Press review 20-12-2014 - Contraction

The decline in petroleum prices continues to dominate the news. The Brent index fell further this week, finding an apparent bottom around 60 $/b; it may be merely temporary. All bets are off for 2015 and price forecasting at this stage is mostly a futile exercise. If earlier the owes of this price rout were coming mostly from North America, they now spread, with every other petroleum region facing a grim forecast.

Russia popped in the news in the first days of the week with drastic measures to support the ruble. The parallels with previous historical petroleum price bottoms in 1998 and 1985 are obvious and do not spell anything good. And it is not only petroleum, Russia relies on exports of all sorts of raw materials whose prices have fell across the board during 2014, in face of an anaemic world economy. One thing is now certain: 2013 will go in history as the year petroleum extraction in Russia peaked. Henceforth it is mostly about the steepness of the decline.

Press review 13-12-2014 - A bursting bubble

American energy writer Richard Heinberg entitled his book on petroleum extraction from source rocks "Snake Oil". This title was a sharp choice, possibly in more ways than Richard himself could have anticipated. For a few years the US investment community was completely intoxicated with stories of limitless supplies of fossil fuels and even energy independence. Every day more wells would be drilled, more infrastructure would be sourced, more news of a bright future would be written. And more debt would be issued to feed the beast.

Until one day. It turns out source rocks were not so good after all, relying on wells with lifetimes counted in years, instead of decades. Thousands of millions of dollars were piled up on resources lying at the top end of the supply curve, thus vulnerable to the slightest shifts in the market equilibrium. Today that equilibrium renders source rocks money loosers and battered investors flee the market in hordes. Behind they leave a pile of debt on the verge of collapse, threatening the whole financial system; and not only in the US.

Press review 06-12-2014 - Bitter Oranges

This week I attended the opening session of a photo-exhibition on the life of illegal immigrants stranded in Italy. Either because they fail to obtain a working visa or because they are prosecuted in their country of origin, these immigrants are left to their luck, at best getting a place to sleep in a container or a tent.

Three Luxembourgish researchers have been visiting regularly the camps where these immigrants live, documenting their stories and the ordeals they go through just to survive. They have to work to buy food and clothing; the orange harvest is the only possibility, where they can earn 0.5 € for each box of 22 kg. At the height of the harvest they earn little over 200 € per month; many months go by when they have no income at all. Although these migrants originate from all over North Africa, more than half of them were settled in Libya at the beginning of 2011. Back then they had relatively normal lives, with a real job and proper housing.

I have been writing on Libya and its demise for over six years, studying the implications to our economy and way of life. Behind all these big stories are real lives and great human suffering. All this happens literally in our neighbourhood, and goes largely unnoticed to the general public.

Bitter Oranges is the name of this research project. There is a photo gallery to visit and also a short video to watch.

Press review 29-11-2014 - The Crash

It might not feel that long ago, but more than eight years have passed since Samuel Foucher published at TheOilDrum the Loglet analysis applied on petroleum. In the years that followed I used the results from this work intensively, regarding it as the most accurate model of fossil liquids extraction.

In reality, volumes extracted grew considerably slower than atecipated by this loglets model. Even if it captured accurately the dynamics of the petroleum system, the decline it portrayed was considerably delayed. After all this time, how have the results from the Loglets analysis evolved? Does it portrait a different scenario with further eight data points? This is what this work sets out to answer.

Press review 22-11-2014 - Shale subprime fears

Image source: Bloomberg. Click for full version.

Press review 15-11-2014 - Ravished Ukraine

Petroleum prices resumed the dive this week, with Brent closing below 80 $/b for the first time in four years. For now these are still small news on the backdrop of the world Economy, gripped with recession and spreading price deflation. The nervousness of governments is palpable in many countries.

Ukraine is back to the front pages with further escalation of the conflict. Combat intensified and the western media is reporting a large scale invasion of the Donbass by Russian forces. The mere risk a full out war poses on gas infrastructure is disturbing by itself.

There is still no gas flowing from Russia to Ukraine. The European Commission is having second thoughts and is for now refusing to foot the bill. A mild Autumn is supporting this policy, but on the wake of the Russia vilification campaign, leaving the Ukrainian nationalists out in the cold is not really an option.

Press review 08-11-2014 - Brent is sinking

Commodities resumed the decline this week, pretty much all across the board. The economic outlook is grim, Governments appear week, with limited options, but are still keen on cutting ties with important partners such as Russia. This price rout is looking ever similar to what took place in 2008. For the energy sector in particular, these developments come at the worst of moments.

In a striking sign of times, the Brent petroleum field in the North Sea appears to be fast reaching the end of its economic life. The petroleum extracted from this field has been the benchmarks for about half of all the petroleum traded internationally. Ironically, the benchmark seems no longer able to support itself. Soon the media might have to start referring to a different international price index.

Press review 01-11-2014 - Nationalism is great in Summer

This was a busy a week, with many points of interest emerging throughout. Commodities in general kept falling in price against the US$, but the Brent index remained essentially flat.

Sunday, two thirds of Ukraine elected a new Parliament, guaranteeing the permanence of nationalist forces in power. The russophone separatist regions of Luhansk and Donetsk should held their own elections in short order, in spite of having one million refugees in Russia.

The gas supply pre-agreement drafted last week was finally confirmed. Russia dragged negotiations trying to force the EU into a parallel agreement guaranteeing payment on behalf of Ukraine. Such formality did not come to fruition, but it is clear it will be European tax payers largely paying for the gas consumed by Ukraine for the foreseeable future.

Whatever happened to Ukraine's treasury?

The story of the Ukraine crisis can be told in many ways, but the gas supply is perhaps the most important starting point. Half of the gas that transits from Russia to the European Union flows through multiple pipelines striping Ukraine. The over-dependence of the country on this fuel is above all a convenience, from it obtaining a large share of its heating and electricity.

The government of Viktor Yanukovich, facing a gripping economic crisis, managed to get from Russia a reduction of the gas price to about half of that paid by costumers in the European Union. But this timely aid had a price: the definitive absorption of Ukraine into the sphere of influence of Russia and the BRICS. Reacting to this re-approximation towards Russia, various nationalist groups united against the government, paralysing the capital, boycotting negotiations with opposition parties and finally taking power in February.

