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25 January 2014

Press review 25-01-2013 - Iraq desintegrating

This past week Iraq was once again the source of the most relevant news concerning the World's energy predicament. The political and military situation is degrading fast, with several developments attesting the powerless of the Baghdad government. It seems the ISIL is just the tip of the iceberg, several other groups or organisations are in the fray, clearly matching Baghdad's army. Al-Maliki's government is clearly on the defensive, both politically as militarily.

A new front of conflict opened to the north with the Kurdish autonomous region, even if in this case it is purely political. The Kurds are set to bypass the Baghdad government and export petroleum solely by themselves. This can actually be more concerning to the Shiia establishment than the rebellion in Anbar.

For how long can Iraq's petroleum production stay where it is today?

Upstream
Iraq 'taking action' against Turkey
17-01-2014

Iraq is reported to be preparing legal action against the Ankara government over Kurdish exports of allegedly “smuggled” oil via a new pipeline to Turkey and has also vowed to punish foreign companies.

Revealing the move on Friday, Iraqi Oil Minister Abdul Kareem Luaibi said his government would blacklist any companies dealing with oil piped to Turkey from Iraq's autonomous northern region without permission from Baghdad, Reuters reported.

The Kurdistan Regional Government said last week that crude had begun to flow through the pipeline, and exports were on track to start at the end of January, inviting bidders to register with the Kurdistan Oil Marketing Organisation.
It is the sheer acting capacity of the Baghdad government that is at stake.
OilPrice.com
Iraq 2014 Budget will Collapse without Kurdish Oil Income
James Burgess, 22-01-2014

Haider al-Abadi, the head of the Iraqi parliament’s treasury committee, told Reuters that unless the northern Kurdistan region pays oil export revenue to the national treasury in Baghdad this year, the projected 2014 budget will collapse.

If the Kurdish Regional Government (KRG) once again refuses to pay the oil revenue owed then the only available option left to Baghdad would be to halt all state spending, which amounts to about 17% of the whole country, in the region.

[...] Abadi explained that state spending was rising sharply due to increases in pensions, public sector wages, child benefits, and student allowances, and that the draft budget for 2014 would have a deficit of about 21 trillion Iraqi dinars ($18 billion). This deficit assumes that the KRG will pay revenue earned from oil exports of 400,000 barrels a day, even though current exports are only at 255,000 barrels a day. If the KRG pays nothing then the deficit will be untenable and collapse.
A striking revelation come from the Baghdad government mid-week: the army is fighting the Sunni rebels not to reconquest lost territory, rather to stave them off the capital itself. There might be some exaggeration in these words, as a way to press the US and Iran to involve themselves further into this war. On the other hand this information hints at major resources being feed to the Shiia fighters; pointing to the backing from other regional powers.
timesfreepress.com
Iraq warns militants possess enough firepower to occupy Baghdad
21-01-2014

"The weapons that were brought inside Fallujah are huge and advanced and frankly enough to occupy Baghdad," Deputy Interior Minister Adnan al-Asadi said in a speech.

He did not elaborate on the type or quantity of the weapons, but described "fierce battles" there and in Ramadi.

Bomb attacks frequently strike Baghdad. But a military assault on the heavily guarded capital, with an estimated 7 million residents, would be far harder to pull off for an al-Qaida guerrilla force than the seizure of much smaller Fallujah.

Even so, Interior Ministry spokesman Saad Maan Ibrahim said this week's assault in Anbar was needed to keep the fighters from trying to storm the capital itself.

"Al-Qaida in Iraq has plenty of weapons and fighters," he said, without offering details. "If military action was not taken and if the operation by security forces was delayed for a few weeks, there would have been an assault on Baghdad."
Initial reports referenced small numbers of war refugees, which lead me to conclude on a timid response from the government. A fresh report by the UN points to a much more serious situation; "when the elephants fight it is the grass that suffers".
Deutsche Wella
UN report: more than 140,000 Iraqis have fled Anbar province
24-02-2014

Violence in Iraq's western Anbar province displaced over 140,000 people between December and this week, after clashes erupted between security forces and anti-government fighters linked to al Qaeda, the United Nations said on Friday.

