with limited channels. I told him of Dick Proenneke and then he told me of the two cabins that he built in Maine. He modeled his simple cabin idea from a Lincoln Log cabin set of 75 years ago. He is still one tough SOB too!
Very good link with guidelines.
The more gardening people I know, the more I'm gifted with fresh greens. It's good to know what to eat first.
Thanks
How to Build a Log Cabin Fast
Permian Growth Is Reaching Its Limits
By Nick Cunningham - May 23, 2018, 6:00 PM CDT
https://oilprice.com/Energy/Energy-General/Permian-Growth-Is-Reaching-Its-Limits.html
Our Army of Invisible Helpers
Friday, November 8, 2013
https://22billionenergyslaves.blogspot.co.uk/2013/11/our-army-of-invisible-helpers.html
The UN and EU should be applauded for calling for global action. This is a world problem and it needs total participation by ALL NATIONS.
Thanks for posting, basserday!
Great post, HH! I have more perennials than I thought. For me, I'm finally using them a lot more mostly I've become a cook. [I have a village friend who is a professional cook.]
sumi
Once I open it up, all of the potatoes would be exposed and collected. I won't know what the harvest will be like until I try it.
I have to continue adding my growing medium until the stems turn brown to signal the harvest. I had tried growing in straw pile on the planted seed potatoes in the ground, but the yield was limited to that of soil.
It is plastic with the holes for breathing.
The bottom is bare ground.
For harvesting, I will cut a string that I wove in a vertical column of holes.
Regarding the controlling the growth of a Jerusalem Artichoke in a limited area, could it be grown in a large composter as follows!
The above is called a "New Age Compost Bin" with the following description: "With a capacity of up to 180 gallons, the New Age Composter works well with yard waste, larger gardens, and grass clippings. It is made of a flexible material so the diameter can be adjusted at setup. Cone-shaped bottom draws air in through bottom of the pile, and perforations in the top allow water to trickle into the compost. To access the finished compost, the entire sidewall is lifted up from the pile. Base diameter 30–41", height: 32–44"."
I propose filling the bottom first with woodchips, then chopped straw, my own growing medium for the planting of the Jerusalem Artichoke. This approach within the composter would limit or control the growth.
The growth of potatoes so far has been much greater in this bin than in the ground for the same potatoes. If I can get my hands on another composter, I think the growth of sweet potatoes in New England is very possible. The black composition of the bin generates great warmth in the sun. I should have bought more when I had the opportunity.
So what do you think?
Thanks, sumisu
If You Open a Watermelon and See This, Throw It Out!
How to choose a good watermelon? If you buy a watermelon that has cracks inside, throw it out! If you decide to eat it anyway, it can do some serious damage to your health.
Home Run Howard Hughs! Thanks for the recommendation of Jerusalem Artichokes. I have a place to grow them, they are a survival food, and they will contribute greatly to my sustainability program.
Thanks, sumisu
"Now, we are making up the difference with unconventional shale (tight oil), tar sands and heavy oil:"
https://srsroccoreport.com/the-3-stage-housing-bubble-collapse/
MY THOUGHTS:
The lower EROEI of unconventional shale (tight oil), tar sands and heavy oil versus conventional oil of the past significantly shows that the trend is NOT OUR FRIEND!
This chart illustrates how much "Existing fields" will be replaced by "Yet to be developed" and ironically shown in a bright color red! Good luck to those who are still alive in 2040.
Incredible Edible: Yorkshire town's food-growing scheme takes root worldwide
https://www.theguardian.com/world/2018/may/09/incredible-edible-yorkshire-towns-food-growing-scheme-takes-root-worldwide#img-2
"Furthermore, the world is burning one heck of a lot more oil than it is discovering. For example, in 2016 the world found 2.4 billion barrels of conventional oil, but consumed more than ten times that amount at 25 billion barrels:"
https://srsroccoreport.com/the-3-stage-housing-bubble-collapse/
Peak Oil Review: 7 May 2018
By Tom Whipple, Steve Andrews, originally published by ASPO - USA
Editors: Tom Whipple, Steve Andrews
http://www.resilience.org/stories/2018-05-07/peak-oil-review-7-may-2018/
Quote of the Week
“Hopefully we won’t see the continued exodus of quality workers and equipment from the Gulf.” Matt McCarroll, Fieldwood Energy CEO, commenting on a “new attitude” toward US Gulf of Mexico operators among federal government regulators and the White House. (5/5)
1. Oil and the Global Economy
Oil prices continued to climb last week and are now up nearly $8 a barrel in the past month with NY futures at $69.72 and London $74.87. US oil futures are now at their highest in more than three years, as global supplies remain tight and the market awaits new US sanctions against Iran which seem likely to be imposed later this week. According to the EIA, US domestic oil production continues to climb — up by another 33,000 b/d the week before last — and US drillers added nine oil rigs to the count last week. Thus the struggle between increasing US shale oil production and deteriorating geopolitical situations around the world continues.
The US-Iran sanctions crisis is the top of the list at the minute, but further deterioration of Venezuela’s oil exports and the possibility of a US-China trade war are not far behind. Then there are the wars in Yemen and Syria which could morph into a threat to Middle Eastern oil exports. All of these suggest that higher oil prices are on the way and cannot be stopped by growing production from one US oil basin.
As oil prices rise, up nearly $8 a barrel in the past month, observers are starting to ask questions as to when demand destruction will set in. At least one financial manager is drawing attention by talking about $300 oil a situation which is unlikely to happen. Should prices ever get to this level, we would be looking at gasoline above $10 a gallon in the US and demand would plummet as it did in 2008 with oil at $140. Between 2007 and 2009, US petroleum product consumption fell by about 3 million b/d.
The IEA currently is forecasting that the global demand for oil will increase at around 1.5 million b/d annually in 2018 and 2019. While this might be true with oil prices around $60-$70, it is virtually certain that demand will drop if prices get back into three-digit territory.
The OPEC Production Cut: While the two key proponents of the production freeze, Saudi Arabia and Russia, continue to talk about extending the deal into 2019, changes which could mean the end of the cut are coming into view. Russia pumped more than its quota under the deal for two months in a row, citing production contracts as the reason for the over production. Thanks mainly to Venezuela and Angola, OPEC’s production in April slid to a one-year low of 32.0 million b/d, down about 140,000 b/d from March.
The April figure is about 730,000 b/d below OPEC’s notional ceiling of about 32.73 million b/d when every country’s quota under its production cut agreement is added up. OPEC production was last lower in April 2017 at 31.85 million b/d, the last month before African Equatorial Guinea became the group’s newest member.
With the global oil inventory surplus nearly eliminated and prices moving up sharply due to geopolitical concerns, the only reason to hold the production cut at current levels, rather than eliminating it or reducing it gradually, is the desire to return to much higher prices to relieve the economic problems oil exporters have had in recent years. Much higher prices are likely to slow demand.
Another issue is whether OPEC and Russia are in a position to increase production very much in the near future. Moscow may be producing close to flat out even with production cuts in place. The Russians based their share of the cut on a surge in production just before the cuts started. With China’s voracious appetite for oil, Moscow can send it all the oil it can produce. The Saudis are producing well below their highs, raising the question of how quickly they could resume higher levels of production.
US Shale Oil Production: The optimistic hype about the future of US shale oil production continues to roll on. Well productivity continues to grow thanks to longer horizontal laterals and the use of more fracking sand. Rystad Energy says the average full-cycle breakeven costs in the Permian now are down to $42 per barrel and $48 when you throw in exploration costs. Some are skeptical of figures like these as the new technology wells must be more expensive to drill and frack than shorter ones that used a lot less sand and fracking fluids. The growing backlog of drilled but uncompleted wells is a symptom of this problem.
These claims of lower production costs are being made despite evidence that the “new technology wells” do not add to the ultimate amount of oil coming from the average well. It just means that drillers are getting the oil out faster in the first few months, after which production drops more rapidly than a few years ago. If the well costs considerably more to drill and frack, there is little if any improvement in production costs.
Then there is still the problem of the price differential between oil sold in Midland and oil ready for delivery to refiners or exporters along the Gulf Coast. Midland WTI crude averaged a $8.25/barrel discount to Houston WTI crude in April, widening from a $2.82/b discount in February. This discount has widened as Permian crude production is outpacing pipeline takeaway capacity. Although new pipelines are being built, the problem will continue until well into next year.
2. The Middle East & North Africa
Iran: President Trump is expected to pull the US out of the Iran nuclear agreement on May 12th. Trump wants Iran to give up its missile programs and to stop supporting Shiites against Israeli and Saudi interests in Syria, Yemen, Gaza, and Lebanon. Iran’s foreign minister said last Thursday that US demands to change the 2015 nuclear agreement are unacceptable. “Iran will not renegotiate what was agreed to years ago and has been implemented.”
Assuming that the US announces the re-imposition of sanctions later this week, the question becomes what happens next and what are the implications, both short and long-term for oil prices and stability in the region. China and Russia will not join the sanctions and will likely make efforts to undercut them by buying Iranian oil and taking other measures to reduces their effectiveness. Europe likely will be split on supporting the sanctions but will have to go along in part because of their deep financial ties with the US. Some believe that US sanctions with reluctant help from a few EU countries could reduce Iranian exports on the order of 400,000-500,000 b/d later this year.
Iran could retaliate against the sanctions, but, for domestic reasons, Tehran will likely revive its nuclear enrichment programs and may go so far as to hint it is starting research on nuclear weapons again. Renewed Iranian efforts to develop these weapons would likely have serious consequences for the region. The Saudis are saying that they will move to acquire nuclear weapons and the Israeli reaction could be violent. While the immediate consequences of ending the nuclear treaty may only be a modest increase in the price of oil, the longer term outlook is likely to lead to serious consequences for the region and the global economy.
Iran’s crude oil exports reached a record 2.61 million b/d in April, according to the oil ministry’s news service, suggesting that Tehran is attempting to get as much oil as possible on to tankers before new sanctions are imposed. The largest traditional oil customers of Iran—China, India, South Korea, and Japan—purchased more than 60 percent of the Iranian oil export cargoes last month with China and India alone purchasing 1.4 million b/d.
Saudi Arabia: The Kingdom seems to be pushing oil prices up to at least $80 a barrel this year, in contrast with its long-time role as a stabilizing force in global energy markets. The Saudis were instrumental in driving oil prices up nearly 50 percent in the past year and said last week that they would like to see oil prices reaching up to $100 per barrel.
Riyadh seems to have discovered that it is easier to earn money through higher oil prices than by pumping larger amounts of oil. The Saudis need at least $85-$87 oil to balance their budget and to achieve ambitious and expensive plans for modernizing their economy. The IPO for 5 percent of Saudi Aramco also needs high prices if it is to be successful.
The recent oil price increases have helped the Saudi economy bounce back in recent weeks. BMI Research reported last week that the economy could grow by 1.6 percent this year. However, the introduction of a new 10 percent VAT on private sector activity will be a drag. Last week, the Saudis also sold an $11 billion bond issue to cover funding needs for the year. This is the Saudi’s fourth international bond sale.
3. China
Reports from last week’s discussions in Beijing between the Trump administration and the Chinese seem to suggest that a trade war may be inevitable. “These meetings could end up going into the books as a formalization of hostilities rather than as the basis for a negotiated settlement,” said Eswar Prasad, a US-based China expert. Beijing and Washington are taking a hardline approach so that even if a solution is possible, it is likely to take months or even years to negotiate.
Washington is insisting that China cut its $337 billion-a-year trade surplus with the US by almost two-thirds over the next two years and not retaliate against any US trade actions. The administration also wants to end parts of Beijing’s ‘Made in China 2025’ strategy, which aims to establish a world-leading role for Chinese companies in several economic sectors. Beijing is demanding that the US rescind its longstanding objection to treating China as a market economy within the World Trade Organization. This could make it harder to hit back at unfair trade practices which have contributed to the rapid growth of the Chinese economy in recent years.
Due to rapid economic growth, new refining capacity, and declining domestic oil production, China became the world’s largest oil importer with average of 8.7 million b/d coming in last year. An often overlooked geopolitical and economic consequence of this situation is that Beijing will undergo a massive transfer of capital to foreign oil producers. In the future, Beijing will become more reliant on oil from unstable regions, including Iran, Nigeria, Saudi Arabia, and other OPEC producers, and from Russia which may look stable today, but it has morphed into a country with few stable institutions other than the security forces.
4. Russia
Moscow’s economy, which is nothing to write home about even in the best of times, is not doing well. Russia produces little in the way of exportable goods beyond oil and gas, military hardware, some basic agriculture and forest products, and some minerals. Compared to China and other developed countries it is a joke. The western sanctions stemming from the Ukrainian situation and the oil prices which are still way below the $110 level a few years ago have affected the economy for the worse. Hopes that the Trump administration would bring better relations and be a solution to their sanction problems seem to be fading and there is little on the horizon other than much higher oil prices which could stimulate economic revival.
This week, President Putin is being sworn in for another 6-year term and will be appointing a new cabinet. As part of this event, Putin is reported to be considering an effort to repair relations with the West which are at their lowest point since the fall of the Soviet Union. Rumors are circulating that he is considering appointing a close friend, Alexei Kudrin to a post in charge of new economic strategies and improving relations with the West. Kudrin is one of Putin’s oldest political associates and such an appointment could be a signal of compromise in the ongoing conflicts with the West over many issues. These range from the Crimea and sanctions, through support for Assad, to interfering with foreign elections.
Gazprom continues to ship unusually large amounts of natural gas to the EU despite disputes over pipelines, competition, and Ukraine. Natural gas coming via the 55 billion cubic meters/year Nord Stream 1 pipeline to Germany hit a record high of 51 billion cm in 2017. While the EC has given Gazprom permission to bring more gas into Europe via the Nord Stream 1, the EU except for Germany is opposed to Gazprom’s planned 55 billion cm/year Nord Stream 2 project, due onstream at the end of 2019. As North Sea gas runs out, many in the EU are worried about becoming too dependent on Moscow for vital energy.
5. Venezuela
The Financial Times recently headlined a story by saying that “ Venezuela’s oil decline reaches new depths.” Managers at PDVSA are quitting, theft has increased, and workers shout in company cafeterias that the major general now in charge of the firm should go. Even the Chinese and Russians who are owed billions by the floundering company agree. International oil companies partnering with PDVSA such as Total and Chevron are worried that Venezuelan oil production could fall by another 500,000 b/d this year, pushing up oil prices still further. Should the company collapse completely, the drop in global oil output would be bigger than last year’s OPEC+ production cut.
Rafael Ramirez who ran PDVSA from 2004 to 2014 says that company is close to total collapse and expects oil production to drop by 600,000 b/d each year due to lack of investment. Ramirez is currently hiding out in Europe to avoid prosecution in Venezuela on “corruption charges.” He says that incompetent managers with no experience in the oil industry are the root of PDVSA troubles. He sees the only solution for Venezuela is to turn the firm over to the international oil companies that are currently operating in Venezuela and have the capital and management skills to turn the firm around.
The International Monetary Fund is threatening to bar Venezuela from voting on IMF policies after it failed to provide the IMF with data about its current economic situation. Venezuela is obligated under its treaty with the IMF to provide data “on the operations of the social security institute and on exports and imports of merchandise, in terms of currency values, according to countries of destination and origin.” Given the situation and the pace of inflation in Venezuela, it is doubtful that the government has any meaningful data to supply the IMF.
6. The Briefs (selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
Offshore competitive: The current tailwind in the oil market is likely to propel 100 new offshore projects to be sanctioned in 2018, according to Rystad Energy. This compares to only 60 projects in 2017 and below 40 in 2016. These projects represent a collective $100 billion worth of capital investment, giving an average of about $1 billion per project. In contrast, the average projected CapEx for offshore projects approved in 2013 was $1.8 billion. (5/3)
Deepwater discipline: Even though Brent Crude prices hit $75 a barrel last week, Shell continues to stick to disciplined spending and wants deepwater projects to break even at $40 a barrel or lower—a sign that Big Oil is committed to not repeating past mistakes with lavish expenditure on complex projects, as the case was when oil prices were above $100 a barrel. (5/2)
Norway’s Statoil said it aims to cut its carbon footprint more aggressively as measures to reduce global warming could reduce the value of its assets, leaving some of its reserves stranded underground. (5/5)
In the U.K., hybrid cars that rely on traditional engines, such as the Toyota Prius, would be banned by 2040 under clean-air plans being drawn up by the UK government that would outlaw up to 98 percent of the vehicles currently on the road. (5/5)
Saudi Arabia is apparently eager to adopt blockchain technology in its oil industry. It is looking at use of a supply management and smart contracts application specially developed for the oil industry. Basically, the app involves large-scale automation, tracking of every barrel produced through smart contracts, and securing payments. (5/4)
Sudan’s prime minister acknowledged his country’s crisis of foreign exchange shortages and economic imbalances that have negatively impacted the economy. He said the government’s recent economic measures were necessary to avert an overall economic collapse. Since March, Khartoum and the rest of the country have suffered a shortage of diesel fuel, gasoline and cooking oil, which led to long queues at gas stations. (5/2)
The Cuban government has signed off on an environment license that could pave the way to drilling for oil onshore, an Australian energy company said. (4/30)
Mexico’s Pemex expects to close 2018 by producing 1.98 million b/d of crude oil, allowing it to achieve its annual production goal of 1.951 million b/d. The company said the construction of new shallow-water and onshore midstream infrastructure would allow for increasing Pemex’s production. Also, the reactivation of close to 200 onshore wells will allow Pemex to have a considerable production boost. The company’s 2019 production goal is 1.953 million b/d. (4/30)
Canadian provinces are getting much less in exchange for the oil and gas they produce now than in the past despite growing production, a new report by David Hughes has revealed. In Alberta, Canada’s top oil and gas producer, Hughes notes that oil royalty revenues fell from 80 percent of the total provincial revenues in 1979 to 3.3 percent in 2016. Over the same period, however, production of oil and gas doubled. (5/5)
In Canada, Suncor Energy Inc. is barreling ahead on the ramp-ups of the Fort Hills and Hebron oil megaprojects as its refining operations protect it from the pipeline shortages and lower prices that are slamming competitors. The megaprojects are coming online in the midst of a fierce battle over pipelines to haul away western Canadian crude. (5/3)
Vancouver sits less than 750 miles from the Canadian oil sands but it may as well be on another continent for vehicle drivers. Gasoline prices in the Pacific Coast city hit C$1.62 a liter ($4.77 a gallon) on Monday, the highest in North America, according to GasBuddy. And there’s little sign of reprieve with a weaker currency, limited refinery supplies, and a new carbon price behind the surge. (5/2)
The US oil rig count grew by nine, bringing the total count to 834, and the gas rig count increased by one, according to Baker Hughes. (5/5)
LNG exports: US liquefied natural gas company Cheniere Energy said on Friday it planned to make a final investment decision to build the third liquefaction train at its Corpus Christi LNG export facility in Texas in the next few weeks. Cheniere also said construction of three other 0.7-billion cubic feet per day liquefaction trains was ahead of schedule with Sabine Pass 5 in Louisiana and Corpus Christi 1 expected to enter service in the first half of 2019 and Corpus Christi 2 now expected in the second half of 2019. (5/5)
“Smart devices” cut labor: The energy industry has turned to robots and drones to cut costs and improve safety in some of the world’s tougher working environments. Drones inspect gear high up on floating rigs. Robots crawl underwater to test subsea equipment for microscopic metal cracks. Remotely operated mini submarines can replace divers. (5/4)
Cybersecurity threat: Energy companies—including E&Ps, pipeline operators, and utilities—spend less than 0.2 percent of their revenues on cybersecurity, two security consulting firms have calculated. This compares with three times this portion of revenues spent on cybersecurity by financial services providers and banks. Last year, Deloitte reported that the energy industry was the second most popular target for cyberattacks in 2016. (5/2)
Jet-fuel costs hit airlines: Four months ago, several large air carriers said they were in no rush to start hedging against further price increases in crude oil and fuel. Now they may be regretting that decision. In its first-quarter report released yesterday, American Airlines said higher fuel costs had dented its revenues, increasing its expenses by $412 million, with the average fuel price 23.6 percent higher in the first quarter of 2018 from a year earlier. For the full year, AA may have to cough up an additional $2.3 billion in fuel costs if prices stay higher. Usually, fuel costs constitute almost a third of airlines’ total costs, (4/30)
Gasoline prices: There’s a good chance you’ll soon see regular gas selling for $3 a gallon. The national average price is up to $2.81 a gallon, according to AAA. (5/3)
Gasoline: prices vs. taxes. The US government forecasts that summertime gasoline prices this year will be at their highest level since 2014, but things could also be worse for the average US driver. The US federal gasoline tax was last changed in 1993, when it was raised to 18.4 cents/gal, but was not indexed for inflation. According to figures from the Brookings Institute, once adjusted for inflation, federal gasoline tax revenues peaked in 1994 and have been falling ever since. (5/3)
A heat wave in the middle of spring is poised to boost power plants’ demand for natural gas in the US Northeast to the highest in at least four years. Gas prices have been stuck in a narrow range for weeks as traders weigh a growing stockpile shortfall against record production. Inventories of the fuel are 29 percent below average after an unusually cold April, and a blazing summer could limit the amount of gas added to underground storage over the next few months, sending prices soaring. (5/4)
Cars sales in crisis: A bet by Japanese automakers that Americans still want sedans is turning out to be expensive. As Americans’ taste shifts toward sport-utility vehicles, Nissan’s US sedan sales fell almost 35% in April from a year earlier, driving an overall decline of 28%. Honda’s overall sales fell 9.2%, while Toyota’s dropped 4.7%. (5/3)
An NREL study focused on the technical potential for solar energy generation from the rooftops of low-to-moderate income households. The NREL study determined that the 33 percent target is easily technically viable among current LMI households. However, it is important to note that the study did not estimate economic viability. (5/3)
RE rebound? The US has moved ahead in EY’s Renewable Energy Country Attractiveness Index and is now second only to China, the UK consultancy said. Last year, the US was third from the top because of President Donald Trump’s fossil fuel industry revival efforts. Now, it seems these will not have any substantial impact on renewable energy even when taking into account the import tariffs on PV cells and modules introduced earlier this year. (5/4)
H2 trucks: Anheuser-Busch is reserving up to 800 of Nikola Motor Co.’s hydrogen-electric trucks, one of the largest orders so far for alternative-fuel vehicles as the company races with Tesla and other manufacturers to move trucking away from diesel-guzzling big rigs. The US subsidiary of Anheuser-Busch plans to use the vehicles for long-haul deliveries from breweries to its distributors starting in 2020. Nikola says it will build 28 hydrogen stations along the routes of the beer maker’s dedicated fleet. (5/4)
Hydrogen vehicles powered by fuel cells never really took off because the fuel cells were simply too costly to make. But a recent study by researchers from Kumamoto University found a way to extract hydrogen from ammonia without the release of noxious nitrogen oxides. They added a new compound comprising copper, silicon, and aluminum, which made ammonia combust at lower than usual temperatures, and it eliminated the release of nitrogen oxides. Theoretically, this method could produce energy from hydrogen in a much cheaper way than other existing methods. Until it’s scalable, this breakthrough remains in the potential stage. (5/3)
The main challenge with electric planes seems to have been striking the balance between weight, reliability, and cost. An all-electric plane would need a massive load of batteries—this is not only expensive but also has implications for the aircraft’s flight performance. Of course, there are also issues such as safety and range to consider. (5/1)
Floating nuke in 2019: Russia is moving ahead with this questionable plan. If a Russian state-owned company has its way, remote regions of the world will soon see giant, floating nuclear reactors pumping power to port cities and drilling platforms. Once a barge-based plant is wired into the electrical grid in the Arctic town of Pevek in 2019, it will be the world’s northernmost nuclear reactor, capable of powering a town of 100,000 people with what its manufacturer, Rosatom, calls “a great margin of safety” that is “invincible for tsunamis and natural disaster.” But environmental groups have other names for the barge: “Nuclear Titanic” is one. Another is “Floating Chernobyl.” (5/2)
Peak Oil Review 30 April 2018
By Tom Whipple, Steve Andrews, originally published by ASPO - USA
Editors: Steve Andrews, Tom Whipple
http://www.resilience.org/stories/2018-04-30/peak-oil-review-30-april-2018/
Quote of the Week
“The migration towards the electrification of society is unstoppable.”
Lord John Browne, former CEO of BP
1. Oil and the Global Economy
With only two weeks to go before President Trump decides whether the US will withdraw from the Iran nuclear treaty, the oil market’s chief concern is about what could happen if the US reimposes sanctions. Even though Washington would have few, if any, allies helping to reimpose sanctions on Iran, the US carries considerable weight in the world banking system by threatening to deny access to the US to anyone doing business with Tehran. Conventional wisdom holds that renewed sanctions would slow Iranian oil exports and drive prices higher.
London futures posted a small gain last week, closing on Friday at $74.64. However, the gap between London and US oil prices widened to as much as $6.74 a barrel last week, making US oil highly attractive to foreign buyers. The Midland, Texas-to-Houston spread widened to over $8.00 a barrel indicating that pipelines moving Permian oil to the coast are nearly full. Phillips 66 announced that it will move ahead with the construction of its Gray Oak Pipeline, which would move oil from the Permian to Corpus Christi. The pipeline would have a capacity of 700,000 b/d, and eventually 1 million b/d, but it won’t come online until the end of 2019.
As production from the Permian Basin increases, the US should be facing a glut of light, sweet crude which cannot be processed efficiently in Gulf Coast refineries. As could be expected, low US crude prices have sent exports to an all-time high of 2.3 million b/d last week. US exports are expected remain around this level over the summer or possibly climb even higher. A few months ago, Brent traded at a premium of only $2 per barrel relative to New York futures.