Press review 25-10-2014 - RIP Christophe de Margerie

The radio woke me up this Tuesday with the news of the tragic death of Christophe de Margerie. A sad reminder of the unpredictability and ultimate frailty of life. De Margerie had been a voice of striking poise and realism in the petroleum world, greatly contrasting with the hyperbolae that usually mars the business-as-usual discourse, particularly in the US. His balanced views always had an impact; when he spoke the press listened. If source rock fracturation has not yet been applied in France is in great measure due to his realistic assessment of the potential of these resources.

De Margerie understood like few that resource constraints are as much an opportunity as they are a challenge to the petroleum industry. Petroleum is not running out, rather the easier to extract reserves. This understanding is best reflected in how well the company he lead fared the past decade, par rapport to other multi-nationals.

No wonder then the posthumous praise de Margerie received from most sectors he had been involved with: politics, business, even sports. A real loss in many ways.

Press review 18-10-2014 - Shale Zeppelin

Press review 11-10-2014 - Waiting for winter

Press review 04-10-2014 - The plunge

Petroleum prices took a further dive this week, definitely leaving the trading band of recent years, presently hoovering in the low 90s ($/b). The largest economic blocks of the world are either stalled or in recession, with political tensions blocking a short term recovery of international trade. In fact petroleum is just one of many commodities (and various currencies) affected by a general negative short term outlook on the global economy. This downturn is wrecking nerves, with uncertainty growing for many projects on widely disparate price expectations.

Short term the biggest risk in Europe remains the gas supply from Russia. News broke out this week of fresh cuts, affecting more member states. Negotiations on a deal over supplies to Ukraine seem to have staled. With storage facilities nearly full throughout Europe this issue does not seem pressing; but there should be no illusions: Europe can not make through the winter without regular supplies.

Reuters
EU-Russia gas duel deepens with Slovakia supply cut
01-10-2014

The cat and mouse game between Europe and Russia on gas intensified on Wednesday with Slovakia saying its supply from Russia was down by a half and its prime minister calling the move part of a political fight.

Since September, Russia's state-controlled Gazprom has sent less-than-requested deliveries to Poland, Slovakia, Austria and Hungary - after the European Union began sending gas to Ukraine - in a clear warning from Moscow ahead of the winter heating season which officially starts today, when the industry switches to higher pricing.

The 50 percent cut reported by Slovakia, a major transit point for Russian gas exports to Europe, was by far the deepest yet, and Prime Minister Robert Fico said he would call a crisis meeting of his government if the problems persisted.

The Russian establishment has been (correctly) vocal in condemning the role played by neo-nazi organisations in the coup d'état in Kiev. That however does not prevent Russian companies from making special deals with Viktor Orban. Apparently, Hungary is breaching a decision took by the European Council. Is it one more defiant step towards an inevitable exit from the EU? Or is Hungary aware of more supply cuts to come?

Reuters
Hungary to import more gas from Gazprom, says PM Orban
Krisztina Than, 26-09-2014

Hungary has secured increased gas imports from Russia's Gazprom, Prime Minister Viktor Orban said on Friday, a day after Hungary's pipeline operator FGSZ stopped shipping gas to Ukraine.

Orban told public radio that he had held talks with Gazprom CEO Alexei Miller and the company had agreed to ship increased volumes of gas to boost levels at Hungary's storage facilities in the coming weeks.

Hungary is aiming to avert supply problems in the event of a potential halt in shipments of Russian gas stemming from the Ukraine crisis.

Russia keeps on expanding its costumer base, reducing its reliance on Europe. China is a natural partner in a a new drive towards the East, with whom Russia shares one of longest borders in the world. The gas pipelines recently referenced by the press are just the beginning of a large inversion of energy flows from Europe to China.

New Eastern Outlook
China and Russia in New Strategic Energy Deals
William Engdahl, 28-09-2014

Only weeks after Russia’s Putin and China’s President Xi signed what was called the “energy deal of the century,” a $400 billion eastern gas and pipeline project over 30 years from Russia to China, the two countries have followed with a dazzling array of major new energy agreements from gas to oil to coal. Taken as a totality it amounts to a major strategic and geopolitical shift in relations between the two giant nations of Eurasia that will have implications for the future of Europe as well as the United States.

[...] The two Russia-China gas pipeline projects are far from all being agreed between the two Eurasian countries at the moment. The deputy head of China’s National Energy Administration, Zhang Yuqing, announced on September 19, just two days after the news of the western Siberia-China talks, that China will “amplify cooperation” with Russian companies on Russia’s huge Yamal Liquified Natural Gas (LNG) project. The Chinese, who have been developing their own technology for creating LNG, will use their technology in the project in Yamal for gas deliveries to China.

[...] At the same time, in early September, the Russian state company, Russian Technologies, or Rostec, signed a $10 billion deal with China’s state-owned Shenhua Group Corp Ltd, the largest producer of coal in the world. It calls for the two to develop coal deposits in Russia’s Siberia and the Far East. The two companies will explore and develop the Ogodzhinskoye coal deposit in Russia’s Amur Region, with estimated coal reserves of 1.6 billion metric tons. Rostec expects coal production to start in 2019, with annual production reaching 30 million tons to be exported mainly to China.

Russia is also reportedly on the move to tame hydro-carbon supplies from the Caspian basin to Europe. Is Ukraine really worthy all this?

Nikkei
Caspian states fight over oil and gas riches
Jacopo Dettoni, 28-09-2014

As a new regional order emerged in Central Asia from the ashes of the Soviet Union, the five Caspian coastal states recognized the need for an update of the Soviet-Iranian treaties that had regulated the basin since 1921. Russia initially tried to veto any deal involving oil and gas, only to take a step back in the late 1990s, when it agreed to bilateral treaties with Azerbaijan and Kazakhstan that granted sovereign rights over the resources off their coasts.

