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20 September 2014

Press review 20-09-2014 - United

In spite of the suspense of recent weeks, the Scots ended up voting to remain in the UK, in the process sparing many headaches to a lot of people. The Westminster government can thus count on the North Sea petroleum and gas extraction to balance its finances for a few years longer. But the writing is on the wall and a face off with depletion will come about eventually. The decline of these resources coupled with the isolationist drive of the UK government will likely result in a new referendum sooner than most may expect.

In fact, this coming winter could already be the energy event horizon long expected for the UK. To the decline of the North Sea adds the progressive retirement of Coal and Nuclear power plants, that has slowly derided the capacities of the UK National Grid to meet electricity needs. More than a decade of negligent energy policies now translate in to diesel fired electricity generation. The market will certainly deal with the problem, but is this the outcome British citizens wish?

National Grid fears electricity shortage for winter

After a number of early warning signs, the National Grid is raising an emergency plan to seek extra electricity this winter. Generators are being asked if they could provide more electricity in the case of a shortage as "there is an increased level of uncertainly over the volume of plant that may be available in the market this winter".

To prepare for possible reductions in the amount of spare generating capacity, ENER-G is advising businesses to make contingency plans to ensure important data is not lost and that core business functions remain intact.
This is the king of post that regular readers may enjoy, with loads of graphs and interesting details. When reading keep in mind the hypothetical impact of a politically stable Iraq.
Crude Oil Peak
US shale oil growth covers up production drop in rest-of-world

[...] The world is transfixed on growing world crude production driven by US shale oil but forgets to look what is happening under this remarkable growth curve. We find a production drop in the rest-of-world since February 2012, mainly caused by geopolitics (Iran), civil strife (Libya), corruption (Nigeria) and a poor performance of Saudi Arabia. Declining crude production in one group of countries could still be offset by a growing group, but only because of unconventional oil from Canada and conventional oil from the Southern part of Iraq. Dick Cheney is now praying for the oil fields there.
There have been rumours of a cut in petroleum exports by OPEC to sustain prices at a comfortable level (possible above 100 $/b). A decade ago the cartel had a different target: keeping prices under the 30 $/b. Beyond geological factors, many OPEC members have adjusted their economies to these high prices and can not possibly allow the price to decline further. Note also how the confusion between demand and consumption is prevalent even in the alternative press.
Wolf Street
Dropping Oil Prices Put These Countries at Risk

Nevertheless, Saudi Arabia is plenty worried about a glut of supplies. It cut production by between 330,000 and 400,000 bpd in the month of August.

And OPEC and other major oil suppliers are probably more worried than they are letting on. And if they aren’t, they should be. That is because many of them need high oil prices to sustain fiscal expenditures.

Below are a few countries to keep an eye on during this period of soft oil prices. This is an issue that will simmer and only grow worse with time, but investors need to maintain their attention on this list of oil suppliers because while the problems could be acute, they are often slow to emerge.
The military situation in Ukraine seems to be slowly diffusing, with both Russo-phone and Ukrainian speaking leaders entailing negotiations towards peace. Sanctions remain in place however. For the Russian petroleum industry they come at the wrong moment, when new technological and geographical frontiers must be open to tackle the ensuing decline of extraction. On the other hand, it might also provide a capital opportunity for both BRICS and non-aligned OPEC members to invest in Russia.
Fresh sanctions will freeze big foreign oil projects in Russia
Olesya Astakhova, Katya Golubkova and Vladimir Soldatkin, 14-09-2014

Fresh U.S. and EU sanctions imposed on Moscow will bring an abrupt halt to exploration of Russia's huge Arctic and shale oil reserves and complicate financing of existing Russian projects from the Caspian Sea to Iraq and Ghana.

On Friday, the United States imposed sanctions on Gazprom, Gazprom Neft, Lukoil, Surgutneftegas and Rosneft, banning Western firms from supporting their activities in exploration or production from deep water, Arctic offshore or shale projects.