Total US crude and petroleum exports also hit a record high of 8.3 million b/d the week before last. Much of the increase in oil products is due to the near collapse of Venezuela’s refining capacity and other refining problems around the Caribbean leaving US refiners to pick up the slack.
The OPEC Production Cut: Now that the cut has been pronounced a success in reducing global crude inventories to normal levels, the question is what happens next. The cut has already been extended to the end of the year and several OPEC members are talking about extending it into 2019 in hopes of moving oil prices back above $100 again. OPEC now says it would like to see a pickup in investment, which fell by some $1 trillion in the three years of surplus and weak prices that started in June 2014.
Saudi Arabia’s energy minister al-Falih said in early April that oil production in a number of regions was declining and the only way to avoid a supply shortage in the longer term was to invest in new upstream projects. The IEA says that investment in new projects which was close to $800 billion in 2014, declined to $120 billion a year between 2014 and 2017. The agency, however, forecasts that investment in 2018 will be back to $466 billion. Some believe that there have been such large gains in the efficiency of oil production since 2014 that even the smaller investment total forecast for this year will be sufficient to prevent shortages in coming years.
Iran’s Oil Minister Zangeneh said last week that “high oil prices, even in the mid-term, would destabilize the market and put pressure against OPEC’s interests.” When asked about Iran’s position regarding an extension of the OPEC production cuts beyond 2018, Zangeneh told Iran’s news agency that “No decision will be made regarding this issue in the upcoming OPEC meeting.” There may be a split developing in OPEC on a continuation of the production freeze. However, this issue could be overshadowed by other developments if the US reimposes sanctions on Iran.
US Shale Oil Production: Optimistic forecasts regarding the immediate future of the Permian and other US shale oil production continue to abound. The US Energy Information Administration forecasts the Permian’s May output will be 3.183 million b/d—a 73,000 b/d rise from April. The IEA is talking about the basin’s production reaching 4 million b/d by 2023, which is getting close to Saudi’s Ghawar, the world’s largest oilfield which is thought to have a production capacity of 5.8 million b/d. Some are even talking about Permian, which is predominately a shale oil basin, becoming the largest producing field in the world.
There are two sets of factors that could upset the optimists’ narrative – short-term bottlenecks and the long-term geology of shale oil basins. The latter is simple. Most shale oil basins have “sweet spots” that will produce a satisfactory, perhaps even a profitable, amount of oil when the wells first start producing. Production from these wells quickly declines however so that production usually falls by 70 to 90 percent in the first three years. The sweet spots, which drillers quickly identify, usually comprise 20 percent or less of a shale oil field. When drillers have exhausted the sweet spots they must drill in increasingly less productive parts of an oilfield until the results become so uneconomical at the going prices that they quit.
The sweet spot phenomenon is well known, but it difficult to say just when it will lead to declining production as drillers guard this data carefully. If investors learn that a company no longer has profitable places to drill, money will become harder to raise. Some are forecasting that a decline in US shale oil production could come in the next few years while others see steady production and relatively high levels for decades. Because of the rapid decline of shale oil wells this will require unprecedented numbers of new wells.
It is the bottleneck problem, however, that has been getting much attention in the financial press in recently. These range from shortages of fracking sand and fracking crews, through overloaded and deteriorating road networks in the busiest parts of the basin, to insufficient pipeline capacity to move the production from newly opened wells to the Gulf Coast. This latter phenomenon is easy to detect as the value to crude that cannot be moved from the oilfield to markets drops rapidly. In the last two months the value of crude in Midland, Texas, the heart of the Permian Basin, has sunk from $3.50 a barrel in comparison to Brent crude, the international standard, to nearly $14 a barrel. Selling prices like these are not contributing to the profitability of drilling for shale oil.
Most of the current bottlenecks can be overcome within a year or two. New pipelines to move the excess oil and gas production to market are being built. Roads can be improved. New sources of sand can be found and more fracking crews trained. The real issue is the profitability of the oil that will be produced in the next couple of years and how soon the sweet spots will start to go dry.
2. The Middle East & North Africa
Iran: European leaders are talking about increasing sanctions on Iran over its ballistic missile program and regional meddling as they try to dissuade President Trump from abandoning a nuclear deal between world powers and Tehran. France’s president Macron, and Germany’s Chancellor Merkel, were in Washington last week trying to persuade President Trump to stay with the nuclear accord he has threatened to withdraw from on May 12. Macron, however, said after talking with the president it was his “bet” that Trump would withdraw the US from the nuclear deal. Many fear that tighter sanctions will lead to reduced Iranian exports and higher oil prices, or even hostilities if Tehran resumes its program to acquire nuclear weapons.
Iran’s supreme leader Ayatollah Ali Khamenei called on Muslim nations to unite against the United States, saying Tehran would never yield to US “bullying”. Tehran announced last week that it will start reporting foreign currency amounts in euros rather than US dollars due to tensions with Washington. Iran has little trade with the US due to decades of economic sanctions. Its most important trading partner is the UAE, which accounts for around 24 percent of all Iranian imports and exports with China second at 22 percent.
Iraq: The government failed to attract investment from any of the top international oil companies at its oil and gas contract auction last week. This development suggests that the Iraqi government has not yet found a revenue-sharing formula that the major oil companies find sufficiently attractive to increase their business in Iraq. Italy’s Eni was the only major company submitting a bid but did not win. As many as 16 companies, including Exxon, Chevron, Total, Lukoil, Gazprom, and CNOOC, had expressed interest in taking part in the auction.
Iraq awarded six of the 11 blocks up for auction to Middle East and China-based companies, while five of the less desirable exploration areas failed to attract any bids. Three blocks went to United Arab Emirates-based Crescent Petroleum, two to China’s Geo-Jade, and one to United Energy Group, based in Hong Kong.
Saudi Arabia: Minister of Energy al-Faleh said at a meeting of oil producers in Jeddah that the global oil market can absorb higher prices. The statement drew a swift reaction from US President Donald Trump who accused OPEC of inflating prices. The Saudis are rumored to want $100 oil again but if prices rise that high the next economic downturn could follow. The government wants more revenues for their budget and a higher oil price to increase the valuation of the Aramco IPO and to pay for the ambitious plans to reduce its reliance on oil revenues by diversifying its economy.
China’s Sinopec, the largest oil refiner in Asia, will continue to cut imports of Saudi crude in June and July, as prices for other Middle Eastern crudes are more favorable. Earlier this month, Sinopec requested 40 percent lower Saudi oil import loadings for May. With the increased flow of Russian oil into China and the recent arrival of a ship carrying 2 million barrels of oil from Louisiana to China, Beijing is not as dependent on the Saudis as it has been in the past. Given the deteriorating geopolitical situation in the Middle East, China may be seeking to diversify its sources of oil in addition to seeking lower prices.
Libya: General Haftar returned to Benghazi from a hospital in Paris and ordered a renewed military assault on Islamist-controlled areas. Numerous sources has reported that Haftar, 75, had either died or had a stroke of such severity that his public career was at an end, prompting speculation that his chief backers – the United Arab Emirates, Egypt and France – were locked in secret discussions over a successor likely to play a decisive role in Libya’s future.
Haftar’s allies say his Libyan National Army will now seek to capture Derna, the last eastern town out of its control. The success of Haftar in quelling the various militias thwarting increased oil production is the main reason Libya’s production has grown to around 1 million b/d in the last 18 months. It appears that the 75-year old general may be around for a while longer.
Libya’s National Oil Corporation (NOC) is holding discussions with BP and Eni about resuming exploration activity, the company announced last Thursday. BP signed an exploration deal in Libya in 2007 but put its onshore plans on hold in 2014 because of security concerns following the 2011 revolution. Italy’s Eni has stakes in onshore and offshore oil and gas production in Libya through a joint venture with the NOC. Libya is estimated to have the largest easily exploitable oil reserves in Africa.
3. China
Russia was China’s largest crude oil supplier in March, according to data released last week. Last month, Russia supplied Beijing 1.36 million b/d, up 23.6 percent from March 2017. Moscow has been the biggest oil exporter to China for the last 13 months.
Saudi Arabia was China’s second-biggest supplier in March, shipping Beijing 1.09 million b/d, up 1.2 percent from a year ago, but down from 1.2 million b/d in February. While Saudi shipments to China have been dropping of late, a private Chinese chemical producer, the Hengli Group, will start operating a new refinery in northeast China this coming October. The plant can process up to 400,000 b/d and is designed to use heavy Saudi oil.
As part of its war on pollution, China’s government is gradually taking over the country’s heavy industry which is responsible for much of the pollution. Last year, the state’s share of steel capacity increased to 67 percent from 60 percent while aluminum smelting saw about an equal increase. The government now controls 80 percent of the country’s coal production compared with about 45 percent in 2010. While the massive state companies are less efficient than smaller private ones, they give the government better control of its national priorities including cleaning up the air.
Air pollution improved in many cities last year as small companies were shuttered. State companies, unlike private companies, have the money to meet environmental regulations which may be more important to the government than efficiency.
Last December, LNG imports into China hit a record high amid natural gas shortages due to the government moving too fast with its shift from coal to gas. China became the world’s second-largest LNG importer in 2017, taking in some 38 million tons of the fuel, a 46-percent increase on 2016. Even so, some parts of the country suffered shortages because the gas could not reach them fast enough.
Sinopec says it plans to boost its LNG import capacity to 26 million tons annually over the next six years from the current 9 million tons. China’s total of LNG import capacity is 17 million tons. Customs figures for March show a 64.2-percent increase in LNG shipments to 3.25 million tons. During the first quarter of the year, China imported 12.38 million tons of LNG, up 59.1 percent on Q1 2017.
China’s current natural gas storage capacity is only enough to cover 5 percent of the country’s consumption. That is only about half the international average, which stands at 10-12 percent, but Beijing has launched a storage-building program that will see the current capacity doubled over the next five to eight years in part by using depleted natural gas fields.
Forecasts that the advent of electric vehicles will have a major impact on oil demand are starting to appear in China. Beijing had about 99 percent of the 385,000 electric buses on the road worldwide in 2017, accounting for 17 percent of the country’s bus fleet. Every five weeks, China adds 9,500 new electric buses, the equivalent of London’s entire fleet. A new report from Bloomberg New Energy Finance says that economics are driving the change, with the total cost of ownership for electric buses far outperforming fossil fuels. The report says a 110kWh battery e-bus coupled with even the most expensive wireless charging facilities reaches parity with a diesel bus at total cost of ownership at around 37,000 miles traveled per year. This means that a bus with the smallest battery, even when coupled with the most expensive charging option, would be cheaper to run in a medium-sized city, where buses travel an average 106 miles/day.
4. Russia
Gazprom is currently shipping as much gas to Europe as it typically does in winter months, and expects demand this summer to be close to winter levels. The coldest winter in Europe since 2012 depleted storage facilities across the continent that now need to be refilled. Industrial gas-fired power generation increases and economic growth in Europe further boost demand for gas, even if winter is now over and the period is generally a lull in gas demand and markets. Gazprom announced last week that it was building an LNG complex near the Baltic Sea with a capacity of 45 billion cubic meters per year.
Although Moscow should benefit from increasing oil prices, some 1.4 million b/d are now being exported to China and this number is expected to increase. As the Chinese are known to drive a hard bargain on long-term contracts and paid for much of the new pipelines required to bring the oil into China, it is doubtful that the Russians are making much on selling oil to China.
5. Angola
While falling Venezuelan oil production captures the world’s attention, problems also are growing in Angola, once Africa’s biggest crude producer. The country is suffering sharp declines from its onshore and offshore fields, with output dropping almost three times as much as required by the OPEC agreement. Crude exports are expected to fall in June to the lowest since at least 2008.
Angola’s slide could be alleviated by the end of the year with the opening of an new oil field operated by Total. The Kaombo field, already delayed from 2017, will have a capacity of 230,000 b/d. Angola’s deep-water operations are costly to maintain. Because of insufficient capital expenditure, the rate of decline from Angola’s offshore fields are at 13 to 18 percent a year, more than double the global average. Most Angolan fields enter into a steep decline after three years due to the geological characteristics of Angola’s offshore production.
The IEA says that since peaking at 1.9 million b/d in 2008, Angola’s production has fallen to about 1.5 million this year, and is expected to be under 1.3 million b/d in 2023 despite the opening of the new offshore field.
6. Venezuela
The flow of migrants fleeing Venezuela is increasing every day, putting a strain on Colombia’s health and education systems and its jobs market. Emigrants are crossing into Colombia at the rate of more than 100,000 per month, with many more arriving illegally. Venezuela’s economy will contract 15 percent this year, according to the latest forecasts by the International Monetary Fund, while inflation increases to about 13,000 percent.
The two local Chevron employees that were arrested in Venezuela last week could be charged with treason for refusing to sign a parts contract for a joint venture with PDVSA. The arrests are the first at a Western oil firm operating in Venezuela and represent an escalation of growing tensions between PDVSA and foreign companies over control of supply contracts which are a source of corruption in Venezuela’s oil industry. The treason charge raises concern that Chevron has been pulled into the fight between Washington and President Maduro, who accuses the US of sabotaging Venezuela’s economy to topple his administration.
In the aftermath of the arrests Chevron has evacuated about 30 expatriate employees overseeing operations in Venezuela. The firm has about 150 employees in its Puerto la Cruz headquarters and has two other offices in the country. The company’s earnings from Venezuela dropped 18 percent last year, to $329 million, according to regulatory filings. Chevron and other firms aim to avoid a repeat of what happened to Exxon Mobil Corp and ConocoPhillips in Venezuela in 2007, when the government of then-President Hugo Chavez expropriated their assets after they could not reach an agreement to convert their projects into PDVSA-controlled joint ventures. This chaos has caused the country’s oil output to plunge by 23 percent, or 450,000 barrels per day, since October.
In another development, ConocoPhillips filed suit on Thursday in the US District court in Manhattan seeking to enforce $2.2 billion it was recently awarded by International Chamber of Commerce arbitrators in payment for the firm’s assets in Venezuela that were expropriated by then-President Hugo Chavez in 2007. Conoco had sought an award of $22 billion.
7. The Briefs (selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
Marine fuels disruption: The upcoming implementation of restrictions on sulfur emissions in marine fuels can potentially jack up the annual fuel costs for the shipping industry by a whopping $50-$60 billion, including by $10 billion for the containers sector alone according to Moller-Maersk CEO Soren Skou. Skou favors greater use of cleaner fuels in the near term vis-a-vis other options such as LNG and scrubbers. The new global cap of 0.5% sulfur on marine fuels will be implemented from 2020. The lower-emissions standard can cascade into higher costs of moving goods across the globe (4/27)
The UK’s Tullow Oil said Wednesday it would cease all natural gas output from its assets in the UK’s Southern North Sea in the third quarter of this year in line with the announced closure of the ConocoPhillips-operated Theddlethorpe Gas Terminal in late 2018. (4/26)
The UK will need to have one well per day fracked in the period between 2021 and 2035 if it wants to reduce its natural gas imports by 50 percent, a report from Cardiff Business School has estimated. This rate of well fracking means a total of 6,100 wells will need to be drilled in the country over the 14-year period and will involve land takeover on a very large scale. While the report has been disputed, the fact remains that the future of shale gas in the UK is not necessarily bright. (4/26)
In the UK, BP Chief Executive Bob Dudley on Tuesday urged Cambridge University not to yield to pressure from hundreds of students and academics to cut its investments in fossil fuels and pointed to BP’s donations to the university. (4/25)
Pakistan has lifted a ban on fuel oil imports to address the problem of planned power cuts as energy consumption rises towards the summer season. Current fuel oil stocks are seen as extremely low. (4/24)
Brazil, after being caught up in major corruption scandals and suffering from what some have claimed was its worst economic downturn in 100-years, has pulled itself back from the brink. The economy commenced growing again in 2017. One of the key drivers of Brazil’s improving economic outlook are Brasilia’s plans to launch what could become the biggest oil boom in Latin American history. The massive pre-salt oil fields located in the Atlantic Ocean on the Latin nation’s continental shelf are thought to contain recoverable oil reserves of a massive 50 billion barrels but in the past, they have proven difficult and costly to extract. (4/24)
Uruguay’s first oil auction in seven years that had offered 17 offshore blocks didn’t attract any bids by the April 26 deadline. Interest in Uruguay’s offshore has faded after the companies that had won blocks in the previous two rounds haven’t yet made significant oil discoveries. (4/28)
In Argentina, Shell unloaded its downstream business, from service stations to refinery capacity. But they retained their position in the Vaca Muerta shale formation, which they see has having substantial growth potential remaining. (4/25)
Mexico’s 2018 elections could have far-reaching implications for the country’s energy reform, but any shift in policy would likely come from a slowdown in implementation rather than an outright reversal. (4/24)
In Mexico, the chief executive of national oil company Pemex said on Wednesday it must move towards a stock exchange listing like Saudi Arabia’s Aramco has done but that such a step would take years. (4/25)
In Canada, a proposed $31.1 billion liquefied natural gas export terminal on British Columbia’s coast edged closer to reality on Friday, as the company behind the project said it had chosen a contractor to lead project construction once financing is in place. (4/28)
In Alberta, a convoy of big rigs is gearing up to haul Canadian crude oil hundreds of miles across the US border into Montana, where the oil will be transferred to pipelines and rail cars headed south and west. Trucks loaded with crude are an increasingly common sight at the border. Production has risen in the world’s fifth largest producer, but full pipelines and a rail car shortage have made it difficult for drillers to ship oil out of Canada. (4/23)
Pipeline approved: With certain conditions, a judge in Minnesota backed a plan by Canadian oil shipper Enbridge to replace an aging oil pipeline with a bigger one. Enbridge is proposing an overhaul of the Line 3 segment of a broader network that extends through parts of Canada and into the northern United States. (4/24)
The US oil rig count increased by 5 to 825, according to Baker Hughes. For the month, drillers added 28 oil rigs in April after cutting two rigs in March. Gas rigs increased by 3 to 195. The total rig count, at 1020, is up 150 year-over-year. (4/28)
Crude exports climbing: a 2 million barrel-carrying supertanker arrived for the first time at a Texas City jetty as surging US oil output drives up incentives to export. The tanker is being brought into the terminal to determine measurements for future VLCC loadings, at least of partial cargoes. Nave Quasar will not load any supplies at this time for shipment. (4/28)
Oil exports: The first VLCC to directly load a cargo at the Louisiana Offshore Oil Port arrived at the port of Huizhou, China, on Sunday. The Shaden departed LOOP on February 18 after a loading time of about five days. The VLCC took approximately two months to reach its final destination on the east coast of China. Prior to arriving at Huizhou, the Shaden had previously stopped at Rizhao, China, on April 17. As the only US Gulf Coast export facility that does not require Aframax or Suezmax vessels for reverse lightering on to a VLCC, LOOP is poised to become a major export hub in coming years. (4/27)
Shell Offshore, Inc. will proceed with the Vito deep-water development in the US Gulf of Mexico. The Royal Dutch Shell subsidiary’s final investment decision, which assumes a break-even price below $35 per barrel, sets in motion the construction and fabrication of a new, simplified host design and subsea infrastructure. The company expects to produce up to approximately 100,000 barrels of oil equivalent per day from Vito, located roughly 150 miles southeast of New Orleans. (4/25)
ConocoPhillips is coming off its best exploration season in over a decade, and they have Alaskan oil to thank for it. The company struck it big in the National Petroleum Reserve-Alaska this winter, finding oil at all six of their test wells. The company has estimated that there are at least 300 million barrels of recoverable oil in its “Willow Discovery” along Alaska’s Western North Slope. More importantly, this discovery could represent just a fraction of the available reserves along the North Slope, and ConocoPhillips plans to keep exploring the area over another busy exploration season next year. (4/23)
Refinery advantage: the US shale revolution boosted crude production to a record 10.5 million barrels per day, upending the global oil market by adding millions of barrels of very light crude to the supply mix. That gives an advantage to some independent refineries equipped to handle lighter crude vs. the some larger refineries that spent billions to handle heavier. (4/26)
Offshore rules softening: The Trump administration is moving to relax some offshore drilling requirements imposed in response to the Deepwater Horizon disaster but is rebuffing the oil industry’s plea for bigger changes. (4/28)
Electricity prices to rise? The tea leaves seem to tell us that after a relatively long period of stability, electricity prices will soon rise, perhaps quickly. Interest rates are moving up. And on the commodity front, oil prices have been on the move as well. This is likely to affect utility fuel costs both directly and indirectly. (New England for example burned several million barrels of oil to produce electricity last year.) When we add in recent legislative moves to prop up aging, uneconomic power stations, we have even more reason to think so. (4/26)
Electric scooters: A new wave of electric-scooter rental start-ups is facing a legal reckoning, as city authorities across the US race to tame the “dockless” two-wheelers that have flooded their streets. New regulations proposed in several cities could place a cap on the number of scooters a single company can operate, as regulators demand that fast-growing start-ups Bird, Limebike and Spin do more to educate and police their customers safety. (4/26)
Faster EV charging coming: Japanese energy company Marubeni Corp. said it would work in the US market to deliver ultra-fast charging stations for electric vehicles. The company said it was working to make a $2 billion investment in electric vehicle infrastructure. The company said it would build 340 charging stations in the US market. Charging stations will be seven times faster than conventional charging stations, though some of that speed would depend on the vehicle. (4/24)
Supercharging EVs: Electrify America will be installing ultra-fast electric vehicle chargers at more than 100 retail, convenience and refueling locations across the US, increasing the convenience for consumers who drive or are considering purchasing an electric vehicle. Last week, Electrify America announced it will install electric vehicle fast chargers at more than 100 Walmart locations across 34 states by June 2019. These chargers are part of Electrify America’s first $500-million, Cycle 1 investment in electric vehicle charging infrastructure in the US. The company plans to complete four investment cycles over the next decade, resulting in a total investment of $2 billion. (4/24)
Ford Motor Co. said Wednesday it will drop most of its North American car lineup as part of a plan to save money and make the company more competitive in a fast-changing marketplace. The changes include getting rid of all cars in the region during the next four years except for the Mustang sports car and a compact Focus crossover vehicle. The decision means Ford will no longer sell the Fusion midsize car, Taurus large car, CMax hybrid compact and Fiesta subcompact. (4/26)
Coal resilient: The International Energy Agency said coal consumption declined by about 2 percent from 2016 and down 4.2 percent over the last two years or so. While use is in the midst of a decade-long period of decline, demand by 2022 will be about the same as the current five-year average. (4/26)
Poland’s coal problem: Poland has some the most polluted air in all of the European Union, including 33 of the EU’s 50 dirtiest cities. Not even mountain retreats are immune. The problem is largely a result of the country’s love affair with coal. Like elsewhere in Poland, most of the homes in the villages of southern Poland are still heated by coal. (4/23)
Asian thermal coal demand is defying its typical seasonal slowdown as well as the expanding use of renewables and natural gas, with prices holding not far off $100 a ton despite the onset of the usual lull at this time of year. Australian thermal coal prices are at $93.40 a ton, their highest seasonal level in five years and $15 per ton above the five-year average price. The firm prices are due to robust use in India, Japan, South Korea and even China, where coal consumption has held up despite huge programs to boost the use of gas and renewable energy. (4/27)
Oil country wind boom. There is one simple reason why renewables are surging: both solar and wind continue to decline in operating costs, while increasing in energy efficiency. The combination is making it difficult for coal to recover and poses a challenge in what had been oil-dominant areas. The Permian Basin, which straddles Texas and New Mexico, continues to be one of the most prolific drilling locations in the country. Yet the same location has also become the largest in the country for wind power. In the Permian Basin and to the south Texas produces more wind energy than the next three states combined. (4/23)
Windy UK: US conglomerate General Electric will test the world’s largest wind turbine in a facility in northeast England, it said on Tuesday. GE Renewable Energy, the renewable arm of the US firm, and the British government-funded Offshore Renewable Energy Catapult signed a five-year agreement to test GE’s Haliade-X 12 megawatt (MW) turbine near Blyth, Northumberland. (4/25)
Solar insight: Constant illumination was found to relax the lattice of a perovskite-like material, making it more efficient at collecting sunlight and converting it to energy. The stable material was tested for solar cell use by scientists at Rice University and Los Alamos National Laboratory. Longer term, the prospects look good for a less-costly, more efficient solar cell. (4/27)
Carbon withdrawal: Europe’s largest bank has joined the list of global investors retreating from new financial commitments in the fossil fuel industry, including investments in oil-rich Alberta. HSBC, whose global assets total more than $2 trillion, announced Friday that as the climate change crisis deepens, it will no longer finance new coal-fired power plants (with a few targeted exceptions), Arctic drilling or new oilsands projects, including pipelines. (4/24)
In Italy, a government decree from late 2017 allows local administrations to cut woods, even against the will of the owners of the land. It is the start of a new wave of deforestation in Italy—primarily to fuel Italy’s growth in use of pellet stoves. Italians consume 40% of all the pellet burned in Europe while Italy produces only about 10% of the wood it burns. (4/25)
Peak Oil Review 23 April 2018
By Tom Whipple, originally published by ASPO-USA
Editors: Steve Andrews, Tom Whipple
http://www.resilience.org/stories/2018-04-23/peak-oil-review-23-april-2018/
Quote of the Week
In Canada, Kinder Morgan Canada Ltd wants to almost triple the capacity of its Trans Mountain pipeline from Alberta to the Pacific province of British Columbia, which strongly opposes the idea on environmental grounds. Prime Minister Justin Trudeau said, “I have asked the finance minister to engage in discussions, financial discussions, with Kinder Morgan and that’s exactly what is going on. We will ensure that this pipeline gets built in a way that upholds and protects the interests of Canadians. “This pipeline will get built.” (4/20)
1. Oil and the Global Economy
In the last two weeks, London oil futures have increased by $7 a barrel, closing last week at $74.06. New York futures closed circa $5.50 below London. This price differential is making US crude very popular on the world markets so that exports are setting records and drawing down US crude stocks. Behind the price surge is the steady drop in world crude stocks; strong demand from Asia as China’s economy grows faster than forecast; the likelihood that OPEC will continue its production cut on into next year; and the possibility that the Trump administration will abandon the nuclear treaty and impose new sanctions on Iran. There also are the deteriorating situations in Venezuela where production seems likely to drop by hundreds of thousands of barrels per day this year, and in Libya where the incapacitation of the country’s military strongman could result in a drop in oil production as local militias reassert themselves.