Although Iran and Turkmenistan never recognized these agreements, the treaties gave Azerbaijan and Kazakhstan legal grounds for the development of oil and gas fields. With the construction of the Baku-Tbilisi-Ceyhan and Baku-Tbilisi-Erzurum pipelines, which came on stream in 2006 and 2008 respectively, Caspian hydrocarbons began flowing from Azerbaijan on the west coast of the Caspian to Turkey, and on to western Europe. Both pipelines are outside Moscow's control.

[...] "Right now (the Russians) have a great foreign policy incentive to try to stop the flow of oil and gas to Europe," said Jim von Geldern, professor of Russian and international studies at Macalester College in the U.S. state of Minnesota. "If they go back to the 1921 convention, they treat the basin more like a lake, which means they have to negotiate any division of resources. If it is negotiation, rather than law, then it is to the advantage of the more powerful countries such as Russia and Iran."

Dmitry Shlapentokh, professor of Soviet and post-Soviet history at Indiana University, also in the U.S., said Russia's main objective is to protect its gas sales to Western Europe from Caspian Sea competition. "Because of that, Turkmenistan and its large endowment of gas resources is a major cause of concern for Moscow. If (Turkmenistan) joins forces with Azerbaijan through a trans-Caspian pipeline, that would pose a serious threat to the Russian monopoly. This is why Russia's priority is to prevent such a pipeline from seeing the light."

The petroleum price dive made up for contradicting headlines in the press this week. On the one hand were those expecting the world economy to keep struggling, dragging prices further down.

CNBC
'Perfect storm' could send oil to $75, pro says
Michelle Fox, 02-10-2014

Oil prices will continue to slide down, with West Texas Intermediate possibly plunging to $75 a barrel, Jack Bouroudijan told CNBC's "Power Lunch" Thursday.

"This is a perfect storm for oil, think about it, between the Saudis trying to maintain market share and cutting and slashing prices, between the strong dollar … and the fact is that there is a huge supply out there," said Bouroudijan, chief investment officer at Index Financial Partners and a CNBC contributor.

On the other hand were those acknowledging present prices are not able to sustain many of the petroleum projects online today and the majority of those required in the near future. The key in this debate is timing.

CNBC
Cheap oil 'a mirage' and heading to $140: Dicker
Bruno J. Navarro, 01-10-2014

Brent crude oil prices this week dropped 2.4 percent to $94.83 per barrel and West Texas Intermediate saw a 3.6 percent decline to $91.16 a barrel. Meanwhile, the U.S. dollar hit a four-year high.

On CNBC's "Halftime Report," Dicker called cheap oil prices "a mirage."

"If you put up any chart for any currency you like against the dollar—put up the euro, put up the yen, put up the pound, put up whatever you like—you see a ski slope. And that's really what's been affecting oil," he said. "And that, to me, is a financial connection that is specious at best. When it works, it works. But when it doesn't work, it fails spectacularly. This is one of those moments when it's really working. The dollar continues to get stronger and continues to force oil lower. But I tell you, this is a mirage, and this is why: It's all about future production."

Saudi Arabia felt forced to intervene, announcing a cut to its petroleum output. Some investors perceived this move as an end to the price slump, but in parallel to cutting output, Saudi Arabia is also cutting the price to cash deliveries, increasing the discount on the regional Arabian Light benchmark.

Bloomberg
Worst Seen Over for Crude Prices as Saudis Cut Production
Grant Smith, 01-10-2014

The worst is over for global oil prices, according to UBS AG and Barclays Plc. After the biggest quarterly drop in more than two years, Brent is set to recover as Saudi Arabia cuts output and demand climbs, they said.

“Supply is the important thing and Saudi Arabia is in the process of rebalancing the market,” Giovanni Staunovo, an analyst at UBS in Zurich, said by e-mail yesterday. “The weakness in crude oil prices should come to an end.”

Brent fell yesterday by the most since Jan. 2 to $94.67 a barrel. It extended a quarterly drop to 16 percent, the largest since the three months ended June 2012. The benchmark grade for more than half the world’s oil will average $105 from October to December, according to the median estimate of 15 analysts compiled by Bloomberg since Sept. 11. It was up 0.8 percent at $95.41 a barrel at 10:47 a.m. New York time today.

In the wake of Scotland's independence vote, further assessments of North Sea resources keep coming. In this particular case, and after working through the usual mess up with units, this reports seems to inform that remaining petroleum in the British offshore will cost at least 66 $/b just in exploration. In between the lines this report is actually saying the end is near, which is not really a surprise.

UPI
Huge investments needed offshore Britain
Daniel J. Graeber, 30-09-2014

British offshore oil and natural gas reserves will stop providing a return on investments if costs continue to rise, an industry report said Tuesday.

Oil and Gas U.K., the British industry body, published its annual report Tuesday showing there may be as much as 24 billion barrels of oil equivalent left offshore, but it may require more than $1.6 trillion in investments to exploit.

It warned that operating costs on the British continental shelf were 60 percent higher than they were in 2011.

News of losses on the American source rocks keep flowing, now with petroleum resources frequently referenced. The losses made public by Sumitomo may be the largest yet reported on these resources, and will certainly not be the last.

Bloomberg
Sumitomo to Probe $1.8 Billion in Shale And Coal Losses
Ichiro Suzuki and James Paton, 29-09-2014

Sumitomo Corp. (8053) will set up a special investigation into how it lost almost $1.8 billion in Texas shale oil and Australian coal mining.

The probe comes after the company, Japan’s fourth-biggest trading house, cut its annual profit forecast by 96 percent after writing down the value of the two investments. Most of the losses were incurred at the shale oil project it shares with Devon Energy Corp. (DVN) of the U.S.

“I didn’t expect the loss could reach this level at all,” said Jiro Iokibe, a senior analyst at Daiwa Securities in Tokyo, adding that the next threat for shareholders is a possible cut to the company’s dividend.

A deeper analysis of this case below. Clearly, the potential is there for more losses of this size with operations on these resources.

The Daily Impact
Shale Oil Boom Breaking Down
Tom Lewis, 01-10-2014

Recent research suggests that fracking causes earthquakes; they have no doubt of that at the fourth largest trading and investment company in Japan — Sumitomo Corporation — which has just experienced a Magnitude 10. The profit Sumitomo expected to make this year, a hefty $2.27 billion, has been all but wiped out. News of the disaster atomized 13 per cent of its stock value in one day. Its credit rating went to “negative.” And almost all of this was caused by hideous losses incurred in fracking for tight oil in Texas.

