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21 June 2014

Press review 21-06-2014 - A bleak picture

ISIL still tops the energy news this week as it consolidates and expands its gains in Iraq. It now controls most of the territory between the Tigris and the Euphrates, including the petroleum reserves underground. The impact ISIL is having on Iraq's total petroleum extraction - and most importantly exports - is largely unknown, as the advances of ISIL once again mean the western media left cut off. Contradictory reports flew throughout the week about who controls important cities such as Baiji and Tal Afar.

The US confirmed its intentions to fend off the advance of Sunni factions, but naturally nothing was said of the support it has been lending to jihadists in the region. But if coming, these are still small steps, no relevant military actions are foreseen in the short term. One of the reasons floated by the US media for this hesitation is a lack of intelligence regarding the geographic lay out of the Sunni command hierarchy. Quite ironic, one year after Edward Snowden's revelations - it seems the US has wired the whole world, except for those that really matter wiring.

On the field there are now reports of shortages of refined products; the impacts of this war are definitly coming.

The Guardian
Dwindling oil reserves in Baghdad lead to soaring prices worldwide
Fazel Hawramy and Terry Macalister, 18-06-2014

As fighting raged around Iraq's biggest oil refinery on Wednesday, hundreds of cars queued for hours at petrol stations in Irbil and Kirkuk. Iraqi Kurdistan has so far escaped violence, but supplies of petrol are running low. The shortage is rumoured to have been caused by locally produced fuel being smuggled into Mosul and other affected areas. On Wednesday, prices more than doubled in the course of the day.

The growing threat of civil war is unnerving residents in Kirkuk and Baghdad – but it should also worry consumers around the world. Iraq is one of the world's key oil producers, and until recently its growing crude exports had helped to keep global petrol prices from rising too high, .

[...] Earlier this year, the Organisation of Petroleum Exporting Countries (Opec) predicted that 60% of the oil cartel's future production growth to the end of the decade will come from there. This now seems in doubt - at a time when global demand continues to grow as Europe moves out of recession and the economies of energy-hungry developing nations such as China and India continue to forge ahead.

Output from Iraq reached an all-time high of 3.5 barrels a day earlier this year and remains at a high level but output is hampered by a lack of export capacity made worse since a northern pipeline was blown up.

One of the most contested assets in the press (and surely in the battle field) has been the Baiji refinery, the largest in Iraq. Irrespective of whom may control it, this refinery is most likely impaired for the foreseeable future.
Deutsche Wella
ISIS attacks Iraq's Baiji oil refinery

The attack on the refinery by rebels from the Islamic State of Iraq and the Levant (ISIS) started at 4 a.m. (0100 UTC) in Baiji, security sources and employees told news agencies. One mortar hit a spare-parts warehouse and smoke billowed from the building, the sources told the news agency Reuters.

Authorities evacuated foreigners from the refinery Tuesday as forces braced for the attack. Late Tuesday, reports had suggested that the compound was still being held by elite government troops, while the nearby town fell to ISIS fighters.

On Wednesday, Saudi Arabia's foreign minister warned of potential civil war in Iraq as Sunni militants pulled within 60 kilometers (40 miles) of Baghdad. The ISIS insurgents, who launched their lightning assault on June 9, have since captured Mosul, a city of more than 2 million inhabitants, and a large area of land north of the capital. Soldiers from the Iraqi army and Shiite militias have joined forces to repel the ISIS fighters.
The financial/economical world seems to be waking out of slumber into stark reality. The mood change was already in the air and ISIL brought a definitive end to the dreams of plenty. No more talk of "booms" or "energy independence" to be heard.

Brent oil tops $115 a barrel on Iraq worries
William L. Watts, 19-06-2014

Brent crude, the global oil benchmark, on Thursday pushed above $115 a barrel for the first 8...9time since September, boosted by continued worries over Iraq and extended gains after President Barack Obama said U.S. troops won’t return to combat in the country but that targeted military strikes are an option.

[...] However, reports Wednesday that major oil companies have begun to move nonessential personnel out of the south have highlighted concerns that exports could be curtailed. Iraq exports around 2.5 million barrels a day. Strategists have warned that significant disruptions could send oil toward $125 a barrel or higher. Meanwhile, the conflict has undercut expectations for Iraq to boost future oil production, which could provide a long-term floor for prices.

“Specifically, key infrastructure developments might be delayed, hampering export growth in spite of rising export handling capacity at Basra,” in the south, wrote strategists at JBC Energy. However, in the north of Iraq, “the apparent consolidation of Kurdish power may in fact even herald higher exports,” they said in a note.
Here is an alternative view on the grand scheme, from someone much closer to the battle field. I would stress the various assertions that ISIL is just one of several Sunni factions leading the military operation in northern Iraq. The fact that these diverse organisations have been acting together as single army is by itself remarkable.