While the EIA continues to forecast large increases in US shale oil production, particularly from the Permian Basin, an increasing number of observers, including the Wall Street Journal are warning that increasing costs and limitations on infrastructure will limit the pace at which US shale oil production can be increased.
The increase in gas prices due to higher crude oil prices means OPEC is canceling out the gains of US consumers from the recent US tax bill. The AAA says the average retail price of gasoline in the US is now $2.76 a gallon, up by nearly 20 cents in the last month and 35 cents higher than at this time last year. In one California county, gasoline is retailing at $4.25. Americans are paying about $86 million per day more to fill up their tanks than they were a month ago.
President Trump took notice of the rapidly increasing US gasoline prices which are devastating his recent tax cut. He tweeted on Friday, “With record amounts of oil all over the place, including the fully loaded ships at sea, oil prices are artificially very high!” “No good and will not be accepted!” Many observers noted that the President had the facts of the current oil situation wrong and that there were no longer record amounts of oil in storage or loaded on ships at sea. The tweet sent US futures down for a few minutes, but they quickly recovered.
The OPEC Production Cut: A meeting of the OPEC and non-OPEC oil producers last Thursday found that oil inventories in developed economies had dropped to only 12 million barrels over the official target of the cuts—the five-year average. Twelve million barrels is a virtually non-existent surplus, compared to the 340-million-barrel surplus in January 2017. The next day Saudi Arabia’s Energy Minister al-Falih said that while oil inventories had declined from their peak, they had not yet fallen far enough. “We have to be patient, we don’t want to jump the gun, we don’t want to be complacent and listen to some of the noise that ‘mission accomplished’ and things of that sort.” These sentiments were echoed by several other oil ministers during the week.
Until recently the Saudis maintained that their goal was to maintain oil prices around $60 a barrel. Higher prices would quickly bring forth increased amounts of US shale oil and send prices lower again. A $60 a barrel price, however, would not be enough to return the kingdom to the glory days of five years ago when $100 oil made the kingdom wealthy, its annual budget was covered by oil revenues and its sovereign wealth fund was growing. Moscow has the same problem as the Saudis but is not so open about it.
With international oil prices fast approaching $80 a barrel, the major oil exporters seem content with the status quo. Even though they are not exporting as much oil as they were a couple of years ago, their oil revenues are rapidly recovering to the point they can get along with smaller exports. They all realize that a sudden relaxation of the production cap is likely to drive prices lower. Perhaps they have been reading the stories of bottlenecks developing in US shale oil production and have realized that they could have $100 oil again without quickly creating a glut of US shale oil.
The EIA continues to forecast that global oil demand will increase by 1.5 million b/d for the next year or two. The only cloud on the horizon is the possibility that a trade war between the US and China would reduce the growth in global GDP. A 1 percent decline in global GDP growth is believe to result in a reduction in demand growth by 690,000 b/d.
US Shale Oil Production: Last week saw a spate of stories talking about emerging bottlenecks that could slow or even stop increasing production from the Permian Basin. In a story about the Permian last week, the Wall Street Journal called the basin “one of the few growth engines for production worldwide.” Its output is projected to climb from three million b/d to more than four million within two years. The International Energy Agency forecasts that last year’s production will double by 2023.
There seem to be three major aspects that will determine how well the Permian will perform over the next five years and whether it will meet its optimistic forecasts. Most of the current attention is focused on the lack of adequate pipeline capacity to carry the oil and natural gas to markets. This seems to be the most immediate issue as new oil and natural gas pipelines are not due to be completed until 2019. Even then there may not be enough capacity if production can increase as fast as is currently being forecast. Lack of pipelines to carry away the natural gas that comes with the oil may lead some producers to slow or stop production to comply with environmental regulations against flaring too much of the gas.
Then we have the cost and value of the product issue. The rapid growth of production from the Permian, which is up by 800,000 b/d in the past year, is causing shortages of nearly all skills and resources used to produce shale oil. This has forced up costs so that the lower breakeven points brought about by production efficiencies may not obtain. Oil from the Permian has recently been selling at a $6 to $9 discount to elsewhere in the US suggesting that buyers have to use expensive trucks to haul oil out of the region. Another aspect to the economics of shale oil is the pledge that many producers have made to start making a profit, to pay dividends, and to stop increasing production with borrowed money. As we saw ten years ago, there will be a reduction in the global demand for oil if prices get too high.
The final issue is just how much oil is left in the Permian and other shale oil basins that can be produced at wherever oil prices go. Many recent articles discussing shale oil production focus on short-term logistics and financing issues and not the major question of how much oil is left to produce. The government and the oil producers rarely if ever discuss this issue so it is left to a handful of independent observers to point out that the rapid increases in shale oil production these days is coming from a limited number of “sweet spots” which yield much more oil quickly than can be found in other parts of the shale oil basins. How fast these sweet spots go dry is likely to be the key question of the next decade.
2. The Middle East & North Africa
Iran: Concerns are rising that Iran’s nuclear deal with Western powers will come to an end next month. The Trump administration has warned Iran that the US will pull out of a nuclear deal between Iran and six major powers by May 12 unless the US Congress and European allies help “fix” it with a follow-up agreement. EU diplomats said there is growing support for imposing new sanctions on Iran as they seek to persuade President Trump to stick by the nuclear deal. No formal decision was taken at the EU foreign ministers last week, and some countries aren’t convinced that adding sanctions will convince President Trump and his new foreign policy advisors to stick with the agreement. People involved in the EU discussions said ministers were nearing a political agreement that action should be taken.
In addition to concerns over the nuclear agreement, concerns are rising about the possibility of a direct war between Israel and Iran. Since Iran’s Islamic Revolution in 1979, Iran and Israel have been fighting each other through proxies, assassination squads and cyber-virus attacks, but never directly. Some are worried that this is about to change with serious consequences for the entire Middle East and its oil exports.
In recent months, the situation has changed. Iran’s Revolutionary Guards now seem to be using the forces and bases that were brought into the country to keep the Assad government in power to establish a front in its confrontation with Israel. On April 9th, Israeli planes attacked an Iranian drone base in Syria that had sent a drone over the Golan Heights. The attack killed the seven Revolutionary Guards at the base. This incident was the first time Israeli forces had attacked Iranian military forces. The Israelis are determined that Iran will never build up a large inventory of missiles close to Israeli territory as happened in Lebanon.
Israeli officials are saying that should Iran retaliate for the attack on the drone base, there will be massive Israeli air strikes on Iranian bases in Syria. The Israelis are said to have distributed maps to Israeli news organizations showing the five Iranian-controlled bases in Syria as a warning to Tehran not to take the confrontation any further. Syria’s air defense system failed to defend against the U.S.-led strike on the country’s chemical weapons facilities two weeks ago. While Syria is equipped with a relatively sophisticated air defense system, a lack of training, command and control and other human factors are probably responsible for the failure of the system during the attack.
Russia and Iran have launched an oil-for-goods exchange program seeking to eliminate bilateral payments in US dollars. Russian Energy Minister Novak said the first Iranian cargo of crude oil had been received by Russia. Moscow will receive 100,000 b/d of Iranian crude in exchange for $45 billion worth of Russian goods.
Iraq: Baghdad’s Common Seawater Supply Project is key to its plans to boost oil production capacity to as much as 6.5 million b/d by 2022. Current production capacity is below 5 million barrels, and production rates are around 4.4 million b/d as per its OPEC quota. This project is critical to the future of Baghdad’s oil industry as it will supply well injection water to six fields in southern Iraq to boost yields and slow depletion. A boost in production cannot happen without a substantial increase in water supply, and since Iraq has scarce freshwater resources, processed seawater is the only option. The CSSP project was supposed to be awarded this year so that construction work can begin with a launch date set for 2022.
Exxon has been negotiating the terms for installing the system for the last two years but the two sides are still unable to reach agreement on the terms and costs associated with it. Some analysts believe that the project will be awarded to another company resulting in delays in completion.
Last fall Rosneft, the Russian state oil company sent a letter to Baghdad saying that since the Iraqi government was showing “lack of constructive position and interest” about Rosneft’s offer to develop southern Iraqi oilfields, the company would shift its investment to the semi-independent province of Kurdistan. Rosneft has taken over ownership of landlocked Kurdistan’s oil export pipelines to Turkey from the KRG in return for $1.8 billion. As a sign of Moscow’s new influence, Kurdish officials have said they will not restart oil flows from northern Iraq through the pipelines unless transit fees are paid to Rosneft.
For Kurdistan, Russia’s growing influence is a geopolitical reversal. The region has been aligned to the US since the invasion of Iraq in 2003. Although Rosneft and other Russian state firms try to make profits, they also act as political entities furthering the interests of the Russian government when necessary. The Iraqi oil ministry declined to comment on any political aspects of the Rosneft deal, although Baghdad clearly is upset by Russian investment in Kurdistan which may have as much as a third of Iraq’s oil.
Saudi Arabia: The government would be happy to see crude rise to $80 or even $100 a barrel, according to industry sources, a sign Riyadh will support an extension into 2019 for the OPEC supply-cutting deal. This report contributed to last week’s increase in oil prices. Industry sources say this shift in Saudi Arabia’s stance is its desire to support the valuation of Aramco ahead of the kingdom’s planned sale of a minority stake in the company. Once the Aramco share sale is done, Riyadh would want higher prices to help fund initiatives such as Vision 2030. “Look at the economic reforms and projects they want to do, and the war in Yemen. How are they going to pay for all that? They need higher prices.”
As prices soared to unprecedented highs in 2014, US shale oil producers increased production. The Saudis retaliated, not by playing its historic role of swing producer and putting the brakes on oil output, instead deciding to pump as fast as possible. This flooded global oil inventories and sent prices as low as $30 a barrel which was a disaster for all concerned. Now the Saudis seem to believe that with oil inventories approaching average and a solid alliance with Moscow, they can let oil prices rise and micromanage the markets at any time.
The real issue for the Saudis is whether the US shale industry can respond to $80-$100 oil by increasing production enough to flood the market again. Recent news from the US shale oil industry suggests that a surge beyond what is currently projected is doubtful.
One of the best-kept secrets has been how much money Saudi Aramco has been making from extracting what is likely the lowest-cost oil in the world. Last week Bloomberg News reported that insiders say the company earned a net $33.8 billion in the first half of 2017. This happened during a period when oil prices were not particularly high. If true, Aramco is the most profitable company in the world and earns more money than the combined net incomes of Exxon, Shell, Chevron, Total, and BP.
According to Bloomberg’s calculations, Aramco’s production costs imply that it extracts oil at the cost of less than $4 a barrel, compared to Shell and Exxon’s per-barrel cost of $20. This “leak” raises the issue of whether Aramco is worth the $2 trillion that the Saudi’s are talking about. Considering that the Saudi government has unlimited freedom to manipulate the royalties and taxes that Aramco pays, many are skeptical that an IPO will bring as much as the Saudis hope. The Financial Times has calculated that the company would only be worth $2 trillion if the price of oil can be sustained above $120 a barrel. It seems unlikely that such a price can be sustained.
Libya: Since the news broke two weeks ago that Gen. Khalifa Hifter had been airlifted to France for emergency treatment, Libya’s rumor mill has gone into overdrive amid news reports that the general, a 75-year-old strongman who controls most of eastern Libya, was seriously ill, incapacitated or even dead. Several French news outlets reported that General Hifter had suffered a serious stroke and was incapacitated.
The general’s efforts were vital in maintaining much of Libya’s oil production in recent years. Haftar’s concentration of power in the east, aided by his military forces, opened up Libya’s central export terminals, marking the start of the most recent rise in Libyan output back to 1 million b/d from 300,000.
If Haftar dies or is incapacitated there likely would be a resurgence of rival factions, including extremists, seeking to regain influence. The Libyan National Army itself is far from a solid, coherent organization. There are internal rivalries as the army is made up of regular military personnel, tribal forces, and militias. The short version of what will happen in case of Haftar’s demise is chaos.
The troubles are starting already. Over the weekend a pipeline owned by the al-Waha oil company, feeding the port of Es Sider, was set on fire causing the loss of between 70,000 and 100,000 b/d.
3. China
China’s economy grew at an annual rate of 6.8 percent in the first quarter compared to the same period last year, beating the official target of “around 6.5 percent” for the period. The increase was helped by strong consumer demand. However, concerns about China’s economy – including rising debt levels – remain. The government has been fighting to contain a ballooning debt and a housing bubble without hurting growth. There are signs that the positive momentum is weakening, likely due to the cooling housing market.
Chinese refineries processed a record of more than 12.1 million b/d in March, boosted by higher government import quotas and steady margins. That beat the previous record of 12.03 million b/d set last November and 11.19 million b/d in March of last year. Crude runs are expected to be lower for the next two months as refiners enter the peak maintenance season. At least three major state refineries, with a combined crude processing capacity of 860,000 b/d, have begun overhauls that will last 40-60 days during April and May.
The upcoming restart of a giant petrochemical complex in Fujian province could further intensify competition among regional end-users to secure ultra-light crude feedstocks. China’s Fuhaichuang petrochemical plant plans to restart operations at its 4 million ton/year condensate splitter in July following a three-year closure. The rapid decline in Iran’s condensate exports since late 2017 has raised concerns among many Northeast Asian end-users that require a stable supply of ultra-light crude feedstocks, and the return of the giant condensate consumer in China does not bode well for the buyers.
China will add almost 700 new shale gas wells by 2020 at three large fields, two of them operated by PetroChina and one by Sinopec, all in northwestern China. However, the increased production will not be enough to catch up with soaring gas demand. Beijing has a target of 30 billion cubic meters of shale gas for 2020, and it looks like even these investments won’t be enough to achieve it. China will need to continue raising its LNG and pipeline gas imports after they hit a record last year amid the government’s efforts to curb pollution by cutting the use of coal for power generation.
Hengli Petrochemical, part of the Chinese chemical giant Hengli Group, has obtained government approval to import 400,000 b/d of crude oil—the largest quota ever handed to a private Chinese refiner, as it aims to start a new refinery this year.
4. Russia
According to the Russian website Finanz, citing the International Energy Agency, the Russian oil industry is about to see its production peak. The IEA’s 2018 oil report says there is no way Russian oil companies are going to boost their oil production forever and in about 3 years, Moscow’s oil industry will reach an all-time high and start declining steadily. Last year, Russia produced 11.2 million b/d of crude oil, which was still the highest production level in 29 years. In 2021, the production level is going to peak at 11.74 million barrels.
Finanz says this projection has been confirmed by Russian statistics. Newly-opened oil fields are unable to make up for decreasing production in older fields. According to RusEnergy, the average size of the oil fields discovered in 2016-2017 is only 1.7 million tons. Some experts in Russia assume that after peaking at some time after 2020, production is going to start declining rather fast – up to 10 percent a year. This contradicts the Russian government’s promises to preserve the production above 525 million tons a year until 2035. If the forecast is correct, in 2035 Russia will be producing around 6 million b/d, barely enough to cover internal needs. There will be nothing to export.
5. Nigeria
Nigeria’s crude oil production stood at 2.022 million b/d in March, 277,000 b/d below the target of 2.3 million b/d for the 2018 budget, indicating the country is still struggling to step up production to meet the budget benchmark. The production figure for March includes condensate which OPEC does not usually recognize as part of its members’ output.
Although Nigeria is Africa’s largest oil producer, it is also one of the continent’s largest importer of refined petroleum products. Despite being a large net importer of refined petroleum products, including gasoline, no Nigerian government agency has data on the daily gasoline consumption in the country. The government’s Statistician General said all consumption data in the media and issued by some government agencies were either outdated or guesstimates. “At the moment we do not have any reliable data on fuel consumption, but we are working on a survey that would provide the information for the sector.”
6. Venezuela
Reuters reports that PDVSA is completely falling apart, with workers walking off the job at a frightening pace. The conditions for oil workers have deteriorated for years, with shortages of food, unsafe working conditions, and hyperinflation destroying the value of paychecks. Late last year, President Maduro fired the head of PDVSA and handed over control to the military. However, Major General Manuel Quevedo has only accelerated the decline of PDVSA, which once held a reputation as one of the better managed state-owned oil companies in the world.
Quevedo, a former housing minister who replaced two executives jailed for alleged graft, has further poisoned the atmosphere. The general, who rose through the National Guard, fired many long-term employees upon arrival and urged remaining ones to denounce any of their colleagues who oppose Maduro. He tapped soldiers for top roles. “The military guys arrive calling the engineers thieves and saboteurs,” said a Venezuelan oil executive at a private company who frequently works with PDVSA.
According to Reuters, about 25,000 workers out of 146,000 have quit PDVSA between January 2017 and January 2018. Thousands are walking off of job sites, tired of going to work hungry, putting their lives at risk at poorly-maintained refineries, for a paycheck that fails to cover even the most basic expenses. The worker exodus has grown so bad that the company has in some cases refused to process resignations. Many of those leaving now are engineers, managers, or other high-level professionals that are almost impossible to replace amid Venezuela’s economic meltdown.
Venezuelan intelligence services have arrested two local employees of Chevron. The reason for the detention has not yet been established. However, according to two of Reuters’ sources, the arrests followed a disagreement between the Chevron employees and representatives from PDVSA about procurement processes. Foreign companies working with PDVSA has been the one bright spot for Venezuela’s oil industry as companies function normally and presumably see that their employees and their families are well fed. If the government starts arresting employees of foreign companies for no good reason, they are likely to start withdrawing from the country.
7. The Briefs (selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
Royal Dutch Shell defended its ambition to cut carbon emissions, urging investors to oppose a shareholder resolution arguing that the oil and gas giant is not doing enough to meet international targets to tackle climate change. The Anglo-Dutch company, like many of its peers, has faced growing investor pressure to address the need to reduce fossil fuel burning. (4/17)
Shell and stranded assets? The future of oil and gas across the world is coming under pressure following reports by Shell, which plans to empty reserves by over 80 percent in the next 12 years. The report, hinged on the implications of climate change, came at a time when energy experts were insisting that unless countries drastically cut greenhouse gas emissions by moving away from fossil fuels, climate change would remain inevitable. While oil majors are already cutting back on exploration activities in Nigeria, the decision by Shell indicated that keeping a large part of its oil and gas reserves in the ground would be risky. (4/20)
Using LNG for maritime fuel could help the maritime fleet lower its emissions, a Finnish company said Friday. Not surprisingly, the statement came from a company that makes engines for the marine and energy market. (4/21)
In Norway, technical problems were to blame for a drop in average daily oil production. The National Petroleum Directorate said March oil production averaged 1.5 million b/d, approximately 5 percent lower than the NPD’s forecast, and about 3.0 percent below the forecast this year. On the potential for future production, the Johan Sverdrup oil field in the Norwegian waters could be producing as much as 660,000 b/d once all operational phases are in service by 2022. (4/20)
Dry hole in Norway: A drilling facility in the Norwegian waters of the North Sea is moving on to the frontier territory after coming up empty-handed on a wildcat well, one not previously known to hold reserves. The exploration well was about 4 miles southwest of the producing Knarr field and 12 miles north of the Visund field. (4/18)
Germany’s government is increasing pressure on its car makers to invest heavily in electric cars as well as battery production in Europe to safeguard jobs in Germany during a rapid transformation of the sector. Germany’s car industry, which produced a record 16.5 million passenger vehicles last year and employs 825,000 people, is already planning to invest $50 billion into electric mobility by 2020. (4/17)
Offshore India, BP and India’s Reliance Industries sanctioned the development of a cluster of deepwater gas fields. With an estimated 3 trillion cubic feet of discovered reserves, the project’s total investment is projected at $6 billion. India consumes more than 5 billion cubic feet of natural gas per day and could double its consumption by 2022. Once production begins in 2020, the project could meet about 20 percent of India’s current demand. (4/20)
In Australia, the decision by Northern Territory government to end a two-year moratorium and allow the resumption of fracking for natural gas will do little to immediately solve the country’s energy woes, but will likely sharpen political battle lines. At least one company plans to start drilling the Beetaloo Basin, which could contain as much as 6 trillion cf of reserves, “as soon as practical.” (4/19)
Libya’s National Oil Corporation is considering using a chemical marking system to help trace oil products smuggled out of the country. NOC’s chairman also called on a European Union naval mission to combat smugglers by seizing their ships in the Mediterranean, said the United Nations should consider sanctioning smugglers and urged Libya to reform massive subsidies that allow fuel to be sold for as little as 2-3 US cents per liter. (4/19)
In Algeria, Italian energy company Eni said Tuesday it signed a series of agreements with a state-run company that could lead to greater gas production. Algeria has the 10th-largest natural gas deposits in the world and is the third-largest supplier to Europe. Its exports have been in decline, however, because of lagging foreign investments. (4/18)
In Sudan, the inflation rate in March reached 55.6 percent. Public transport prices nearly doubled last week, and the prices of basic commodities reached record levels. The fuel and gas shortages that rapidly grew last year are exacerbating the financial crisis in the country. (4/17)
Offshore Mauritania and Senegal, BP will be moving ahead with development of a liquefied natural gas project. Design work on a floating production storage and offloading unit is commencing for the Tortue/Ahmeyim field, home to an LNG project on the maritime border between Mauritania and Senegal. BP secured the agreements necessary to make a final investment decision on the project in February. (4/17)
Ecuadorian farmers and indigenous people will seek to show an Ontario Court of Appeal this week that Chevron Canada is legally liable for a US$9.5-billion award that the Ecuadorians won against the US parent Chevron Corp in Ecuador over past environmental pollution. (4/17)
LNG vs. Panama Canal: Although LNG carriers passing through the expanded Panama Canal have increased significantly in numbers, they are still below what the canal can handle on a daily basis: 12 Neopanamaxes. Right now, the average daily transit of this size of vessel is five. What’s more, not all five carry LNG. In fact, the Panama Canal Authority has reportedly only allocated one slot daily for LNG carriers, which will inevitably lead to congestion as US export-bound production continues to boom. Not enough LNG tankers are using the freshly expanded channel that saves 11 days from the journey to Asia, which has become a key market for US LNG. (4/19)
The Panama Canal Authority will reduce the maximum draft for vessels transiting the Neopanamax locks by 1 foot down to 48 feet or 14.63 meters tropical fresh water starting April 27. At 48 feet draft, a Suezmax cannot transit the canal fully laden, as such tankers typically require 50 feet draft for a full million-barrel cargo of 43 API crude. (4/20)
Canada’s oil patch booked three consecutive years of hefty losses after the oil price crash in 2014. This year, the industry is set to post a very slim gross profit—the first profit in four years. Despite the expectation that the tide is finally turning for Canada’s oil producers, significant challenges remain, with constrained pipeline capacity and limited capability to expand export markets the biggest of them all. (4/18)
The US oil rig count increased by five units in the week to April 20, bringing oil rigs to 820, according to Baker Hughes. So far this year, the total number of oil and natural gas rigs active in the United States has averaged 974, up sharply from an average of 876 rigs in 2017 and 509 in 2016. (4/21)
Shift in benchmark crudes? Rapid increases in US oil output and exports over the past two years are forcing some traders and producers to try alternative ways of pricing crude. While the market benchmark remains West Texas Intermediate crude delivered in Cushing, Oklahoma, there has been a surge in trading of futures contracts tracking the price differences between WTI and oil sold in Gulf Coast ports like Houston and the Permian shale fields near Midland, Texas. (4/21)
Gasoline prices up: Americans are expected to spend an average of $400 per household more on fuel this year than in 2016, as the rebound in crude prices is reflected in the cost of petrol at the pump. By contrast, middle-income US households will on average gain $930 each from the tax cut bill passed at the end of last year. The average price of petrol in the US was about $2.75 a gallon last week, up $1 from its low point of about $1.75 in February 2016. (4/18)
Bypassing biofuels: US supermajors ExxonMobil and Chevron have asked the Environmental Protection Agency to waive obligations for biofuel blending for their smallest refineries—exemptions that are typically granted to small refiners (below 75,000 b/d) under financial distress. Those waivers have been traditionally given to refiners in hardship, but recently the US Administration seems to have leaned towards Big Oil in its battle with Big Corn. (4/16)
Hype loses: The Trump administration has had to rein in expectations for offshore oil drilling, with an aggressive sales pitch and boastful rhetoric mostly being met with tepid interest from the oil industry. In March, oil and gas companies only bought about 1 percent of the acreage on offer in the US’ largest offshore auction in history. The disappointing figures came after a lot of hype from the Trump administration, including discounted royalty rates. (4/17)
ANWR deal: The US tax reform passed late last year included language inserted by US Sen. Lisa Murkowski, R-Alaska, that opened the 1002 Area. Murkowski’s office said the ANWR section in question represents about 8 percent of total ANWR acreage. (4/21)
ANWR review process: The Trump administration this week will begin the environmental review process for oil and gas drilling on a section of the Arctic National Wildlife Refuge, a region in northern Alaska rich in crude but prized by conservationists. A notice from the US Department of the Interior says it will hold meetings in five Alaskan towns where the public can speak about drilling in the refuge. (4/20)
North Dakota is facing tariff headwinds. Despite its vast crude oil resources, North Dakota may have to cut back most department budgets by 5% because of a shortage of general funds, Governor Doug Burgum said. Oil production of nearly 1.2 million barrels per day was well ahead of its forecast of 925,000 barrels per day. For agriculture, US Sen. Heidi Heitkamp said she was concerned that federal trade policies that would target China could backfire. (4/20)
Royalty rate dust-up: US Interior Secretary Ryan Zinke said Tuesday the government won’t cut royalty rates on profits from offshore drilling. But an industry trade group said the US offshore oil and gas market can’t stay competitive without incentives like reduced royalty rates. (4/19)
Earthquake central: A small tremor was recorded early Friday in the shale heartland of Oklahoma, one day after state regulators limited work because of seismic activity. The US Geological Survey recorded a magnitude-2.8 tremor. That followed a magnitude-3.2 tremor in the same area Thursday morning and is part of a large cluster of seismic activity in the region over the last 30 days. (4/21)
Endless gas boom? US dry natural gas production will set a new record this year, averaging 81.1 Bcf/d, the EIA said in its April Short-Term Energy Outlook. In their Reference case, US natural gas production is expected to grow by 59 percent between 2017 and 2050. The shale-growth-driven natural gas output is expected to bring benefits to the petrochemical industry as manufacturers will continue to enjoy low-cost feedstock for plants in and close to areas where shale gas and natural gas plant liquids production is abundant. (4/19)(Editor’s note: dartboard alert)
More LNG exports: The first export of natural gas from the US East Coast has set sail. Dominion Energy Inc.’s Cove Point terminal in Maryland, after three years of construction, shipped its first commercial cargo of liquefied natural gas Monday, officially bringing the total number of US exporters of the super-chilled fuel to two. Three more export terminals may open on the Gulf Coast by 2019. While Cove Point’s East Coast location could give it an edge in the competition for exports to Europe, the first ship may be headed to Asia. (4/17)
LNG trains delayed: Freeport LNG has confirmed that its engineering, procurement and construction contractor has pushed back the expected commercial start date for the export terminal’s first train to September 1, 2019, a roughly nine-month delay from a previously released target of fourth-quarter 2018. The delay stems from flooding following Hurricane Harvey of lay-yards where equipment, including steel piping, was stored, and the resulting need to clean and test that equipment. (4/19)
Cheniere Energy said Friday it had engaged more than two dozen banks and financial institutions to help it finance a third liquefaction train at its Corpus Christi LNG export facility, and it expects to make a final investment decision on the unit by the end of June. (4/21)
Wind power generated a record 6.3-percent share of total US electricity last year, with four states—Iowa, Kansas, Oklahoma and South Dakota—generating more than 30 percent of their electricity from wind power, the American Wind Energy Association (AWEA) said in its newly released US Wind Industry Annual Market Report 2017. (4/19)
Wind + batteries: British Petroleum has joined forces with Tesla to build the oil company’s first battery storage project at one of its US wind farms. Wind farming is notoriously finicky when it comes to supply, and large-scale batteries like the one Tesla will be providing in the pilot project at BP’s South Dakota Titan 1 wind farm will help solve the volatility of the renewable power source. (4/18)
China’s wind overload: In most parts of the world there is probably not enough wind power capacity, but in northwestern China, there is too much. As a result, one city in the Shaanxi province has decided to choose which new wind projects will go ahead through a lottery, signaling the local grid cannot take in all the available and planned wind power supply. Reuters reports that last year, wind power capacity connected to the grid in China hit 163.7 GW, representing almost a tenth of the country’s total generating capacity and up by 10.1 percent from 2016. Grid expansion, however, has in the meantime lagged behind, which is now creating constraints for the new wind farms. (4/19)
Wireless EV bus charging: Momentum Dynamics has commissioned the US’ first 200 kW wireless charging system for a battery-electric transit bus fleet. The wireless charging system is now operational on a BYD K9S bus at Link Transit in Wenatchee, Washington. Within five minutes, the wireless charging system automatically adds enough energy to the vehicle’s battery to complete another route during its routine transfer station stop. (4/20)
California’s water supply levels were bolstered in March but still sit below normal, after several late winter storms increased snowpack and reservoir levels, according to the California Department of Water Resources. (4/20)
Peak Oil Review: 16 April 2018
By Tom Whipple, originally published by ASPO-USA
http://www.resilience.org/stories/2018-04-16/peak-oil-review-16-april-2018/
“US dry gas production is projected to rise to an all-time high of 81.7 billion cubic feet per day (bcfd) in 2018, but US consumption is also expected to hit an all-time high of 78.2 bcfd in 2018. With exports rising to record highs as well, it does not leave a lot of extra gas to go into storage.”
