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27 July 2014

Press review 27-07-2014 - Canary in the Gold mine

"An image worth a thousand words". They really exist, coming by now and then, usually in the form of a graph. This week I stumbled upon one of such images, that greatly explains what is happening with the resource industries today. I often point to gold as an example of a depleting resource, throughout the last decade its price increased five fold, but extraction rates hardly moved. But most importantly, during the same period, discoveries of new high grade deposits fell down to almost nothing.

SNL points to drastic fall in new gold discoveries
Lawrence Williams, 18-07-2014

The report points out that over the past 24 years mining companies have discovered some 1.66 billion ounces of gold in 217 major discoveries, BUT – and it’s a big BUT – while this may sound a huge amount, over the same period the industry has actually produced 1.84 billion ounces of gold, so discoveries have not been keeping pace with production. But the report goes much further in showing that the number of significant discoveries (defined as deposits with a minimum of 2 million ounces of contained gold) is diminishing and this diminishing trend seems to be accelerating. In the 1990s some 124 deposits containing 1.1 billion ounces of gold were discovered while since the year 2000 this has fallen to only 605 million ounces in 93 such discovered deposits. And most recently significant new discoveries appear to have slowed to a trickle.

Further, the report notes that the amount of potential production from these major discoveries is particularly concerning when looking at the discoveries made in the past 15 years. Assuming a 75% rate for converting resources to economic reserves and a 90% recovery rate during ore processing, the 674 million ounces of gold discovered since 1999 could eventually replace just 50% of the gold produced during the same period.
Ugo Bardi also brought up the same issue this week, pointing to a rapid decline of processed ore grades in the gold industry. As explained before, in thermodynamic terms this means the industry is tapping deposits with increasingly higher entropy, thus requiring increasingly higher energy inputs to produce usable outputs.
Resource Crisis
Mineral depletion: the trouble with gold
Ugo, 24-07-2014

The main point that I am making with my latest book, "Extracted" is that mineral depletion is one of the major sources of our present economic and environmental troubles. Explaining this point is not easy: most people still seem to believe that depletion means "running out" of something. But that's not the case. Depletion is a gradual phenomenon that goes on all along the cycle of extraction of all mineral resources. Extraction starts with the "easy", high concentration resources, but gradually must move to more expensive, low concentration ones. As a result, the returns on extraction diminish with time (and extraction also causes more damage to the ecosystem). One of the consequences is the high prices we are seeing nowadays for all mineral commodities. It is not that we are running out of anything, but ore grades are falling everywhere, extraction is becoming more and more expensive, and that must have an effect on the market prices. The gradual disappearance of low cost/high grade ores can be seen with practically all mineral commodities, but it is especially evident with some of them. The article below is reproduced from Steven S. Rocco's blog and it describes the present situation with gold. As you can see, the gold industry is processing more and more ore to produce less and less gold. It is the inexorable law of depletion at work: we are not running out of gold, and we probably never will. But we'll have to face a falling supply.
What has happened with gold the past decade is mostly a preview of challenges to come. Gold is not a particularly critical resource, even if its usage in transformation industries greatly surpasses similar metals such as platinum. Questions remain open on the role gold may have in the shaping of a new international monetary system for the XXI century, but its role in our material life should remain minimal. But with other resources, a five fold price hike poses completely different challenges, threatening many things that may be taken for granted today.

PBS stands out among the mainstream US media as the sanest source of information. While it is obvious their discourse is moulded to the status quo, they still aim for information over entertainment. Whenever things warm up with US politics I try to watch the daily Newshour programme (available online 24 hours after broadcast). Days ago the Newshour had a remarkable reportage on metal theft that clearly exposes the challenges of resource scarcity. And also why copper may become the most crucial resource in the decades to come.

The sheer existence of electric and telecommunication networks requires cheap copper prices. The news that you have probably heard in recent years of copper theft are not coming just from Europe or the US, it is happening everywhere.
How criminals are wrecking South Africa’s telecoms networks

South Africa is battling high crime rates, and the country’s telecommunications networks are not immune to the mess criminals are creating.

Criminals in South Africa are causing millions of rands of damage to telecommunications networks through copper theft, stealing batteries from cellular towers, and even stealing fibre to make certain products.

The cost of these criminal acts extends far beyond the network damage. Operators are faced with repair costs, loss of revenue, security costs, an increase in customer complaints, and network quality concerns.
Copper is everywhere and in everything. Especially in remote areas, hanging devices containing copper may no longer be a possible practice.
Thieves targeting air conditioners for copper
Ann Marie Bush, 19-07-2014

The theft of copper seems to be a constant problem for Topeka police officers, as well as other police departments across the country.

