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09 November 2013

Press review 09-11-2013

The post where I detail the address on Raw Materials at the scenario workshop held by INTESA has been getting some attention and is becoming one of the most visited ever in this blog. Thanks to Ugo Bardi and all the other folk that have linked to it. One of the points I made there is that beyond reserves, understanding the supply curve of a raw material can be far more important to identify limits to extraction growth. In recent days there have been a few notes in the press that point in the same way. While it is true that world petroleum production is at its highest, it is requiring increasingly higher expenditures from international petroleum companies. Although dealing with record cash flows, the profits these companies are able to pass on to shareholders are actually declining. This naturally means that these companies are exploring resources with lower returns on investment; the low hanging fruit is now mostly in the hands of state owned corporations.

I do not see this as the sign of a bleak future for the Petroleum Industry. Much to the contrary, these harder-to-get resources will require far more engineering and technology to be brought online. But these recent disappointing results show that the Industry must be careful not tap resources out of demand reach.

OilPrice.com
The Key Numbers On The Oil Industry's Problems
Dave Forest, 05-11-2013

[...] Exploration and development spending by E&Ps globally jumped 20% in 2012 alone. And rose a towering 48% between 2008 and 2012.

On its own, the rise in spending might simply indicate good times at hand for the industry. But a few other numbers from the report sound a warning on this front.

Namely, profits. Despite the big increase in spending, oil and gas firms globally actually made less money in 2012. After-tax profits for the sector declined 16% from 2011 levels.

The fall in money-making is backed up by figures from the field. In-ground reserves increased just 3% for oil, and gas reserves actually fell by 2% during 2012. Production growth was also sluggish, with oil output growing just 2% and gas only 3%.

Overall, these figures paint a bleak picture. Costs are rising fast, but not resulting in great returns.
There is much speculation in this sense regarding the Tight Oil resources (Petroleum extracted from the mother rock) in North America. The press usually sees this resource as virtually infinite, but there are exceptions.
USA Today
Could fracking boom peter out sooner than DOE expects?
Wendy Koch, 03-11-2013

Surging oil and gas production is nudging the nation closer to energy independence. But new research suggests the boom could peter out long before the United States reaches this decades-old goal.

Many wells behind the energy gush are quickly losing productivity, and some areas could hit peak levels sooner than the U.S. government expects, according to analyses presented last week at a Geological Society of America meeting in Denver.

"It's a temporary bonanza," says J. David Hughes, an energy expert at the Post Carbon Institute, a research group focused on sustainability. He studied two of the nation's largest shale rock formations, now the source of huge amounts of oil and gas, and said they could start declining as early as 2016 or 2017.
Another good example of a low return on investment resource is Arctic Oil. Shell seems eager to resume exploratory drilling in these frigid territories, openly assuming a relevant risk. Time will tell how feasible such petroleum resources are.
OilPrice.com
Shell Announces Plans to Resume Arctic Oil Exploration in 2014
João Peixe, 31-10-2013

Shell has spent eight years and almost $5 billion trying to create a new generation of Arctic oil production. It is the largest project that Shell is involved in, and Simon Henry, the company’s chief financial officer, has claimed that it has the potential to be a multi-billion barrel operation.

Problems experienced during the 2012 Arctic drilling season, specifically the damage suffered by a specialised oil spill continent system, meant that Shell could only perform top-hole drilling for its wells; it now plans to go back and complete the wells.

Henry revealed that Shell would soon provide a blueprint to the Interior Department for its plans to resume drilling in the Chukchi Sea, and that no intentions exist to move back to the Beaufort Sea just yet.

“We have not yet confirmed if we drill in 2014,” said Henry. “Clearly, we would like to drill as soon as possible, so we are putting the building blocks in place. There remains a permitting and regulatory process through which we need to go, before we can confirm a decision to actually drill in 2014.”
A report published late last month points in parallel ways towards Coal in North America. The authors claim that coal extraction has peaked due to dwindling easily minable resources. They have perhaps identified a leftward shift in the supply curve, but a peak would require demand to stall, which is not a given for the moment.
Bloomberg
Peak Coal Passed in 2008 as Mining Costs Rise, Group Says
Mark Drajem, 30-10-2013

Coal reserves in the U.S. are lower than government and industry estimates because the shallow deposits that are cheaper to access have been largely mined out, according to a study by a group urging the country to pursue renewable energy.

Clean Energy Action in Boulder, Colorado, said in a report today that the U.S. passed its peak coal production in 2008, and that production will become increasingly difficult and expensive across the country. Only one of the top 16 coal-producing states, Indiana, is likely to see record production in the future. Traditional producers such as Pennsylvania and West Virginia hit their peak decades ago, it said.

“Independent of arguments about climate change and clean coal, coal’s days are very likely numbered due to questions of economic supply,” Zane Selvans, the assistant director of research at Clean Energy Action, said in a statement. “We are rapidly approaching the end of accessible U.S. coal deposits that can be mined profitably.”
Some months ago I pointed out that important environmental limits where rising up on further Coal extraction growth in China. The government has been forced to mandate a reduction of Coal usage, which has forced a massive shift to Gas. It seems there isn't enough of it to go about.
Radio Free Asia
China Faces Gas Shortage after Cutting Coal Consumption
Michael Lelyveld, 04-11-2013

China is bracing for natural gas shortages this winter as the government tries to fight smog by reducing consumption of coal.