Fighting in the cities of Ramadi of Fallujah drove out more than 65,000 people over the past week alone, it added.

UN High Commissioner for Refugees Peter Kessler described the situation as the "largest" displacement of people Iraq has seen since deadly sectarian violence between 2006 and 2008.
Another government that is now fighting two fronts is that of Tripolitana. Hardly any news from Fezzan reach the weastern media. Reuters opened an exception this week to report what it seems an all out war.
Reuters
Libyan planes attack unruly militias in south, army on alert
Feras Bosalum and Ulf Laessing, 18-01-2014

Libyan war planes attacked targets in the restive south on Saturday after gunmen stormed an air force base and the government ordered in ground troops following days of skirmishes between rival tribesmen and militias.

Western powers fear the OPEC producer could slide into further instability as the government struggles to contain heavily-armed militias, tribesmen and Islamists who helped to topple Muammar Gaddafi in 2011 but refuse to disarm.

A lack of border controls and the ineffectiveness of a small army lacking equipment have turned Libya into a weapons smuggling route for al Qaeda in sub-Saharan countries and also a corridor for Islamist fighters heading to Syria and economic migrants heading to Europe.
But the mainstream media has been largely reporting with optimism on this shattered country. It doesn't take much to understand how tenue such hopes are.
OilPrice.com
Not so Fast on Libyan Oil Optimism
João Peixe, 18-01-2014

We may be seeing the first boost in Libyan oil production in 10 months, which the markets are eyeing hungrily, but don’t jump the gun on this one—Libya’s oil is still being held hostage to a chaotic power struggle.

Libya tripled its light crude oil supplies to around 650,000 barrels a day over the past three weeks, but while the government remains publicly optimistic that its closed eastern ports held by rebels will be reopened this month, there is little evidence to sustain that.

Some of the optimism stems for the resumption of output on 4 January of Libya’s second-largest field, Sharara, but keeping it open means negotiating with protesters who have threatened to shut production down again if their demands are not met in terms of more national rights for the Tuareg tribe.
In past editions of this review I have highlighted the scramble in Saudi Arabia for Nuclear an renewable energy. Other major petroleum exporters in the region are following suit. Rising demand they say, as if it were something new. Sluggish supply I reply.
The Japan News
New energy demand rising in Middle East
22-01-2014

The United Arab Emirates, one of the world’s largest oil-producing countries, has accelerated its move toward solar and nuclear power.

The move is designed to maximize the amount of oil available to export in exchange for foreign currency by covering domestic energy demand with nonfossil fuel sources.

Similar moves are appearing across the Middle East, and the Japanese private and public sectors, smelling business opportunities, are there promoting technologies related to nuclear and renewable energy.
These issues with supply are everywhere, not just in the Middle East. The so called "petroleum majors" have long shifted their portfolios towards non-conventional resources. But it costs money, loads of it, that does not seem to be always around.
Rigzone
Megaprojects A Megaheadache For Oil Bosses
Dmitry Zhdannikov, 22-01-2014

Giant oil and gas extraction projects will be giving oil industry executives headaches to match for the years ahead as delays, cost overruns and increasing risks call for new strategies to manage them.

The sheer scale and complexity of such projects is threatening to outgrow the ability of even the largest oil companies to manage them.

They have emerged as the central topic for debate as oil executives gather on the sidelines of the World Economic Forum this week in the Swiss alpine resort of Davos.

Almost all the top companies have seen huge delays and broken budgets at projects ranging from record-breaking Australian liquefied natural gas (LNG) schemes to the enormous and a technically challenging Kazakhstan oilfield in the freezing Caspian Sea.
There is some worry brewing up in North America regarding above ground Natural Gas stocks. At this stage I'm not sure how serious the issue is, and doubt the situation can end up in the sort of shortages the UK has lived in recent winters. Nevertheless, relevant price movements could be ahead.
Testosterone Pit
Natural Gas Squeeze? “Panic hasn’t ensued just yet”
16-01-2014

[...] And today, we were served a doozie by the Energy Information Administration: 287 billion cubic feet (Bcf) of gas were drawn from underground storage during the week ending January 10, the highest rate ever, beating the prior record of 285 Bcf set in late December. Storage levels dropped to 2,530 Bcf. That’s 14.9% below the 5-year average for this week and 20.7% below last year at this time. It’s not much of a cushion: less than 4 weeks’ supply in the winter.