Some nervousness out of Jordan, that seems now to fear the advancing Sunni army. The reports of US run jihadist training camps are old, but it is important to keep in mind why ISIL et alia grew to the powerful army they make today.
Blowback! U.S. trained ISIS at secret Jordan base
Aaron Klein, 17-06-2014

Members of the Islamic State of Iraq and the Levant, or ISIS, were trained in 2012 by U.S. instructors working at a secret base in Jordan, according to informed Jordanian officials.

The officials said dozens of ISIS members were trained at the time as part of covert aid to the insurgents targeting the regime of Syrian President Bashar al-Assad in Syria. The officials said the training was not meant to be used for any future campaign in Iraq.

The Jordanian officials said all ISIS members who received U.S. training to fight in Syria were first vetted for any links to extremist groups like al-Qaida.

In February 2012, WND was first to report the U.S., Turkey and Jordan were running a training base for the Syrian rebels in the Jordanian town of Safawi in the country’s northern desert region.

That report has since been corroborated by numerous other media accounts.

[...] The source told WND that at least one of the training camps of the group Iraq of the Islamic State of Iraq and the Syria, the ISIS, is in the vicinity of Incirlik Air Base near Adana, Turkey, where American personnel and equipment are located.

He called Obama “an accomplice” in the attacks that are threatening the Maliki government the U.S. helped establish through the Iraq war.
Other interesting aspect emerging this week is the return of civilians to ISIL territory, where many take the jihadist army as liberators. Lest to see if the jihadists are as implacable with civilians as they have been with Shiia troopers.
NBC News
Life Under ISIS: Iraqis Return to Mosul, Seeing Militants As Safer Bet
Susannah George, 16-06-2014

He called the Iraqi military an occupying force and described negotiating checkpoints as a daily humiliation.

Following the outbreak of Iraq's bloody civil war in 2006, many cities became mazes of concrete blast walls and traffic-slowing checkpoints. Residents initially greeted these developments as good faith efforts to stop car bombs and improve security, but in the years that followed people grew resentful.

Other families near the citadel have similar things to say about the sunny reports they are getting from back home over the past few days. They say extremist fighters have restored water and power to Mosul, and that they are selling cheap gas and going door to door pledging not to harm residents.

The fact that many Mosul residents embrace the extremist fighters led by ISIL as liberators, shows how deeply Iraq's Sunni community distrusts Maliki's government and the military he controls.
Even without the war in Iraq, the petroleum market was already set for troubled waters. This is obvious from the lack of action from OPEC in face of projected rises in consumption. If nothing else, the market itself will solve any shortages with price.
OPEC can't act alone, minister says
Daniel J. Graeber, 11-06-2014

The acting minister said the cartel expects world oil demand to increase by 1.1 million barrels per day and keeping markets satiated required a global effort. Market stability, he said, benefits all market players.

"To achieve this, though, OPEC cannot stand alone," he said in his address. "It will need the support and contribution of many stakeholders, who must do their part."

The 12 OPEC members combine to produce about 40 percent of the world's crude oil and their exports represent about 60 percent of the international market.
More details have emerged from this OPEC meeting on the dwindling petroleum exports from Angola. A decline this large and fast will not be easy to plug, but the size of coming prospects should not be underestimated.
Angola's oil output drops to 1.6 million b/d: minister

Angola's oil production has fallen to 1.6 million b/d, oil minister Jose Maria Botelho de Vasconcelos said Wednesday, making it increasingly unlikely that Africa's second-biggest producer will reach its output target of 2 million b/d next year.

Vasconcelos Wednesday blamed the country's declining output on lengthy maintenance issues and supply disruptions at some of its fields. Rapid reservoir depletion has also resulted in steep decline rates at some developments, the minister said on the sidelines of Wednesday's OPEC meeting in Vienna.

Oil production has averaged 1.65 million b/d in the last six months and has been declining month on month since November, according to data compiled by Platts.
Iraq has pushed to inner pages other important news in the energy world. One of them was the cut of gas flow from Russia to Ukraine. In spite of the thousands of millions of euros sent to Kiev by the IMF, no payments have been made to Gazprom. With Summer starting this is not a problem in the short term, but any long term supply disruption will be certainly felt in Winter, rest to know by whom.
Russia to stop gas to Ukraine, rejects EU proposal
Andrew Rettman, 16-06-2014

Russian firm Gazprom is stopping gas supplies to Ukraine after talks on a new price broke down in the small hours of Monday (16 June).