On Oct. 21, the National Development and Reform Commission (NDRC), China's central government administrative agency, said it would take steps to limit gas use as a result of shortages that have already appeared in cities including Urumqi and Beijing, Reuters reported.

The NDRC plans to control the increase of new gas users following rapid switching from coal to the cleaner-burning fuel.

Cities in the north and northwest have been turning quickly to gas-fired heating systems under pressure to improve air quality, an unnamed analyst for China National Petroleum Corp. (CNPC) was quoted as saying.

The NDRC is reportedly encouraging utilities to cut back on gas-fired power production to ease expected shortages during the winter heating season.

"With the unusually high growth in gas demand, the gap between supply and demand could be even wider this winter and next spring," Platts energy news service quoted the NDRC as saying. "If temperatures are persistently low, the gas supply situation will be even more severe."
As water is one of the main constraints to China's Coal industry, it might also become a limit to Gas extraction from the mother rock in North America. We'll see if this becomes a serious issue before production peaks by the sheer exhaustion of the resource.
EnergyBiz
Water Shortages Threaten Shale Gas Development
Ken Silverstein, 04-11-2013

If water is the new oil and shale gas is the new energy savior, something has to give. That’s because the exploration for the unconventional form of natural gas uses so much water that it is encroaching on society’s other needs.

Not only do utilities consume it. So does big industry and small residential households. Complicating things, the demand for electricity in this country is expected to rise by 1.5 percent over the next 20 years. Governments and businesses alike are now calling for concerted conservation efforts and technological advances.

“Freshwater resources around the world are under threat from fossil fuel development, and these threats are emerging in new places with rapid growth in recent years of natural gas extraction from shale using horizontal drilling and hydraulic fracturing,” says a report by Morgantown, WV-based Downstream Strategies. “This technique has been criticized for its environmental impacts, including dewatering streams and surface-and-groundwater pollution.”

The outfit examined water usage in the Marcellus Shale region and specifically in Pennsylvania and West Virginia. It says that between the two that 4.1 million to 5.6 million gallons of fresh water is used per fractured well where 9,000 wells have been permitted, which makes it the largest consumer of water among the various shale formations.
On political grounds there's an important story brewing up in the Near East over Petroleum. A previously identified resource in the West Bank is now being publicised as much larger than initially assessed. The jurisdiction over such resource can become one more source of conflict in an already turbulent enough region.
Al Jazeera
Israel to drill for oil in the West Bank
Jonathan Cook, 02-11-2013

Nazareth, Israel - Israeli investors had reason to celebrate last month with the news that Israel may soon be joining the club of oil-producing states, in addition to its recent finds of large natural gas deposits off the coast.

Shares in Givot Olam, an Israeli oil exploration company, rallied on reports that it had located much larger oil reserves at its Meged 5 site than previously estimated.

The company, which says it has already sold $40m worth of oil since the Meged field went operational in 2011, now believes that the well is sitting on exploitable reserves of as much as 3.53 billion barrels - about a seventh of Qatar's proven oil reserves.

Only one cloud looms on the horizon. It is unclear how much of this new-found oil wealth actually belongs to Israel. The well sits on the so-called Green Line, the armistice line of 1948 that formally separates Israel from the occupied Palestinian territories.
To close some important details from the flow of information on the dirty deeds practised by the NSA. It was already known that Google itself thoroughly scans (all?) e-mails stored in its servers. Strong evidence now indicates that the NSA is able to do the same, having broken into Google's private communication network. Although I do not expect any government to be courageous enough to act on this, it should be perfectly clear that such action is in breach of European Law (and its American counterpart). The main conclusion from this story: it is no longer safe to store e-mail with American corporations. I have been trying to find a proper replacement for GMail the past few months without success; at some point I'll have to accept the loss of some of its features in exchange for secure storage.
The Washington Post
How we know the NSA had access to internal Google and Yahoo cloud data
Barton Gellman, Ashkan Soltani, and Andrea Peterson, 04-11-2013

The Washington Post reported last Wednesday that the National Security Agency has been tapping into the private links that connect Google and Yahoo data centers around the world. Today we offer additional background, with new evidence from the source documents and interviews with confidential sources, demonstrating that the NSA accessed data traveling between those centers.

The background also helps explain the response of U.S. officials following the publication of the story.

The U.S. government declined repeated requests to discuss the story beginning eight days before it was published. Since publication it has made four responses.[...]

The two companies do not entrust their data center communications to the “public internet,” which is comparable to an international highway system that anyone can use. Instead, they link their data centers with thousands of miles of privately owned or privately leased fiber optic cable – in effect, a system of private highways. When Google and Yahoo have to share a stretch of road with the public internet, they take other precautions to keep their traffic secure.

We showed some of the NSA’s briefing slides to private sector experts with detailed knowledge of the internal corporate networks of each company. In separate conversations, they agreed that the slides included samples of data structures and formats that never travel unencrypted on the public Internet.
Enjoy the weekend, if the weather alows you.