The new measures, designed to put further pressure on President Vladimir Putin over Russia's actions in Ukraine, are a major broadening of the previous sanctions, which only banned the export of high technology oil equipment into Russia.
Sanctions are a doubled edged sword. If indeed Russian petroleum companies struggle to sustain extraction rates it is also true that western companies providing capital and expertise are likewise impacted.
Climate Progress
New Sanctions Against Russia Could Deal Big Blow To ExxonMobil
Ryan Koronowski, 15-09-2014

On Friday, the United States and the European Union imposed a new round of sanctions on Russia in response to Moscow’s intervention in eastern Ukraine and following its annexation of the Crimean peninsula in March. The goal is to clamp down further on the Russian economy but it will significantly affect the drilling plans of western oil giants ExxonMobil and BP.

In fact, this closes a loophole that allowed Exxon to begin drilling Russia’s first exploratory well in the arctic Kara Sea last month — a well that could have to shut down in less than two weeks. Exxon’s lawyers were reportedly reviewing the sanctions to determine if they would have to alter operations in the Kara Sea and in another consortium-led oil and gas operation on Sakhalin Island.

Prior rounds of sanctions have primarily targeted the Russian banking and defense sectors, but in late July, the U.S. and E.U. agreed to crack down on Russia’s access to Western fossil fuel technology for future development of deepwater, Arctic offshore, and shale oil and gas deposits. Russia has the largest combined oil and gas reserves in the world but lacks the oil and gas technology needed to access complex and dangerous deposits like those deep under the waters under Russia’s Arctic coast. So it enters into deals with the Western oil giants — most prominently Exxon — to exploit those resources. Exxon and Russia agreed to a $3.2 billion deal that gives the company access to a Texas-sized chunk of the Arctic.
"One hundred years of natural gas". This is probably the sentence that better resumes the efforts by the US government lead by Barak Obama to promote gas extraction from source rocks. In face of the financial catastrophe that these resources yielded so far in the US, one has to wonder if the drive of this same government to sever economic ties between Europe and Russia is a mere continuation of this policy. The following article provides for some very good weekend reading, exemplifying how some US politicians some time more resemble corporate PR officers. In truth, there is nothing wrong in promoting your country's industries, as a long as it is not achieved at the expense of other economies and even lives.
Mother Jones
How Hillary Clinton's State Department Sold Fracking to the World
Mariah Blake

One icy morning in February 2012, Hillary Clinton's plane touched down in the Bulgarian capital, Sofia, which was just digging out from a fierce blizzard. Wrapped in a thick coat, the secretary of state descended the stairs to the snow-covered tarmac, where she and her aides piled into a motorcade bound for the presidential palace. That afternoon, they huddled with Bulgarian leaders, including Prime Minister Boyko Borissov, discussing everything from Syria's bloody civil war to their joint search for loose nukes. But the focus of the talks was fracking. The previous year, Bulgaria had signed a five-year, $68 million deal, granting US oil giant Chevron millions of acres in shale gas concessions. Bulgarians were outraged. Shortly before Clinton arrived, tens of thousands of protesters poured into the streets carrying placards that read "Stop fracking with our water" and "Chevron go home." Bulgaria's parliament responded by voting overwhelmingly for a fracking moratorium.
In Iraq the threat of the Islamic State on petroleum extraction seems put off for the time being, with various NATO members conducting regular air strikes on its positions. Still it is interesting to note that fighting rages on around the Baiji refinery.
Islamic State Bombs Iraq Oil Refinery as U.S. Hardens Stance
Kadhim Ajrash and Khalid Al-Ansary, 13-09-2014

Islamic State militants set fire to an oil storage tank at Iraq’s largest refinery as the U.S. prepares to escalate the campaign against the extremist group.

Militants fired mortar rounds at the Baiji refinery, 130 miles north of Baghdad, causing a crude storage tank to catch fire and emit a plume of smoke visible from miles away, the police said in a statement read over the phone by an officer.

“The fire could go on for two or three days as there is no civil defense to put it out,” police said in the statement, without indicating how much oil the tank contained. “The situation in the refinery’s perimeter is quiet now.”
A new story is emerging out of Iraq that explains further the persistent failure of the country to meet its own petroleum extraction targets. According to this account extraction is declining in various mature fields for lack of water for secondary recovery.
Iraq's oil output revival at stake for want of water

But the shortage of water is hurting production at two main southern fields: West Qurna-1 and Zubair, official and industry sources told Reuters.