It said in a statement published at 10am Moscow time – its deadline for Ukraine to pay almost $2 billion of old debt – that it is switching to "prepayment for gas supplies … Starting today, the Ukrainian company will only get the Russian gas it has paid for".

It added that Ukraine has not made prepayments for June.

The situation does not mean immediate shortages for Ukraine or for EU countries which get Russian gas via Ukraine because Ukraine has large volumes in its storage vaults and demand is low in summer.
Below an alternative view to the conflict in Ukraine that strikes a chord or two. Some would say coincidences do not exist.
The Voice of Russia
Putin's aide proposes anti-dollar alliance to force US to end Ukraine's civil war
Valentin Mândrăşescu, 18-06-2014

In his article, published by Argumenty Nedeli, Putin's economic aide and the mastermind behind the Eurasian Economic Union, argues that Washington is trying to provoke a Russian military intervention in Ukraine, using the junta in Kiev as bait. If fulfilled, the plan will give Washington a number of important benefits. Firstly, it will allow the US to introduce new sanctions against Russia, writing off Moscow's portfolio of US Treasury bills. More important is that a new wave of sanctions will create a situation in which Russian companies won't be able to service their debts to European banks.

According to Glazyev, the so-called "third phase" of sanctions against Russia will be a tremendous cost for the European Union. The total estimated losses will be higher than 1 trillion euros. Such losses will severely hurt the European economy, making the US the sole "safe haven" in the world. Harsh sanctions against Russia will also displace Gazprom from the European energy market, leaving it wide open for the much more expensive LNG from the US.

Co-opting European countries in a new arms race and military operations against Russia will increase American political influence in Europe and will help the US force the European Union to accept the American version of the Transatlantic Trade and Investment Partnership, a trade agreement that will basically transform the EU into a big economic colony of the US. Glazyev believes that igniting a new war in Europe will only bring benefits for America and only problems for the European Union. Washington has repeatedly used global and regional wars for the benefit of the American economy and now the White House is trying to use the civil war in Ukraine as a pretext to repeat the old trick.
Nuclear is a technology that rarely features in this review, in part since positive news have all but disappeared after Fukushima. Below, an entry level article that scraps the surface on what may be coming regarding Thorium technologies. Personally, I expect the Chinese programme to have a more relevant impact on the future of Nuclear, and perhaps on the way the public opinion perceives it.
Thorium: Energy Savior or Red Herring?
Andrew Topf, 18-06-2014

So, if thorium is such a wonder-metal, why hasn't it been accelerated? (Pardon the pun.) There is currently a race on to develop a functioning thorium reactor, with the number one and two positions held by China and Norway. Last year, Thor Energy, a private Norwegian company, started producing power from thorium at its Halden test reactor, with help from nuclear giant Westinghouse. Uranium-poor India and France are among other countries developing thorium research programs.

All of them, however, will be chasing China, which according to a recent Telegraph article, is “going for broke” to build the first thorium reactor within the next 10 years. The project reportedly started with a budget of $350 million and the recruitment of 140 scientists at the Shanghai Institute of Nuclear and Applied Physics. It plans to have 750 employees by 2015.

So should the nuclear industry herald the death of uranium and make way for this new thorium darling? Not so fast, skeptics say.
Following a very good piece on Coal extraction in the US from an unexpected source. An outlet that would probably benefit from embarking on the IPCC/IIASA inflation of fossil fuel resources takes a cold look at the industry in their country. It comes up with a bleak picture, at least in what extraction rates are concerned. Keep in mind when reading this long piece the progressive shift from hard to brown coal resources, with the accompanying EROEI decline it implies.
Clean Energy Action
Geology and Markets, not EPA, Waging War on Coal
Zane Selvans, 04-06-2014

Even without the threat of carbon regulations, the US coal industry is already in dire straits — due primarily to geology and the steady transformation of our energy markets — not politics and carbon regulations. That 25% decline in coal burning we’ve already seen? That came from flat or declining electricity demand, plummeting costs for long-term renewable energy contracts with guaranteed prices, a glut of cheap fracked gas, and steadily increasing coal production costs which have resulted in steadily increasing delivered coal prices (as we reported in October, 2013) These factors have all worked together to squeeze coal’s profit margins, and send the industry into decline. On top of all that, China’s once insatiable and rapidly growing appetite for imported coal appears to have subsided, much to the dismay of producers who were hoping to garner fatter profits from selling US natural resources overseas. Amidst this backdrop, the widespread realization that carbon pricing and regulation is inevitable is just icing on the cake.