Sumitomo samurai rolled into Texas just two years ago (seems like only yesterday) with a $2 billion dollar investment in the Permian shale-oil play, in partnership with Devon Energy of Oklahoma. So here we have Japan’s fourth-largest trading company, along with one of the largest US fracking companies, going into the (potentially, according to the oil interests) richest tight-oil basin in the United States in the midst of a tight oil boom. What could possibly go wrong?

And to close the review on petroleum an excellent article diving into the popular debate around Peak Oil. Highly recommended weekend reading.

Comfort with Uncomfortable Thoughts
In Search of Oil Realism
Ray Long, 30-09-2014

Let's start at 10,000 feet. One of the key points of my blog is that people get into trouble because they confuse (or purposely confuse) Peak Oil and the Peak Oil Debate, or stated another way, they confuse what Peak Oil IS and what Peak Oil MEANS.

The definition of Peak Oil is the "maximum rate of oil production" - it's a number, nothing more, nothing less. Production of all finite resources eventually reach a peak in production. That's not controversial, it's not scary, it's just a number.

The Peak Oil Debate on the other hand is all the discussion surrounding that number. What will the peak rate be (what's the number)? When will it happen? How do we properly define "oil" (many argue that if you limit the definition to conventional crude, we're already past global peak)? How does the decline look after the peak (steep decline, plateau, et cetera)? What happens to price and costs to the oil industry? What consequences does the peak have for society? And many other questions.

With so many different questions to answer in the Peak Oil Debate, it should be obvious that many different positions exist in the debate. Peak Oil beliefs are not homogeneous - as Robert Rapier points out in his article Five Misconceptions about Peak Oil.

Coal is another commodity affected by the present negative economic outlook. That has not yet translated into relief in the internal Indian market, where power companies are still operating with dwindling stocks. Some analysts expect this surge in coal imports to come shortly, leaving a clear mark in the 2015 statistics.

OilPrice.com
Analysts Say India's Coal Imports Are About to Explode
Dave Forest, 29-09-2014

As I've discussed, India's coal sector is in crisis. With stalling domestic production leading to rolling blackouts of late--as many of the country's coal-fired power plants struggle to find supply.

As of September 23, a full 35% of the country's coal-powered plants were running at "super-critical" coal supply levels. With less than 4 days of inventory on hand.

And according to a few high-profile analysts this week, that's going to lead to a big jump in imports to fill the gap.

Local coal analysts OreTeam released a forecast predicting that coal imports could leap to 210 million tonnes in the fiscal year 2015/16 (which will begin April 1, 2015).

That would be a significant rise. Up 25%--or over 40 million tonnes--from the 168.4 million tonnes of coal India imported during the last fiscal year.

Following a sceptical article on wind energy that is worth the time. It portraits several projects still in the development phase that point were this technology may be heading to in the future.

NBC News
Will They Fly? Wind-Power Alternatives Buffeted by Technical Squalls
Miguel Llanos, 27-09-2014

Energy startups are trying to get power where no one has gone before: hundreds of feet up in the air, harnessing wind that blows steadier and stronger than on the ground.

But along with technical challenges that come on the cutting edge of the renewable energy industry, they now must factor in cheap natural gas — an obstacle for all kinds of alternative power technologies, say experts.

The IEA is joining the camp of optimists on solar energy, in the wake of persistent failures to forecast the actual ramp up of electricity generation capacity around the world (it would be great if they could do the same regarding their petroleum forecasts). There is however no word on the spreading drive to make PV illegal in many countries around the world.

Bloomberg
Solar May Become Largest Global Power Source by 2050
Marc Roca, 29-09-2014

Photovoltaic plants may provide as much as 16 percent of global electricity, and concentrating solar facilities could generate another 11 percent, the IEA said in an e-mailed statement today. The Paris-based organization details what is required to reach these figures in two scenarios it sets out to reach the goal.

“The rapid cost decrease of photovoltaic modules and systems in the last few years has opened new perspectives for using solar energy as a major source of electricity,” Executive Director Maria van der Hoeven said.

[...] Photovoltaic installations have grown much faster than the agency expected when it released its first outlook for solar in 2010, when it saw them covering 11 percent of global power by 2050. More solar capacity has been added since 2010 than in the previous four decades, the IEA said.

Have a good weekend.

Press review 27-09-2014 - Bombs away

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?

Scottish independence and the media

This story is not new and may be already known to most readers. Nevertheless, I stumbled upon this remarkable video that tells the tale from the protagonist's view. This media bias, that essentially encompasses all subjects, is the main driver of this blog.

Press review 13-09-2014 - Back in Contango

Petroleum prices took a nose dive this week in international markets, pulling the futures contracts structure back into contango. Politicians in Europe insist on slashing GDP, while China finally faces its long waited housing crisis; demand is shifting and the outlook for consumption is turning to negative. To these issues adds the escalation of economic sanctions between NATO and Russia, a tit-for-tat game with unknown consequences.

These economic developments come at the wrong moment for the petroleum industry. Recent reviews have focused on the mismatch between prices and extraction costs, that for some marginal producers may be at this stage in excess of 50%. The sustained price hike necessary to support these producers seems remote at this stage, leaving great doubts over the gargantuan amounts of debt that allowed the industry to operate with prices under marginal cost. If in pasts weeks extra-heavy petroleum and off-shore resources have been the focus of these debt woes, now even the so called "shales" in North America are cast in doubt.

Scotland independence: the case for Yes

Thursday the 18th Scotland is going to vote what may well be the most important political decision in several centuries for itself and the UK. The reasons that prompted this process are many: the perception of a slow derision of Scottish identity and culture, the crystallisation of the UK's democracy (where non elected individuals still retain important powers), natural resources, budget sharing, NATO, just to name a few.

I am not Scottish, nor do I live in Scotland, thus I can not possibly fathom everything driving the vote. But one exercise I can make: assess the economic risks associated with the decision. And by doing so the complexity of this question becomes apparent, as so how uncertain is the outcome.

