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21 December 2013

Press Review 21-12-2013

Perhaps it is the spirit of the season. This past week the mainstream media burst with optimism on petroleum production in North America: the United States are going to become the world's largest producer, dispensing imports of the stuff. And then there's Mexico, where the opening of the sector to private investment should bolster production to where it never went before. The continent will soon be drowning in the black stuff.

Down here on Earth things do not look as promising, but that's not really important, what matters are the market movements these news bursts create in the short term. In the United States, contrary to the rest of the world, it is news of plenty that attract investors; scarcity is not particularly seen as a valuable thing from the stance of whom owns the resource. In the process we get some amusement.

It is definitely time to celebrate.
U.S. Crude Output to Climb Toward Record by 2016, EIA Says
Christine Harvey, 16-12-2013

U.S. crude oil production will approach a record by 2016, climbing to the highest level in 46 years as rising output from shale formations lifts domestic supplies, reducing the nation’s need for foreign oil.

Domestic output will grow annually by about 800,000 barrels a day to 9.5 million in 2016, nearing the record level of 1970, according to the U.S. Energy Information Administration’s Annual Energy Outlook for 2014. Natural gas production will grow 56 percent to 37.6 trillion cubic feet by 2040, boosting liquefied natural gas exports to 3.5 trillion, the EIA said today.

“The production growth we’ve seen is exceeding what anyone would’ve predicted a few years ago,” John Auers, senior vice president of Tuner Mason & Co., a consulting firm in Dallas, said by phone today. “It’s surprised everyone. We’ll be reaching even higher production very quickly because of breakthroughs in technology.”

U.S. oil production grew 18 percent to a 25-year high in the past 12 months, according to the EIA, as the combination of horizontal drilling and hydraulic fracturing, or fracking, unlocked supplies in shale formations including the Eagle Ford in Texas and the Bakken in North Dakota. Burgeoning output has reduced domestic demand for foreign oil and spurred record exports of fuel from U.S. refineries.
Mexico has been producing petroleum from the Cantarell underwater complex using one of the most advanced tertiary recovery methods with nitrogen injection. But somehow, foreign investment is set to wildly increase recovery factors and bring mature regions back to youth.
North America to Drown in Oil as Mexico Ends Monopoly
Joe Carroll and Bradley Olson, 16-12-2013

The flood of North American crude oil is set to become a deluge as Mexico dismantles a 75-year-old barrier to foreign investment in its oil fields.

Plagued by almost a decade of slumping output that has degraded Mexico’s take from a $100-a-barrel oil market, President Enrique Pena Nieto is seeking an end to the state monopoly over one of the biggest crude resources in the Western Hemisphere. The doubling in Mexican oil output that Citigroup Inc. said may result from inviting international explorers to drill would be equivalent to adding another Nigeria to world supply, or about 2.5 million barrels a day.

That boom would augment a supply surge from U.S. and Canadian wells that Exxon Mobil Corp. (XOM) predicts will vault North American production ahead of every OPEC member except Saudi Arabia within two years. With U.S. refineries already choking on more oil than they can process, producers from Exxon to ConocoPhillips are clamoring for repeal of the export restrictions that have outlawed most overseas sales of American crude for four decades.

“This is going to be a huge opportunity for any kind of player” in the energy sector, said Pablo Medina, a Latin American upstream analyst at Wood Mackenzie Ltd. in Houston. “All the companies are going to have to turn their heads and start analyzing Mexico.”
Others are not as excited, perhaps because they don't celebrate Christmas. The apparent concern of some stakeholders in Saudi Arabia that percolated some weeks ago is nothing but internal rethorics. The tight oil potential in the US is simply too small to be a nuisance.
Saudi will not be affected by shale oil output: report

The Riyadh-based Jadwa said Saudi Arabia, home to nearly a fifth of the world's proven conventional oil resources, would only be affected by the steady growth in domestic energy demand since the increase would reduce the Gulf Kingdom's crude exports.

"Since we doubt that tight oil production will grow as much as most commentators surmise, and since we believe that tight oil production will keep representing only about 3% of total liquids supply, we do not believe that the growth in oil production from tight rock formations in the US, or from shale formations elsewhere, will materially affect Saudi Arabia's long-term position in the oil industry," Jadwa said in a study.