Scott DiSavino, Reuters
“We feel the current [natural gas market has become far too complacent and that prices are simply too low to account for demand growth and the amount of gas needed in storage for the next winter heating season.”
Martin King, director institutional research at GMP FirstEnergy in Calgary
1. Oil and the Global Economy
Oil prices rose by nearly $5 a barrel on concerns that a US and allied attack on Syrian military installations would lead to a wider war. Futures prices closed Friday at $67.39 in New York and $72.58 in London setting multi-year highs. After the markets closed, strikes on Syrian chemical facilities were launched. Initial reports suggest that considerable care was taken to avoid harming Syrian civilians or Russian and Iranian interests. A relatively benign response from Moscow suggests that this attack alone will not lead to more serious hostilities in the immediate future that could drive oil prices higher.
Global oil stocks could be just weeks away from returning to their five-year average levels, as global demand growth holds and key producers continue to rein in production, the International Energy Agency said Friday. OECD oil stocks fell by a larger-than-normal 25.6 million barrels in February to within just 30 million barrels of their five-year average. Two years ago, the storage surplus was some 400 million barrels above normal. A combination of the OPEC+ production cut and lower production in Venezuela and Africa is offsetting increasing US production for the time being.
The OPEC Production Cut:
Some are wondering if the oil markets are tightening too fast due to the OPEC+ production freeze and supply disruptions in several member states. In the most recent OPEC Oil Market Report Venezuela’s production fell as expected by 55,300 b/d, taking production down to 1.488 million. The surprise however was that output fell so much elsewhere, including Algeria (-49,500 b/d), Angola (-81,700 b/d), Iraq (-13,100 b/d), Libya (-37,200 b/d) and Saudi Arabia (-46,900 b/d). Should the global supply go into deficit prices would likely go higher despite expectations of higher US shale oil production.
The IEA is still forecasting that global demand will increase by 1.5 million b/d this year. However, the Agency warned that the US-China trade dispute could affect demand. The clash is introducing a downward risk to the forecast, and oil demand growth would possibly drop by some 700,000 b/d if global economic growth were reduced by 1 percent due to a widespread increase in trade tariffs.
US Shale Oil Production: The EIA predicts the Permian will hit 3.156 million b/d of output this month, an increase of 80,000 b/d from March, and 850,000 b/d from a year ago. Billions of dollars are pouring into the region, and two out of every three new oil rigs are being activated there. The basin is getting crowded, which not only means skyrocketing prices for land and a search for opportunities along the periphery but also rapidly shrinking availability of space on the Permian’s pipeline network to move the oil to market.
While most observers knew additional pipeline capacity would be needed to move oil out of the basin, few expected that the situation would tighten so quickly. “At the end of 2017, there was just 160 kb/d of line space available out of Western Texas. This small surplus is likely to turn into a deficit in the second half of 2018,” the IEA said in its March Oil Market Report.
According to Genscape, pipeline utilization in the Permian jumped to 96 percent over the past month. Genscape says the Permian has 3.175 million b/d of pipeline, rail and local refining capacity combined. That’s a problem given that the EIA sees production jumping to 3.156 million b/d in April.
Pipelines are already close to being full. Prices for oil from the Permian are starting to reflect that problem. Midland light sweet crude is trading at a $8-per-barrel discount to WTI indicating that pipelines are full going to the Gulf Coast. The earliest possible relief will come from the opening of the Permian Express 3 pipeline, which could add 200,000 b/d of capacity by the end of this year. Permian drillers could be forced to slow production growth or even shut down some operations if things get worse.
As more pipelines are built to take oil from US shale fields to Gulf refineries or export terminals, much of the crude produced in the Permian and elsewhere no longer passes through the Cushing, Okla. terminal. The current benchmark for US oil prices, West Texas Intermediate crude, or “WTI” is derived from the price of physical oil delivered to Cushing for more than three decades. Now, traders and major global crude buyers are advocating replacing WTI with a new benchmark futures contract that would reflect the value of crude delivered to the Gulf Coast.
2. The Middle East & North Africa
Iran: Iran’s currency, the rial, traded at 40,000 to the dollar last year, but this week plunged to 60,000 rials per dollar, sparking panic buying. President Hassan Rouhani has already been dealing with a restless population, and the rial’s plunge comes just a few months after protests erupted across the country. Current US sanctions on Iran curb bank financing so that Tehran is having trouble bringing the proceeds of its oil sales home.
The Trump administration must decide what to do with Iran sanctions by May 12. Most expect the US will leave the accord. Secretary of State Steven Mnuchin recently said that “very strong” sanctions on Iran were possible, suggesting that such sanctions are currently being discussed in Washington. The US will likely have to go-it-alone in imposing new sanctions as few other countries are likely to go along with the plan. However, a recent study from Columbia University’s Center on Global Energy Policy concludes that US sanctions on Iran’s banking and trade could reduce its oil sales by some 400,000 to 500,000 b/d.
While the 2015 nuclear deal was greeted with much optimism by most Iranians, so far the deal has not brought forth a bonanza of western investment in the country. The recent riots are a sign that all is not well and that new sanctions could bring on more political instability.
Tehran has few options in face of Washington’s threat to step up economic sanctions. It is threatening to restart its nuclear enrichment program, which it claims it can do within four days. A nuclear enrichment program is likely to a new round of tensions in the Middle East with the Saudis vowing to acquire their own nuclear weapons, not to mention what the Israeli’s will do.
Iraq: Anti-government demonstrations in Kurdistan are forcing the government into economic reintegration with the federal government rather than going-it-alone with oil revenues. Prime Minister Barzani is reversing unpopular cuts to the salaries of civil servants and making financial commitments that can only be fulfilled with the help of budget transfers from Baghdad.
Iraq’s Supreme Court will hear a six-year-old case next month on the fundamental constitutional conflicts that underpin Baghdad-Erbil oil disputes. The court will decide on the legality of the Kurdistan Regional Government’s independent operation of its oil sector. The case could decide the balance of political power towards Baghdad and elevate the risks faced by both producers and buyers of KRG crude. If the companies helping the Kurds produce oil are forced to pull out, a settlement between Baghdad and Erbil seems likely.
Iraq is being forced to limit its oil exports due to extensive delays in maintaining and upgrading outdated infrastructure at the Basra export terminal. As the country tries to sustain near-record export levels, some pipelines cannot handle the pressure and have begun leaking. As Baghdad has few other immediate options to step up its oil exports, ambitious plans for much larger oil exports in the next few years may have to be put on hold.
Iraq has pushed back this month’s auction to award the rights to develop 11 additional oil and gas fields to international companies within ten days after it again amended some of the contract terms. In recent years, Baghdad has prided itself in having the toughest oil contract terms which left international oil companies with little or no profit in return for developing Iraqi oil fields. While the Iraqis say they are loosening up on contract terms to attract more foreign investment, the recent delays suggest they still have a way to go.
Saudi Arabia: Last week Yemen’s Houthi rebels fired a ballistic missile at Riyadh in retaliation for air raids by a Saudi-led coalition. Saudi Air Defense intercepted at least one ballistic missile over the capital on Wednesday as multiple blasts were heard, and plumes of smoke could be seen in the region. The attacks caused a small upturn in oil prices, while traders are more concerned about events in Syria. In addition, the Houthis used drones to attack the oil refinery at Jazan, just north of Yemen. The Saudis report “operations were not affected. “ The attacks are a reminder that the Saudi-Houthi war has now been going on since 2015 with little progress.
There was a spate of reporting last week saying the Saudis are trying to force oil prices up to $80 a barrel. This is the price at which many observers say will balance the Saudi’s budget again and halt the drain on the kingdom’s sovereign wealth fund. The forthcoming IPO of a small share of Saudi Aramco is also linked to the price of oil with higher oil prices making the issue more attractive to foreign investors. The Saudis desire to see oil at $80 is not shared by all OPEC members. Some are worried that the Saudis are targeting too high an oil price that could further boost US shale production.
Saudi Arabia’s stock exchange, Tadawul, is confident that it will be able to accommodate the listing of Saudi Aramco without any liquidity problems. Many are worried that Tadawul would not be able to take on the placement of Aramco shares without liquidity problems. Even conservative estimates that the Aramco’s sale might be around $50 billion have some worried the Tadawul might not be able to accommodate it without becoming illiquid.
Libya: In December the last Islamist militias were routed from Benghazi by forces loyal to military strongman General Hifter. After the victory, Hifter tried to woo the Trump administration by hiring a Washington lobbying firm to improve his image as a potential future leader of Libya. Last week, however, the 75-year-old Hifter was flown to Paris after suffering a stroke.
The incapacitation of Hifter raises new concerns about the future of Libyan oil production. In recent years Hiftner’s forces have taken control of the major oil export terminals allowing for a sharp increase in oil production. He was widely hailed as the new Libyan leader. Now all this is up in air awaiting developments. The return to local militias stopping and starting oil production over local issues or a bigger share of the pie seems a possibility.
Libya has the largest proven oil reserves of an estimated 47 billion barrels in Africa. Back in the 1970’s, Libya was producing 3 million b/d which has fallen to about 1.6 billion at the time of Gadhafi’s death. In recent years, production has come close to stopping, but now is struggling to maintain production of about 1 million b/d.
3. China
China’s March crude oil imports were 9.22 million b/d as compared with 8.41 million in February, and January’s record 9.57 million. Imports for the first quarter grew 7 percent from a year ago to about 9.09 million b/d, an increase of nearly 595,000 b/d on average compared with the same period in 2017.
Customs data also showed China’s March refined fuel exports shot up to a new high at 6.69 million tons, 43 percent higher than the same month a year earlier. State refiners have stepped up exports to help cope with a growing surplus of refined barrels. In one example, Sinopec is lining up its third very large crude carrier for shipping diesel from China to Europe or West Africa, people familiar with the matter said.
Trade tensions between the US and China are likely to have an adverse impact on global growth even if the threatened tariffs are never imposed. US officials have emphasized the tariffs are only a proposal at this stage and could be averted by a settlement. However, the hardline rhetoric and aggressive tariff proposals have sent financial markets into a frenzy, moving up and down in response to the latest news.
The threat of tariffs could have a damaging impact on investment decisions that depend on global supply chains – even if the import taxes are never actually imposed. For businesses considering the location of new manufacturing facilities, the threat of tariffs is likely to cause an additional pause before projects are approved. If decisions are delayed, the result will be a slowdown in investment with negative implications for growth.
4. Russia
New US sanctions against Moscow risk derailing the recovery in Russia’s economy, which had just begun to take hold after the Kremlin’s last confrontation with the West in 2014. The new sanctions against Russia announced last Friday are one of Washington’s most aggressive moves yet to punish Moscow for its meddling in the 2016 US election and other “malign activity.” Analysts in Moscow say the sanctions could consign Russia to years of low growth, frustrating its efforts to stimulate a rebound from a two-year downturn brought on by low oil prices and Western sanctions over Moscow’s role in the Ukraine crisis.
Russia’s GDP returned to growth of 1.5 percent last year due to higher oil prices, but was short of a government target of 2 percent. Moscow’s economy is growing by 1.8 percent this year, with oil prices above $60 a barrel. Moscow is considering replacing the US dollar in crude oil payments on deals with Turkey and Iran, Energy Minister Alexander Novak said last week.
Russian companies expect to invest $22.5 billion in oil production this year, with crude output and exports forecast to be at the same levels as in 2017. The country invested $23 billion in oil production in 2017, up by 10 percent compared to the 2016 investments of $21 billion.
5. Venezuela
The Monthly Oil Market Report published by OPEC says Caracas’ oil production fell by 55,000 b/d in March, to 1.488 million. Venezuela’s self-reported production fell by a greater amount—77,000 b/d, from 1.586 million in February to 1.509 million in March. The consensus of analysts is that Venezuela’s oil industry is unlikely to pull out of this situation. The country’s position is likely to worsen, with Venezuelan refineries expected to close as crude shortages and underinvestment in maintenance take a toll.
Venezuela says it has proven reserves of 301 billion barrels, although much of it is of a heavy oil that requires processing with diluents to pump through pipelines. A large share of Venezuela’s reserves likely cost too much to extract at today’s prices.
Caracas stopped paying bondholders in September, according to central bank data, contradicting statements by President Nicolás Maduro that the country would continue to honor its debts. Regular foreign debt payments of hundreds of millions of dollars a month have fallen to a few tens of millions since last October.
Venezuela currently is undergoing the worst migration crisis in recent Latin American history due to food shortages. The UN says 5,000 emigrants a day are leaving the country at a rate of 1.8 million a year. There are now some 600,000 Venezuelans living in Columbia. Thousands of others have left for other countries and boats carrying starving people are landing on islands in the Caribbean. This situation will not last much longer.
6. The Briefs (selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
Methane leak satellite: The Environmental Defense Fund is planning to build and launch a satellite that would look for industrial methane leaks. The launch is planned for late 2020 or early 2021. MethaneSAT would be an orbital eye in the sky that could monitor industrial methane leaks all over the planet. (4/13)
The UK government could be close to agreeing on a massive support package—dubbed a sector deal—with the North Sea oil and gas industry. The package could be worth more $1.4 trillion over the next 17 years. (4/10)
Saudi Aramco and India’s Ratnagiri Refinery & Petrochemicals signed a deal on Wednesday to construct a $44 billion refinery and petrochemical project in India. The refinery portion, to be located on India’s West Coast, will be able to refine up to 1.2 million b/d and goes a long way towards satisfying both India’s and Saudi Arabia’s interests. (4/12)
Saudi Arabia signaled its intent to expand chemical production along the US Gulf Coast and potentially double the size of North America’s biggest oil refinery—Motiva’s refinery in Port Arthur, Texas. (4/9)
With Saudi Arabia, the chief executive of Total SA on Tuesday confirmed the French oil major intends to enlarge its refinery joint venture with state oil giant Saudi Aramco. The agreement would include an extension of the petrochemical complex at Saudi Arabia Total Refining and Petrochemical refinery in Jubail and could also include adding a cracker unit. (4/11)
In Papua New Guinea, Exxon Mobil said the reserve estimate for its natural gas is 4.3 trillion cf, 84 percent higher than its 2012 estimate, warranting a significant expansion of its operations in the country. (4/13)
New Zealand’s government has announced all oil and gas exploration offshore the country will be banned in a bid to protect New Zealand from the effects of climate change. The ban, however, will not extend to existing exploration projects. There are more than 30 active licenses in New Zealand at the moment, of which 22 are for offshore blocks. (4/13)
In Angola, OPEC estimates oil production was down to 1.5 million b/d last month. A period of lower oil prices and field maturation are curbing Angola’s potential. Production for the OPEC member is at an 18-month low. Production from Angola is expected to climb once production from the deepwater Kaombo field starts this summer. The field could have a peak capacity of around 230,000 bpd. (4/14)
Guyana’s giveaway? The International Monetary Fund (IMF) is calling on the authorities of Guyana to revamp their tax laws for future oil contracts to protect themselves from unbalanced exploitation after massive Exxon oil discoveries make this venue a hotspot for supermajors. While existing contracts must be honored, future contracts shouldn’t be so generous, the IMF said. (4/10)
Mexico’s Pemex is currently processing about 9 percent more crude oil at its domestic refineries than it did in 2017, CEO Carlos Trevino said Tuesday. Trevino told reporters that current processing levels stand at about 834,000 b/d, which compares to crude processing of about 767,000 b/d last year. Trevino said he expects processing levels to reach about 900,000 b/d once maintenance plans at two facilities are completed. (4/11)
Canadian provincial tiff: A rift between two Canadian provinces is threatening to derail a pipeline expansion that would nearly triple the amount of crude flowing from northeastern Alberta toward Asian markets. Kinder Morgan Canada Ltd. said on Sunday it would scrap the expansion of the Trans Mountain pipeline if Canada’s federal and provincial governments couldn’t resolve their differences by May 31. The pipeline expansion has hit stiff opposition in British Columbia where environmentalists and lawmakers say it puts the Pacific coastline at risk. (4/11)
The US oil rig count increased by 7 to 815, up by 132 over last year at this time, Baker Hughes reported. Gas rigs fell by 2 to 192, a five-rig increase to the number of oil and gas rigs this week. The total number of oil and gas rigs now stands at 1008, up by 85 during 2018. (4/14)
Hacking pipelines: In the past few weeks at least eleven natural gas pipeline operators were the direct victims of cyber-attacks. The hacks, while extremely concerning, did not disrupt the supply of gas to US consumers, but the industry may not be so fortunate next time. This recent slew of pipeline hacks, while it was thankfully without severe consequences, serves as a wake-up call, bringing attention to the vulnerability of our energy systems and vital infrastructure like pipelines. (4/11)
Bottlenecks on the US natural gas superhighway are starting to stack up, raising concerns about whether the infrastructure can be built fast enough to meet surging supplies. Gas output will expand by 24 billion cubic feet, or 32 percent, through 2025 from last year, according to US EIA estimates. To support that growth, the country’s gas industry needs to spend $170 billion over the next seven years on pipelines, compressor stations, export terminals and other related infrastructure. (4/11)
Devon Energy Corp said it would lay off 300 workers, roughly 9 percent of staff, part of a plan to streamline operations and boost the shale oil producer’s sagging returns and stock price. The cuts will affect all areas of the company’s operations, not just its Oklahoma City headquarters. (4/11)
Oklahoma regulators forced an oil and gas producer to reduce operations on a well used for disposing of saltwater following a large earthquake over the weekend that set off a series of seismic activity in the state. The first quake occurred on Saturday, registering at magnitude 4.6, and was followed by several others, including a magnitude 4.5 earthquake that hit near Perry early Monday morning. (4/10)
Ethanol boost: President Donald Trump said on Thursday his administration may allow the sale of gasoline containing 15 percent ethanol year-round, something that could help farmers by bolstering corn demand. (4/13)
Ethanol dodge: Even as President Donald Trump floats the idea of more ethanol sales, critics say moves by the EPA would undercut the support to corn farmers. Some lawmakers and ethanol producers say the change is undermined as the EPA continues its longstanding practice of issuing hardship waivers to some oil refineries. (4/14) [Ed. note: So…which is it?]
Higher gasoline prices: EIA forecasts that drivers in the US will pay an average of $2.74 per gallon this summer for regular gasoline, the highest average summer gasoline price in four years. EIA’s forecast gasoline price for summer 2018 (April through September) is 26 cents higher than the average price last summer, largely reflecting changes in crude oil prices. (4/13)
US natural gas prices could rise in 2018 after utilities pulled the second biggest amount of gas from storage on record over the winter, even though the season was slightly warmer than normal. That left total stockpiles about 20 percent below usual at the end of the heating season on March 31, and will require companies to add 16 percent more gas than usual into storage this summer just to get inventories back to normal levels before next winter. (4/10)
UK renewables power output in the first quarter was a record 25.0 Trillion Wh, thanks to a strong performance by wind. The first quarter saw 37.3 percent of electricity generation from gas-fired power stations, with renewable projects contributing 29.0 percent and nuclear plants 18.1%. Coal-fired power stations produced 9.4 percent, while 6.3 percent came from imports. The quarter saw 18.3 percent of generation come from wind farms, 6.8 percent from biomass plants, 2.2 percent from solar farms and 1.7 percent from hydro plants. (4/13)
In India, solar energy has been a great success story at a time when cities such as Delhi have been choking on the foul air caused by their dependence on thermal power, generated by plants that burn dirty coal and lack the most modern scrubbing technology. While the pricing of solar energy does not always measure the cost accurately, it is fast becoming competitive with coal-fired power plants. Or at least that seemed to be the case until January when Narendra Modi’s government announced it planned to introduce 70 percent tariffs on solar panels imported from several countries — but mostly directed against China. India barely has a solar panel manufacturing industry. (4/11)
Shell on Thursday published a report entitled “Energy Transition,” showing how the company expects to adapt during the transition to low carbon energy systems. The company says it wants electricity “including from renewable sources …to become the fourth pillar of our business, alongside oil, gas, and chemicals.” Shell wants to be involved in all elements of the electricity supply chain from generation and trading to the supply of electricity to end-users. (4/13)
Shell’s report came a week after Shell was threatened with legal action by Friends of the Earth, the environmental group, over its contribution to global warming, and weeks before a vote at its annual meeting on a resolution from activist shareholders calling for a faster shift away from fossil fuels. (4/12)
Battery electric vehicles can be economically attractive as commuter cars in city traffic. Attractiveness fades for longer-distance traveling due to larger battery packs, a smaller efficiency advantage, and more fast charging at on-peak rates. As a result, displacing just a low single-digit percentage of global oil consumption through BEVs will require perpetual subsidies. A strong argument can be made that future overall cost reductions could be greater for hybrids than BEVs. (4/10)
In the battery industry, records seem set to be broken almost as soon as they are set. When Tesla completed its 100 MW/129 MWh installation last year, that signaled that the race for bigger and better storage systems was just beginning. Now, Recurrent Battery, a San Francisco-based company and the US unit of Canadian Solar, said it has plans to build a 350-MW solar farm in the California desert along with a battery storage system of the same size. (4/13)
Wind + batteries: BP Wind Energy has signed a purchase agreement to install a high-storage battery at its Titan 1 Wind Farm in South Dakota. The 212 kW / 840 kWh battery, supplied by Tesla, will be integrated with the wind farm and configured to help manage internal electricity demands of turbines when wind isn’t blowing. By doing so, it will enable the wind farm to store electricity when the site is generating it, and then have that electricity available to be consumed whenever needed. (4/11)
Climate extremes: Two international research teams have published separate studies in the journal Nature, which together add powerful evidence to fears that the system of ocean currents known as the Atlantic Meridional Overturning Circulation or AMOC is losing strength. Winter weather is likely to become less stable, with more outbursts of extremely cold air from the Arctic. It could have the opposite effect in summer. For example, the 2015 European heatwave was paradoxically linked to record cold in northern Atlantic waters that year. (4/12)
Fossil water follies: Much of the modern world’s agricultural productivity, industrial activity, and high degree of urbanization is dependent upon the pumping and exploitation of limited freshwater resources. In some regions the water that is being relied upon is so-called fossil water — that is, water that was deposited many millennia ago and is mostly not being replenished. (4/10)
Peak Oil Review: 9 April 2018
By Tom Whipple, Steve Andrews, originally published by ASPO-USA
Editors: Steve Andrews and Tom Whipple
http://www.resilience.org/stories/2018-04-09/peak-oil-review-9-april-2018/
Quotes of the Week
Since the beginning of the shale revolution a decade ago, the world has discovered 110 billion barrels of oil. Meanwhile, consumption has totaled 360 billion barrels. This 250-billion-barrel deficit between discoveries and consumption seems sure to grow in the years ahead, given recent oil discovery trends.