Press review 06-09-2014 - The Limits

These days, having the media referencing "Peak Oil" in reasonable terms is a rare enough event; having it referenced together with the Limits to Growth study is pure luxury. But that is just what two journalists writing for The Guardian did, noting that the standard scenario produced by the MIT scientists in 1973 has been remarkably accurate. This should not be something new to regular readers, but it is important to know that the issue of exponential growth is still being studied seriously.

Contrary to what these journalists assert, I do not find the study to be a doomsday prophecy. The standard scenario is one of various developed, each with a different outcome. The study provided important insights into the mechanisms driving exponential growth and the possible obstacles to its perpetuation. The fact that the standard scenario has been the most accurate these past forty years means that finite resources are the most important of these obstacles, anticipating an end to growth sooner rather that later. And herein lies the path to a sustainable future: replacing finite resources with renewable ones and/or closing the resource extraction - usage - disposal cycle.

Press review 30-08-2014 - The North Sea End Game

Scotland is voting an independence referendum in two weeks time. The debate has heated up considerably in recent weeks with the North Sea petroleum and gas resources coming into play. A great deal has been debated around reserve estimates and the implications for an hypothetical sovereign Scottish budget. However, far more important than reserves is knowing the net revenues that such resources can yield. And it is here than EROEI chimes in.

There is not much wealth in a resource that, however plentiful, is a marginal producer, parked at the head section of the supply curve. Yes, there is still petroleum and gas under the North Sea, but these are now mostly low return resources, that - as the article below explains - hardly provide revenues for their own exploration. The moment costs per barrel go above the market price it is all over.

Nevertheless, the sheer political risks associated with either the "yes" or the "no" supersede the budgetary questions and should be the main driver of the Scots' decision.

Press review 23-08-2014 - American "shale gas" to reach Europe by 2016

I have repeatedly expressed my scepticism regarding the impact the outburst of gas extraction from source rocks in North America can have on the European market. However, in the market place most players seem to be driven by the belief that these gas resources will change the market.

Just this week the Portuguese Secretary of State for Energy announced the signing of several contracts between American and European companies to start shipping gas from the former to the latter from 2016 onwards. This gas is to enter Europe through Sines, the westernmost deep water LNG terminal in Europe, with a total storage capacity close to 400 000 m³.

The Secretary of State believes the so called "shale gas" to reach European shores at prices well under those paid today for conventional gas. Nevertheless, his discourse is mostly conditional, repeatedly employing the word "could". Portugal and Spain do not consume Russian gas, having historically relied on Algeria for this fuel. With exports from that country in decline, diversification through LNG is mostly inevitable.

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

Press review 09-08-2014 - Beholding cahos in confort

Iraq is back to the front pages and for the wrong reasons. In another twist of events, the Islamic State (IS) started attacking cities in the autonomous Kurdish region, openly engaging - and defeating - the peshmerga. What had so far been a safe heaven for non-Sunni refugees has suddenly turn into hell.

The IS is now pushing in three different fronts: to the west in Syria, to the north-east against the Kurds and to the south-east against the Shiites; it still holds the initiative in all of these. This is the most serious war of the XXI century, for its barbaric nature, for the large territories it extends to and for the number of countries involved: Iraq, Syria, Lebanon, Iran, US, plus Turkey Jordan and Saudi in high alert.

Remarkably, there is no visible impact on Iraq's petroleum exports. So far the only impact on the comfortable lifestyles of the west are the gory images circulating through the so called social media.

Ubuntu Shopping Lens deemed legal by UK data privacy office

It was almost two years ago that the infamous Shopping Lens feature was added to a beta preview of Ubuntu 12.10. Plenty of folk did not like the idea of having their Ubuntu suddenly transformed into an online shop; the inadvertently fashion in which the feature was announced only dumped more wood on the fire.

Throughout the following weeks the row focused on the awkward matching of unsolicited advertisements with free and open source software. In the meantime I started wondering if something far more serious could be at stake. Regarding previous experiences with data collection in my professional career and after carefully re-examining the European Directive on data privacy, I made public a series of concerns that lead me to a mini-saga, and Canonical to consider the matter in a totally different way.

This is a short story of this mini-saga and how it finally came to an end last week.

Press review 02-08-2014 - Shooting one's toes

The downing of Malaysian Airlines flight MH17 is taking the central role in events relevant to Europe's energy predicament. The propaganda machine from both sides keeps raging. Russia is persistently blamed by the western media, often with circumstantial evidence that is soon retracted. The Russian media tried a series of awkward explanations until the Russian military released evidence of two Ukrainian jet fighters following the Malaysian aircraft within minutes of its destruction. A series of tweets from a mysterious air controller of Spanish ascendency in Kiev seem to corroborate the presence of Ukrainian fighters, as so several eye witnesses (briefly reported by the BBC). The western media that took notice claim this air controller does not exist.

Irrespective of whom committed this abhorrent crime, its purpose seems to have been served. It prolongs the war, increases the strain on the European economy and most importantly, puts an end to the efforts towards a peaceful solution to the crisis.

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.

Press review 19-07-2014 - Raging wars

There are moments like this, when war seems to burst everywhere at the same time. Afghanistan, Iraq, Syria, Gaza, Libya, Ukraine, all filled up front pages throughout the week; and these are just the conflicts the media picks up, there is plenty of other gory stuff going on in Africa, for instance. Tension mounts in a world that is definitely going through a period of re-distribution of power and influence.

In Ukraine the conflict deepened significantly with the killing of hundreds of foreign civilians. The western media blames it on the russophone separatists, while the Russian media blames it on the Ukrainian army. As Aeschylus long ago wrote, "truth is the first casualty of war". Along the way, adequate supplies of gas to Europe the coming winter seem ever more menaced.

Apart from Ukraine, Iraq remains the most threatening case to our energy predicament. The picture is starting to look really bleak for the Baghdad government. Lacking foreign intervention a victory in this war seems a remote possibility.

Press review 12-07-2014 - Peak Oil in Russia

This week no energy relevant developments came out of Iraq. The Islamic State seems to be still consolidating its territories, facing scant opposition from the Baghdad government. But the spectacular advances seem to be done with, at least for now. Few western media outlets are able to properly report the situation, with gory news now focusing on Israel and Gaza.

