Home  |   About  |   Energy  |   Politics  |   Software  |   Music

07 June 2014

Press review 07-06-2014 - A turning tide

The sentiment is definitely changing towards the petroleum market. Coincidently or not, a series of news this week seem to corroborate the observations I recently published on this matter. They all point in the same direction: at current prices and in the present geo-political setting, the equilibrium between demand and supply is set for a shake up.

Perhaps most relevant in this strain of news was a publication by the IEA concluding on the need for investments in the order of 50 T$ to maintain the energy system afloat the next 20 years (almost half of it in the petroleum sector). This would be the equivalent of investing the entire GDP of the UK every year up to 2035. In real life international companies are divesting in exploration, scrapping risky developments and selling assets; raging wars in Africa and the Middle East impair infrastructure in several key petroleum exporting countries. At this stage it is not easy to envision how these needs can be met.

IEA: $48 trillion needed to satisfy global energy demand
Daniel J. Graeber, 03-06-2014

It will require $48 trillion in investments through 2035 to meet the world's growing energy needs, the International Energy Agency said Tuesday from Paris.

IEA Executive Director Maria van der Hoeven said in a statement the reliability and sustainability of future energy supplies depends on a high level of investment.

"But this won't materialize unless there are credible policy frameworks in place as well as stable access to long-term sources of finance," she said. "Neither of these conditions should be taken for granted."
Those more attentive to the IEA document note a drastic decline of expectation towards source rock resources in the US. The dreams of a return to the condition of liquid exporter by this country seem now quite distant.
Integral Permaculture
New Energy Report from I.E.A. Forecasts Decline in North American Oil Supply

National Public Radio’s “Morning Edition” reported this morning:

NPR’s Business News starts with the outlook for oil. This is a change of course – the International Energy Agency has released a report on global energy investment. And this group predicts the United States will have to rely more heavily on Middle East oil in the coming years, as North American sources start to dry up a little bit. U.S. energy production has boomed recently, much of it coming from oil and gas extracted from shale. But the IEA says U.S. production will start to lose steam around 2020, and that would put more bargaining power back in the hands of OPEC countries, such as Saudi Arabia.

[...] This is quite interesting, given that in 2012, the IEA forecast that the U.S. would overtake Saudia Arabia in oil production by 2020, and that North America would be a net oil exporter by 2030. The International Energy Agency (I.E.A.) is a watchdog organization considered the world’s leading energy analyzing institution. This new stance coincides with a similar about-face from the U.S. government’s EIA (Energy Information Administration), which suddenly downgraded its assessment of the Montery Shale “tight oil” fields by 96%.
Source rocks are indeed the root of this shift in sentiment. The day of reckoning lived in the US two weeks ago is yet to make its full impact. Accusations fly on those apparently behind a long campaign to promote unprofitable resources.
Are Shales a Bubble?
Deborah Lawrence, 27-05-2014

Hype works. Particularly when monetary and economic benefits are promised. Hype has been the primary tool used by the oil and gas industry with regard to shales and it has worked brilliantly. There is just one problem. When considering shale economic viability, hype was the only aspect that actually existed.

Interestingly, the past year has brought massive write downs in shale assets and a frenzy of asset sales. Some companies, such as Shell, admitted that their divestment of North American shale properties was to stem the financial hemorrhaging and to distance themselves from disappointing well results. Others, like Exxon Mobil, claim to still be true believers in spite of their losses.
The untenability of the present petroleum market is seen elsewhere. In Brasil, relevant petroleum and gas reserves (probably larger than those in American source rocks) lie untouched in off-shore pre-salt plays. These reserves appear too risky for development at this stage, the state petroleum company is falling into difficulties and the country is again a net importer. From the very beginning, Brasilian scientists showed doubts on the feasibility of these resources; seven years after the findings, they seem to have been correct.
McClatchy DC
Brazil finds bumpy path on way to becoming world oil power
Vinod Sreeharsha, 05-06-2014

Brazil’s efforts to become one of the world’s major oil producers have attracted businesses such as U.S. drilling giants Halliburton and Baker Hughes, gained it partnerships with oil companies from India and China, lured immigrants from idyllic Norway and drawn investment dollars from American pension funds in Florida, South Carolina and California.

But the prospects for success have darkened in the seven years since Brazil first identified massive oil deposits in deep water off its coast. Many fear that Brazil’s chance to become one of the world’s major energy producers is fading as the global energy landscape changes dramatically.

Signs of disarray are many. Development of the prized deep-sea pre-salt fields, so called because they lie below thousands of feet of salt deposits, faces delays, with the next auction of drilling rights not expected till next year.

