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16 August 2014

Press review 16-08-2014 - What goes up must come down

Instead of words this week I preferred to open the review with a graph. It is part of yet another independent assessment of source rock petroleum extraction in the US, than points to an ultimate under 10 Gb. If in some counties of the Dakota and Texas the data set is still too lean for a definitive conclusion, the fact is that mature counties appear to be invariably following a classical Hubbert curve pattern. While the media touted "shale oil" as the end of Peak Oil, it may in fact provide the best example of a logistic growth-decline process at work.
Peak Oil Barrel
The Imminent Peak in US Oil Production
David Archibald, 08-08-2014

The seven years of production of tight oil in the US has produced enough data to enable estimation of the amount of oil that will be recovered from these systems and the timing of peak production. Based on data to May 2014, the four main tight oil basins will produce a total of 7.7 billion barrels with a peak production rate of 3.9 million barrels per day in mid-2015. Following that peak, production is predicted to decline as rapidly as it rose. That in turn is expected to cause a re-assessment of the ability to produce sufficient transport fuels based on current policies.
But for most of the media, "shale" still is the big thing, especially in the US. Below is an example of the hyping of source rock fracture by an independent news outlet that I have quoted in the past: Real News Network. As seen from studies like the one by David Archibald, reliable estimates of ultimate petroleum reserves in source rocks in the US stand at 10 Gb, give or take. That is less than 0.5% of reliable estimates of global petroleum reserves. With all fossil fuels considered, these 10 Gb of petroleum equate to less than 0.1% of reliable estimates for world wide reserves. Relative to the fossil fuel estimates used by the IPCC, 10 Gb of petroleum account for less than 0.05% of total carbon emissions, in any of their scenarios. The Real News Network is totally entitled to prefer the fossil fuel reserves estimates by the IPCC to those issued by independent researchers, but that has to match a congruent assessment of the role source rocks have in carbon emissions (and the economy).

What the Real News Network calls profits is actually a flood of red ink in corporate balance sheets. Ambrose Evans-Pritchard is a usual down-to-earth voice on the economics of fossil fuels, thus the thorough piece he authored this week on the growing financial troubles for the petroleum and gas industry is not a surprise. Nevertheless, this article comes within a trend by some of the media to distance themselves from the "shale hype" portraited above. To put these numbers in context, the amount of debt taken by the industry equals the whole GDP of Austria in the same period.
The Telegraph
Oil and gas company debt soars to danger levels to cover shortfall in cash
Ambrose Evans-Pritchard, 11-08-2014

The world’s leading oil and gas companies are taking on debt and selling assets on an unprecedented scale to cover a shortfall in cash, calling into question the long-term viability of large parts of the industry.

The US Energy Information Administration (EIA) said a review of 127 companies across the globe found that they had increased net debt by $106bn in the year to March, in order to cover the surging costs of machinery and exploration, while still paying generous dividends at the same time. They also sold off a net $73bn of assets.

This is a major departure from historical trends. Such a shortfall typically happens only in or just after recessions. For it to occur five years into an economic expansion points to a deep structural malaise.
Here in Europe the conflict in Ukraine remains the most concerning energy and economic problem. The Ukrainian parliament approved a package of sanctions on Russia that seem to have far more impact on Europe than anyone else. In spite of the financial aid that Europe has provided to Kiev since the ousting of Yanukovych, the new government seems decided to interfere with the gas transit from Russia.
Ukraine approves law on sanctions against Russia

Ukraine said on Monday that European energy companies would have to agree major contract revisions when purchasing Russian natural gas if parliament approved sanctions on Gazprom.

Russia is Europe's biggest gas supplier, meeting almost a third of the region's demand, around half of which flows to European clients via Ukraine. European utility companies are worried that Ukrainian sanctions could disrupt supplies during the coming winter.
Summing up to the economic sanctions already in place, things are starting to look rather bleak for the eastern member states, whom clearly fathom they are being dragged into a conflict they can only loose.
Slovak PM warns "meaningless" Russia sanctions will jeopardize EU economy
Robert Muller, 14-08-2014

Slovakia's prime minister criticized the European Union's sanctions against Russia over Ukraine on Thursday, saying they would only threaten economic growth in the 28-member bloc.

