ODAC Newsletter - 16 October 2009
Welcome to the ODAC Newsletter, a weekly roundup from the Oil Depletion Analysis Centre, the UK registered charity dedicated to raising awareness of peak oil.
Oil prices rose this week breaking the $75/barrel mark for the first time this year. The gains were mainly fuelled by rising equity prices and a falling dollar. The mood of economic optimism was shared to a degree by OPEC with the organization increasing their 2010 demand forecast by 300,000 barrels/day. Most of that growth is predicted to be from the developing economies.
A new research report from IHS Cambridge Energy Research Associates (CERA) claims, not only that most new oil demand will come from emerging markets, but that OECD oil demand peaked in 2005 and is in decline. The press release goes on to say that the actual decline in demand will be modest, with petroleum destined to remain the major transport fuel for the next 25 years - a statement which utterly ignores the implications of peak oil.
Some of those who are concerned about this disconnect are looking for a possible lifeboat in the form of shale gas. In an article in this week’s Daily Telegraph, Ambrose Evans-Pritchard reports on the excitement emanating from the gas industry. In Guest Commentary this week ODAC trustee and author of High Noon for Natural Gas, Julian Darley, brings his perspective to this phenomenon.
The UK saw 2 high profile energy reports released in the last week, one from OFGEM and the other from the Committee for Climate Change, both of which highlight shortcomings in the government’s energy policy. Just as it looks increasingly likely that the Conservatives will be returned to power, it is becoming clear that the market driven energy policies which they set in motion, and were then adopted by New Labour, have created a legacy of declining infrastructure and a system, which despite much talk about ‘green’ investment, is still structurally tied to fossil fuels. To quote Jeremy Warner in the Telegraph this week, it seems that “Leaving it to markets to sort out may have been a mistake. Leaving it to ministers was a much bigger one.”
View our Reports and Resources page
Join us! Become a member of the ODAC Newsgathering Network. Can you regularly commit to checking a news source for stories related to peak oil, energy depletion, their implications and responses to the issues? If you are checking either a daily or weekly news source and would have time to add articles to our database, please contact us for more details.
Crude oil rose above $78 a barrel, capping its biggest weekly gain in two months, on an unexpected decline in U.S. gasoline stockpiles and refinery utilization.
Oil advanced for a seventh day after the Department of Energy reported U.S. inventories of the motor fuel tumbled 5.23 million barrels last week, almost five times the decline forecast by analysts and the biggest drop in a year. The dollar continued its descent against the euro, bolstering the investment appeal of commodities...
World demand for OPEC's oil will be stronger than expected next year, the producer group said on Tuesday, adding to signs that an improving economic outlook will boost oil consumption.
The 12-member group is the latest forecaster to lift its oil demand estimates in the past week, following upward revisions from the International Energy Agency and the US government's Energy Information Administration...
Demand for oil in developed nations peaked in 2005, and changing demographics and improved motor-vehicle efficiency guarantee that it won't hit those heights again, IHS Cambridge Energy Research Associates says in a new report.
Reduced petroleum demand in developed nations could make their economic growth less vulnerable to oil price shocks, the report states.
Nonetheless, global oil demand is still expected to grow, overall, driven by China and other developing nations as the world economy recovers...
Russian oil output will stagnate in 2010 and begin to decline as mature fields lose production capacity and only one new project comes on line, oil analysts at Bernstein Research said on Wednesday.
Russia, now the world's largest oil producer, pumped 10.01 million barrels per day last month, up 0.4 percent from the 9.97 million bpd produced in August, both record highs, Russian Energy Ministry data released last week showed.
But Bernstein analysts said Russian production, which recovered in 2009 after dropping for the first time in a decade in 2008, was merely experiencing a temporary spike following the launches of eight new fields this year...
Iraq has lured big oil firms into new service contracts on some of its giant oilfields by cutting taxes and sweetening terms to make the deals more profitable, industry sources said on Wednesday.
International oil companies are close to striking deals that would almost triple Iraq's output and catapult it up the table of global producers. The firms walked away from those deals at an auction just over three months ago.
Lower taxes were the main factor that convinced firms they could turn a profit where they previously saw too much risk on punishing terms, executives at international oil firms said...
The semiautonomous Kurdish region has reopened a rift with the central government after announcing that it had halted all petroleum exports from Kurdistan until Baghdad pays the international companies that are pumping oil in the region.
Oil extracted in Kurdistan can be exported only through Iraqi government pipelines running to Turkey, giving Baghdad a stranglehold on the transport of oil produced there. At the same time, the government needs all the revenue it can get to pay for a host of pressing needs...
America is not going to bleed its wealth importing fuel. Russia's grip on Europe's gas will weaken. Improvident Britain may avoid paralysing blackouts by mid-decade after all.
The World Gas Conference in Buenos Aires last week was one of those events that shatter assumptions. Advances in technology for extracting gas from shale and methane beds have quickened dramatically, altering the global balance of energy faster than almost anybody expected...
It is hard to know where to begin regarding Ambrose Evans-Pritchard's article entitled "Energy crisis is postponed as new gas rescues the world." But since the speculative world he invokes has more to with Alice In Wonderland than the hard reality of engineering and science, let us begin - at the end.
