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24 May 2014

Press review 24-05-2014 - "Shale oil" blues

It came pretty much like a bomb. At the beginning of this week, the state of California in the US was supposed to home the largest source rock petroleum reserve in that country. With the official estimate over 13 Gb, California was supposed to have more petroleum reserves in its source rocks than the two major producing regions of the country combined: Bakken in Dakota and Eagle Ford in Texas. No more. A revision by the US Energy Department, made public mid-week, brought down the estimate to a mere 0.6 Gb, about the amount of petroleum the US burns in a month.

There is a lot here to think about. How could have the original estimate been so wrong? How could have it prevailed long enough to become a relevant part of energy policy in California? What happens to the companies that had already positioned themselves to exploit a resource that is now known to be largely unexistent? How trustworthy are other petroleum (and gas) estimates issued by the authorities in the US?

Policy makers in Europe beware. What happened in Poland regarding source rock gas reserves indicates too that these overestimations may be more norm than exception.

Los Angeles Times
U.S. officials cut estimate of recoverable Monterey Shale oil by 96%
Louis Sahagun, 20-05-2014

Federal energy authorities have slashed by 96% the estimated amount of recoverable oil buried in California's vast Monterey Shale deposits, deflating its potential as a national "black gold mine" of petroleum.

Just 600 million barrels of oil can be extracted with existing technology, far below the 13.7 billion barrels once thought recoverable from the jumbled layers of subterranean rock spread across much of Central California, the U.S. Energy Information Administration said.

The new estimate, expected to be released publicly next month, is a blow to the nation's oil future and to projections that an oil boom would bring as many as 2.8 million new jobs to California and boost tax revenue by $24.6 billion annually.
This bombshell in the US ended up masking what was a serious warning issued by the IEA on a tightening petroleum market. This public announcement may be flagging more than just a hike in consumption. In recent years the IEA has been comfortable in using the strategic stocks it coordinates to bound petroleum prices, could this announcement mean in fact this strategy is exhausted?
Energy agency predicts oil shortage unless supply boosted
Stephen Letts, 19-05-2014

Industrialised countries could be facing the prospect of an oil supply squeeze and higher prices later this year unless production is lifted, according to a report just released by the International Energy Agency.

In its latest Oil Market Report, the IEA says recent production gains will not be sufficient to meet market needs in the second half of the year when consumption picks up.

"Crude prices remain elevated and forecast balances call for a significant rise in OPEC production from current levels for the second half of the year," the IEA said.
Naturally, the call is on OPEC to tackle the projected rise in consumption with a hike in production. But the cartel has not looked this constrained in many years. Perhaps since 2004.
The Barrel
IEA looks to OPEC to boost oil production as output growth elsewhere slows
Stuart Elliott, 21-05-2014

The International Energy Agency believes OPEC will need to raise its production by nearly 1 million b/d in the third quarter to meet rising global demand and to make up for slowing supply growth from non-OPEC producers.

That would mean the group would be producing nearly 31 million b/d within a few months.

Can it be done?

Disruptions caused by varied geopolitical circumstances suggest not. Libya is still struggling to recover production to anything near the levels seen before anti-government protesters started disrupting operations last May. Iraq continues to be hit by major instability in the northwest and Iran remains under international sanctions.
One of OPEC's members that features regularly in this review seems to be gearing up for a new phase of turmoil, not far from a return to civil war. Several forces in Libya have apparently gathered under a single command to engage the multiple Islamist factions, in the way erasing any vestige of democracy left in the country. I am sure some wish Khadaffi could still be in the field today.
McClatchy DC
Offensive in Libya by former Gadhafi general aimed at breaking Islamist control
Nancy A. Youssef, 21-05-2014

A former general in Moammar Gadhafi’s army who defected to the United States nearly three decades ago has launched an unexpected offensive against Islamist militias in Libya, a development that appears to have broken the stalemate that has left the militias in charge in much of the country

But whether Khalifa Hifter’s move against some of the same militias that are blamed in the death of U.S. Ambassador Christopher Stevens and three other American will prove to be a boon to Libya or merely usher in more bloodshed and instability is hardly certain.

Hifter’s offensive, which began Friday in Benghazi, has spurred militiamen, military commanders and rogue fighters alike to pick sides in what potentially is a nationwide battle every bit as violent as the one that ended in Gadhafi’s death in 2011. On one side are the Islamists, who want to maintain their hold over Libya. On the other are Hifter’s allies, who want a new political order and a return to stability - even if it means an end to Libya’s gridlocked elected government.
NATO is readying to completely abandon Libya to its fate. A clear sign that things might have to get worse before they get any better.
McClatchy DC
Fearing militia control of Libya’s airports, U.S. moves troops to Sicily in case evacuation needed
Nancy A. Youssef, 16-05-2014

Alarmed by developments in Libya, the United States this week moved 200 troops to a base in Sicily so that they could respond more quickly if the U.S. needs to evacuate its embassy in Tripoli, two administration officials have told McClatchy.

The troop move is the latest acknowledgment from the Obama administration that three years after a NATO bombing campaign helped topple the government of Moammar Gadhafi, conditions in the oil-producing country are deteriorating and security concerns that previously were confined to Benghazi and Libya’s east have spread to Tripoli, the capital, and the country’s west.

Of special concern is that Islamist militias could easily close Tripoli’s airport, complicating any effort to evacuate U.S. diplomats if the situation deteriorates further. Militias also are in position to seize control of Libya’s other airports, including the one in Benghazi, where militants in 2012 attacked U.S. diplomatic facilities, killing four Americans including the ambassador, Christopher Stevens.
Petroleum output in Lybia is still little over 10% of what it was before Khadaffi was toppled.
Libya's major western oilfields remain closed

Libya's major western oilfields remain closed 10 days after the government said protesters blocking pipeline flows had agreed to leave, while total oil output edged higher, a spokesman for National Oil Corp said on Wednesday.