"Why should we jeopardize the EU economy that is beginning to grow?" Robert Fico told a news conference.

"If there is a crisis situation, it should be solved by other means than meaningless sanctions. Who profits from the EU economy decreasing, Russia's economy having troubles and Ukraine economically on its knees?"
Throughout the remainder of Europe there is growing discomfort towards the escalation of economic sanctions with Russia. The impact of the first round of sanctions is here, with Germany and Italy in recession and France stagnating in the second quarter of 2014; for the eastern states things are even more worrying. Handelsblatt is a German economic daily; days ago it published a long editorial on the subject, exceptionally written in English.
The West on the wrong path
Gabor Steingart, 08-08-2014

[...] It is not too late for the duo Merkel/Steinmeier to use the concepts and ideas of this time. It does not make sense to just follow the strategically idea-less Obama. Everyone can see how he and Putin are driving like in a dream directly towards a sign which reads: Dead End.

“The test for politics is not how something starts but how it ends“, so Henry Kissinger, also a Peace Nobel Prize winner. After the occupation of the Crimean by Russia he stated: we should want reconciliation, not dominance. Demonizing Putin is not a policy. It is an alibi for the lack thereof. He advises condensing conflicts, i.e. to make them smaller, shrink them, and then distill them into a solution.

At the moment (and for a long time before that) America is doing the opposite. All conflicts are escalated. The attack of a terror group named Al Qaida is turned into a global campaign against Islam. Iraq is bombed using dubious justifications. Then the US Air Force flies on to Afghanistan and Pakistan. The relationship to the Islamic world can safely be considered damaged.

If the West had judged the then US government which marched into Iraq without a resolution by the UN and without proof of the existence of “WMDs“ by the same standards as today Putin, then George W. Bush would have immediately been banned from entering the EU. The foreign investments of Warren Buffett should have been frozen, the export of vehicles of the brands GM, Ford, and Chrysler banned.
The lightening offensive in June by the Islamic State and its allies against the Iraqi army has always been questioned by various pundits, alluding to bribery and other methods, refusing to acknowledge the new dimension the organisation has acquired. In recent weeks the Islamic State has been also successful against two other regular armies: the pershmerga in the Kurdish region and the Syrian army to the west. No doubt is left that this is an organisation entirely different from Al Qaeda.
McClatchy DC
Why can’t Islamic State be stopped? Analysts say it’s better armed, better organized
Nancy A. Youssef, 07-08-2014

[...] But then the Islamic State moved against cities last week that were defended by the peshmerga, and the peshmerga retreated. On Thursday, the Islamic State captured at least four towns on the highway to Irbil and defeated peshmerga forces attempting to break its siege of the Mosul Dam. A near panic took hold in the Kurdish capital as militia forces rushed to set up a defensive line at Kalak, 25 miles northwest of Irbil.

It was another victory for the Islamic State, which before the peshmerga had defeated Syrian forces throughout much of eastern Syria, including recent seizures of major Syrian bases in Raqqa and Deir el Zour, and had sent Iraqi army forces fleeing almost to the gates of Baghdad.

What has made the Islamic State forces seemingly unstoppable?
Throughout the week news started popping of direct impacts to petroleum extraction in the north of Iraq. First it was Hess that evacuated its staff.
Hess suspends Iraqi Kurdistan operations, evacuates staff
Karolin Schaps, 11-08-2014

U.S. oil producer Hess Corp has suspended oil-drilling operations in Iraqi Kurdistan and started to evacuate non-essential staff amid spreading violence in the region, its minority partner Petroceltic said.

"It has been decided, as a precautionary measure, to temporarily secure and suspend operations, including the drilling of Shireen-1 exploration well in the Dinarta licence," Petroceltic said in a statement.
Days latter the suspension of operaions extended to most international companies operating in northern Iraq.
World Bulletin
International oil producers halt northern Iraq operations

Six international oil companies working in Iraq's Kurdish region, including Exxon and Chevron, have decided to suspend production and evacuate their staff for security reasons.