Storage levels are now 6.7% below the five-year minimum for the week! The last time it was this low was in 2005. For the week ending January 14 that year, storage was down to 2,500 Bcf. But it’s not comparable.

In 2005, the US consumed 22,014 Bcf of natural gas. In 2013, it consumed an estimated 26,100 Bcf (actual values are available only through Oct.). That’s an increase in annual consumption of 18.6%.

What happened in 2005? Early in the year, prices ranged from $12 to $14 per MMBtu and hit an all-time high of $15.40 in December. This year, consumption may be 20% higher than in 2005. The margin of safety that natural gas in storage represents hasn’t been this tight in many years.
One interesting aspect of this relatively long period with low Gas prices in the US is that it didn't trigger any start to the ever promising hydrogen economy. Forbes notes that on a volume basis H2 remains more expensive than petrol, which on an energy content basis means it is light years away from being a competitive road fuel.
Forbes

Michael Lynch, 22-01-2014

Research engineers will often talk about what can be done technically, without considering the economic feasibility. Magazines like Scientific American and Technology Review often gush over advances that turn out to be viable only in the laboratory, not the real world. Hydrogen fuel cell vehicles would seem to belong to this category.
There was a good deal of buzz these recent days on another round of cuts to renewable energy feed-in tariffs in Germany. This country is now one of the very few that keeps such programmes in place. Regarding Solar energy in particular, there rates mean that connecting a PV system to the grid will remain profitable only in south of the country. However, this rate is less than half of present utility rates to household consumers, meaning that there is likely more to gain with self-consumption set-ups.
Reuters
German minister plans prompt cut to renewable energy tariffs
18-01-2014

Germany's economy minister wants to cut the support price paid for electricity from solar and wind power generators by about a third by 2015, according to a draft proposal for one of the most challenging economic reforms facing Chancellor Angela Merkel's new government.

Under the draft proposal the feed-in tariffs paid to renewable power generators will be cut to an average across all technologies of 12 cents per kiloWatthour (cent/kWh) by 2015 from 17 cents/kWh currently.

And Economy Minister Sigmar Gabriel, who also leads the Social Democrats (SPD), wants the reduction to start taking effect for some new projects from as early as next week, according to the draft seen by Reuters on Saturday.
The impact PV has, and will have, on traditional electricity suppliers is no secret.
San Diego News
Solar energy and the 'poisoned chalice'
Morgan Lee, 18-01-2014

After resigning for health reasons, a member of the California Public Utilities Commission has warned of intense pressure by utilities to protect against the incursion of rooftop solar energy.

Commissioner Mark Ferron announced Wednesday that he could no longer perform his duties as commissioner after two years of treatment for prostate cancer. In a jocular parting report, he praised California for its leading role on energy and climate policy, while warning that its utilities "would still dearly like to strangle rooftop solar if they could."

[...] The Commission will come under intense pressure to use this authority to protect the interests of the utilities over those of consumers and potential self-generators" of solar electricity, he wrote, "all in the name of addressing exaggerated concerns about grid stability, cost and fairness."
"Buy Solar". Soon to become a worn mantra in business land.
MarketWatch
Elon Musk’s SolarCity soars after Deutsche Bank rates it a ‘buy’
16-01-2014

Shares of SolarCity Corp., the rooftop solar-panel installer backed by Elon Musk, rallied Thursday after analysts at Deutsche Bank rated the company’s stock a buy, saying that sinking costs will allow the technology to better compete with existing utility grids.

SolarCity SCTY , based in San Mateo, Calif., has Musk, the co-founder of PayPal, co-founder and CEO Tesla Motors Inc. TSLA -3.68% and founder of SpaceX, as its chairman and largest shareholder. His cousins run the company.

The Deutsche Bank analysts predicted that more U.S. retail power customers will switch to solar as the country nears “grid parity,” which they predict will happen by 2016. At that point, solar power will cost as much as, or less than, power from the conventional electricity grid.
Happy weekend.