The news meat-grinder has recently been profuse in news regarding the breakaway of the BRICS from the IMF and other OECD controlled institutions. This was a setting trend but that has been accelerated by the backlash of the US spying programme and, more importantly, by the intervention of NATO in Ukraine.

In the midst of all this comes almost unnoticed what is probably the most important energy news of 2014: Petroleum extraction in Russia has definitely peaked. Russian authorities are openly bracing for the ensuing decline in exports and revenues. This was one of the points I recently raised supporting the hypothesis of a return to price volatility.

Press review 04-07-2014 - Waiting for the impact

The flow of news out of Iraq is slowly drying out. The foreign media has access to the Kurdish region, Baghdad and little else. From the newly occupied territories the jihadists are themselves the only reporters available, with gory contents regularly feed to the internet. The Baghdad government launched a counter-offensive last weekend, and although it has failed to gain any relevant territory, it seems to have halted, or at least delayed, the advance of the Islamic State (formerly known as ISIL).

Where will it all end? Can the jihadists content themselves with the Sunni territories or will they seek further expansion? Their organisation and capacities do not cease to surprise, how far can they really go?

So far their methods and efficacy have alarmed everyone else in the region, even Sunni majority states such as Saudi Arabia. For us living here in the so called West, life seems to go on exactly as before, but in fact the world has become a different place the past few weeks.

Press review 28-06-2014 - “Iraq is finished”

The news meat-grinder is still ablaze with Iraq. Day in day out there are reports of Sunni forces lead by ISIL taking another town, another important infrastructure, another border post. ISIL alone seems in control of the whole section of the Euphrates valley between the Turkey-Syria border and the gates of Baghdad. The huge triangle between that valley, the Tigris valley and the Kurdish autonomous region seems also fully controlled by Sunni forces, ISIL or other.

The reporting by the western media is increasingly contradictory, one day ISIL is in complete control of the Baiji refinery, the following day it is still Baghdad in control. Monday the Sunni are reportedly fighting each other, Wednesday al-Nusra militants are pledging alliance to ISIL. But I reckon that reporting on this story must be anything but easy.

If up to now I considered the threats on Baghdad mostly rhetoric, reported gains by ISIL south of the capital call for reconsideration. It is not clear that ISIL has an army powerful enough to take a city of this size, but its breathtaking advance means it can not possibly be underestimated.

“Iraq is finished,” he said. “Maliki is nothing. Baghdad is finished. Now there will only be a Shiite-stan, Sunni-stan and Kurdistan.”

Peshmerga officer to Mitchell Prothero of McClatchyDC.

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.

Extracted - the trailer

Extracted is the title of a book edited by Ugo Bardi, to which I contributed and that was recently published by Chelsea Green. I had previously left a few lines describing its contents, but now an account by Ugo himself has been made available in video.



Not so clear what the methane tap is doing there, but appart from that the video is quite good. This book is an essential piece of the economical and environmental puzzle we live these days; naturally highly recommended. Beyond Ugo's remarks on the cost of source rock fossil fuel resources I'd also note the vast artificial inflation of reserve estimates uncovered recently. Certainly something not in the fix toolbox.

Press review 14-06-2014 - ISIL launches its Fall Gelb

In Normandy most political world leaders were gathered to signal the 70th anniversary of Operation Overlord. In Iraq a large scale military operation lead by ISIL was under way, that in spite of the screaming irony of the date, more resembles Fall Gelb. A highly mobile force of unknown numbers stormed several cities almost simultaneously: Mosul, Baiji, Tikrit, Samarra, Ramadi, to which added bombings in Baghdad and other cities in the south. A front line of almost 400 km was open.

The usual western media branding of "terrorism" or "sectarian violence" no longer applies to the actions of ISIL in Iraq. A force capable of withstanding and win an urban battle in a city of over 1 million inhabitants is not a terrorist group, not even a guerilla, it is an army, fighting a conventional war. In a week it took two entire provinces of the country: Nineveh and Saladin, amounting to an area the size of Latvia and home to almost 2.5 million folk. Although accurate information is scant, ISIL should now be in control of at least 15% of Iraq's petroleum exports. At the time of this writing ISIL is still expanding its attacks into at least the provinces of Diyala and Sulaymaniyah.

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.

Five reasons to expect volatile petroleum prices to return

The past three years where marked by exceptional stability in the petroleum market. The Brent benchmark went over 100 $/b by the midst of 2011 and would close above that value in every subsequent month except once. Volatility declined, which prices bound within the 110 $/b - 120 $/b interval most of the time.

In the same period extracted volumes remained too within a narrow band, between 74 Mb/d and 77 Mb/d. Long civil wars in Libya and Syria removed well over 1 Mb/d from the market, with economic sanctions on Iran also having a negative impact. But extraction from source rocks in the US and tar sands in Canada made up for these losses, with a shy output increase in Iraq also helping.

But for how long can this quiet market last? Apart from Iran, the internal politics of every other OPEC member seems deteriorating. Unconventional resources have so far plugged the gap, but can present prices sustain their expansion? In fact there are a few clues pointing to an end to this market sooner rather than later.

Press review 31-05-2014 - More "shale" jitters

Shock waves from the radical cut of source rock petroleum reserves estimates in the US have reverberated through the press this past week. Some claim this adjustment to be overdue, others try to convince investors that source rocks still turn a profit. At least one thing is certain: the optimism over these resources has been definitely shattered.

The revision to these source rock reserves came at a specially critical moment. OPEC faces all sorts of political constraints to petroleum extraction; meanwhile NATO plays games with Russia, the world's largest petroleum producer. These past few years have been characterised by remarkably stable prices and a dynamic market, but can it last under present circumstances?

Woes of a bike commuter

When I joined Tudor I opted for renting a flat at walking distance from the office, in the city of Esch-sur-Alzette. This was the heart of the ancient steel industry in Luxembourg, the capital of a region that once hosted over 400 steel furnaces.