The truth about the US coal industry can be found in their financial statements, publicly available through regulatory filings submitted to the Securities and Exchange Commission (SEC). Their annual 10-K and quarterly 10-Q filings paint a picture of an industry in trouble.
Great weekend reading by Al Jazeera on the role energy is playing in the political turmoil in Egypt.
Al Jazeera
Egypt's blackouts are here to stay
Mika Minio-Paluello, 18-06-2014

The energy situation in Egypt is desperate. After exporting much of its gas, Egypt faces an acute fuel shortage and rising demand. Electricity blackouts are an everyday occurrence and parts of Cairo go dark four times a day, always unannounced. Streets are blocked near petrol stations with long queues of cars waiting for fuel. Many expect the crisis to escalate through Ramadan and the summer - especially as climate change could bring the hottest weather to date.

Ensconced in the Presidential Palace at Ittihadeya, President Abdel Fattah el-Sisi faces pressure to come up with answers fast. Government officials have started making promises: Egypt will go nuclear; coal imports will start; fracking will open up new gas fields in the desert; gas will be imported - from the Gulf or maybe from Israel.

Sisi's recent economic plan included a nuclear power station in Dabaa near Alexandria. This sounds like a quick fix, and there's an implication that Egypt might acquire nuclear weapons in the process. The price tag for the nuclear power plant is huge and disposing of nuclear waste will be costly. It is clear that the costs - whether financial or environmental - will be dumped on future Egyptian generations. Nuclear power plants being built in France and Finland are many years behind schedule. And while Egypt going nuclear might stroke some macho egos, the plants will be run by foreign companies and will just make the country more vulnerable.
In Spain the first stage of the anti-solar energy law was finally approved, almost one year after being first proposed. Although not entirely slashing feed-in-tariffs, it reduces them to levels where feeding PV electricity to the grid no longer makes sense. This will naturally lead to the famous "sun tax", to avoid any ideas of off-the-grid systems. Further chapters in this story soon to follow.
Spain Caps Earnings From Renewables in Subsidy Overhaul
Marc Roca, 06-06-2014

The retroactive measures have angered the renewable energy industry, which says the government has acted illegally and will bankrupt many projects. The Asociacion de Productores de Energias Renovables, a lobby group, in February estimated they would cut more than 2,000 million euros in revenue for generators. In April, the government’s new regulator CNMC said they would cut revenue by 1,700 million euros this year.

Acciona SA (ANA), Spain’s largest wind operator after Iberdrola SA (IBE), said the decree is retroactive and will destroy the value of the company’s renewable energy investments in Spain. The company said in an e-mail it will challenge the rules in Spain’s Supreme Court.

Acciona already wrote down the value of its Spanish assets by 1.7 billion euros last year to reflect the lower subsidies expected. The rules cut about 40 percent of the earnings from its generation business in Spain.

The government announced in July that it would bring in a new system to replace feed-in tariffs, which grant above-market rates for power from clean sources. Today’s measures will be implemented retroactively to apply from July 2013.
Elsewhere in Europe, Energy Policy is taken a tad more seriously. The French government presented its version of the Energiwende, in what may be the most comprehensive energy legislative package ever put forward in the continent. I could not possibly go through it in detail, but I welcome its reach, with measures on Housing, Transport, Electricity generation, Heat generation, Efficiency and Recycling. Absent seem outlandish goals or knee jerk policy swirls. Will it work properly all together? Perhaps, perhaps not, but it is better to have a plan than nothing.
Le Monde
Des dizaines de mesures pour conduire la transition énergétique
Laetitia Van Eeckhout et Marie-Béatrice Baudet, 18-06-2014

Le projet de loi sur la transition énergétique présenté mercredi 18 juin au conseil des ministres par Ségolène Royal, compte 80 articles et balaie les grands secteurs économiques qui sont concernés par la mutation engagée. De nombreuses mesures d'accompagnement financier et administratif sont prévues.

[...] Le texte fait la part belle aux voitures électriques en prévoyant 7 millions de points de recharge en France d'ici à 2030. Il sera aussi obligatoire d'installer des bornes lors de travaux sur les parkings qu'ils soient publics ou privés.

[...] La réduction de 75 % à 50 %, à l'horizon 2025, de la part du nucléaire dans la production d'électricité sera inscrite dans la loi. Mais pas la durée de vie des centrales (40 ans) ni la fermeture de Fessenheim. De source proche du dossier, cette dernière mention aurait déclenché des montants d'indemnisation colossaux, EDF étant une société anonyme cotée en bourse.

[...] Affichant la volonté de développer le biogaz, ressource en énergie produite et consommée localement, pour en faire un substitut progressif au gaz fossile, le texte prévoit le lancement de 1 500 projets de méthaniseurs, répartis dans les territoires ruraux de l'Hexagone, destinés à produire de l'énergie à partir de déchet agricoles.
And that is more than enough in another news rich week. While it feels like Autumn is starting, today is actually the first day of Summer. Enjoy.

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