Now, the Topeka Police Department is noticing an uptick in the number of air conditioner thefts from vacant homes and homes for sale.

The thieves’ target? The copper inside.
The video below is a reportage on metal theft by a regional TV channel in the US. Even parking your car in the street may become perilous if key resources become scarcer. If you do not succeed playing the video in your browser, you may try following this link.

Now on to the daily dose of resource wars news. Iraq has been mostly forgotten by the mainstream media, but that does not mean the war is over, nor that the battlefield is stable.
Islamic State crushes and coerces on march towards Baghdad
Maggie Fick and Isra' al-Rubei'i, 22-07-2014

Using its own version of "soft" and "hard" power, the Islamic State is crushing resistance across northern Iraq so successfully that its promise to march on Baghdad may no longer be unrealistic bravado.

While conventional states try to win hearts and minds abroad before necessarily resorting to military force, the jihadist group is also achieving its aims by psychological means - backed up by a reputation for extreme violence.

The Islamic State, which in June captured a vast stretch of territory in the north including the largest city Mosul, used this strategy when its fighters met armed resistance from the town of al-Alam for 13 days running.
I have noted in previous editions of this review the relevance of controlling the Tigris and Euphrates basins upstream of Baghdad. There is growing concern the gains by the Islamic State on these natural resources is already providing them an important upper hand against the Baghdad government.
ISIS militants use water as weapon of war in Iraq

Militants from ISIS now control or threaten key facilities on the Euphrates and Tigris rivers, generating fears that the Al-Qaeda splinter group could turn off the taps to the Shiite south of Iraq, sparking a massive humanitarian crisis. Last month’s ISIS-led offensive across Iraq saw it overrun cities and battle for oil refineries as the national army melted away, but it has also been waging a war for water, trying to wrest control over rivers, dams and desalination plants in a bid to solidify its territorial gains.

Control of water is seen as key to the viability of the fledgling caliphate declared by ISIS leader Abu Bakr al-Baghdadi. Without water, seasonal droughts cannot be managed, electricity cannot be generated, proper sanitation practices are near impossible and the local economy grinds to a virtual halt.

“When it comes to creating an Islamic state, it is not just about the control of geographic areas in Syria and Iraq. In order to form a viable state, one must control the state’s most vital infrastructure, which in Iraq’s case is water and oil,” said Matthew Machowski, a research fellow at Queen Mary University.
In the Islamic State offensive along the Tigris started last month there where some attempts by the US media to link them to the Syrian regime led by Bashar al-Assad. The past weeks it became obvious the Islamic State considers the Syrian shiia as friendly as the Iraqi shiia.
McClatchy DC
Islamic State thwarts Syrian government forces on two fronts
Mousab Alhamadee, 22-07-2014

Syrian government troops failed on two fronts Monday to reverse gains by fighters loyal to the Islamic State, a sign that the insurgents who’ve captured half of Iraq are capable of battling Syria’s government as well.

Anti-government activists said 14 government troops were killed in battles for two villages outside the east Syrian city of Deir el Zour. The Syrian army fared no better in an attempt to recapture the Shaer gas field near in the ancient city of Palmyra, losing six soldiers and failing to dislodge the Islamic State fighters.

The clash in Deir el Zour was the latest sign that the Islamic State, which had frontally attacked the regime only once before _ in the desert near Homs _ is prepared to fight it as the opportunity arises. A member of the Islamist movement told McClatchy that it intends to remove the regime of President Bashar Assad from Deir el Zour province altogether.
It is getting increasingly difficult to understand what is going in Libya. It is not clear who is in command, what power the government has (if any), who controls the petroleum infrastructure. Libya looks to be everything but a country.
Heavy clashes erupt over Tripoli airport, at least four dead

Heavy fighting erupted on Sunday around Tripoli International Airport, where rival militias have been battling for control, killing at least four people and forcing thousands from their homes, local residents and witnesses said.

The airport standoff is the most serious violence in Tripoli since the 2011 fall of Muammar Gaddafi, with Libya's fragile government unable to assert authority over rival brigades of former rebels fighting for political and economic power.

Militias used heavy anti-aircraft cannons, Grad missiles and rockets in exchanges around the Qasr Ben Ghashir neighborhood, trapping some families while several thousand others fled the fighting around their homes, community leaders said.
I read news for the first time this week on deliberate attacks on Egypt's energy infrastructure. The country has recently been struggling to meet its energy needs (one of the key factors behind the uprising against Ehud Barak), if actions like this spread, the country's economy can be quickly brought to an halt.
Militants blow up gas pipeline in Egypt's Sinai

Unknown militants blew up a natural gas pipeline south of Egypt's Arish city of North Sinai governorate late Saturday, a security source told Xinhua.