Some years ago the Luxembourgish steel company - ARBED - was sold to Lashki Mittal, who hastily dismantled the whole complex, moving entire furnaces to Asia. Acknowledging the demise of the steel industry, the Luxembourgish government designed a programme to replace it with an academic village, hosting a university, several research centres and a company incubator in an old industrial park in a place called Belval.

With works drawing to a close, the Tudor offices where I work were moved to Belval one year ago. I am no longer in walking distance, but the 4.5 km of bike lanes linking Esch-sur-Alzette to Belval make it perfect for bike commuting. Little would I know that this short ride would be anything but simple.

Press review 24-05-2014 - "Shale oil" blues

It came pretty much like a bomb. At the beginning of this week, the state of California in the US was supposed to home the largest source rock petroleum reserve in that country. With the official estimate over 13 Gb, California was supposed to have more petroleum reserves in its source rocks than the two major producing regions of the country combined: Bakken in Dakota and Eagle Ford in Texas. No more. A revision by the US Energy Department, made public mid-week, brought down the estimate to a mere 0.6 Gb, about the amount of petroleum the US burns in a month.

There is a lot here to think about. How could have the original estimate been so wrong? How could have it prevailed long enough to become a relevant part of energy policy in California? What happens to the companies that had already positioned themselves to exploit a resource that is now known to be largely unexistent? How trustworthy are other petroleum (and gas) estimates issued by the authorities in the US?

Policy makers in Europe beware. What happened in Poland regarding source rock gas reserves indicates too that these overestimations may be more norm than exception.

Press review 17-05-2014 - The undercovered

Ukraine continues to be the most relevant story in the Energy world, both for what is happing and for what is not happening. On the field a doubtful democratic process borne an independence decision for the region of Donetsk that no one seems really willing to recognise. Another doubtful election by the end of this month shall decide who presides the insurgents that took power in Kiev. Scattered skirmishes are reported almost daily between forces loyal to Kiev and the separatists.

As alluded in previous press reviews, there seems to be foreign agents on the field playing an important role in the course of events. This week the German press is reporting the presence of some 400 American mercenaries in Ukraine engaging the separatists. One has to wonder what was the role of this force in the massacre in Maidan square and more recently in Odessa.

Press review 10-05-2014 - Progress on Ukraine

There are signs of progress between the world powers over the Ukraine situation. The pressure exerted by US on Europe to cut its energy imports from Russia seems to have been defused, with the press now even reporting "support for Russia" within the European Council. On the other side, Russia seems to be definitely abandoning any prospects of further military intervention. Convergence seems emerging on how to re-instate democracy in the troubled country.

But on the field tension among Ukrainians keeps mounting. The death toll is now reported on the tenths, after the massacre of over 50 russophones last weekend. Some communities appear especially restless, demanding no less than independence. It is hard to see how any valid democratic process can take place in this setting.

Meanwhile the governors put in Kiev after the coup d'état started to get funds from the IMF; they should now be able to keep paying for the gas they get from Russia.

Press review 03-05-2014 - Extracted

Two years ago Ugo Bardi invited me to take part in the redaction of a book on raw materials. I spent much of the 2012 summer researching and writing to produce a chapter on two particular metals: silver and gold. After a first edition in German language last year, the English version has finally arrived, to what appears to be a warm reception.

"Extracted" provides an overview on the relationship between our society and economy and the stocks of raw materials found in the Earth's crust. These stocks are sources of negentropy - negative entropy, meaning organised or concentrated matter, as opposed to chaos and dispersion - that feed our industries with low cost inputs. The economic difficulties we live today are closely linked to a decline in the quality of the resources needed to feed our economies - meaning an increase in entropy - that may at some point even translate into a decline of extraction rates.

The First Presidential Debate

Better late than ever. After 60 years of EU, European elections have finally faces to match the insignias. In great measure due to internal youth movements, European political parties where forced one by one to present a candidate to the post of European Commission President. Euronews took the chance and invited the candidates for the first ever presidential debate in the history of the EU. In an university auditorium packed with students and the door open to citizen participation through the internet, the stage was set for a unique moment in the 28th of April.

Below the fold is a brief analysis of the performance of each candidate.

Press review 26-04-2014 - The IPCC Cornucopia

These past weeks the release of the seventh IPCC assessment report has pretty much dominated energy discussions. There is nothing really new about it, relying on the same old energy galore forecasts. After two decades of failed forecasts the panel relies now more than ever on extraordinary coal reserves that no one has ever seen. Interestingly, this cornucopian stance on energy resources extends even to non-fossil energies.

Nebojsa Nakicenovic was present at the 2012 ASPO conference in Viena. He is responsible for the forecasts produced at the IIASA to be used by the IPCC and IEA. The Q&A after his presentation was remarkable, not all that different from talking to a rock. He kept insisting the reserves figures he uses are backed by peer review literature and as soon as his session ended left the building in haste. With this latest report it becomes obvious that the IIASA (and the IPCC) are in fact ignoring the growing number of peer reviewed studies with realistic fossil fuel reserves assessments.

The persistent failure of the IIASA forecasts have forced the IEA to use alternative scenarios for the short term, but long term they are still used for CO2 emissions. These are also the scenarios used by pretty much every government of OECD. They are, unfortunately, the best example of demand side energy modelling, brilliantly exposed by Steven Kopits some months ago.

Press review 12-04-2014 - Russia calls the bluff (2nd edition)

An unfinished version of this review was inadvertently left for automatically publication last night. Appologies for the mess up; there are a few more stories below the fold.

This week Russia has passed on the offensive over Ukraine. The Russian press issued clear hints of a definitive move away from the US dollar in the country's foreign economic relations. These news frame these actions within the design of a new world monetary system, together with the remainder of the BRICS. And Thursday came a letter furnished through diplomatic channels to 18 European leaders simply stating that if no one is willing to foot the bill for the gas Ukraine gets from Russia valves will be eventually closed.

Meanwhile Kiev seems to go from bad to worse, with Parliament paralysed and political institutions disaggregating. In eastern regions of the country unrest grows, russophone populations disprove the coupe d'état and are weary of the political and economic disarray the country has fallen into. In spite of repeated claims of a Russian military build up along the Ukraine border by the western media, Russia does not seem that willing to get further involved in the field, at least for now. The fact to no one is clearly taking responsibility for the survival of Ukraine may actually be the problem at this stage.