Evans-Pritchard caps his evangelistic encomium with this: "I am not qualified to judge where gas excitement crosses into hyperbole. I pass on the story because the claims of BP and Statoil are so extraordinary that we may need to rewrite the geo-strategy textbooks for the next half century."
He admits his lack of gas qualifications but surely he is enough of a journalist - and an economist - to ask some basic fact-checking questions. If he had, he would have discovered that people like Aubrey McClendon, CEO of Chesapeake Energy, have been brazenly hyping shale gas - even employing well known gas expert Tommy Lee Jones to promote the stuff - in the hope of making a fortune. Given that Mr McClendon is reputed to have lost around $2bn in the recent financial debacle, his keenness is perhaps understandable (though he still managed to earn more than $100m last year).
As for BP saying anything earth shattering, according to geologist David Hughes, "(Chief Executive) Hayward said nothing that wasn't in the latest BP report, which wasn't much different from previous BP reports (ie. 60 year Reserves/Production where it has been in past BP reports)."
What none of the boosters want to talk about is the reality of shale gas. It is true that there is most likely a lot of shale gas around, especially in the United States, but after this, the story goes down a rabbit hole. Shale gas is not like the conventional gas finds that gave the US vast supplies of cheap methane. Shale gas is locked in until the rocks holding it are fractured in a process known as hydro-fracing. This requires a lot of work, a lot of wells, a lot of water (2 - 5 million gallons per well), and some rather unpleasant chemicals. Having made all this effort, the production decline rates look like the cliffs at Beachy Head. Within two years production has typcally dropped by 80%.
Not surprisingly therefore, these expensive wells have an average commercial life of less than eight years. Worse still, in August of this year, World Oil pointed out that total production of many wells was only a third of what operators had predicted. Furthermore, of the two dozen or so shale plays in the US, Barnett appears to have the best geological profile and is responsible for 80% of current shale gas. Many of the other plays have much lower gas content density, which would likely mean yet more wells and more fracing for less gas.
But you ask, unlike Evans-Pritchard, if these wells are expensive, what happens if either the price of gas falls or drilling declines precipitously (the former of course being a likely trigger for the latter)? Very good question, because US natural gas has now sunk to roughly half the price of the median break-even price of shale gas. In a nice moment of symmetry, gas drilling has also fallen by half. Of course, drilling can and will increase, but only when the economics justify it. For the moment, it looks like US gas production may decline by up to 14% this year (according to Bernstein Research), which would actually leave the US supply a few percent short, though it will be easy to fill gap with gas in storage or imports.
There are least two key missing points which make the article so misleading. The first is that shale gas flow rates are always much lower than conventional gas, which in practical terms makes it an expensive and unlikely replacement either for conventional gas or for oil. The second and far more profound omission is that the geology of gas shale varies widely across both America and the world, so that to extrapolate from the best - Texas Barnett shale - to the world is like saying we should be able to grow bananas in Norway just because they grow in India.
Natural gas is a very useful energy source and it emits less carbon than any other fossil fuel. If large, new, easy-flowing sources of it were found, it could relieve some short-term energy worries and reduce geopolitical tensions. However, shale gas, though possibly a useful crutch, is not going to rescue the world, for the reasons outlined above. Alice was finally woken from her dreamworld and brought back to reality by a hot cup of tea. That may not be enough to get us to face the disappointing reality of shale gas.
[My thanks to Dave Hughes for his recent presentation: Natural Gas in North America: A Panacea to Replace Imported Oil?]
A great European war is about to begin. The heart of the conflict will be in Germany, Austria, Hungary and Italy. There will be battles in the North Sea, a strike from North Africa at Italy’s boot and into the South of France. The final struggle could see a cross-Channel invasion by Britain of France and the Benelux countries.
This is a war for natural gas, a struggle for control of the market in this vital fuel...
Prime Minister Vladimir Putin arrives in China today bidding to strengthen a relationship forged by Russian oil exports to Asia’s largest energy consumer.
Russia, which this year sealed Chinese oil contracts valued at $100 billion, is now negotiating an agreement that would make China OAO Gazprom’s biggest customer for natural gas. Its communist neighbor currently buys no Russian gas...
Russia is not against the idea of selling its gas for roubles, and would be happy to pay in yuan for Chinese goods, Russian Prime Minister Vladimir Putin said on Wednesday...
The world needs to build 100 major projects for capturing and burying greenhouse gases by 2020 and thousands more by 2050 to help combat climate change, International Energy Agency chief Nobuo Tanaka said on Tuesday.
Energy ministers meeting in London said the world must start building by next year at least 20 commercial-scale pilot projects to test a technology which U.S. energy secretary Steven Chu said could solve "20 percent of the problem" to curb carbon...
Here’s the good news: Much-ballyhood carbon capture and storage will cut the global bill for curbing greenhouse-gas emissions by 70%. Here’s the bad news: Getting carbon capture and storage up to speed promises to be a mind-bogglingly expensive and complicated task.
The International Energy Agency just laid out in London its global “roadmap” for capturing and storing carbon emissions underground from power plants and big factories...