Their decision comes after clashes between Kurdish peshmerga security forces and militants belonging to the radical militant group known as the Islamic State, who are attempting to advance on the Kurdish regional capital Erbil.

Alongside Exxon and Chevron, Abu Dhabi's TAQA, Canada-listed Oryx Petroleum, London-listed oil producer Afren and US oil producer Hess Corporation are all suspending their operations.
Some nice weekend reading below. The advances of the Islamic State against the Kurds are now seriously threatening the overall petroleum exports out of Iraq, and according to this author this is the main reason for the air strikes conducted by the US air force.
New Republic
The U.S. Airstrikes in Northern Iraq Are All About Oil
John B. Judis, 08-08-2014

[...] The United States is conducting airdrops to aid the Yazidis who have fled the advance of Islamic State militants, but it is conducting airstrikes around Erbil, which is to the east. There are American consular personnel in Erbil, but they could be evacuated if necessary. What Obama left unsaid was that Erbil, a city of 1.5 million, is the capital of the Kurdish regional government and the administrative center of its oil industry, which accounts for about a quarter of Iraq’s oil. The Kurds claim that if they were to become an independent state, they would have the ninth-largest oil reserves in the world. And oil wells are near Erbil.

If the Islamic State were to take over Erbil, they would endanger Iraq’s oil production and, by extension, global access to oil. Prices would surge at a time when Europe, which buys oil from Iraq, has still not escaped the global recession. Oil prices have already risen in response to the Islamic State’s threat to Erbil, and on Thursday, American oil companies Chevron and Exxon Mobile began evacuating their personnel from Kurdistan. But oil traders are predicting that American intervention could halt the rise. “In essence we find U.S. air strikes more bearish than bullish for oil as the act finally draws a line for IS and reinforces both the stability in south Iraq and in Kurdistan,” Oliver Jakob, a Swiss oil analyst, told Reuters.
With all its recent conquests, the Islamic State now controls enough petroleum assets to become a noticeable player in the market.
ISIS: A Growing Oil Producer in Iraq and Syria
Jason Ditz, 12-08-2014

[...] The push into northern Iraq has seen them take 7 oil fields, all relatively small, but combined they amount to 80,000 barrels per day of capacity. At current prices, that’s about $8.4 million a day.

And it’s only the tip of the iceberg. ISIS has already amassed a large portion of Syria’s overall oil reserves. How much of the production remains usable in the midst of the civil war is unclear, but is believed to be hundreds of thousands of additional barrels per day.

All told, that would make the Islamic State one of the top 30 oil producers on the planet, and while they can’t exactly export it anywhere, their control over the key Baiji Refinery in Iraq will allow them to use it to produce fuel for their many captured vehicles.
Thoclose on Iraq is a rare discussion by pundits from the region conducted by Al Jazeera in English language. The lack of a clear solution is noticeable.

Also at PeakOilBarrel, Ron Patterson notes another open acknowledgement of Peak Oil in Russia. Contrary to practice in the West, Russian authorities make no secret of it and simply try to deal with the ensuing decline.
Global and Russian Energy Outlook to 2040
Ron Patterson, 14-08-2014

But notice they have Russia peaking by 2015. In fact the number they give for 2015 Russian production is about 100 thousand barrels per day below what Russia says they are producing today, which is just over 1,440 thousand tons per day. And that is about 15 to 20 thousand tons per day below what they said they produced in December. So there is no doubt that these two Russian think tanks believes Russia has already peaked. And keep in mind that this is coming from people who believe almost every other country will continue to increase production for about two decades. These people may be a little naive about the rest of the world but they should be well versed on Russia’s production prospects.
With the peak of petroleum extraction behind, Russia has been slowly shifting focus to the Arctic. This move northwards attests once more to the increasing scarcity of high return petroleum reserves.
Associated Press
Russia starts drilling its northernmost oil well

Russia has begun drilling on its northernmost oil well, in the Kara Sea off the northern coast of Siberia.