Further production declines from both mature fields look likely if water scarcity persists, the sources said.

Output from West Qurna-1 - operated by ExxonMobil - has fallen almost 40 percent to around 300,000 barrels per day compared with last year, an industry source said, adding that a shortage of water was one of the reasons.

Zubair, run by Italy's ENI, is feeling the pain too. A source at state run South Oil Company said production from Zubair had fallen, but declined to give further details. It was currently pumping around 280,000 bpd, the source said.
The US Congress approved a new batch of material support to the Sunni rebels fighting established regimes in the Near and Middle East. The US media sold this as an attempt to fight the Islamic State. Has recent history tells, the various Sunni factions in the region are not willing to fight each other and largely work for a common goal. And as usual, part of the weapons shipped by the US to Syria will end in the hands of the Islamic State.
Middle East Eye
Free Syrian Army will not join US-led coalition against IS

The Free Syrian Army has announced that it will not sign up to the US-led coalition to destroy Islamic State (IS) militants in Iraq and Syria.

The group’s founder, Colonel Riad al-Asaad, stressed that toppling Syrian President Bashar al-Assad is their priority, and that they will not join forces with US-led efforts without a guarantee that the US is committed to his overthrow.

"If they want to see the Free Syrian Army on their side, they should give assurances on toppling the Assad regime and on a plan including revolutionary principles."

[...] The announcement comes a day after a ceasefire was signed between another rebel group, the Syrian Revolutionary Front (SRF), and IS fighters in Damascus.

The details of the truce agreement, published by Arabic news site Orient Net, showed that the two sides had agreed not to target each other.
The pre-salt petroleum resources off Brasil have been regularly referenced in this review as an example of a marginal supplier, well into the head section of the supply curve. With prices where they presently are, it seems very unlikely for these resource to have a chance of broad extraction, irrespective of government policies.
Brazil 'falling off world oil map' over failed policies -industry group
Jeb Blount, 15-09-2014

Investors are losing interest in Brazil's oil industry as the country's energy policies raise costs, reduce efficiency and increase risk, Brazil's oil industry association, the IBP, said on Monday.

Without changes Brazil will likely lose out to places such as Mexico, Iran, Iraq and Algeria where policies are becoming more open to private sector investment.

"I went to the three largest oil conventions in the world this year and you hardly heard Brazil's name mentioned," Milton Costa Filho, Executive Secretary of the IBP told reporters at an industry event in Rio de Janeiro. "Brazil is falling off the world oil map."
More good weekend reading. An interesting dive into another of the resources at the top section of the petroleum supply curve.
BP Dives Deeper Offshore Into Mars-Like World
David Wethe and Bradley Olson, 18-09-2014

Even as it faces $50 billion in potential liabilities from the worst U.S. offshore oil spill, BP Plc (BP/) is leading the effort to extract crude from deep below the sea, a place as extreme and inhospitable as the surface of Mars.

BP, Chevron Corp. and Royal Dutch Shell Plc (RDSA) are among companies developing a new generation of oilfield technology to reach through more than seven miles of water and rock, where temperatures can reach 400 degrees Fahrenheit (200 degrees Celsius) and the pressure hits 20,000 pounds per square inch -- and to do it safely.

The conditions are more challenging than BP’s Macondo well in the Gulf of Mexico, where a 2010 rig explosion killed 11 people and caused a spill that fouled hundreds of miles of coastline. The companies are seeking to tap into $1 trillion in reserves offshore, where a major discovery can produce more oil over its life than 1,000 of the shale wells that are driving an unprecedented energy boom in the U.S.
Another "shale" driller bites the dust in Poland. Even noticing the persistent failure to commercially extract petroleum or gas from Polish source rocks, the press keeps touting the idea of existing large reserves. In practice however, at this stage reserves are exactly zero.
British company gives up on Polish shale
Daniel J. Graeber, 17-09-2014

3Legs Resources, a company exploring the shale natural gas potential in Poland, said Wednesday it was giving up because of a lack of commercial prospects.