Plans for a new generation of "clean coal" power stations were dealt another severe blow after the Danish energy giant Dong Energy announced it was pulling out of plans for a major new coal-fired plant in Ayrshire.
Dong said it was withdrawing from the 1.6GW Hunterston power station scheme, which would eventually use carbon capture technology, and a further coal-fired plant in Germany, to focus its efforts on green energy and cutting its CO2 emissions...
Bg Group has received an unsolicited offer for part of its £1.5 billion power generation business and could announce a sale imminently.
The gas giant has appointed Goldman Sachs to advise on the bid, which is understood to be for most but not all of the arm’s operations. These include power plants in Europe, Asia and America that last year generated £617m in turnover. Sources close to the company said a deal could be announced as soon as this week, although nothing has been finalised and talks could still break down...
Britain's energy policy has been a mess for almost as long as anyone can remember. On the evidence of two reports published over the last week, one from Ofgem, the energy regulator, and the other from the Committee on Climate Change, it is not about to get much better.
As you would expect, both these reports are articulate, not to say effusive, in describing the nature of the problem and warning of the likely monetary costs of fixing it. In the words of Lord Turner's Committee on Climate Change, the issue is that "current electricity market arrangements together with the European 'emissions trading scheme' are unlikely to deliver decarbonisation [of electricity generation], and would instead lead to increasing dependence on imported gas."...View full reports
Britain faces a return to 1970s-style power blackouts and disruption to its electricity supplies within four years, the energy regulator warned yesterday.
Ofgem raised the spectre of a return to the three-day week for British industry as the country scrambles to renovate its crumbling power infrastructure ahead of new EU pollution rules that will force the closure of a quarter of UK power stations by 2015.
Alistair Buchanan, Ofgem’s chief executive, said: “There could be a potential shortfall in the period 2013-18 ... Life might be pretty cold.”...
Britain's ambitious policies to cut carbon dioxide in the fight against global warming are still not enough, the official climate change watchdog warns today in its first annual report.
Even though the Government has created a detailed plan for transition to a low-carbon economy, a "step change" is still needed in the pace of reducing carbon emissions, and in fact the rate should be more than doubled, says the Climate Change Committee...
As if Britain needed any more bad news. Last Friday, Ofgem, the country’s energy regulator, warned that investment of up to £200bn would be needed over the next 10 to 15 years to maintain reliable energy supplies in the UK while cutting carbon emissions. Consumers hoping the recent slump in gas prices would translate into a lasting drop in energy bills will be deeply disappointed...
Pressure is mounting on the Government to ease the tax regime governing North Sea oil and gas in next month's pre-Budget report. Critics claim that the Government's talk of a need for a successful British industry to end the dependence on financial services and the City is undermined by the reality of a world-leading hydrocarbons industry that is being taxed into premature decline.
The common perception is that the North Sea is finished. But while some 40 billion barrels of oil and gas have been produced from the North Sea so far, there is another estimated 25 billion still to come...
Saudi Arabia is trying to enlist other oil-producing countries to support a provocative idea: if wealthy countries reduce their oil consumption to combat global warming, they should pay compensation to oil producers.
The oil-rich kingdom has pushed this position for years in earlier climate-treaty negotiations. While it has not succeeded, its efforts have sometimes delayed or disrupted discussions. The kingdom is once again gearing up to take a hard line on the issue at international negotiations scheduled for Copenhagen in December...
In a declaration of policy that will dismay both domestic and foreign investors, Japan’s new Financial Services Minister yesterday reiterated his demand for a return to traditional business practices and insisted that “there will be no apeing of America” on his watch.
Companies are not “money-making tools” for enriching shareholders and managements should embrace the “social meaning” of being corporations, Shizuka Kamei told The Times...
Chinese official export figures for September have suggested improvements in economies in the rest of the world.
Exports from the world's third largest economy fell to $115.9bn (£73bn), which was down 15.2% from September 2008, but the smallest fall in nine months...
US retail sales fell in September by the largest amount in 2009, driven by car sales plummeting at the end of the country's scrappage scheme.
The Commerce Department said sales slid 1.5%, not as bad as expected, but the biggest drop since December last year...
The Dow Jones Industrial Average has topped the 10,000 mark for the first time in a year.
World markets were boosted by the news that US bank JP Morgan Chase reported a better-than-expected profit in the July-to-September quarter.
The Dow closed up 144.8 at 10,015.86, its highest since October 2008...
Unemployment and dependency on energy revenues remain big obstacles for Russia as it struggles to emerge from its first recession in a decade, President Dmitry Medvedev said in a television interview aired on Sunday.
"Unemployment is the biggest problem that we must overcome," Medvedev told Channel One television...
The items contained in this newsletter are distributed as submitted and are provided for general information purposes only. ODAC does not necessarily endorse the views expressed in these submissions, nor does it guarantee the accuracy or completeness of any information presented.
FAIR USE NOTICE: This newsletter contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of environmental and humanitarian significance. We believe this constitutes a 'fair use' of any such copyrighted material. If you wish to use copyrighted material from this newsletter for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.