Brazil’s giant state-owned oil company, Petrobras, is in tough financial shape, with profits down 30 percent in the first three months of the year and its stock market value less than half what it was when the company went public in 2010. Production problems in Petrobras’ oil fields have forced the country once again to import oil, at an average rate of 793,000 barrels per day in the first quarter.
Closer to home, the news feed on Lybia has been speeding up. The media reported last weekend the dispatching of 1 000 American soldiers, that where previously reported waiting to intervene in Sicily. It is not entirely clear what role will this force have in Libya, if to protect the retreat of civilians or something more (as in Ukraine).
Russia Today
'Depart immediately!' US sends 1,000 marines on assault ship to Libya

The US is sending 1,000 Marines in an amphibious assault ship to Libya's coast as a “precautionary” move should the US embassy require evacuation, a US official said. Security concerns also led the US to suggest Americans in Libya "depart immediately."

In reaction to the heightened strife in Libya, the USS Bataan, stocked with several helicopters in addition to the Marines, is to be in the nation’s coastal area “in a matter of days,” an anonymous US defense official said, according to AFP.

The preemptive move is a reaction to increasingly violent militia battles, which could threaten the American embassy’s security, the official said.

Based on escalating security concerns, the US State Department recommended Tuesday that Americans in Libya "depart immediately."

"Due to security concerns, the Department of State has limited staffing at Embassy Tripoli and is only able to offer very limited emergency services to US citizens in Libya," the travel warning said.
The economic paralysis of Libya is leading to a perilous economic situation with the local currency rapidly loosing value. Down this road the government will soon be paralysed too and unable to keep fighting the civil war.
World Bulletin
Libya burning reserves due to oil export blockade

Libya's currency is under heavy pressure as a breakdown in security and a collapse of oil revenues due to port blockades have badly disrupted public finances and an economy already burdened by exploding state salary and subsidy bills.

Over the past two months, the dinar has fallen more than seven percent against the dollar on the black market, its first weakness since rebels demanding autonomy for eastern Libya seized oil export facilities 10 months ago.

Now, even private importers say the dinar's stronger official exchange will have to be devalued as revenue from crude all but dries up, although the central bank insists it can hold the line thanks to large foreign currency reserves.

Compounding the financial problems, a wave of bank robberies has made the central bank reluctant to supply commercial lenders with hard currency, exacerbating shortages of dollars in some parts of the economy and further undermining the dinar.
Even the internal supply of petroleum products is at stake. Exports should drop to zero in the following days; the coastal areas of the country seem now to be only getting crude from off-shore fields.
World Bulletin
Libya could stop exporting crude oil in days

Libya's crude exports could fall to zero in days as the state oil company could be forced to divert the only remaining exports to the Zawiya refinery, which provides crucial gasoline to the country's capital.

Crude from two offshore fields may be used to supply the 120,000 barrel per day refinery unless oil production from Brega in the east improves within two days, a spokesman for National Oil Corp (NOC) said on Wednesday.

The move to use offshore oil, if confirmed, would hit one of the last oil export sources for a government struggling with a wave of protests at oilfields and ports that began last summer.

It would be the first time that Libya has stopped exporting oil since the 2011 civil war.
The dispute between the Kurdish autonomous region and the Baghdad government over petroleum exports also spiced up during this week.
Baghdad’s Hold On Kurdistan Slips Further As Oil Exports Begin
Nick Cunningham, 27-05-2014

In what could prove to be an historic turning point for Iraq, the government of Kurdistan – the semi-autonomous region in the country’s north – has delivered its first shipment of oil to the international market, in defiance of the central government in Baghdad.

The move could mark the beginning of greater geopolitical and economic power for Kurdistan and presage a move towards eventual independence.

It comes after years of political deadlock between Kurdistan and the government of Iraqi Prime Minister Nouri al-Maliki over how to manage and share the nation’s oil wealth. The Kurdish Regional Government (KRG) has always objected to political meddling from Baghdad, and has been charting its own path towards developing oil within its borders, an area estimated to hold 45 billion barrels.
So far Baghdad seems to keep the upper hand, effectively barring the shipment of this petroleum through international channels. It is hard to imagine the Kurds remaining impassive to this episode.
Tanker Hauling Disputed Kurd Crude U-Turns in Atlantic
Nayla Razzouk and Khalid Al-Ansary, 03-06-2014

An oil tanker shipping crude from Iraq’s semi-autonomous Kurdish region turned back after getting almost 200 miles across the Atlantic Ocean, amid a challenge over the shipment’s legality.

The United Leadership, able to haul 1 million barrels, signaled that it was about 5 miles off Mohammedia in Morocco at about 6 p.m. local time yesterday, according to information entered by the ship’s crew and captured by Coulsdon, England-based IHS Maritime. It turned back on May 30 after getting about 190 miles west of Gibraltar, at which point it was sailing to the U.S. Gulf. The shipment is illegal, SOMO, Iraq’s oil marketing company, said yesterday.