"The targeted pipeline provides natural gas to plants in Sinai including a large cement factory and some military factories," the source added, noting that the assailants are believed to be extremist supporters of ousted Islamist president Mohamed Morsi.

The blast came a few hours after gunmen attacked a checkpoint in Egypt's western desert, leaving 21 soldiers dead and four others injured. A number of the attackers were killed in the explosion of an ammunition warehouse that resulted from fire exchange, according to the military spokesman.
Interesting news of Japan cooperating with Brasil on the pre-salt plays off the later's coast. As usual, the figures involved are beyond anything heard before in petroleum extraction.
Japan, Brazil to collaborate in tapping hard-to-reach offshore oil

A pre-salt area off Brazil's coast is estimated to hold more than 50 billion barrels worth of oil reserves. Pre-salt refers to a tier of the seabed that formed before a buildup of salt. Petrobras, a major oil company affiliated with the Brazilian government, aims to start fullscale production at a field hundreds of kilometers off the coast by 2020.

Industry watchers say this will involve drilling up to 7,000 meters below the ocean's surface while dealing with strong currents. A large number of personnel and vast amounts of materials will have to be transported.

Under current plans, Petrobras will need to procure 50 floating oil platforms, which cost roughly 100 billion yen ($986 million) each. It will also need 50 deep-sea drilling vessels, which go for 60 billion yen apiece. All told, the project is expected to cost around 20 trillion yen.
The loss of influence by the West on the international petroleum market is ever more apparent. Together, Europe and the US acquire now no more than one third of all the petroleum exported by OPEC; this is definitely a changing world.
Asia-Pacific taking on most OPEC crude
Daniel J. Graeber, 18-07-2014

Asia-Pacific economies took on more crude oil from OPEC in 2013 than any other region in the world, the organization said in an annual report published Friday.

The Organization of Petroleum Exporting Countries said Asia-Pacific economies imported an average 14.3 million barrels of OPEC crude oil per day in 2013, or 59.3 percent of the oil exported by member states.

Europe, which is still struggling to emerge from recession, took an average 4.1 million bpd of OPEC crude last year, or 17.2 percent of its output, while North American imported an average 3.9 million bpd, or 16.3 percent of OPEC's crude.
This is something that the mainstream media gave some attention to, but still worthy of an highlight. The US government remains pragmatic on its seek for domestic sources of fossil fuels, progressively deriding any environmental or economical barriers. If on the side this strategy acknowledges the need for a different energy policy in the XXI century, it still insists on unsustainable formulas of doubtful economic value.
U.S. approves plan to open Atlantic to oil reserve surveys
Ayesha Rascoe, 18-07-2014

The Obama administration on Friday approved a plan that would allow companies to assess oil resources off the Atlantic Coast, angering environmental groups that worried the plan will harm marine life and open the door to offshore drilling.

First outlined by the Bureau of Ocean Energy Management in February, the plan lays out the mitigation measures companies would be required to undertake before conducting seismic testing to gauge the oil reserves in the Atlantic Ocean.
The electricity generation constraints in India remain, with the local industry unable to match the demand on coal extraction. Are these only temporary constraints that can be overcome? Or is coal extraction in this country really hitting physical limits? Time will tell.
India coal demand set to rise to 787 mln T, lifting imports
Krishna N Das, 17-07-2014

Mr Piyush Goyal, Coal and Power Minister, said that India's coal demand is expected to rise 6% to 787 million tonnes this financial year, which could lift imports close to 200 million as local supply falters.

[...] India's total output has grown at an annual rate of about 2 percent over the past few years, reaching 566 million tonnes in the year to March 31st, when demand totalled 739.4 million tonnes.
And finishing off this review a bit deeper reading, appropriate for the weekend. Econbrowser has long been a reference on these resources matters; highly recommended.
Keeping oil production from falling
James Hamilton, 20-07-2014

Production flows from a given oil field naturally decline over time, but we keep trying harder and technology keeps improving. Which force is winning the race?

An oil reservoir is a pool of hydrocarbons embedded and trapped under pressure in porous rock. As oil is taken out, the pressure decreases and the annual rate of flow necessarily declines. A recent study of every well drilled in Texas over 1990-2007 by Anderson, Kellogg, and Salant (2014) documents very clearly that production flows from existing wells fall at a very predictable rate that is quite unresponsive to any incentives based on fluctuations in oil prices.
Apologies for the belated publication this week. See you next week.

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