Only the small 30,000-barrels-per-day (bpd) Wafa field was producing normally in the west, NOC spokesman Mohammed El Harari said.

Oil output was around 230,000 bpd, he said, slightly higher than earlier this week at 210,000 bpd but well below the country's 1.6 million bpd capacity.
Serious energy issues also in a neighbouring country. Egypt was a net petroleum exporter just a few years ago, but today it seems plunging rapidly into energy poverty. A tragic fate that has long been announced, petroleum extraction in Egypt peaked 20 years ago.
Huffington Post
Egypt Sets Clocks Forward Amid Crippling Energy Crisis

As of midnight, the Egyptian government reinstated daylight saving time “as a way to help reduce electricity consumption.” The practice was formally abolished three years ago, but the recent decision to bring it back has been met with confusion. And yet, with blackouts lasting over an hour now becoming a daily occurrence, Egypt’s energy crisis is impossible to ignore.

Unable to pay its steep energy bills, Egypt is struggling to provide enough energy to its 85 million people. The country owes foreign energy companies roughly $5.7 billion, and the interim government is scrambling for solutions.

Much of interim government's attention has been focused on security, with near daily bombings and attacks targeting security forces in the capital and across Egypt. The international community has condemned the government’s security crackdown as repressive. But the crippling energy crisis is no less of an issue in Egyptians' daily lives, and is tied closely to the security situation.
Another bit of news that comes somewhat unexpectedly: coal shortages in India. There have been a few hints of an easing coal market in Asia, thus it is not clear at the moment the real cause behind these shortages. A problem to follow in the weeks to come.
India Today
Punjab stares at blackouts over lack of coal supply
Manjeet Sehgal, 21-05-2014

Punjab is heading for a major power crisis as 10 out of 14 units of its three major thermal power plants have been shut down following short supply of coal. Power generation in Bathinda's Guru Nanak Dev thermal plant, Guru Hargobind thermal plant in Lehra Mohabbat and Guru Gobind Singh thermal plant in Roopnagar has almost come to a standstill as only four units of these plants are working.

"Only two units of Roopnagar plant and one each of Lehra Mohabbat and Bathinda are in working condition," a Punjab State Electricity Board (PSEB) official said. The strike of Punjab State Electricity Board (PSEB) engineers has further aggravated the situation as some of the units, including the Lehra Mohabbat plant which tripped on Sunday, would not be repaired.

Poor power generation has interrupted power supply in many parts of the state which is already reeling under power shortage. The coal supply to all three thermal power plants is also erratic which has forced the plants to shut down the units. The plants require a supply of six coal rakes per day which is not available. The Punjab government's tall claims about power generation have fallen flat as the state's thermal power plants are not able to generate enough power to meet the growing demand. The state which had already hiked the power tariff by 9 per cent in April is planning to hike the tariff again.
Russia is taking the events in Ukraine and the ensuing sanctions seriously. Moscow is not only backing the return of Iran to international markets, it now wishes to involve itself in the expansion of the nuclear park in the Persian nation. The international negotiations around Iran's nuclear programme may no longer be that relevant.
Ria Novosti
Russia May Sign Agreement to Build 8 Reactors in Iran

Moscow may sign an intergovernmental agreement with Teheran this year to build eight new reactors for nuclear power plants in Iran, a source close to the negotiations told journalists Thursday.

Two reactors could be built at the Bushehr Power Plant and six reactors at other sites, the source said, adding that the talks were in their final stage.

Russian President Vladimir Putin said earlier this week that Russian-Iranian cooperation will continue despite international turbulence around Tehran. Putin said that Russia and Iran are not only neighbors, but also long-standing reliable partners.
While in Europe politicians and industry pundits sell the idea that renewable energies are too expensive, in other places energy policy is taken a tad more seriously. Ironically, even in countries where fossil fuels are still plentiful.
Interest In Solar Energy Rises, Even In Saudi Arabia
Andy Tully, 21-05-2014

Countries around the world are showing increased interest in developing solar energy but perhaps none is more unusual than Saudi Arabia, which exports more oil than any other nation.

At a recent petrochemical conference in Bahrain, Khalid Al-Falih, the CEO of the Saudi Arabian Oil Co., or Aramco, noted that demand for crude oil in Saudi Arabia has risen “to the point where volumes meant for exports may fall to unacceptably low levels in the coming two decades.”

Al-Falih said his company has made preliminary plans to develop facilities that would generate 300 megawatts of solar power in remote areas of his country, where diesel fuel is currently used to generate power.
Interestingly, even in the finance world the appetite for renewable energies is surviving.
Finantial Times
Europe’s renewable energy market boosted by €3bn wind farm deal
Pilita Clark, 22-05-2014

A €3bn deal for what is expected to be one of the world’s biggest offshore wind farms has boosted Europe’s battered renewable energy market after more than a year of sagging investment.

The Gemini wind farm off the coast of the northern Netherlands province of Groningen is backed by a consortium led by an independent Canadian power producer, Northland Power Inc, that includes Germany’s Siemens engineering group.

“This is the largest renewable energy asset finance deal anywhere in the world in 2014 so far,” said Angus McCrone of Bloomberg New Energy Finance, which monitors global renewable energy transactions.

“The fact that €2.8bn in equity and debt has been raised for the Gemini project will be a morale booster for the European renewables sector after a 44 per cent fall in new investment in 2013.”
Have a pleasant weekend.

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