"We view the production of tight oil in the US as mainly impacting Saudi Arabia through the narrowing of the price differential between heavy and light crudes. That narrowing may force a restructuring of downstream global refining activities, in particular in Europe, but should not affect Saudi Arabia's refining complexes."
Over at Peak Oil Barrel, Ron Patterson has been following the tight oil story in detail, with regular updates on production and operating rig figures. He is not at all impressed by the show put up by the EIA.
Peak Oil Barrel
Will US Light Tight Oil Save The World?
Ron Patterson, 20-12-2013

If the EIA’s decline rates are anywhere close then the Bakken should reach her peak at about 1.25 mb/d and Eagle Ford at about 1.6 mb/d, or at some point very close to those numbers.

Bottom line, all the hype is just hype. The US will likely never reach 4.5 million barrels per day of shale oil, the peak will not be spread out over five years as the EIA believes, and the decline will be a whole lot steeper than the chart above indicates. Shale oil may delay the peak of world oil production for one year, or two at the most.

While it is true that only the Light Tight Oil is keeping Peak Oil from being an obvious fact, that can only last for a year or two, then the US, along with almost every other nation in the world will be in decline.
The US culture is also notable for the way the word of rich folks is taken as gospel. Warren Buffet is perceived by many in that country as some sort of modern day leper messiah, and every time he says or does something the media world bows. What is really interesting in this story is the closing of Wind electricity costs on Coal.
The 9 Billion
Warren Buffett Orders $1 Billion Of Wind Turbines, As Wind Rivals Coal
John Johnston, 17-12-2013

Utility company MidAmerican Energy Holdings Co., a subsidiary of Warren Buffett’s Berkshire Hathaway Inc., has announced it’s ordering around $1 billion of wind turbines for wind power projects in Iowa, Bloomberg has reported.

It makes a lot of sense for the utility because declines in equipment costs are starting to make renewable energy competitive with fossil fuels, such as coal. The order for 1,050 megawatts of wind power, comprised of 448 wind turbines, is the industry’s largest ever order of land-based wind turbines.

Wind power is now within 5.5% of the cost of electricity generated from burning coal, as wind turbine prices have dropped 26% worldwide since the first half of 2009. Further, wind has become the cheapest source of power in Iowa, where the MidAmerican projects will be located.
The seasonal optimism spreads also to other energy sectors, as is the case with Solar. Naturally, these forecasts have a much higher chance of succeeding than anything put out by the EIA, but analysts should start pondering if governments will simply watch this growth unfold with arms folded.
2014 Solar Market Predictions Abound — IHS & Mercom
Joshua S Hill, 20-12-2013

This week saw two market research leaders jump into the fray, with IHS and Mercom Capital Group both releasing solar predictions for 2014.

And, surprisingly enough, both are in relative agreement with one another, at least on the major issue of total global solar installations for the year coming: Mercom are predicting approximately 43 GW of installations for 2014, while IHS believes that global installations will be in the range of 40 to 45 GW.

“After two years of a punishing downturn, the global solar industry is on the rebound,” said Ash Sharma, senior research director for solar at IHS. “Worldwide PV installations are set to rise by double digits in 2014, solar manufacturing capital spending is recovering, module prices are stabilizing and emerging markets are on the rise. However, challenges remain, including changes in government incentives and policy, an on-going backlash to the rapid rise of renewables and razor-thin margins throughout the solar value chain.”
I am not alone in my scepticism. The reflections on the consequences of cheap PV I've been issuing these past few months has echo in some places (not that I believe they listen to me). It is not hard to see that something doesn't add up, the free electric market framework is coming to terms with reality and the clash may not be all that positive.
UBS: Utilities face “perfect storm” from renewables, storage
Giles Parkinson, 21-12-2013

A new report from leading utilities analysts at investment bank UBS suggests that energy utilities in Europe, north America and Australia are facing a “perfect storm” from the falling costs of renewables, energy efficiency and falling demand, and may not be able to sustain their business models.

The report – entitled “Can utilities survive in their current form?” – is the latest in a series of assessments, reviews and analysis that point to the severe disruption to the centralized generation model, and the demand and supply dynamics that have governed the industry for the past few decades. To briefly summarise the UBS response to its own question, the answer is No.

UBS says the biggest impact on the current utility model will occur in developed markets, where renewables in general and distributed solar in particular will take more of an already depleted “demand pie.”
And to finish off on a lighter mood, a bit of sport. Formula 1 regulations for the 2014 season are inducing the deepest technological overhaul the sport has underwent in 30 years at least. The new mono-places will be able to produce 760 bhp from a "tiny" 1.6 litre engine. These new regulations are not just a techno-junky's wet dream, they are in fact rendering Formula 1 more relevant to real life transport than ever before.

This will probably be the last press review of 2013. In the meantime, have a merry Christmas.

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