The company said in an operational update "it would be in the best interests of its shareholders to exercise its option to withdraw" from three concessions in the three western Baltic shale basin in Poland.

Poland is thought to be rich in shale natural gas reserves. The European Investment Bank in June loaned the country $132 million for the expansion of a pipeline that could bring gas, including domestically sourced liquefied natural gas, to the border of the Czech Republic, Slovakia and Ukraine.
Another week goes by and the coal shortage story in India deepens further. At a time when the price of this fuel declines in the international market, the country is unable to source the required amounts for its own mines. Time is ripe to question this dependency on a non-renewable resource.
The National Business
The dark side looms in India over coal
Rebecca Bundhun, 13-09-2014

On a typically busy morning in Mumbai this month, power cuts plunged a number of major business and residential districts of India’s financial capital into darkness.

[...] The incident heightened widespread concerns about low coal supplies in India, which are posing a major threat to power generation. Coal is the major source of energy, generating about 60 per cent of the country’s electricity. Supplies have been running at the lowest levels since a major blackout in the summer of 2012, which left 600 million people without electricity.

[...] “High dependence of the power sector on coal supply, is this sustainable? Sustainable both from the point of quantity and quality of future coal supplies? Is this the most efficient way of power generation and are other sources of energy underutilised?”
Cellulosic ethanol has been a technology in the brink of commercial success of success that it is hard to think it will ever break through. On paper it looks quite well, a rational process of valueing waste, in practice things have not went so well. Yet another project attempts commercial scale in the US. Best hopes.
National Geographic
"Fantasy" of Fuel From Corn Waste Gets Big U.S. Test
Christina Nunez, 11-09-2014

The so-called fantasy that the Liberty plant—a $275 million co-venture between Sioux Falls, S.D.-based ethanol producer POET and DSM, a Dutch chemical conglomerate—aims to realize is the first commercial-scale production of cellulosic ethanol. Unlike corn ethanol, a fuel long criticized for straining the land and water resources needed to grow corn for food, cellulosic fuels are made from biomass such as corn stalks, leaves, and other organic waste material.

Project Liberty's endeavor requires no small amount of faith. Though cellulosic ethanol has the potential to reduce emissions by up to 86 percent compared with gasoline, it has faced numerous challenges. Aside from the costs associated with developing a new technology to break down biomass and turn it into fuel, the industry has grappled with uncertainty surrounding the ethanol mandates from the Environmental Protection Agency (EPA).
Following the kind of story that repeats itself every now and then. In this case it seems driven more by sheer mineral depletion than for the secular depreciation of abstract currencies.
Wall Street Journal
Time to Ditch the Penny? Many Readers Say Yes.
Karen Damato and Tatyana Shumsky, 09-09-2014

The high cost of producing the lowly penny—about 1.6 cents each in 2014—has led the U.S. government to look unsuccessfully for possible cost savings using different metals. Currently 97.5% of every penny is zinc, a material for which supplies have been shrinking and prices rising.

But “no alternative metal compound would lower the cost of the penny [to less than one cent],” said Tom Jurkowsky, a spokesman for the U.S. Mint.

The reaction from many Journal readers: Why not just get rid of the smallest-denomination coin?
And another natural resource coming under seems to be diamonds. The article expects this ensuing scarcity to be dire for the industry, but it might mean exactly the opposite, as the supply curve loses elasticity and prices rise.
Space Daily
De Beers warns diamonds aren't forever

The De Beers diamond cartel warned Wednesday that global production will decline from 2020, a trend that could spell pricier bling for consumers.

A dearth of major new diamond finds means that production might not keep up with ever-increasing demand from the United States, China and India, the firm claimed.

"Unless major new discoveries are made in the coming years, supply can be expected to decline gradually from 2020," De Beers said, forecasting rocky times ahead for the $85 billion a year industry.

Existing mines in Botswana, South Africa and Namibia are becoming depleted and the need to dig deeper has made operations less profitable.
Have a good weekend.

1 comment:

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