It is understandable why people would be complacent about this scenario. After all, didn’t the world face similar risks a decade ago, only to have shale oil save the day? But it isn’t clear that there is another “shale oil miracle” that is ready to save the day. There are indeed more high-cost oil resources out there that can be developed, but these projects take a long time to complete. That’s why we can look out two to three years and see an impending supply crunch. The longer investments in the industry remain depressed, the more unavoidable this scenario becomes.
Robert Rapier, oil industry writer/commentator (4/3)
“Given an analysis of play fundamentals based on current drilling data, there is no credible basis for the high to extremely optimistic forecasts offered by the EIA. Actual production is likely to be far less. Assuming the EIA forecasts are accurate in a long-term energy plan is likely to end very badly. And yet these forecasts are uncritically accepted by policy-makers and the media, the consequences of which will be borne by all of us.” David Hughes spent 32 years with the Geological Survey of Canada as a scientist and research manager.
1. Oil and the Global Economy
Oil futures have fallen about $3 a barrel from two weeks ago when London prices were close to $70. New York futures closed out last week circa $62 and London $67. Prices held steady until Thursday when President Trump announced another round of the tariff war with China sending prices down $1.50 a barrel on Friday. So far neither side has actually imposed any new tariffs, leaving observers to wonder whether Washington and Beijing are simply posturing before negotiations, or a major trade war is in the offing. Other than the possibility of a trade war, the trashing of the Iran nuclear treaty, increasing tensions in the Middle East, and the Korean situation, most of the news lately has suggested higher prices are in the offing.
Demand for oil seems relatively strong. The US stocks report showed the crude inventory down by 4.6 million barrels the week before last and US production up by another 27,000 b/d. If this pace of growth continues, US oil production will be some 800,000 b/d higher by the end of the year. However, as discussed below, more observers are starting to question whether this pace of growth which is coming mostly from the Permian Basin can continue. In the past 12 months, US production has increased by some 1.3 million b/d.
The head of the International Energy Agency, Fatih Birol, recently gave a presentation as to the overall state of energy in the world today. Most of Birol’s points are well known: the world will need 30 percent more energy in the next 25 years; renewables are booming-but there is a critical need for electricity storage; LNG exports are becoming more important as the world attempts to diversify sources of energy; and global warming will drive the demand for more electricity for cooling. Birol noted that the world is making little progress in slowing the use of fossil fuels. In the 1980’s some 83 percent of the world’s energy came from fossil fuels. Last year the number was only down to 81 percent.
The OPEC Production Cut: The cartel’s oil output in March fell to 32.14 million b/d, its lowest level in 11 months, led by declines in seven out of the 14 member countries. Supply disruptions in Venezuela and Angola along with steady smaller decreases in Saudi Arabia, Libya, Algeria ,and Nigeria took March output down by 250,000 b/d from February. The only countries to see a production rise were the UAE, Iraq, and Ecuador.
Angola’s onshore oil fields are mature and in March production declined to an 18-month low of 1.55 million b/d. This decline coupled with a lack of recent upstream investment has dragged output down by 250,000 b/d in the past two years. The country’s oil production is expected to remain low for the next few months until the startup of the 230,000 b/d deepwater Kaombo field in July or August.
As the oil markets grow tighter, OPEC and its non-OPEC allies face the question of how to manage oil supplies to keep prices in a satisfactory range. They want prices that will keep their economies functioning but not so high that they will damage the world economy or encourage another US boom in production. There is much talk of longer-lasting cooperation between OPEC and its allies. Russia has already expressed its willingness to work with the OPEC coalition indefinitely to regulate global oil supplies with energy minister Alexander Novak even advocating the creation of a new global body to monitor crude markets. Key ministers from the 24-country pact will meet in India and Saudi Arabia in the next two weeks to discuss a permanent framework for oil market cooperation.
In the meantime, Saudi Arabia’s Energy Minister al-Falih said he expected the OPEC+ production cut will be extended into 2019.
US Shale Oil Production: The boom continues with drillers adding 11 more oil rigs in last week’s report bringing the count up to 808, the highest since 2015. With lower 48 state production up by 25,000 b/d the week before last things seem to be going well for the US shale oil industry. There are two questions to be answered before the new shale oil boom with its expectations for much higher and protracted oil production can be declared a success. The first is whether the geology of the Permian Basin will cooperate and allow billions of barrels (some say 35 billion) to be produced at an affordable cost. The second and more immediate issue is whether the infrastructure of West Texas will allow oil production there to grow as quickly as predicted, or will constraints force a slower pace of growth in the next year or so.
Permian drillers forecast a 40 percent increase in production this year, a mammoth jump of about 850,000 b/d. Rystad Energy says it isn’t just that drillers are spending more to produce more, but that many are “optimizing their acreage portfolio” by discarding less attractive acreage by selling it off to other companies and using the proceeds to drill faster in the more desired locations.
Last week a new constraint on Permian production emerged. It seems that to keep costs under control, drillers are replacing the expensive diesel-powered and natural gas-powered generators for powering compressors by hooking up to the local electric grid. Power demand in and around the Permian basin is expected to rise to 1,000 megawatts by 2022, up from just 22 megawatts in 2010. Whether the local power companies can meet this demand remains to be seen.
The EIA estimates that production in the Permian will hit a record 3.15 million b/d in April, nearly a third of overall US production of 10.4 million b/d, but this level of output is causing bottlenecks as pipelines transporting the crude have filled up more quickly than expected. Pipeline utilization from the Permian to the Gulf Coast averaged about 89 percent this year and 96 percent in the last four weeks. With few new pipeline projects scheduled for completion this year, producers may be forced to slow drilling, or even shut in active production.
The bottlenecks are forcing prices lower. Midland light sweet crude currently trades at more than $8 a barrel below West Texas Intermediate at East Houston, a key delivery spot for export markets – the biggest discount on record. Given the numerous reports that costs of producing oil in the Permian are rising rapidly due to all sorts of shortages, lower prices are not helping producers who are pledging to start turning a profit and paying dividends this year. These, however, are short-term problems even though they suggest that we may not be seeing weekly production increases of 25,000 b/d much longer.
The geology question is more important and more controversial. Can the Permian produce as much oil in the next 20 years as the EIA and some in the industry are forecasting? It is important to keep in mind that the growth of US oil production accounts for almost all projected non-OPEC growth in 2018 and 2019 and that roughly 70% of US production growth is to come from the Permian Basin. If production in the Permian does not meet growth expectations of growing around 80,0000 b/d each month or even begins falling, there likely will be shortages and much higher prices before the early 2020’s.
In addition the issue of how much oil is left in the Permian’s sweet spots where the “profitable” oil is found remains. A recent analysis points out two major concerns as to how much longer Permian oil production will keep growing. It has long been known that production from a shale oil well can decline rapidly. In some cases output can fall as much as 60 percent from the first month’s rate of production. In the case of the Permian Basin, the rate at which production from “legacy” wells (those that have been in production for more than a month) is falling appears to be accelerating. The annualized monthly decline rate is currently at around 2.34 million b/d or 75 percent of total current production. A year ago, this ratio was just 62 percent.
The EIA is currently projecting that production from the Permian’s legacy wells will fall by 195,000 b/d this month, but that this will be offset by 275,000 b/d of new production coming online leaving production from the basin 80,000 b/d higher on May 1st. It is worth noting that the decline of legacy oil well production in North Dakota’s Bakken fields is about 720,000 b/d or 59 percent of production. The Bakken is forecast to lose 59,000 b/d from legacy well production this month, while new wells produce 71,000 b/d. The net gain of 12,000 b/d for the month is very nice but is way below the forecast for the Permian and contributes little to satisfy growing global demand.
The reasons behind faster-than-expected declines are unknown or have not been made public, but there is some speculation that it may be due to drilling wells too close together – which will obviously accelerate depletion if they are both trying to extract the same oil.
Another issue that could affect Permian production is the gas/oil ratio developing in the Permian. As oil is extracted from a shale well, the pressure in the reservoir it is tapping will fall, and once it falls below a certain point (the bubble point), the natural gas that was initially saturated in the oil will separate from the oil and flow to the surface as a separate product. Permian wet gas production of 10 billion cf/day, which is five times more than Bakken wet gas production at 2.2 billion (despite the fact that the Permian only produces three times more oil than the Bakken), may indicate troubles ahead.
Several analysts have noted that while initial well performance has been steadily improving over the past 10 years, this has come at least somewhat at the expense of later well performance as some of the more recently drilled wells are now on a path to decline faster than wells drilled in earlier years. For example, the average 2013 well is now on course for a lower recovery than the average 2008 well, despite starting better. As the Permian accumulates an ever increasing inventory of “legacy” wells drilled with the “new technology” of longer laterals, more fracking stages, and more fracking sand, there would seem to be the possibility that production from these wells will be lower than anticipated.
2. The Middle East & North Africa
Iran: The most important issue facing Tehran these days is what happens if President Trump refuses to certify that Tehran is abiding by the nuclear deal of 2015 and imposes new sanctions. While other countries, including Europe, Russia, and China are unlikely to follow the US lead, the US still has the economic power to delay foreign investment in the country. Moscow could move into the void. Last week there was talk that Russian energy companies may be willing to invest as much as $50 billion in developing Iranian oil.
Iran and Iraq are among the last places on earth where conventional oil can be produced cheaply provided the political situation remains stable. The tension between Iran and the Saudis remains high due to the situations in Yemen, Bahrain, Gaza, and Syria. Some believe these tensions could endanger the possibility of the OPEC production cut continuing on into next year.
Syria/Iraq: March exports from Iraq averaged 3.4 million b/d, slightly higher than the previous month. The Iraqi cabinet has approved a plan to raise oil output capacity to 6.5 million b/d by 2022. Oil Minister al-Luaibi said in January capacity was currently close to 5 million b/d but that the country is producing only 4.4 million in line with the OPEC agreement.
Prime Minister Al Abadi announced a new plan to end Iraq’s dependence on oil through building up industry and agriculture. Currently, 90 percent of Iraq’s revenue comes from the oil exports. Five years ago a similar plan was announced but never got off the ground. Like other oil exporters, Iraq has been badly hurt by lower oil prices in the last few years.
Study of documents captured after the fall of ISIS revealed the larger source of income for the “caliphate” was heavy taxation of the people and businesses under its control and not the sale of oil as was widely believed. ISIS ledgers show that the ratio of income earned from taxes compared to proceeds from oil sales was 6:1.
Saudi Arabia: While the Saudi government remains upbeat about prospects for the future of their oil industry, some observers are worried about the country’s overdependence on oil exports. These observers note that Saudi Arabia is still unable to meet its budget, even with today’s higher oil prices. If oil prices fall again or hostilities with Iran break out, the Kingdom would have difficulty subsidizing its society to maintain stability.
The crown prince currently is engaged in ambitious plans to remake the Saudi economy. Some US officials say everything around the reforms is proceeding smoothly. Others are saying the Kingdom is running on fumes that will soon evaporate.
A Saudi oil tanker moving through the Red Sea suffered only minor damage after it was attacked by Houthi rebels firing from Yemen. The Saudi-led operation, called Decisive Storm, which aims to dislodge Houthis from power in Yemen has been going on since 2015.
In an unexpected move, Saudi Aramco lifted the official selling price of its Arab Light crude to Asian customers for May loadings. The price was increased by $0.10 a barrel, to a premium of $1.20 to the Oman/Dubai Middle East benchmark.
Saudi Aramco and France’s Total plan to sign an agreement this week for the expansion of their joint venture refinery in Saudi Arabia. The agreement would include an extension of the petrochemical complex at Saudi Arabia Total Refining and Petrochemical refinery in Jubail in which Total owns a 37.5 percent stake.
Libya: The National Oil Corporation announced last Wednesday it had signed a deal to build an office complex in the eastern city of Benghazi that will house the company’s headquarters. With Libya divided between two governments, the issue of where the national oil company is located has been controversial for some time. Whether the company ever moves to Benghazi remains to be seen.
3. China
The possibility of a trade war between the US and China is the top issue at the minute. For now, no new tariffs have been imposed by either side, but the rhetoric and threats grow louder every day. Last Friday US equity markets fell sharply, taking oil prices down too on the possibility that a global economic downturn was in the offing. While some believe all the harsh words are simply establishing negotiating positions, others are concerned that the situation could get out of control.
The Global Times, the unofficial Chinese government newspaper, ran a story last week about how the ‘petroyuan’ had the potential to topple the US Dollar as the global reserve currency. The debut of China’s first yuan-denominated crude futures trading market proved a great success. Total turnover amounted to $2.9 billion on the first trading day.
China took the next major step in the challenging the Dollar’s supremacy as the global reserve currency when it announced it would start paying for crude oil imports in its own currency instead of US Dollars. A pilot program could be launched as soon as the second half of the year and regulators have already asked some financial institutions to “prepare for pricing crude imports in the yuan.” The new plan would start with purchases from Russia and Angola – good friends of Beijing.
China invested a total of $126.6 billion in renewable energy in 2017 which was 45 percent of global green energy investment. Total global investment in renewables last year increased by 2 percent to $279.8 billion, taking cumulative investment since 2004 to $2.9 trillion.
In response to a coming mandate, a California-based energy company said it installed a battery storage system for wind power in the Chinese capital at the Beijing campus of Etechwin, a subsidiary of Chinese wind turbine manufacturer Goldwind. When tied into variable energy resources like wind and solar, batteries can ensure stable output.
4. Russia
Energy Minister Novak said on Friday that Russia’s oil companies invested $23 billion in oil production in 2017, up by 10 percent compared to the 2016 investments of $21 billion. Despite the OPEC/non-OPEC deal, Russia’s average daily crude oil production inched up again last year, to a 30-year-high of 10.98 million b/d.
Russia’s pledge in the production cut deal is to shave off 300,000 b/d from the October 2016 level, which was the country’s highest monthly production in almost 30 years—11.247 million b/d. Novak said all parties to the oil production cut agreement are in favor of continuing some form of cooperation to bring the oil market back to balance. “I did not hear from a single minister who was against such cooperation.” The minister also said that an arrangement under which Moscow cooperates with the OPEC oil group could become indefinite once a current deal to curb oil production expires at the end of the year.
Last week the German government issued a permit for the twinning of the Nord Stream natural gas pipeline running under the Baltic Sea from Russia. With the permit, the German government has issued all of what’s necessary for the project in its territory. The project still needs approval from the governments of Denmark, Finland, and Sweden. Denmark stills seem reluctant to issue the necessary permits. Many Europeans believe that the doubling of a natural gas pipeline from Russia would only cement the continent’s dependence on Moscow for its fuel supply at a time when the Russians are not behaving very well.
According to the CEO of Gazprom, the transit of Russian natural gas via Ukraine will be reduced to just about 10-12 billion cubic meters annually after the completion of two new pipelines—Turkish Stream and Nord Stream2. This confirms Kiev’s fears that the new pipelines will deprive it of a lot of income in the form of transit fees. Last month Gazprom sent 8.1 billion cubic meters of gas to Europe via Ukraine, a 21.3-percent increase on the year. When the Turkish Stream and Nord Stream 2 are ready, Ukraine will receive something like a 12th of its current annual gas transit revenues from Gazprom.
Currently, more than half of the energy consumed in the EU is imported. Of that share, Russia supplies 37.4 percent of the gas consumed by the member states. With the decline of domestic resources, this amount is likely to increase leading many to fear that Europe’s energy security is threatened as Moscow has a record of using energy exports as a weapon.
5. Venezuela
Venezuela’s oil production fell by 80,000 b/d in March. Output is expected to continue downward; the only uncertainty is over the pace of decline, but some estimates suggest it could be as much as another 300,000 b/d by the end of the year. Crude output has fallen 840,000 b/d since March 2015.
According to a new report from the Center for Strategic & International Studies, Venezuela will hand over more and more control over its natural resources to China. The report says that while large foreign investment may have seemed beneficial, in reality Venezuela’s economic predicament has been made much worse by China. Over the past decade, Beijing has sent an estimated $62 billion to Venezuela in one form or another. In return, Venezuela has been sending oil shipments to China as repayment, and last year it sent roughly 330,000 b/d to China, earning Caracas little or no revenue.
US imports of Venezuelan crude have fallen to near historic lows. During January, just five US Gulf Coast refineries imported 92 percent of all Venezuelan crude oil that came into the US. The five refineries—which include Chevron’s Pascagoula refinery, Citgo’s Lake Charles and Corpus Christi refineries, and Valero’s Port Arthur and St. Charles refineries—are therefore particularly vulnerable to disruption of their oil supply. As the Trump administration talks about sanctions on Venezuela’s oil sector, these refineries have begun importing more crude from unusual sources, including Chad, Colombia, and Iraq, and are working on contingency plans as the possibility of a US embargo looms.
6. The Briefs (selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
New low-sulfur fuel: In about 20 months, the shipping industry is going to start burning a fuel that is new to the industry. The International Maritime Organization has set a January 2020 deadline for a new 0.5% sulfur limit on marine fuels. (4/3)
In the UK, the first-ever hydraulic fracturing effort is set for the third quarter following completion of the first horizontally-drilled natural gas well, in Lancashire. (4/4)
First O&G robots: In a world-first, French Total is set to deploy groundbreaking autonomous robots to a North Sea oil platform to test the machines in operational inspections at the facility. It will be an 18-month trial project. The effort aims to tap the potential of robotics in enhancing the safety of offshore oil platforms, improving productivity, and lowering costs. (4/4)
Europe’s biggest gas field–Groningen in the north of the Netherlands–has been pumping gas for more than half a century and supplies gas to 98 percent of the Dutch population. But the field has been causing earthquakes that have become a growing concern for residents and authorities. After years of debates and measures to curb production at the field, the Dutch government decided this week that output at Groningen will be terminated by 2030, with a reduction by two-thirds until 2021-2022 and another cut after that. (4/2)
Offshore Palestine, Anglo-Dutch major Shell will sell its entire 90 percent stake and operatorship of the 1 Trillion cf Gaza Marine gas project to a local investment company, which plans to bring in a new international partner to help develop the long-delayed project. For Shell, which inherited the project through its acquisition of the UK’s BG Group in 2016, the disposal is part of its $30 billion asset disposal program. (4/4)
Bahrain, the smallest energy producer in the Persian Gulf, discovered its biggest oil field since it started producing oil in 1932. The shale oil and natural gas discovered in a deposit off the island nation’s west coast, dwarfs the nation’s current reserves, according to a report by Bahrain National News agency. (4/2)
In India, BP says natural gas operations in the country, one of the fastest growing economies in the world, is part of a long-term strategy. BP expects about 10 percent of its global earnings will come from India. By 2022, three new gas projects will be in operation. (4/7)
In Sudan, the fuel crisis has hit the capital and all the states doubling the suffering of the residents in all the markets in the countryside, towns and cities. Nyala, capital of South Darfur, has been living in total darkness for three consecutive days with total water cuts and lack of fuel that have exacerbated the suffering. (4/6)
Latin American opportunities: For decades, many Latin America’s oil-producing nations shunned investment from foreign firms, instead keeping their vast reserves under the tight control of governments and state-run oil companies. They aimed to protect profits to feed public budgets, but in practice have seen some major breakdowns, as with the corruption scandals and heavy debts at Brazil’s Petroleo Brasileiro. Now, an unprecedented wave of free-market energy reforms is gaining traction across the region, setting up a fierce competition to attract billions of dollars in investment from the likes of Exxon Mobil, BP, and Royal Dutch Shell. (4/3)
Offshore Brazil oil basins are among the best prospects in the world, German energy company Wintershall said after the latest auction. The Brazilian government offered nearly 50 licenses in the latest round of auctions for rights to drill offshore. Wintershall will serve as the operator at four of the license areas and has a participating role in three others. (4/4)
Canada’s oil producers had just started to slowly recover from the oil price crash when they began to face increased constraints in marketing and monetizing their heavy crude oil. Transportation bottlenecks widened the discount to which Western Canadian Select (WCS) trades relative to West Texas Intermediate (WTI), weighing on Canadian producers’ revenues and profits, increasing their debts, and battering their share prices. Some Canadian producers are trying to dispose of heavy oil portfolios that they can’t monetize efficiently with WCS at some $20 or higher discount to WTI. (4/5)
Record US oil in 2018: Annual average US crude oil production reached 9.3 million b/d in 2017, an increase of 464,000 b/d from 2016 levels after declining by 551,000 b/d in 2016. In November 2017, monthly US crude oil production reached 10.07 million b/d, the highest monthly level of crude oil production in US history. EIA projects that US crude oil production will continue to grow in 2018 and 2019, averaging 10.7 million b/d and 11.3 million b/d, respectively. (4/5)
Big oil is starting to think small. Once defined by massive spending and ambitious exploration, some of the world’s biggest energy companies have begun to preach frugality. Investors increasingly favor producers that promise to increase cash payouts, rather than boosting spending to drill for more oil. (4/3)
New oil and gas projects to be approved this year will likely have a 15-percent lower breakeven level than last year’s, at US$44 per barrel of oil equivalent, Wood Mackenzie analysts said. They see as many as 30 new projects coming on stream this year but note that most will be small-scale ones, signaling the lingering wariness among oil and gas players of major investments. This is a continuation of a trend started after the 2014 price crash. (4/7)
Lease bust: The Trump administration heralded the government’s sale last month of US drilling leases in the Gulf of Mexico as a bellwether. If that is the case, a Reuters analysis of the sale’s results shows reason to worry about demand in future offshore auctions. The sale brought in $124.8 million, as just 1 percent of the 77 million acres (31.2 million hectares) offered found bidders. (4/4)
Non-combustion consumption of petroleum products accounted for 13 percent of total petroleum products consumed in the US during 2017. Petroleum products can be consumed, but not combusted, when they are used directly as construction materials, chemical feedstocks, lubricants, solvents, waxes, and other products. (4/7)
Cyber shutdowns: Four gas pipeline operators in the US have had to shut down their communications systems after breakdowns caused by cyberattacks, fueling fear of more hostile cyberactivity to come. The Department of Homeland Security is still collecting data on the occurrences. A third-party provider said it did not believe any customer data had been compromised in the attack. (4/5)
The US pipeline shutdowns come after US officials warned in March that Russian hackers are conducting a broad assault on the nation’s electric grid and other targets. (4/5)
Philadelphia Energy Solutions, which had its bankruptcy plan approved a week ago, was forced to file in large part because of the onerous payouts it had to make to comply with the Renewable Fuel Standard, the rules that mandate the use of ethanol in gasoline. Those rules, which took their current form in 2007 under the George W. Bush administration, act as a gigantic subsidy for the Farm Belt and agribusiness companies that turn crops into motor fuel. (4/3)
Biofuels pullback: The US EPA has approved the request of 25 small refineries to be exempted from the nation’s biofuels laws, marking a big increase from previous years and triggering an outcry from farm groups worried the move will hurt ethanol demand. The expansion of the waiver program represents the Trump administration’s latest clash with the powerful corn lobby, as it seeks to help merchant refiners that claim the US Renewable Fuel Standard costs them hundreds of millions of dollars a year. (4/5)
Prices of renewable fuel credits slumped 35.7 percent in the first three months of 2018, their biggest quarterly loss in a year, on uncertainty over the future of US biofuels policy. This has been the second straight year of uncertainty for the Renewable Fuel Standard (RFS), a 2005 law requiring fuel producers to blend increasing volumes of renewable fuels like ethanol with petroleum-based counterparts. Those who cannot blend these fuels are required to purchase credits, known as Renewable Identification Numbers (RINs). (4/3)
Industrial agriculture is now getting hit on two fronts by the Trump administration – the EPA is undermining the biofuels market with exemptions from biofuels requirements, and Trump’s rapidly escalating trade war has resulted in threatened Chinese tariffs on US soybeans, a major US export commodity. (4/5)
Conundrum from utility bankruptcy: The Trump administration’s commitment to coal is under its stiffest test yet after an Ohio energy company made a plea to favor coal over its many rivals, including oil and natural gas. FirstEnergy Corp.’s fleet of coal- and nuclear-power plants filed for bankruptcy just days after the company asked the federal government for an emergency declaration that would keep many of them open. That forces the Energy Department into a decision on whether to intervene under a seldom-used 83-year-old law and compel the nation’s largest electric-grid operator to dispatch power from FirstEnergy’s coal and nuclear plants before any other. (4/2)
RE growth: The global renewable energy generation capacity increased by 167 gigawatts (GW) to reach 2,179 GW by the end of 2017, representing an average annual growth of 8.3 percent for seven consecutive years. The Abu Dhabi-based International Renewable Energy Agency (IRENA) said in an e-mailed statement that solar photovoltaics (PV) grew by 32 percent in 2017, followed by wind energy, which grew by 10 percent. (4/6)
CA offshore wind? A consortium of power and engineering firms are advancing on what could be the first wind farm off the coast of California. The Redwood Coast Energy Authority, a local government powers agency in northern California, said a selected a group of companies would help drive the development of a possible 100 to 150 megawatt floating wind farm off the coast of Humboldt County. (4/5)
Prices for solar, wind, and battery storage are dropping so rapidly that renewables are increasingly squeezing out all forms of fossil fuel power, including natural gas. The cost of new solar plants dropped 20 percent over the past 12 months, while onshore wind prices dropped 12 percent. (4/3)
Wind and solar have become so cheap on a levelized cost of electricity (LCOE) basis, that they are increasingly representing the go-to source of new electricity generation projects. More surprising, however, is the sudden challenge of batteries in the market for “dispatchable power,” where generators must respond to grid demands by ramping up or down power generation. (4/4)
An EV long-term trend: A recent study by a Swiss and a Dutch university projects future EVs will have 30-70 percent lower environmental impacts that current EVs when changes to electricity generation are considered. The researchers found that the source of electricity used for charging is the largest source of variability in results, though vehicle size, lifetime, driving patterns and battery size also contribute to variability in results. (4/1)
Better battery? What would you think about a battery that sports five times the capacity of the average lithium-ion one? And then what if this batter was cheaper, and even more environmentally friendly? This is not a hypothetical battery—it exists—and researchers are working to make it suitable for wide adoption. This new battery has a lithium-sulfur reaction, and like any new technology, it comes with problems such as the poor conductive properties of sulfur and the instability of the chemical. Experimenters are using molybdenum, which is usually used to improve the strength and hardness of steel; but in the lithium-sulfur battery, moly could be combined with sulfur to create a nano-level layer of a substance that improves the conductivity of sulfur and improves the stability of the battery. (4/3)
Battery breakthrough? A research team led by the National University of Singapore (NUS) has developed an economical and industrially viable strategy to produce graphene. The new technique addresses the long-standing challenge of an efficient process for large-scale production of graphene. Graphene can potentially be employed for a wide range of applications including fast-charging batteries. (4/6)
An internal Shell report from 1988 has revealed Shell was aware of the effect of its business on climate. The report, uncovered by Dutch journalist Jelmer Mommers, has been published in the Climate Files and might make life that much more difficult for the Anglo-Dutch company. The document suggests that the company was interested in researching climate change at least since 1981. Some parts of a document could be seen as a slap in the face of not just Shell, but the whole oil industry. (4/6)
Peak Oil Review: 2 April 2018
By Tom Whipple, originally published by ASPO - USA
April 2, 2018
Editors: Steve Andrews and Tom Whipple
http://www.resilience.org/stories/2018-04-02/peak-oil-review-2-april-2018/
Quote of the Week
[In Europe] “One in every three cars registered in February 2018 was an SUV. Small and mid-size SUVs led the growth for the segment in February, whilst compact SUVs also had a strong month.” Green Car Congress
1. Oil and the Global Economy
After an up-and-then-down week, oil and gas markets closed slightly higher Thursday ahead of the Easter holiday weekend. All major U.S. and European stock exchanges and markets were closed Friday for Good Friday, which coincides with the Passover holiday that starts Friday at sundown.