The tanker “has arrived at its destination,” Kurdish news website Rudaw reported late yesterday, citing Safeen Dizayee, a spokesman for the Kurdistan Regional Government. The tanker is close to the port of Mohammedia in Morocco, tracking data show. Representatives from the facility are meeting their counterparts at the local refinery, port officer Afifa Loughzail said by phone. At least seven calls to Mohammedia refinery officials weren’t returned.
In other news relevant for Iraq, an old claim that the CIA haa been training and supporting Sunni rebels in the region was corroborated by the American press. The way the Sunni are equipped and able to sustain two war fronts for months on end naturally points to relevant external support. Some powers in the region, such has Qatar, never hide their involvement, but the confirmation of US support means the Sunni will probably have the resources to keep fighting these wars for the long run.
Syrian rebels say they are already being trained by the CIA
Aileen Graef, 28-05-2014

Just as U.S. President Barack Obama called for support to aid Syria during a speech Wednesday, the Syrian rebels claim they are already being trained.

[...] The Syrian rebels may be two steps ahead of Obama's vague statements. In the Frontline documentary produced by Jamie Doran, which was released online Tuesday, called Syria: Arming the Rebels, the Syrian opposition claims it has already received training from the CIA. The opposition members said they were taken to Qatar by a group of Americans who taught them basic military training and outfitted them with military gear.

"They trained us to ambush regime or enemy vehicles and cut off the road," said a 21-year-old rebel identified only as Hussein. "They also trained us how to attack a vehicle, raid it, retrieve information or weapons and munitions and how to finish off soldiers still alive after an ambush."
And here in Europe more hints on the hazards decentralised and affordable electricity sources are imposing. The IEA notes inadequate market prices to spur investment. This is in first place a natural consequence of ill policies tying zero marginal generation cost suppliers to the open market. But also the consequence of the diminishing needs for traditional, centralised suppliers.
Europe’s Power Supply Seen at Risk From Investment Dearth
Isis Almeida and Rachel Morison, 03-06-2014

Europe is in jeopardy of running short of power because wholesale electricity prices are too low to encourage spending on new thermal plants, according to the International Energy Agency.

The region needs more than $2 trillion in power-industry investment by 2035 and about 100 gigawatts of new thermal capacity in the decade to 2025, the Paris-based IEA said today in its World Energy Investment Outlook. Electricity prices are more than 20 percent below the level necessary to spur investment, according to the adviser to 29 nations. One gigawatt is enough to power about 2 million European homes.

“The investment required to maintain the reliability of Europe’s electricity system is unlikely to materialize with the current design of power markets,” said the IEA. “If this situation persists, the reliability of European electricity supply will be put at risk.”
And that is for this time, have a sunny weekend.


  1. thanks for the overview, many things in parallel...


  2. '...a process that is unlikely to be linear, or even swift.'

    Viewed on a global scale this volatility may well be represented by a gently falling curve of running averages of production and consumption. But in my view the benign curves of global oil production and price conceal the potential for localised events affecting importers which will be far more severe in their impact on the local economy..

    My inquiries of the Oil Majors supplying my own country confirm that they do not have any chapter in their Operations Manuals about how to distribute the oil they can obtain among their customers when the demand (at any price) exceeds the supply available.

    So I am led to consider the practical mechanics of how this will happen.

    Our refinery picks up the phone and places an order with Head Office of our usual supplier for our ten-daily dose of 130,000 tonnes of crude. We are willing to pay the going price.

    Head office replies that they are fffrightfully sorry but yesterday China and India have put in big orders, and the book is empty. Please call again next month, or whenever.

    The refinery goes and dips its tanks, and finds it has fifteen day's supply left. The order clerk finishes her lunch, and catches the bus home to Whangerei where she breaks out her EOLAWKI kit and heads for the hills...

    We are at the farthest corner of the global oil supply chain, and nobody else will care.

    There are many other small importer nations like us who are totally reliant on imports for their economic survival.

    Indeed while the ten largest oil importing countries use about 46 million barrels a day (and most of these have some indigenous production), the other 152 oil importing countries (who are mostly fully reliant on imports) use only about 12 million barrels a day. So if a major oil order (or an attack on an oil installation) squeezes global-oil-for-sale on the open market by just one million barrels then it will be about a dozen of those 152 countries who will be most likely to miss out.

    They will blink out like lights, and only at year's end will the nations with significant indigenous production notice that our Christmas cards have not arrived.

    At the local level it will not be a smooth ride down the back of the curve; it will be very bumpy indeed.