The well is part of a joint project between the Russian state-owned oil company Rosneft and ExxonMobil to develop the region's oil reserves, which are estimated at up to 100 billion barrels.
Here is a growing problem that I have highlighted previously: the incredible increase of earthquakes in Oklahoma. First of all I should note that while source rock fracturing is being applied throughout many states in the US, these phenomena seem restricted to Oklahoma. But the damage and unrest this trend is creating is almost guaranteed to result in some sort of limiting regulation.
'Houses are bouncing;' quakes trigger controls on Oklahoma oil industry
Carey Gillam, 09-08-2014

Inside the small U-Haul rental office in Guthrie, Oklahoma, Tami Boxley routinely deals with something that once was rare: the rattling, booming roll of the earth.

In the last week alone, residents of Guthrie, pop. 10,191, have felt five quakes rock the town a half hour's drive from Oklahoma City.

The most recent rippled through Friday after lunchtime, duly recorded on the "QuakeWatch" application many residents have loaded onto their smartphones. The local newspaper runs a weekly column updating details of the latest quakes.

"It feels like the earth is opening up and you are falling," said Boxley. "It's scary."

Since January, Oklahoma has had 292 earthquakes that register a magnitude 3.0 or larger, more than any other state in the continental United States. That's nearly triple the 109 last year. Through 2008, Oklahoma averaged less than two a year.
Bloomberg reports an unusual problem in Mexico: an increasing share of the petroleum extraction reported by local authorities is actually water. After peaking above 3.5 Mb/d in 2004, petroleum extraction in the country may now be down to little over 2 Mb/d; I am not aware of any projection of such steep decline. The Mexican government expects the country's petroleum output to be back to 3 Mb/d by 2018...
Mexico Oil Output Bloated by Water Barrels, Official Says
Adam Williams and Carlos Manuel Rodriguez, 13-08-2014

Petroleos Mexicanos, facing a 10th straight year of production declines, is including water in its oil output and may revise previously reported data, according to a company official briefed on the matter.

A record gap this year between reported output and what the state-owned company processes is partly explained by measuring systems at older fields that are unable to differentiate water-heavy oil from actual crude, the official said, asking not to be named as Pemex debates reducing figures for the past three years or more. Last month, the company cut its 2014 output forecast to 2.44 million barrels a day.

[...] Through June, the unaccounted oil averaged 162,000 barrels a day, according to data compiled by the industry regulator, known as CNH for its initials in Spanish. That’s up from 102,700 barrels a day last year and 68,600 in 2012, the data show. Over the first six months of this year, the gap was worth about $2.8 billion of oil, based on prices for the Mexican mix of crude for export.
To close the fossil fuels section I link to an interesting talk at Platt's Global Oil Market Podcast on Kashagan. The giant field is not expected to be back online before 2016.

And the end note on the energy sources of the future focuses on Brasil. The country is issuing a massive auction on renewable energies that is already producing interesting data points. About a third of the applications are solar projects, reaching more than 10 GW. Comparing to the total of 15 GW in wind power applications, the maturity of solar relative to other technologies becomes evident. But of course, the final reasoning should be on the end results of the auction.
Brazil continues solar surge as national auction attracts 400 solar power projects
Lucy Woods, 31-07-2014

The upcoming national renewable energy auction in Brazil has attracted 400 applications for PV plant development.

Brazil’s Energy Research Company (EPE), the government arm of the Ministry of New and Renewable Energy (MNRE) has registered more than 1,000 applicants for the reserve energy auction, or ‘A-3’ renewables-only national auction.

There are 1,034 applications and the auction is to be held on 31 October.

More than 26GW of renewable energy projects have been registered with wind dominating with 626 projects registered, totalling 15GW of capacity.

The 400 solar projects registered total more than 10GW, and there are eight thermal and biogas projects totalling 151MW.
Enjoy the rain ... I mean, the weekend.

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