The first quarter ended with London hovering around $70 and New York at $65. New York’s discount to London futures has grown to more than $5 a barrel, the biggest since January, making Brent-linked crudes less attractive to refiners than U.S. oil. While rising geopolitical concerns – declines in Venezuela and fears that the U.S. will step up the confrontation with Iran – are pushing up crude prices, the rapid increase in US shale oil production is keeping a lid on prices.
A new Reuters poll suggests that oil prices are likely to rise this year thanks to supply disruptions and the extension of the OPEC-led deal to limit production, but doubts over the future of compliance with the OPEC agreement and rising U.S. production could stem the upward momentum.
Offshore oil production, including deepwater, is growing closer to the cost of shale oil production thanks to new production technologies, a senior Chevron executive said last week. Chevron is laying pump networks on the ocean floor, connecting new wells with already installed platforms, cutting its costs considerably and bringing deepwater oil closer to competing with shale on an equal footing. The upbeat attitude is not limited to Chevron executives. Transocean’s CEO, Jeremy Thigpen, said that currently most of the 29 deepwater oil projects in the Gulf of Mexico have a breakeven of between $40 and $45 a barrel. If these claims are anywhere near true, they represent a major improvement in the costs of producing deepwater oil which is usually said to be around $80 a barrel or higher.
US gasoline prices are moving higher with the national average for regular now at $2.66 a gallon, some 33 cents a gallon higher than a year ago and 12 cents higher in the last month. In the past, sharp increases in gasoline prices have stifled demand for gasoline in the US.
Natural gas prices are likely to increase this summer. Cold temperatures across the US in December and January pushed up demand by about 3.5 billion cubic feet per day. Coupled with the increasing exports of US LNG and more utilities burning gas to make electricity, US natural gas inventories are now about 16 percent below the five-year average. So far there has not been a major impact on natural gas prices as the boom in shale drilling continues to increase US natural gas production.
Barclays sees natural gas output growing by 6.4 billion cubic feet per day this year which should be enough to satisfy demand. However, much of this gas is not in the right places. There are not enough pipelines coming out of the shale oil fields to move all this gas to market, and some believe the lack of a way to move natural gas production to markets could result in a slowing of shale oil production in the coming months. If prices were to remain where they currently are, there would be a larger coal-to-gas switch happening for electricity generation and the US could enter next winter’s heating season with too little gas available to maintain low prices. A warmer summer this year would not help the situation.
The OPEC Production Cut: In recent months there have been rumors that OPEC and Russia are looking at ways of establishing some form of permanent cooperation that would extend beyond the current production cut agreement. Last week Reuters reported that Russia and OPEC are working on a much more ambitious long-term understanding. In an interview, Saudi Crown Prince bin Salman said “We are working to shift from a year-to-year agreement to a 10 to 20-year agreement.” “We have agreement on the big picture, but not yet on the detail.”
If a new Russia-OPEC is signed, it would have major implications for the future of the global oil industry. Moscow was never interested in joining OPEC as it did not want its oil production policies jerked around to meet the needs of the Saudis and other Middle Eastern oil exporters. The success of the recent OPEC/Non-OPEC production cut which moved oil prices from the $40s to circa $70 a barrel has saved Moscow and other oil exporters from much financial hardship. This success has brought about the realization that those dependent on oil exports for much of their incomes are better working together to keep oil prices high. Russia’s recent campaign to become a great power again and to win friends in the Middle East is adding to the impetus for this agreement.
Combining OPEC, Russia, and their oil exporting allies together would lead to an agreement that controls nearly 50 million b/d of oil exports or about half of global oil consumption. Where this goes is a complex question. The new Russia-OPEC cartel would be facing the major oil importers – the US, China, and Europe – who would not be happy about supply restrictions forcing higher oil prices and have many ways of kicking back. There are also the ever-present questions of lower demand for oil and climate change which will continue to become more important.
Several oil exporting countries recently have talked about a six-month extension to the oil supply cut deal taking the production freeze into 2019. These statements suggest that OPEC is not ready to ease up or eliminate the production caps, with top officials signaling a desire to keep the cuts in place into next year. This might require changing the definition of a “balanced” oil market. OPEC has consistently held up OECD inventories as the measure on which it was basing the time to end the production freeze. The goal of the freeze was to drain inventories back down to the five-year average. With OECD inventories only about 44 million barrels above that threshold in February – down from a roughly 300-million-barrel surplus at the start of 2017 – the goal will likely be achieved at some point this year, perhaps in the second or third quarter.
While the fear that a sudden end to the freeze would quickly force oil prices lower is likely the impetus to keep the freeze intact as long as possible, it is possible that some are hoping for still higher oil revenues without increasing production. In the past year, OPEC has been fortunate to have the Venezuelan situation where production drifts ever lower at no cost to the rest of the cartel.
US Shale Oil Production: Last week saw several stories concerning problems that may affect US shale oil production. The International Energy Agency predicts that the US will add about 3.7 million b/d of oil production between now and 2023, and 2.7 million – or more than 70 percent –will come from the Permian and the Eagle Ford oil plays. Most of the problems cited in the recent spate of press stories center around the rapidly increasing costs of drilling and fracking new wells and the problems of getting the oil and gas to markets.
The latest Dallas Fed Energy Survey has found that oilfield service providers are increasing their prices, confirming what producers began to complain about last year when oil prices started recovering. The survey found the index of input costs for oilfield services jumped to 46.8 from 30.9 this quarter from last. US shale companies expect a double-digit cost increase for services, in the Permian in particular, as the industry has recovered from the downturn and is now growing rapidly. The Permian is the leader of U.S. oil production growth, and service costs in shale play are set to continue to rise as drilling contractors, fracking crews, and fracking sand are in high demand. As one headline put it – It is “Payback Time” for the oil services companies, many of which have been working at a loss for the last three years just to stay in business.
Another downside to the Permian’s boom is an acute labor shortage. Unemployment is at the lowest level in years in areas that encompass the Permian Basin. Nearly all of the workers who want jobs in the Permian’s 17 counties are employed. In February, Permian Basin Regional Planning Commission examined the workforce in the region and found that its unemployment rate is at 2.9 percent, much lower than the Texas rate of 4 percent.
Surging production and the exploration and production companies’ focus on keeping costs in check have prompted drilling rig makers to shift their technology offering to solutions for increased productivity. National Oilwell Varco for example, is offering upgrade kits for some of its rigs that are already in the field. The kits extend the lifecycle of the rigs and increases the drill’s torque to meet the problem of longer laterals.
The miles-long laterals that are being drilled these days are running onto land that the drillers do not control. Last week, shale producer Concho Resources said longer horizontal wells are among the factors spurring its $8 billion deal for rival RSP Permian Inc., with well spacing and sharing infrastructure needs also playing roles. In many cases, RSP Permian controlled the land that Concho wanted to drill into.
If the US is to swamp the world with oil from the Permian Basin in the next few years, it will only be possible if there is a commensurate construction boom for pipelines to move all of that oil to market. There already has been a significant increase in the capacity of pipelines leaving the region during the last few years. Between 2012 and 2014, while the surge in production from the Permian was impressive, it was also constrained by the lack of pipeline capacity, which forced producers to sell their product at a discount. The problem is that oil production is set to double in West and South Texas over the next five years, which means that another pipeline wave will be required if the U.S. is to expand oil production by as much as everyone thinks it will.
Last week saw the first decline in the US drilling rig count in a month. Rigs targeting oil were down 7 units to 797 but were up 135 units from the 662 rigs drilling for oil the same week a year ago. It is far too early to say whether we are beginning to see a crack in the thesis that US oil production will increase by nearly 4 million b/d in the next five years, but the optimism has got to end somewhere.
2. The Middle East & North Africa
Iraq: According to Oil minister al-Luaibi, Iraq’s crude oil reserves may be much higher than current estimates. Last year, Iraq updated its estimate of proven reserves to 153 billion barrels from 143 billion barrels but now Luaibi is suggesting the figure could be double the 2017 estimate. If true, Iraq would have the largest oil reserves in the world, ahead of Venezuela, which claims reserves just above 300 billion barrels, and ahead of Saudi Arabia which claims 260.8 billion barrels. Nearly all of these self-proclaimed reserve numbers need to be viewed skeptically.
Sixteen companies—including Exxon, Chevron, and Total—have expressed interest in taking part in Iraq’s next bidding round which will award the rights to develop 11 oil and gas fields. The Oil Ministry has set April 15 as the deadline for companies to submit bids. At a recent industry event, however, oil minister al-Luaibi said Iraq will pay foreign companies less in new contracts. Iraq has been unwilling to follow the world standard of sharing oil production with the foreign companies who provide the investment and do the work. The Iraqi model has been one of service contracts, which the government claims are more favorable to the Iraqi people and do not involve giving away Iraq’s oil to foreigners. If the new model contract provides for still less revenue going to the contractors for their efforts, Baghdad may have trouble in this bidding round.
The partnership between the Russian national oil company, Rosneft, and Kurdistan’s Regional Government is running into problems. Last year Rosneft and the Kurds signed a contract that gave the Russians considerable access to drill for and market oil from within parts of Kurdistan. After the failure of the independence referendum and Baghdad’s recapture of the Kirkuk oil fields, the situation changed markedly. The Iraqi government has said that the Rosneft-Erbil contract needs Baghdad’s approval or it was not valid. Since then Rosneft, Erbil, and Baghdad have been in lengthy discussions on a range of oil and gas issues.
Saudi Arabia: After weeks of speculation about the Saudi Aramco IPO, the company announced last week that it would be “ready” for an initial public offering in the second half of 2018 according to Amin Nasser, the chief executive officer of the state oil company. Whether the “readiness” of the company is the same as an actual IPO remains to be seen. The company could be floated either domestically or internationally late this year, Saudi Energy Minister al-Falih told Reuters last week. US investors will have the chance to buy shares al-Falih said at a speech at MIT in Boston last week. Some investors are focused on how much money Aramco will distribute as dividends to shareholders once it goes public; Bloomberg quoted al-Falih as saying “We are going to have to face that when we list Aramco and have a conversation about how much cash will be given to investors.”
The Aramco stock issue, however, may never get much further than Saudi Arabia’s Tadawul exchange. While the government would prefer the stock be listed on the New York and London exchanges, transparency issues required by the N.Y and London exchanges and the threat of lawsuits stemming from the 9/11 attacks may limit the IPO to a domestic-only issue. The Tadawul exchange is preparing new rules to ensure stable prices if such a large issue is only traded on a relatively small exchange.
Saudi Arabia’s sovereign-wealth fund and Japan’s SoftBank announced plans to launch the world’s biggest solar-power-generation project. The development would start this year with a $1 billion investment from the Saudi-SoftBank Vision Fund and is expected to grow into a $200 billion project that provides about 200 gigawatts of power by 2030. That would be more power than Saudi Arabia needs for the entire country by 2030. The project is 100 times larger than any other proposed in the world and features plans to store electricity for use when the sun isn’t shining with the biggest utility-scale battery ever made.
3. China
China’s new yuan-denominated oil futures contract surged after its long-awaited debut Monday. Beijing hopes the contract will eventually give the country an oil benchmark to rival those in the US and Europe. The contracts, which are open to foreign investors, end years of delays and setbacks since China’s first attempt to list the securities in 1993. By week’s end, however, the Shanghai contract was at parity with the US market, as state oil majors and local traders piled on more bearish positions amid concerns about domestic refinery demand.
China is taking its first steps towards paying for imported crude oil in yuan instead of the US dollar, according to people with knowledge of the matter. A pilot program for yuan payment could be launched as early as the second half of this year. This is a key development in Beijing’s efforts to establish its currency internationally. Shifting just part of global oil trade into the yuan is potentially huge as oil is the world’s most traded commodity. The oil trade has an annual trade value of around $14 trillion, roughly equivalent to China’s gross domestic product last year.,
PetroChina is planning to replace its oil-linked long-term LNG contracts with shorter, more flexible deals, a senior company official said last week. PetroChina Vice Chairman and President Wang Dongjin said that existing oil-linked long-term contracts from Qatargas, Yamal, and Gorgon will not be renewed. These contracts amount to a combined total of 14 million tons per annum and will expire during the 2025-2038 period. Last year, China became the world’s second-largest LNG importer, after Japan.
Until last week, there were concerns that President Trump’s tariff plans could cause such a backlash that China would even consider foregoing US-sourced LNG and shale oil imports. Tuesday night, however, Alaska Gasoline Development Corp. (AGDC) officials said that Bank of China and Goldman Sachs have agreed to serve as the global capital coordinators for the Alaska LNG project. State-owned AGDC became the sole remaining project partner after ExxonMobil, ConocoPhillips, and BP pulled out of the project in 2016. Both entities will help AGDC raise equity to fund full-scale development once all the necessary permits are in place.
4. Russia
The Danish government is facing fierce lobbying by Russia, EU allies, and the United States over the $11.7 billion Nord Stream 2 project championed by President Vladimir Putin and financed by five Western firms. As Moscow’s relations with the West continue to deteriorate, EU regulators are proposing to extend the bloc’s energy market rules to regulate offshore pipelines including Russia’s planned gas line to Germany. This move adds to a series of conflicting opinions from EU legislators on whether the bloc should have a say over the Nord Stream 2 project to pump Russian gas under the Baltic Sea to Germany, bypassing traditional routes through Ukraine. The project is backed by Germany, which approved its construction on Tuesday.
Denmark is under increasing pressure to rule on whether the new Russian pipeline supplying gas to Germany can be built near its Baltic coast. Helsinki does not want to act alone in resolving one of the biggest foreign policy quandaries that the small nation has faced since the Cold War. Its search for a united EU stance on the proposed pipeline is deadlocked by divisions among member states over whether to do more business with Moscow despite its military incursions in Ukraine and Syria and accusations it used a nerve agent in an attempted assassination on British soil.
Saudi Arabia and Russia are working on a long-term pact that could extend controls over world crude supplies by significant exporters for many years. Saudi Crown Prince bin Salman told Reuters that Riyadh and Moscow were considering a deal to greatly extend a short-term alliance on oil curbs that began in January 2017. “We are working to shift from a year-to-year agreement to a 10 to 20-year agreement,” the crown prince told said in an interview in New York last week. The prince said, “We have agreement on the big picture, but not yet on the detail.” A pact between OPEC and Russia (and a few allies from the former Soviet Union) would bring about a major change in the global oil market as the alliance would control a major share of world exports.
Rosneft announced that it will open a research and development center focusing on petrochemicals and shipbuilding technology in Qatar, following meetings between Russian and Qatari officials last week. The move is the latest sign that Russian companies are expanding bilateral cooperation with OPEC member countries following the oil production deal. To date, Rosneft’s key cooperation with Qatar has been the Qatar Investment Authority’s stake in Rosneft.
5. Nigeria
The three layers of government might not share revenue from the month of February owing to shortfalls in revenue presented by the Nigeria National Petroleum Corporation. According to insider sources, the Petroleum Corp. remitted N74.06 billion into the federal government, as the oil revenue generated in the month of February 2018 as compared to the collection of N111.84 billion in January. The February collection of N74.06 billion was lower by 33 percent, a figure the federal government and the states rejected. The Minister of Finance told reporters that revenue sharing was suspended until figures were reconciled with those of the state-owned petroleum company. Nigeria has a long history of “losing” billions of dollars in oil revenue. Some of the problem this time may be the high costs of importing so much oil product to keep the gas stations open in the face of collapsing domestic refining.
Thousands of oil workers in Nigeria may lose their jobs after a wave of picketing against several service companies by members of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN). The new protests follow allegations that the service companies are refusing to allow their workers to unionize. Leaders from the umbrella workers’ organization the Petroleum Technology Association of Nigeria are discussing ways of avoiding a crisis, with its chairman accusing PENGASSAN of not being a good sport amid all the problems the local oil industry has been having.
6. Venezuela
The EIA reported Venezuelan oil production dropped from 2.4 million b/d in 2015 to an average of 1.6 million b/d in January. “A combination of relatively low global crude oil prices and mismanagement of Venezuela’s oil industry has led to the accelerated decline in production.” The International Monetary Fund estimates inflation in Venezuela could run as high as 13,000 percent this year, while the economy shrinks by 15 percent. With more than $8 billion in bond payments due this year, a general default is possible, EIA stated.
Venezuela is one of the largest crude oil exporters to the US, accounting for about 41 percent of the nation’s total exports last year. Those exports, however, are on the decline as the US draws more on suppliers like Canada and Mexico. “The fall in exports to the United States is especially harmful to Venezuela’s economy because American refiners are among the few customers that still pay cash for Venezuela’s crude.” Last year the Trump considered tightening sanctions on Venezuela, a move that would have created problems for the United States because the refineries concentrated on the US Gulf Coast are designed to process the heavy Venezuela crude oil.
Caracas was hoping to pay off its $3.15 billion debt to Russia with its new cryptocurrency, the “petro.” Those hopes were lost when the Russian Finance Ministry announced last week that it wouldn’t be accepting the digital currency. In November last year, Russia threw a life-line to Venezuela when the two countries signed a deal to restructure $3.15 billion worth of Venezuelan debt owed to Moscow. Under the terms of the deal, Venezuela would repay the debt over the next ten years, of which the first six years include “minimal payments”. The following month, Venezuelan President Nicolas Maduro announced that his country would be issuing an oil-backed cryptocurrency, which it did in February. The US already has prohibited transactions made with Venezuela’s digital currency.
7. The Briefs (selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
In Europe, diesel-powered passenger vehicle sales are declining as governments put more pressure on automakers to cut production and sales in the post-Volkswagen diesel emissions cheating scandal landscape. In February, diesel car share dropped to 39 percent of the share from 46 percent a year ago. (3/28)
UK North Sea’s oil production is expected to revert to a decline again next year, after a brief period of growth since 2015, according to consultants at Bernstein. Since peaking at 2.6 million b/d in 1999, the UK Continental Shelf production had been in decline until 2014, after which, thanks to start-ups and improved production from existing fields with infill drilling, oil production stabilized for two years. (3/27)
Southeast Europe pothole: Since the dissolution of the Eastern Bloc, energy production in Southeast Europe has been stymied by chronic underinvestment. As a result, infrastructure in the region is struggling to meet demand, is unreliable and is in dire need of modernization. At the same time, it must conform to EU climate and air quality regulations. In short, Southeast Europe is heading toward an energy crisis. (3/30)
Russia’ arctic gas shipments growing: Since Novatek launched production at its Yamal LNG plant, out-shipments of more than one million tons of liquefied gas has been made. A total of four new and powerful LNG carriers now shuttle to and from the project terminal of Sabetta on Yamal, and another 11 vessels of the same kind are under construction. The ships have powerful icebreaking capacities and can travel along the Northern Sea Route during much of the year. In late December 2017, the Eduard Toll made it through the Bering Strait and all the way to the Yamal Peninsula without icebreaker assistance. (3/28)
Rosneft said Thursday that it has agreed to open a research and development center focusing on petrochemicals and shipbuilding technology in Qatar, following several meetings between Russian and Qatari officials this week. The move is the latest sign that Russian companies are expanding bilateral cooperation with OPEC member countries following the OPEC/non-OPEC crude oil production cut deal. (3/29)
Israel’s bonanza: Thanks to the estimated 2.1 billion cubic feet of natural gas lying in the Karish and Tanin gas fields, along with the previously-discovered Tamar and Leviathan deposits, Israel is looking to become energy-independent for the first time in the nation’s history. The economically ambitious country is already organizing a push into foreign markets, becoming an exporter of natural gas. (2/28)
In South Korea, Hyundai Motor’s union chief warned its workers might face a similar crisis to the one hitting General Motors’ South Korean unit as sales in key markets slide, adding that electric cars were ‘evil’ and will destroy jobs. Electric cars could wreak havoc on traditional auto jobs as they don’t require engines and transmissions. Hyundai’s union has predicted a drastic shift into electric cars could lead to a loss of 70 percent of Hyundai jobs in a worst-case scenario. (3/27)
In China, the Winter Olympics in 2022 will have a low carbon footprint with the host city committing to more renewables. Beijing and the city of Zhangjiakou are co-hosts for the 2022 games. (3/27)
In Algeria, oil majors Anadarko, Total, ENI, and Statoil have expressed interest in helping the nation start offshore drilling, according to state news agency APS. Algeria has been struggling to attract foreign energy investment because of tough terms and bureaucracy. But, in a bid to improve the investment climate, the government has been drafting amendments to the energy law to introduce more incentives for investors. (3/29)
In Sudan, a recent shortage of fuel and cooking gas has renewed in Khartoum and other states over the past two days. People reported to Radio Dabanga that buses and trucks have been lining in queues in front of fuel stations for long hours. (3/30)
In Liberia, Exxon designed an oil deal to skirt anticorruption scrutiny. The idea was to have a Canadian company buy the rights from a Liberian oil operator whose ownership was murky. Then Exxon would buy a controlling stake in the project from the Canadian outfit. Exxon completed the deal for $120 million in 2013. (3/31)
Korean gas pipeline: A decade-old idea of a Russian gas pipeline to South Korea via North Korea could be revived if the security situation on the Korean peninsula improves. Gazprom had the idea to deliver ten bcm of natural gas to the resource-poor and import-dependent South Korea by pipeline, but its route has to pass through the territory of North Korea. (3/31)
Offshore Brazil, Exxon Mobil Corp roared into the nation’s prolific offshore oil fields again on Thursday, clinching eight blocks in partnership with other oil firms to gain control of the country’s best prospects ahead of presidential elections later this year. Exxon along with Petrobras and Qatar Petroleum Intl paid $844 million for a block in Brazil’s offshore Campos basin as Exxon seeks to replace dwindling reserves. Chevron Corp, Repsol SA, Royal Dutch Shell Plc, BP Plc and Statoil ASA also paid top dollar to lock down stakes. (3/30)
In Argentina’s Neuquen province, where most of the country’s tight oil and gas supplies are found in the Vaca Muerte formation, governor Omar Gutierrez says more permanent reforms are needed. “We eliminated gas and oil retentions and installed a pricing regime that has encouraged development. We also have done away with consumption subsidies and allowed prices to rise. With drilling costs half of what they were, unconventional oil and gas now have a greater share of our province’s total production, and 20-22 percent of Argentina’s.” (3/28)
Tierra del Fuego, the southernmost province of Argentina, launched an exploration licensing round Tuesday for two onshore blocks and announced plans for an offshore tender later this year, as it seeks to tap growing interest in the country’s oil and natural gas production potential. Interest is reviving in Argentina’s oil and gas sector after more than a decade of populist rule kept away many companies. Mauricio Macri, the country’s business-friendly president, has removed the capital, currency and trade controls of his predecessors since taking office in 2015, and is pushing a reform agenda to make it cheaper and easier to do business. (3/28)
Mexico’s proven oil and gas reserves dropped again last year after new certified discoveries—mostly by private foreign operators—were unable to keep pace with current production. (3/27)
Offshore Mexico, European oil majors are swarming into the shallow waters of the Gulf of Mexico as the country races to attract investment before the coming election. Royal Dutch Shell, BP, Total, Eni, Repsol, Russia’s Lukoil and Deutsche Erdoel all won blocks — a number of them in partnership with state-owned PEMEX. (3/30)
Mexico’s government estimates more than $8 billion will be invested over the lifetime of oil and gas contracts awarded in shallow waters in the Gulf of Mexico. The government said it awarded 16 contracts to 14 companies grouped into 12 bidders during its latest auction for offshore contracts. (3/29)
In Mexico, PEMEX said it signed on with a partner to help extract natural gas from the Eagle Ford shale reservoir in the country. Pemex said it signed an exploration and extraction contract with the Mexican subsidiary of Lewis Energy to invest $617 million in developing the Olmos field in the Mexican state of Coahuila. Lewis has drilled more the 500 wells in the Texas section of the Eagle Ford shale, setting itself up as the third-largest producer in the state. (3/28)
Alberta is pursuing an aggressive campaign to fight global warming. There’s just one problem: the same place is also home to some of the dirtiest oil in the world. Alberta is boosting its use of renewable energy, closing power plants that burn coal and in January increased its tax on carbon emissions by 50 percent, moves that will help Canada curb emissions under the global Paris climate agreement. (3/27)
The US oil rig count declined by 7 to 797, the first cut in three weeks even as crude prices hover near three-year highs. Yet oil rigs were still up 135 compared to one year ago, according to Baker Hughes. Gas rigs were up by 4 to 194. (3/31)
SPR’s dirty oil? Three firms that bought crude oil last year from US emergency stockpiles raised concerns about dangerous levels of a poisonous chemical in the cargoes. Problems with crude quality would make the US Strategic Petroleum Reserve (SPR) less useful in an emergency because refiners would need to spend time and money removing contamination before producing fuel. (3/30)
Exxon case dead end: A federal judge has put an end to Exxon’s attempt to sue the district attorneys of New York and Massachusetts for investigating the company with relation to the alleged cover-up of its knowledge of climate change and the effects its business had on the environment. Manhattan judge Valerie Caproni dismissed as “implausible” Exxon’s argument that New York’s DA Eric Schneiderman and Massachusetts’ Maura Healey were on a political quest against the company, seeking to violate its constitutional rights. The dismissal of the case was made with prejudice, meaning Exxon cannot bring it again. (3/31)
Arctic RFI: The US government published a call for information in the Federal Registry on Thursday regarding a proposed opening for drillers in Alaska’s Arctic waters. The proposal, still in the draft stage, is part of a five-year lease plan that would go into force in 2019 if approved in its current form. (3/30)
Refineries speed bump: An author of a recent Boston Consulting Group report observed that changes in the automotive sector – tied to consumer attitudes, government policies, and technology – could mean significant challenges as well as opportunities for US refiners. (3/27)
Energy R&D funded: The $1.3 trillion spending bill signed in late March will prevent previously proposed funding cuts to the Department of Energy. The DOE’s Office of Energy Efficiency and Renewable Energy was slated to be cut by 65 percent, according to the president’s Fiscal Year (FY) 2018 budget request. Instead, the spending package increases the office’s budget by 14 percent to $2.32 billion. (3/26)
Undoing MPG isn’t easy: The EPA has readied a final determination that calls for the rolling back of corporate average fuel economy (CAFE) standards. The current standards would require automakers to sell vehicles that average 54.5 miles per gallon by 2025. This move by the White House will likely be subjected to litigation. Putting regulations in place requires a lot of legwork and several years of procedure. Undoing them is not all that much easier. (3/27)
Biofuel bailout: A deal to wipe out refiner Philadelphia Energy Solution’s biofuel credit debt would effectively shrink the 2018 US biofuel mandate by 2%, which would cut renewable fuel demand and weaken Renewable Identification Number prices. (3/28)
Biofuels hot potato: President Donald Trump is seriously considering abandoning efforts to remake the nation’s biofuel laws after wading deep into an issue that divides some of his core constituencies – farmers and oil companies. Advisers have urged Trump to let Congress tackle the biofuel reforms while using the threat of administrative action to help rival lawmakers come together and solve the intractable issue. (3/31)
Offshore wind bonanza? Almost every state along the Atlantic coast — 12 out of 14 — has offshore wind potential that exceeds its current electricity needs. Bringing the electricity generated by offshore Atlantic wind farms ashore could help meet future electricity demand created by activities — transportation and the heating of homes and businesses — that are currently powered by gasoline, natural gas, and other fossil fuels. (3/29)
An EV’s carbon footprint depends on whether its power comes from renewables or fossil, and quantifying exactly how clean EVs are compared to gasoline-powered vehicles has been tough – until now. New data shows that in every corner of the United States, driving an EV produces significantly fewer greenhouse gas emissions than cars powered only by gasoline, regardless of the local power mix. Today, an average EV on the road in the US has the same greenhouse-gas emissions as a car getting 80 miles per gallon (MPG). (3/27)
Battery advance? Researchers led by a team from MIT, with colleagues from Oak Ridge National Laboratory, BMW Group, and Tokyo Institute of Technology have developed a fundamentally new approach to alter ion mobility and stability against oxidation of lithium ion conductors—a key component of rechargeable batteries. The new approach could accelerate the development of high-energy solid-state lithium batteries, and possibly other energy storage and delivery devices such as fuel cells. (3/27)
Better well closure: A Norwegian company has successfully pilot-tested in Canada a new technology that will permanently plug oil wells and ensure that no greenhouse methane gas escapes. Norwegian company Interwell has developed a possible solution that uses thermite—a metal-chemical powder that has very stable components and causes a non-violent reaction that can be controlled. The thermite burns at around 3,000 degrees Celsius (5,432 degrees Fahrenheit) and melts the well’s pipe into the surrounding rock, by creating “artificial magma,” like in volcanoes. (3/26)
Fukushima: The decommissioning of the Fukushima nuclear power plant will cost an annual $2 billion until 2021. But the $6 billion for the three years is only part of the total estimated cost for taking Fukushima out of operation. The total decommissioning tally came in at $75 billion, as estimated by the specially set up Nuclear Damage Compensation and Decommissioning Facilitation Corp. That’s four times more than the initial estimate of the costs around the NPP’s decommissioning. (3/31)
Peak Oil Review: 26 March 2018
By Tom Whipple, originally published by ASPO - USA
Editors: Steve Andrews and Tom Whipple
http://www.resilience.org/stories/2018-03-26/peak-oil-review-26-march-2018/
Quotes of the Week
“Mark Papa, the former CEO of EOG Resources, and who has probably been presented more technical data pertaining to shale oil than anyone, believes that shale oil growth potential may be over-stated as the prime areas of the Eagle Ford and Bakken are already drilled up. The question is how far does the Permian have left. Probably a couple of years.
Randy Evanchuk, P. Eng., retired from oil operations in 2015
“Now that I have retired, I have begun to look at the whole [nuclear] fusion enterprise more dispassionately, and I feel that a working, every-day, commercial fusion reactor would cause more problems than it would solve.”
Daniel Jassby, a research physicist who worked on nuclear fusion experiments for 25 years at the Princeton Plasma Physics Lab in New Jersey (3/19)
1. Oil and the Global Economy
The most significant news driving the oil markets last week came from Washington, where major policy and personnel shifts drove the markets down and up last week. Crude posted its biggest weekly gain since July on Friday as President Trump changed his national security team, fueling speculation sanctions on Iran will be re-imposed. Earlier in the week, the President’s imposition of new tariffs on imports had observers talking about a tariff war that could cut the demand for oil as economies slipped. Indications from the Saudis and Russians that the OPEC production freeze could be extended into 2019 helped lift prices earlier in the week.
London oil futures closed the week at $70.45 with New York futures nearly $5 lower. London oil prices now are through the $70 a barrel level and into territory not seen since the fall of 2014.
The notion that oil supply shortages and much higher prices may develop in the early 2020s or even sooner is starting to spread. The IEA and even the Saudis have been warning for several years that the precipitous drop in recent years of investment to find and develop new sources of oil will inevitably lead to lower production. The predominant view in the US, however, seems to be that domestic shale oil production will increase so rapidly that it will offset any decline in conventional oil production. This view misses the point that global oil production is now on the order of 100 million b/d, demand is increasing at about 1.5 million b/d each year, and that US shale oil production is only about 5 percent of global production.
In recent weeks, the IEA’s view that there may be serious trouble and higher oil prices ahead has started to creep into a few sectors of the financial press. Some of this may be fueled by recent speeches by prominent US shale oil developers saying that the current shale oil boom may not last much longer. Few seem to be talking about peak oil as yet, and many are asserting that fossil fuels will continue to be the backbone of the global economy for decades to come despite the advent of electric vehicles and cheaper alternative fuels. As it is unclear just how fast the effects of climate change will force new polices, there is as yet little discussion of the issue outside of environmentalist circles.
The early 2020’s are not that far away. We should have a better insight into this question in the next year or two.
The OPEC Production Cut: Compliance with the production cut hit a new high in February and the inventory glut is shrinking fast, according to a joint OPEC /non-OPEC statement. OPEC sources say the market is now expected to balance between the second and third quarters. The shrinking glut is fueling a debate over how long the curbs need to be in place. A ministerial panel will meet in the Saudi city of Jeddah on April 20 to review the deal in April.
It is widely recognized with OPEC and its allies that lifting the supply curb has to be done carefully to avoid a surge of new supply into the world oil market and a likely drop in prices. Last week Russian Energy Minister Novak said the deal would stand as long as the five-year average of crude oil inventories held by the world’s leading industrialized nations remained in surplus. “As soon as the ultimate goal of our deal is achieved — which is the balancing of the market — we will start considering gradual withdrawal.”
The vice president of Russia’s second-largest oil producer Lukoil said; “It will all depend on the American production.” If the pace of US shale oil growth continues, OPEC and Russia will need to exit the deal in 2020. By that time, the global industry will have started to feel the impact of the slashed investment in exploration and production in the past years. Lukoil, however, would support the idea of OPEC’s de facto leader and biggest producer Saudi Arabia to extend the oil production cuts into 2019. The Russians seem to appreciate that the oil markets will be a lot tighter in the 2020s and there will no longer be a need for negotiated production cuts.
US Shale Oil Production: Last week the EIA reported that US crude production in the lower 48 states was up by another 20,000 b/d which is the pace needed to increase US oil production by another million b/d during 2018. The US oil rig count was up by four last week which puts in at 152 more rigs than at this time last year. Canada, however, continued its losing streak, with a decrease of 58 oil and gas rigs, after losing 54 rigs last week, and a 29-rig loss the week before. Many of these rigs are moving to the US where the weather is better and the prospects for early success are better for the time being.
2. The Middle East & North Africa
Iran: The big story last week was the selection of John Bolton as President Trump’s new national security adviser and CIA director Pompeo as US Secretary of State. The conventional wisdom is saying that his move greatly increases the likelihood of a US exit from the Iran nuclear deal next month and the re-imposition of US sanctions on Iran. Since few, if any, other nations are likely to impose sanctions on Iran this time around, Iranian exports are unlikely to fall by the million b/d that occurred during the last sanctions.
May 12 is the next deadline for the US to waive sanctions on Tehran as part of the Joint Comprehensive Plan of Action. Trump has said he would refuse to authorize that waiver again if the US Congress and European partners do not “fix” terms of the nuclear agreement. Last week, the US State Department’s director for policy planning, said the US continues to negotiate with the UK, France, and Germany on a supplemental agreement to the Iran nuclear deal to fix three deficiencies identified by Trump that could keep the deal alive.
It is unclear what would happen if the US dropped out of the agreement, but there are many possibilities that could do severe damage to the world’s oil supply. Iran’s oil production averaged 3.83 million b/d in February, up from 2.8 million b/d in 2015, before the sanctions were lifted.
Iran drastically cut its gasoline imports in recent weeks as it started work on the second phase of doubling the Persian Gulf Star Refinery at Bandar Abbas to process 240,000 b/d. Tehran has been reliant on gasoline imports for years because of lack of refining capacity and the Western sanctions that had limited funding and spare parts for refinery maintenance.
The CEO of the French oil and gas company Total said last week the company would seek a waiver to continue the development of an Iranian gas field should the US decide to re-impose sanctions. Last July, Total became the first Western energy firm to sign a deal with Iran since the easing of international sanctions in 2015, agreeing to develop Phase 11 of the South Pars offshore gas field with a total investment of $5 billion. Iran has nearly doubled gas production at South Pars, the world’s largest gas field, in the past year.
Iraq: Relations between Baghdad and its Kurdish dominated province of Kurdistan seem to be improving. Last week Baghdad agreed to pay the salaries of the Kurdistan region’s civil servants and security forces, according to a spokesman for the government said on Monday. “The federal finance ministry transferred a cash sum $267 million to the regional finance ministry.” In recent weeks there have been reports that Baghdad has agreed to allow the Kurds to export oil from the Kirkuk oil fields. There has been no recent word on the scheme to move this oil by truck to a refinery in Iran, which would be a very dangerous undertaking as remnants of ISIS are still in the area.
The Kurdistan Regional Government has signed an agreement with its biggest natural gas investor to increase production from the Khor Mor gas field, which had been tangled in legal disputes. The deal should provide a much-needed fuel supply to Kurdistan’s power plants.
Saudi Arabia: The news of the week concerned Saudi plans for OPEC and Russian-led production curbs introduced in 2017 to be extended into 2019 to tighten the market. This news was enough to offset the US’s imposition of tariffs on $60 billion of imports from China and the beginning of a trade war that could do serious damage to the global economy.
The on and off IPO for Saudi Aramco could still take place this year. Early last week Saudi Arabia seemed to be cutting back on plans for a public offering for oil giant Aramco, moving ahead with a listing next year solely on the Saudi stock exchange while taking more time to decide if listing on the New York or London exchanges was worth the trouble. Aramco could be facing suits stemming from Saudi citizen participation in the 9/11 attacks, and from more financial disclosure requirements than they would like.
By weeks end, however, Saudi Energy Minister Khalid al-Falih was saying that the offering may still move forward with an initial public offering for the oil company on an international exchange such as London or New York in the second half of 2018, despite previously raising doubts it might be delayed to next year. The Minister is accompanying the crown prince, Mohammed bin Salman, on a two-and-a-half week visit to the United States to drum up investments in the plan to diversify the Saudi economy.
3. China
The launch of China’s yuan-denominated oil futures on the Shanghai Exchange this week will mark the culmination of a decade-long push by China to have more power in pricing crude sold to Asia. China’s ultimate goal is to create a yuan-denominated global crude benchmark. The contract will comprise of seven grades that can be accepted for delivery: Dubai Fateh, Upper Zakum, Oman Export, Masila, Qatar Marine, Shengli and Basrah Light. The initial focus will be on Basrah Light, given it is the most abundant of the grades that are acceptable for delivery. Some believe that a significant proportion of contracts will be held for physical delivery. Yuan-denominated trading and a blend of new rules and regulatory burdens will likely hamper initial trading on the Shanghai Exchange according to executives at a dozen banks and brokers and experts involved in the launch.
On Friday the Shanghai Futures Exchange announced that it had set the opening price for the front month of its crude futures contract at $65.80 per barrel. Many are worried that the Shanghai Exchange will denominate transactions in yuan that will never gain traction in the world oil market. There are problems with how freely the government will allow money to flow in and out of the country amidst a clampdown on capital outflow. Some are concerned about Beijing’s tendency to intervene in its commodity markets in recent years to counteract developments the government does not like.
Meeting China’s ever-rising demand for natural gas, especially in the heating season, will be challenging due to limited domestic output, slow pipeline imports and distribution network bottlenecks. However, experts believe a natural gas shortage is unlikely next winter as higher liquefied natural gas imports will help bridge the supply-demand gap. China won’t surprise the world again during next winter season despite its higher natural gas demand, as supply-demand restocking activity by major LNG imports will help alleviate the gas shortages in northern China.
The Power of Siberia natural gas pipeline from Russia to China is 75 percent complete. At present, 1,012 miles of the pipeline are built. Gazprom says it will start supplying China’s CNPC with natural gas as planned on December 20, 2019. Gazprom has a 30-year contract with CNPC for the supply of an annual 1.3 trillion cu ft of natural gas and completion of the pipeline is among Gazprom’s top priorities. Gazprom and CNPC have also discussed another pipeline from Russia to China via the western route—the so-called Power of Siberia 2 pipeline.
Natural gas from basins in southeastern Siberia could start moving through a natural gas pipeline to China within the next five years, Gazprom announced last week. The Kovyktinskoye field near Irkutsk in southeastern Siberia is unique given its larger volume of estimated gas reserves. Work is underway to design the site structures and facilities for production and gas transmission. It is planned to start feeding gas from Kovyktinskoye into the Power of Siberia gas pipeline in late 2022.
Several Chinese independent oil refiners, commonly known as ‘teapots’, are getting ready to start buying ethanol and blending it with their fuel to meet China’s new regulation that says, by 2020, gasoline in the country should contain 10 percent ethanol. Ethanol consumption in China would at least quadruple in the next three years due to this nationwide mandate.
4. Russia
Russia’s Energy Minister Alexander Novak said his country would continue to comply with the OPEC oil production cut deal until the end of this year and even into 2019 if need be. However, leaders of Moscow’s oil industry are beginning to express skepticism about the agreement. Rosneft CEO Igor Sechin, a close ally of Russian President Vladimir Putin, has expressed skepticism about the effectiveness of the output reduction pact given that US shale producers, who are not participating, continue to ramp up production. If the production cap is extended into 2019, Rosneft may have to postpone major energy projects that are in the planning stage.
5. Venezuela
The situation continues to get worse. In recent years, the Chinese have loaned Caracas some $50 billion which was to be paid back in oil shipments. Reuters says some $20 billion is still outstanding. Beijing seems to have extended the payment period on the loans so now only the interest is being paid. Oil being shipped to China brings in no revenue to pay for food imports. Recent reporting suggests the Chinese seem to be writing off the Maduro government as a lost cause and will no longer extend support.
Washington is exploring options to impose more sanctions on Venezuela’s oil sector, a senior US official said last week, after the White House issued an executive order barring the use of Venezuelan cryptocurrencies. “We are considering all options, including oil sector sanctions options, and are actively considering what steps we want to take and what the best timing is to maximize the effect of our actions.” Washington imposed sanctions on the Venezuelan government and military officials in December in response to allegations of corruption and repression under the Maduro administration.
Despite Washington’s ban on the use of Venezuela’s cryptocurrency, the “petro,” the state oil company, PDVSA said that President Maduro continues to authorize PDVSA collection of export revenues in petros.
In the meantime, Caracas’s oil revenues continue to shrink. OPEC currently places Venezuela’s daily oil production at around 1.6 million b/d. Independent analysts say this could easily fall by 400,000 b/d by the end of the year.
6. The Briefs (selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
Global energy demand grew by 2.1 percent last year, according to the International Energy Agency. With the global economy accelerating, that was more than twice as high as the rate from 2016-17. In part because of the increase in sales of large sport-utility vehicles and trucks in the world’s leading economies, oil demand grew more than 1.6 percent last year. That’s more than twice the 10-year average. (3/23)
Scraping tankers: The number of older VLCCs sent for scrap so far this year has been “somewhat astounding,” Clarkson Research states in its latest weekly report. Fellow broker Gibson reports that 15 VLCCs have been sold for demolition in 2018, with this year’s volume already exceeding the total for 2017. (3/22)
Ship quandary: The owners of 60,000 cargo ships are bracing for tighter emissions rules that are forcing them to make a multibillion-dollar choice: Start buying cleaner-burning fuel or invest in a device that treats the ship’s exhaust before letting it out. It isn’t an easy call. Retrofitting a vessel with a sulfur-trapping exhaust system called a “scrubber” costs as much as $10 million a ship, while cleaner fuels are about 55% more expensive than the ones shipping operators use now. (3/20)
Dutch cutback coming: Dutch economy minister Eric Wiebes will send a letter to the country’s Cabinet containing details of a major cut to extraction levels at the Groningen gas field, where earthquakes have been linked to gas extraction. The current production quota for the 2017-18 Gas Year could be cut by up to 2 Bcm. Dutch gas regulator SodM recommended a 12 Bcm/year cap on gas output from Groningen be introduced. (3/19)
Germany diversifying: Bloomberg reported that Merkel’s government is seeking to build a liquefied natural gas industry in Germany basically from scratch to reduce the nation’s dependence on supplies arriving by pipeline from Russia and Norway. Merkel backs all initiatives supporting further diversification of gas supply — whether from different regions or means of transporting gas. The move comes as natural gas resources from the UK and the Netherlands are depleting, and Germany is forced to rely more on Russian gas. (3/21)
Israel-to-Egypt gas: In February, Noble Energy and its partners reached an agreement with the Egyptian company Dolphinus Holdings to sell gas from offshore Israel to Egypt, a deal that could jumpstart a wider campaign to develop natural gas in the Eastern Mediterranean. The deal is politically risky for Egypt, where dealings with Israel have historically been taboo. (3/22)
Vietnam has suspended a second oil drilling project in the South China Sea in less than a year, after pressure from China which claims a large swath of the sea. Vietnam’s government ministries have suspended the project until the country’s decision-making body, the politburo, makes the final decision whether the project should be suspended or terminated indefinitely. (3/24)
Pressuring South Sudan: The US on Wednesday placed sanctions on 15 South Sudanese oil-linked operators it said were substantial sources of revenues for the government, aimed at increasing pressure on President Salva Kiir to end the country’s conflict. (3/24)
Offshore Senegal: FAR Ltd. and its partners announced the completion of a geotechnical study of a 2,900 square mile permit area that includes the flagship SNE oil discovery. The results revealed another 198 million barrels to the estimated 641 million barrels in the best estimate scenario of contingency reserves. FAR has 11 successful wells drilled to date. (3/21)
Crude oil could turn Ghana into one of the fastest-growing economies in the world. This is the message coming from analysts as the West African country is set to start benefitting from the development of its largely untapped oil wealth. There are only three fields in Ghana that are already producing, out of 21 license blocks. Of these, 14 are in ultra-deep waters, which makes their development costlier, and five are in shallow waters. The country has a democratically elected government headed by a president that is all for foreign investment and all against foreign aid, which is a good combination for investors in Ghanaian oil. (3/20)
Guyana has historically been entirely dependent on oil imports. In the past three years though, Guyana has sprung up as one of the hottest oil spots in the region, with ExxonMobil alone accounting for seven hydrocarbon discoveries in one single exploration block. However, the pace of discoveries will only highlight the deficiencies of Guyana’s political system; there remains a serious risk that these world-class finds might be jeopardized by politics. (3/22)
The US oil rig count increased by four this week to 804, Baker Hughes reported. Gas rigs were up by 1 to 190. The combined rig count now stands at 995. It has increased by 71 during 2018 and is up by 152 over this time last year. (3/24)
Data war: A battle for big data is brewing in the oil patch. The service companies that map underground pockets of oil, drill the wells and lift crude are generating vast new amounts of data they never before realized could be valuable. But their exploration customers are essentially saying hands off to anything coming out of their wells, including the streams of zeros and 1s. So, who owns the data? (3/20)
With gasoline prices about 10 percent higher than they were at this point last year, the situation may be near the point of US economic strain. The AAA posts a national average retail price of $2.56 for a gallon of regular unleaded gasoline. That’s almost 27 cents more than this date last year. Gasoline demand across the US economy is at a point not usually seen until summer months when more vacationers hit the road.. (3/21)
In Arctic Alaska, the warmest winter on record has hit local oil production as temperatures hampered industrial machinery designed to optimize output when conditions are most frigid. Production of the North Slope grade of crude oil has averaged about 518,000 b/d through the current fiscal year, down from the approximately 533,000 b/d predicted last fall. Warmer temperatures are largely to blame for that drop. (3/20)
Gas net exports: The US exported more natural gas than it imported in 2017, marking the first time since 1957 that the US has been a net natural gas exporter. The transition to net exporter occurred as natural gas production in the US continued to grow, reducing imports from Canada and increasing exports, by pipeline and as liquefied natural gas. The US surpassed Russia in 2009 as the world’s largest natural gas producer as shale gas production drove overall increases in natural gas production. Natural gas production reached an average of 73.6 billion cubic feet per day during 2017. (3/20)
Alaska LNG project update: Gov. Bill Walker remained upbeat over his state’s $45-$65 billion liquefied natural gas LNG export project proposal, Alaska LNG, even as global oil and gas prices tanked, reaching multi-year lows, even as all of its original partners, including ExxonMobil, ConocoPhillips, and BP pulled out – leaving the state, under the umbrella of the Alaska Gasoline Development Corp. (AGDC), being the sole project partner. The Federal Energy Regulatory Commission (FERC) on Monday set a timeline for the project to receive its final environmental impact statement, by December 2019—an important step according to Walker. The problem to date for Walker and the project had been attracting investors. Unlike its LNG export project counter parts in the Lower 48, the Alaska LNG project’s CAPEX is seen as prohibitive, one of the reasons other project partners pulled out, in addition to lower oil and gas prices. (3/19)
Natural gas under attack? Even as CO2 emissions from burning natural gas are much lower, there are questions over the climate benefits if lower CO2 is offset by higher methane emissions, which typically come from the drilling and extraction of natural gas, and its shipment via pipeline and local distribution lines. With the coal industry a dead man walking, environmental groups have turned their sights on natural gas as an enemy of the climate. (3/20)
Natural gas pushback: Natural gas overtook coal as the top fuel for making electricity in the US two years ago. But its brief reign is under assault in some parts of the country. State regulators, renewable-energy advocates, and environmental groups are arguing that some existing and proposed gas plants aren’t needed or should be replaced by renewable energy. In states including Arizona, Michigan and Massachusetts, the future of gas plants is being questioned. But nowhere is gas under more fire than in California, where regulators are saying no to new gas plants and looking to get rid of older ones. (3/19)
Offshore operators in the US Gulf of Mexico are beneficiaries of the Trump administration’s efforts to increase offshore production here — in large part by upending financial, environmental and safety regulations that the companies oppose. Those rules include safety measures put in place after the explosion and US sinking of the Deepwater Horizon rig in 2010, a disaster that killed 11 people and resulted in the largest marine oil spill in United States’ drilling history. (3/24)
The US Bureau of Land Management auctioned off more than 51,000 acres in southeastern Utah for oil and gas development, a sign of strong industry demand in a region conservationists have vowed to protect. The Utah lease sale included terrain near the former boundaries of the Bears Ears National Monument, whose size was scaled back by the Trump administration last year, as well as the Hovenweep and Canyons of the Ancients monuments. (3/22)
The Trump administration has dubbed Wednesday’s Gulf of Mexico oil and natural gas lease sale as the largest in US history and, Interior Secretary Ryan Zinke has called it a “bellwether” for America’s offshore energy future. But on Tuesday, US offshore representatives downplayed the market and policy significance of the Gulf lease sale. (3/21)
The state of Pennsylvania wants a federal judge to halt the bankruptcy of Philadelphia Energy Solutions, arguing the refiner owes an estimated $3.8 billion in fuel taxes, according to a court filing on Friday. The state said the refiner must make several changes to the proposed restructuring plan to ensure the taxes are paid before it can support the plan. The $3.8 billion figure is significant for a refiner that had just $43 million in cash on hand when it filed for bankruptcy protection in January. (3/20)
Overall electricity use in US manufacturing declined 10 percent from 2006-2016, based on data from the US Census Bureau. Most manufacturers get their electricity from grid purchases. From 2006 through 2016, the manufacturing sector purchased 87 percent to 89 percent of their electricity from the grid and generated the remaining 11 percent to 13 percent onsite. (3/24)
Electric sales down: 2017 was another down year for the US electric utility industry–despite a reasonably robust economy and increasing population. The 2.1 percent drop was bigger than usual. In seven of the past ten years, electricity generation in the US has declined. (3/23)
EV hotspot: In proportion to its population, the Nordic region—Denmark, Finland, Iceland, Norway, and Sweden—is strikingly ahead of the rest of the world in adopting electric cars. With almost 250,000 electric cars at the end of 2017, the five countries account for roughly 8 percent of the total number of electric cars around the world. Norway, Iceland, and Sweden have the highest ratios of EVs per person, globally. Further, the number of electric vehicles (EVs) in the Nordic region is projected to reach 4 million cars by 2030—more than 15 times the number currently in circulation.
Chinese e-buses: German intercity bus company FlixBus is investing in e-buses produced by Chinese bus makers and planning to test them on their long-distance routes for the first time in the world. According to the Munich-based bus company, the first all-electric e-bus will begin test operations between Paris and Amiens, France in April. The electric buses are made by China’s Zhengzhou Yutong Bus Co. and by China bus maker, BYD. (3/21)
Methane time bomb: Scientists fearing the mass release of greenhouse gases from the carbon-rich, frozen soils of the Arctic have had at least one morsel of good news in their forecasts: They predicted that most of the gas released would be carbon dioxide, which, though a greenhouse gas, drives warming more slowly than some other gases. Now even that silver lining is in doubt. New research released Monday suggests that methane releases could be considerably more prevalent as Arctic permafrost thaws. (3/20)
Fusion mirage? There has been a lot of buzz about fusion in the past few days, after the announcement of “a dramatic leap forward” from a collaboration between MIT and a newly formed private company. This was followed by declarations that “the world’s energy systems will be transformed” by putting a working power plant on the grid within 15 years. Those projections may be overly optimistic. (3/19)
Peak Oil Review 19 March 2018
By Tom Whipple, Steve Andrews, originally published by ASPO - USA
Editors: Steve Andrews and Tom Whipple
http://www.resilience.org/stories/2018-03-19/peak-oil-review-19-march-2018/
Quote of the Week
[In Venezuela] “Production is collapsing in a way rarely seen in the absence of a war. The country is also suffering the worst economic depression ever recorded in Latin America.” Francisco Monaldi, a fellow in Latin American Energy at the Baker Institute for Public Policy at Rice University (3/17)
1. Oil and the Global Economy
Oil prices closed on Friday at $66.21 in London and $66.34 in New York. Prices are about in the middle of the trading range where they have been since mid-February. The markets, torn between increasing US shale oil production and what is thought to be increasing global demand, seem likely to stay within this narrow range until there is convincing evidence one way or the other. While prices have climbed by more than 40 percent since the middle of 2017, day-to-day volatility has fallen to its lowest level since 2014.
The IEA reported last week that there was an increase in global inventories, which had declined for seven months in a row, thanks to OPEC’s coordinated 1.8-million b/d production cut. The EIA reported last week that US crude stocks were up by an unexpected 5 million barrels the week before last following an equally unexpected 2.4 million barrel increase the week before. Baker Hughes reported on Friday that the US oil rig count was up for the seventh time in eight weeks.
The OPEC Production Cut: Saudi Arabia’s proposals of new ways to measure when the oil market is balanced signals a shift in OPEC’s targets for a pact on supply cuts. From a record 3.1 billion barrels in July 2016, OECD stocks dropped to 2.85 billion barrels in December, falling 216 million barrels during 2017 and now stand just 52 million barrels above the five-year average. The five-year average is a moving target and has risen even as output curbs were in place. The average climbed to 2.86 billion barrels in September 2017 from about 2.73 billion barrels when the supply pact was sealed in late 2016.
As in several consecutive monthly reports, last week OPEC lifted its estimates for non-OPEC oil supply growth this year. This time the cartel’s estimates rival oil supply growth led by the US will outpace global oil demand growth in 2018. OPEC expects non-OPEC supply in 2018 to increase by 1.66 million b/d, compared to expectations of 1.4 million b/d growth in the previous monthly report.
The cartel expects world oil demand this year to rise by 1.6 million b/d to average 98.6 million b/d, marginally higher than last month’s assessment. Most of the oil demand growth is anticipated to originate from Asia, led by China, followed by India, and then by OECD Americas.
Dutch bank ING sees the US eating OPEC’s Asian market share. Oil risks are sliding back under $60 a barrel as a surge in US shipments to Asia continues. The resulting fallout could drag down crude prices after a rally of more than 40 percent since last June.
US Shale Oil Production: Crude production in the lower 48 states grew by 20,000 b/d the week before last. Most of this increase is coming from the Permian Basin where the EIA forecasts that production will grow by 80,000 b/d between March and April. If Permian production can continue at anything close to this rate of increase, US shale oil production could be up by the forecast 1 million b/d during 2018 when combined with smaller increases from other shale oil fields. Therefore Permian production is one of the key issues facing the world’s oil supply and prices in the coming year.
There are problems on the horizon, however. The surge in Permian Basin drilling, which is driving record gas production growth there this year, now appears to be facing market and infrastructure constraints that could come as early as the second quarter. The rig count in the West Texas-New Mexico play edged up to 437 last week and is now at its highest point since early 2015. The addition of nearly 60 rigs to the basin since mid-October has boosted dry gas production there by more than 1 billion cf/d, or about 20 percent over the same period last year. Permian gas production is now at its highest level on record — an estimated 7.2 billion cf/d. There have been reports that recent Permian wells are producing more natural gas than expected. More gas than expected only adds to the problem as it appears there will not be enough pipeline capacity to move this gas to market in the near future and there are limits on how much natural gas can be flared.
Newspapers are beginning to understand the difference between US shale oil which is at the light end of the spectrum and the heavier oils that are produced elsewhere. While the lighter shale oil is fine for making gasoline, it is not the best for making diesel, jet fuel and heavier oil products that the world increasingly needs. For years US refineries have been built to process the heavier grades of imported crudes and most were not designed to refine the lighter shale oil. Many have coking units designed to extract the maximum amount of diesel from heavier barrels.
The US seems to be close to running out of the capacity to refine shale oil and increasing quantities are being exported as there is no domestic market or place to store them. “The dirty secret of US shale is that not many people want it,” says Bill Barnes of Pisgah Partners. While the IEA argues the 100 million b/d global refining system is flexible enough to swallow the lighter crude, there is evidence US shale is not being uniformly embraced. Morgan Stanley said last month that, at a minimum, US shale producers would need to accept lower prices to incentivize refiners to use it as supplies grow.
2. The Middle East & North Africa
Iran: Concerns are increasing that President Donald Trump’s decision to replace his secretary of state increases the probability the nuclear deal with Iran will be abandoned in May. Failure to recertify the deal could lead to the re-imposition of secondary sanctions and pressure from the US on other countries to reduce their purchases of Iranian crude. Some are saying that the re-imposition of US sanctions, coupled with new sanctions on Venezuela, could result in a loss of over a million b/d in global exports by the end of the year.
Tehran already has said that should Washington impose new sanctions it will be free to resume nuclear development. Last week Saudi Arabian Crown Prince Mohammed bin Salman said his country would quickly obtain a nuclear bomb if Iran successfully develops nuclear weapons.
Iranian oil minister Zanganeh said OPEC could agree in June to begin easing oil production curbs in 2019. Iran wants to keep oil prices around $60 a barrel to contain US shale oil production. Higher prices will motivate more production of shale oil in the United States.
A consortium of Russian and Iranian companies signed an agreement to develop two oilfields near Iran’s border with Iraq. This is Iran’s second deal since the nuclear pact. Last year, Tehran signed a $5 billion agreement with France’s Total SA and a Chinese oil company to develop an offshore natural gas field. Tehran so far is disappointed at the lack of Western investment in its oil industry following the nuclear pact.
Iraq: Baghdad is hitting a roadblock in the next phase of expanding its oil production capacity as international energy firms lose interest in investing in Iraq’s low-return oil industry. Most international oil firms in Iraq are revising their oilfields’ plateau production levels even lower. Iraq’s oil production has risen rapidly in the past decade from 2.5 million b/d to a peak of 4.71 million in late 2016.
Most of the growth in Iraqi oil production has come from the efforts of major oil companies such as BP, Exxon Mobil, Lukoil, Eni, Total and Royal Dutch Shell, which oversaw the redevelopment of Baghdad’s oilfields after the US invasion in 2003. However, the foreign companies have long complained that the technical service contracts Baghdad offers are too stringent and give little return on investment. Most companies in the past five years negotiated their production levels lower, forcing Iraq to reduce its capacity expansion plan from 12 million b/ d to 9 million b/d by 2018. This new target now is unattainable, so Iraq has established a new target of 7 million b/d by 2022.
China’s ZhenHua Oil Company, a subsidiary of state-owned arms manufacturer Norinco, is planning to make two new investments in Iraq’s oil sector. ZhenHua will forming a new joint venture with the State Oil Marketing Organization for the development of the East Baghdad oil field.
Two northern Iraqi oil fields have re-started production, five months after they were shut-in following a federal military operation which regained control of Kirkuk. The North Oil Company has increased the amount of crude it is sending to refineries in Kurdistan. This is a sign that Baghdad and the Kurdistan Regional Government are making progress to resolve a political impasse that has stranded some 300,000 b/d of oil production from around Kirkuk.
Saudi Arabia: Saudi Aramco’s listing on foreign stock exchanges is unlikely to go ahead this year according to British officials who have been warned by the Saudis that the IPO will be delayed to at least 2019. While the delay has several motivations, from regulatory risk to competing projects, some are saying that the lack of interest in investing by major US financial institutions is behind the project.
Although the Saudis claimed that Aramco was worth $2 trillion, there were doubts about that valuation from the start, and now these are deepening. Aramco has never published financial reports, and although there were assurances that it would start doing so, so far this has not happened. Some are saying that it would take an oil price of $80 a barrel for the firm to generate enough cash flow to pay dividends. This coupled with concerns about instability in the Middle East explains the lack of enthusiasm for buying a stake in the firm.
Saudi Arabia will keep its crude exports below 7 million b/d in April as it stays committed to draw down excess global inventories and boost oil prices, according to the Saudi energy ministry. The Saudis plan to continue pumping below 10 million b/d next month, again over-complying with their pledge to not exceed the ceiling of 10.058 million b/d.
Last November, the Saudi government locked up hundreds of powerful businessmen and royal family members in the Ritz-Carlton hotel in Riyadh in what it said was a crackdown on corruption. While most have since been released, they are still living in fear and uncertainty. Many were subject to coercion and physical abuse, witnesses said. In the early days of the crackdown, at least 17 detainees were hospitalized for physical abuse and one later died in custody. Most of the detainees are barred from travel and cannot obtain access to their financial accounts and are required to wear ankle bracelets to track their movements.
Reports such as these have reduced enthusiasm of foreign investors considering investment in Saudi Arabia. Saudi Arabia’s crown prince is scheduled to meet with President Trump this week. The meeting will mark the beginning of Prince bin Salman’s US trip, which is expected to include stops in New York, Boston, Houston, San Francisco and Seattle over the next two weeks as the prince seeks investors for his plan to revamp the Saudi economy.
3. China
Production from assets the Chinese state oil companies own abroad now exceeds domestic production, increasing the country’s dependency on foreign oil. However, much of the oil produced abroad does not end up in China for various reasons, including shipping costs and better revenues if it gets sold to another market rather than imported into China. The IEA recently estimated that China’s domestic production of crude oil will only be enough to cover 30 percent of demand this year and will further slide to 25 percent by 2023.
China’s push to cut pollution and make millions of households switch to natural gas from coal for heating this winter resulted in China becoming the world’s second-largest LNG importer in 2017. Some say the US is well-positioned to seize this opportunity and export even more of its growing gas production to China, but this depends on how long US natural gas production will continue to increase.
Some observers believe that US production natural gas production will soon start to decline and bottlenecks to transporting natural gas from the Permian Basin are already developing. In addition, there are limits on how much LNG can be moved through the Panama Canal. All this, and the developing tariff quarrels with China, suggest that the US is unlikely to become a major supplier of LNG to Beijing.
4. Russia
Most of the news last week derived from the continuing deterioration in relations between Moscow and the West in the wake of an alleged Russian assassination attempt against a former intelligence officer who defected. The British government is outraged by Moscow’s actions and is seeking other sources of natural gas. Most European governments would like to do the same, but for now, there is no other source of supply other than Russian gas fields. There is not enough LNG on the market as yet, and pipelines from the Middle East and Central Asia have yet to be built.
Moscow is attempting to build two new pipelines into Western Europe that would detour Ukraine and the ongoing fight over payments for transit. If these are completed, EU dependence on Russia for its energy could become worse.
The official announcement that Exxon is dropping out of its agreements with Russia that were signed before the Crimean takeover is raising speculation as to whether Moscow can develop Arctic oil by itself. Conventional on land oil production in Russia is still growing slowly, but to continue as the world’s largest oil producer, it likely will have to start large-scale production from beneath the Arctic Ocean or develop the shale oil it claims to have. Right now it seems that Moscow does not have the technology to drill in Arctic waters and was looking for help from Exxon. It will be interesting to see how this plays out in coming years.
5. Nigeria
The news for Nigeria remains monotonously the same. The fuel shortage rolls on with the government admitting that it spends vast amounts to subsidize imported gasoline and other oil products to keep retail prices down. The commission charged with finding the billions of dollars of missing oil revenue reported for the umpteenth time that it is not making any progress.
The who-should-pay-for-oil-spills saga continues apace. While some spills are the fault of the international oil companies, most are caused by thieves, either professional or amateur, drilling into oil and gas pipelines to steal some oil or gas. The thieves usually leave the pipe draining onto the land before the oil companies can stop the leaks. In the last 50 years thousands of acres of land and water have been contaminated. The government wants the oil companies to pay for the cleanup and the oil companies say it was not their fault. The Court of Appeal in London recently ruled that two Nigerian communities cannot pursue Royal Dutch Shell in English courts over oil spills in Nigeria’s Delta. The Nigerian government is very unhappy as a favorable ruling in a British court would have increased chances of collecting something from British companies.
Last week Amnesty International jumped into the dispute by accusing Shell and Eni of negligence when addressing spills in Nigeria. Amnesty described the oil company’s actions as “serious negligence”, and said the companies were “taking weeks to respond to reports of spills and publishing misleading information about the cause and severity of spills”. A Shell spokesman said the allegations “are false and fail to recognize the complex environment in which the company operates”. An ENI spokeswoman said the rights group’s statements “are not correct and, in some cases, not acceptable,” adding it had provided a detailed response to Amnesty’s allegations.
6. Venezuela
Crude oil production in Venezuela decreased from 2.3 million b/d in January 2016 to 1.6 million in January 2018, and production will likely continue to decline. The number of active rigs has fallen from near 70 in the first quarter of 2016 to 43 in the last quarter of 2017. Missed payments to oil service companies, a lack of working heavy oil upgraders, a lack of knowledgeable managers and workers, and declines in capital expenditures have accelerated the decline.
Venezuela’s oil production lost another 60,000 b/d in February, according to the IEA, and continues to be the largest supply risk to the global oil market. The IEA noted that even if Venezuela’s production levels hadn’t dropped so fast over the past year, and if it had produced at the agreed-upon level prescribed in the OPEC deal, the cartel would still be posting close to a 100 percent compliance level.
There is speculation that an aggressive turn in US foreign policy led by incoming Secretary of State Mike Pompeo could trigger further loses in oil production as the Trump administration ramps up sanctions on Venezuela.
7. The Briefs (selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)
Norway’s Statoil name change to Equinor as part of its effort to recast itself as the world’s greenest oil company. Statoil is in the midst of a strategic shift to renewable-energy production. It will remain an oil-and-gas giant but has pledged to increase its investment in renewable energy to between 15% and 20% of its total spending by 2030, up from 5% last year. (3/16)
Statoil = Equinor??? Oil majors aren’t famed for their pranks, but Statoil ASA had analysts checking it wasn’t April Fool’s Day when it announced a new name that turned out to have been acquired from an Oslo veterinary practice specializing in horses. Should shareholders back the change at its annual general meeting in May, Statoil will be called Equinor, a name intended to reflect the Norwegian oil company’s commitment to cleaner energy sources. (3/17)
Shipping fleet emissions: BP expects more than 90 percent of the world’s shipping fleet will comply with new regulations slashing sulfur levels ships are allowed to burn starting 2020, a company executive said on Tuesday. Coming International Maritime Organization rules will cut the amount of sulfur emissions that ships worldwide are allowed from 3.5 percent to 0.5 percent by 2020. (3/14)
Tanker storage: Traders have booked at least three 90,000-ton tankers to store summer-grade gasoline for up to 60 days off the coasts of the Netherlands as supplies in northwest Europe have steadily increased this year, pushing prices down. As of March 9, the northwest European gasoline refining margins were US$1.67 per barrel, the lowest level since December 2014, as winter-grade gasoline prices plunged. (3/17)
British Petroleum has begun to sell off its mature oil fields in Egypt to shift its focus to developing the country’s large natural gas reserves. BP is hoping to raise roughly $1 billion from a deal. BP has an overall goal to sell between $2 billion and $3 billion in assets this year, less than last year when it sold $4.3 billion in properties, leases, and projects. (3/16)
Kazakhstan’s sovereign wealth fund has offered Shell up to a 20 percent stake in KazMunayGas in a bid to raise the value of the state oil company ahead of a planned listing. Kazakhstan’s fund has plans for an initial public offering of KazMunayGas at some point after 2018, as part of a government privatization program. (3/14)
The United Arab Emirates and Qatar have extended a concession for an offshore oilfield that the two share—but warily, since the UAE is part of a regional blockade against Qatar, led by Saudi Arabia. (3/14)
Mexico vs. US energy trade: In each of the past three years, the value of US energy exports to Mexico (gasoline, diesel fuel, natural gas) has exceeded the value of US energy imports from Mexico (crude oil). (3/15)
In Mexico, the front-runner in July’s presidential election wants to upend Mexico’s newly-opened energy sector. Andres Manuel López Obrador, a leftist nationalist with a comfortable lead in the polls, has rattled investors by calling for a temporary freeze in new private investment in exploration and production of oil. But he plans to shift federal spending to refining from exploration and production that critics say could have the most dramatic consequences for the Mexican economy and US refineries along the US Gulf Coast. Eventually, Mr. López Obrador wants to completely halt exports of crude oil—a critical source of revenue for the country—because Mexico has become too dependent on the US for refined gasoline. (3/13)
The US oil rig count increased by four to 800, well up from 631 last year at this time, according to General Electric’s Baker Hughes energy services. (3/17)
US energy pipeline developers say they intend to pursue exemptions to the Trump Administration’s proposed steel tariffs, as concerns grow for those companies and from key exporters to the United States like South Korea. (3/15)
Offshore bumps: The Trump administration’s plan to broadly expand drilling in US offshore waters is moving slowly due to opposition from coastal states and indifference from oil companies that have turned their focus to other opportunities. The administration hopes encouraging US energy development outside of shale oilfields will further its goal of “energy dominance.” But existing Obama administration lease rules remain in place through 2022 unless the new rules gain approval. (2/13)
OK quake rules: Last month the Oklahoma Corporation Commission created the new earthquake protocol after hydraulic fracturing operations set off more than 70 earthquakes of at least 2.5 magnitude since 2016. The commission ordered all drillers to deploy seismic arrays to detect ground motion within five kilometers of hydraulic fracturing operations over a 39,000-square-kilometre area in the center of the state. Frackers must suspend their operations immediately for up to six hours after causing a 2.5 magnitude earthquake which can be felt at the surface. (3/13)
Mineral rights feud: The US is one of the only countries in the world that lets private individuals own the minerals under their land, a policy that dates to the founding fathers. The National Association of Royalty Owners estimates some 12 million American landowners receive royalties for the exploitation of oil, gas and other mineral resources. But as US production reaches record levels, a complex web of laws and court rulings is evolving over how these royalties are distributed. That’s creating vast differences in how much money property owners actually get, and prompting lawsuits accusing energy companies of shortchanging them. (3/16)
US gasoline consumption fell by a small amount (0.006%) for the first time in five years in 2017 as Americans saw higher gasoline prices, drove more fuel-efficient vehicles and their individual travel habits evolved. Monthly data from the EIA show total US product supplied for gasoline — a demand proxy — averaged 9.317 million b/d in 2017. (3/13)
Trucking’s future fuel? Diesel will be the transportation fuel of choice for fleet operators for the foreseeable future. At a Green Truck Summit, Daimler-Benz acknowledged that alternative fuels and green technologies would play a significant role in the trucking industry. For now, diesel is still the most efficient and cost-effective fuel, and that will be the case for quite a few years, the Daimler executive said. (3/14)
Biofuels precedent? The US Environmental Protection Agency’s decision to grant a bankrupt Philadelphia refiner relief from the nation’s biofuel laws drew critics on Tuesday who say it sets a bad precedent. The EPA and the Carlyle Group-backed, Philadelphia Energy Solutions refinery agreed on Monday that the refiner will have to satisfy only roughly half of its $350 million in outstanding compliance obligations under the US Renewable Fuel Standard. (3/14)
Production of advanced biofuels made from algae could grow rapidly in the late 2020s, according to Synthetic Genomics, the biotech company that has formed a partnership with ExxonMobil to develop the fuel. The two companies said last week that by 2025 they were aiming to set up one or more demonstration plants to produce 10,000 barrels a day of diesel and jet fuel from genetically modified algae. (3/13)
BP: renewables price competitive. BP reports that the cost of generating electricity from onshore wind power has dropped off 23 percent, and dropped 73 percent for solar photovoltaic, since 2010. By BP’s standards, both now compete with fossil fuels. Projections outlined in their technology report find the cost of wind power is particular declines as wind turbines get taller, rotor blades get longer and control systems become more efficient. (3/13)
In India, French energy company ENGIE said Monday it was expanding its presence in the renewable energy sector, one of the world’s fastest-growing economies. Leaders inaugurated the Mirzapur solar power plant, a 101-megawatt facility contracted to the French company in 2016. ENGIE said it signed more solar and wind power projects with a combined capacity of 608 MW of peak capacity, with the majority coming from solar energy. (3/13)
The UK House of Commons has released a new report on air pollution that calls for urgent action by national leadership to bring about a change in how the problem of air quality is tackled. The joint inquiry resulting in the report “Improving Air Quality” was launched in 2017 amid concerns about the inadequacy of the UK Government’s plan to improve air quality in the UK. (3/16)
Battery rare earths: Efforts by governments around the world to cut noxious emissions produced by fossil fuel-powered cars are driving demand for electric vehicles and the metals used to make them, such as lithium and cobalt which are key ingredients for batteries. Now the spotlight is on neodymium. Several automakers already use permanent magnet motors that rely on the metal because they are generally lighter, stronger and more efficient than induction motors that are based on copper coils. (3/13)
ENI invests in fusion R&D: Researchers at MIT may have found a way to fast-track the development of fusion energy, and a working pilot plant could be less than 15 years away. The project has attracted one of Europe’s largest oil and gas companies—Italy’s Eni—that has committed funding for research and development. MIT researchers may have found a way to produce net energy from fusion by the use of high-temperature superconducting electromagnets. (3/13)
Transition lagging badly: Instead of the roughly 1,100 megawatts of carbon-free energy per day likely needed to prevent temperatures from rising more than 2 °C, as a 2003 A Science paper from the Carnegie Institution found, we are adding around 151 megawatts. At that rate, substantially transforming the energy system would take, not the next three decades, but nearly the next four centuries. (3/16)
Can Dirt Save the Earth?
Agriculture could pull carbon out of the air and into the soil — but it would mean a whole new way of thinking about how to tend the land.
By MOISES VELASQUEZ-MANOFFAPRIL 18, 2018
https://www.nytimes.com/2018/04/18/magazine/dirt-save-earth-carbon-farming-climate-change.html?search-input-2=soil+and+co2