Press review 05-04-2014 - Back to Iraq

This week the highlight goes once again to Iraq, I stumbled upon a remarkable article that gave me lot to think. The writing is politically charged, but raises questions I was frankly unaware of. In essence, the exploration of Iraqi petroleum by foreign (European and American) companies is completely outside of any law; the government has repeatedly failed to force privatisation through parliament. Any doubts I had on the Al Maliki government lack of legitimacy were dissipated with this information, not even the Shiia representatives seem to align with this management of vital resources. And naturally, it puts the Sunni uprising of recent months into a completely new perspective.

And the deeper question is why has the western media been silent on this? More important than the propaganda feed us everyday is what is left told, opinion control through censorship. Luckily today there's the internet, that allows for diligent citizens to seek out information and the broader picture.

A story of TheOilDrum

This post is a story of TheOilDrum, as I lived it. It is a collection of loose memories patched together into some sort of chronological order. Memory is not fully reliable, same dates or periods may not be precise. This is above all a personal account of the most important events during the website life time.

Certainly a lot is left untold. I was never part of the editorial or administrative boards, thus plenty of the behind scenes events escaped me. The same story told by someone else will surely be different. In spite of being a personal retrospection, I hope it can still provide an holistic view of what TheOilDrum was and point the potentials that this fantastic experiment unleashed.

This post has been in the making for long. The idea came up immediately after the announcement of the website closure, but other commitments kept it at bay. The ninth anniversary of TheOilDrum foundation passed just weeks ago, but still not that late to celebrate. Grab a portion of your favourite ingestible liquid and let yourself go in this journey through time.

Press review 29-03-2014 - Propaganda

The reasons behind the coup d'état in Ukraine are becoming ever more evident. The propaganda machine made in USA is running flat out, trying to sway Europe as a whole to its side. Vladimir Putin is regularly compared to Adolf Hitler and the annexation of Crimea to the Nazi expansionism that lead to the second World War. But it is in Kiev that modern swastikas are seen, not in Moscow. The US and the UK push the sweet "shale gas" discourse, as if they could ever replace the energy Europe imports from Russia. For now all we can do is hope the chaos into which the Ukraine is immersed does not end up by itself cutting these vital economic ties.

One of the remarkable outcomes of this crisis is the revival of the transatlantic trade agreement. The multiple espionage scandals related to the activities of the American and British intelligence agencies had put negotiations on hold, the European companies being in clear competitive disadvantage with their information harvested en masse. This is the first big victory of the US in this crisis, and might not be the last.

Press review 22-03-2014 - The gas play

As the crisis in Ukraine rages on, the West slowly recognises it has the weaker hand in the game of force with Russia. Half of all the gas burned in Germany comes from Russia and every member state east of Germany is even more dependent; some depend 100% on Russian gas. There is no way to replace these gas flows in the short or mid term. It requires the deployment of plenty of infrastructure: pipelines, LNG terminals and especially LNG tankers, at least a doubling of the current world fleet. All of it seems very far, especially with the prevailing anti-investment policies. And even with the infrastructure in place, reliable suppliers must be found.

Thus to harsh words follow puny actions against Russia, to the bemusement of the Kremlin. In spite of the pressures from the US and the UK, Europe will continue to do all it can to maintain business as usual with Russia. The intents of "political isolation" are not much more than rhetoric, in a world where the West weights less and less.

An Introduction to LaTeX

Writing my MSc thesis document was one of the most painstaking experiences I ever had in the computer world. Once the document went over four dozen pages it became very unstable and would wreck the formatting almost every time any substantial text was added. I have the feeling I spent as much time correcting the formatting as I did writing. The worse would come at the very end, by some strange reason Word decided to change all occurrences of the word bacia (Portuguese for basin) to bacio (Portuguese for pee pot); I never noticed it in time and the document went that way for printing. Such frustrating experience compelled me to try a different word processing system; I knew some folk at the Faculty were using LaTeX and decided to give it a try. I never used Microsoft Word again, and almost a decade later, could not possibly conceive going back.

Some weeks ago I administered a short introductory course on LaTeX to a few of my colleagues. Most of them had never seen anything other than Word, but it went quite well nonetheless. Here below I reproduce the contents of this course.

Press review 08-03-2014 - Europe caught in the middle

The crisis in Ukraine has rapidly escalated into a confrontation between Russia and NATO. It seems the US was more than supportive to the so called opposition that overthrew Viktor Yanukotich. In response Russia retook hold of Crimea, a territory that was under Ukrainian sovereignty for 60 years. It is hard to foresee where will all this lead, but a return to the previous geographic configuration of Ukraine appears remote.

So far NATO has reacted to Russia with sanctions, the US and the UK succeeding in their pressure on the EU to follow their hard stance. Make no mistake, Europe will be the big looser in this stand-off, neither Russia nor the US stand to loose as much. This is the reality of the XXI century, resources have a completely different role in international relationships and conflicts. If for Petroleum and Coal the EU can recur to the international market trying outbid other major importers, the scenario is completely different regarding Gas. If the pipelines out of Russia are tapped off there are no means to replace their flows.

Press review 01-03-2014 - Ukraine plunged into uncertainty

Exactly one week ago the unexpected took place in Ukraine: a restless crowd terminally rejected an agreement between government and opposition for an early election nine months ahead. Power fell on the streets and politicians hastened to conform to a growing and uncontrollable crowd. While Parliament revoked power from incumbent president Viktor Yanukovych, the latter fled, but still claiming legitimacy. Events have since unfolded rapidly with the country cracking at its seams, apparently between the opposing pulls of Russia and the EU.

Beyond the political aspect of this story, there is a much more relevant energy background that is not fully surfacing to the mainstream. Two thirds of the gas the EU gets from Russia flow through Ukraine; gaining influence over Kiev's government means above all taking up the bill for maintaining the country's gas infrastructure. The scrapping of a trade agreement with the EU, that eventually brought the protestors to the streets, was nothing less than a counterpart for continued financial support to Ukraine's banks and infrastructure from Russia. Those thinking that a Greece like IMF intervention suffices to sway Ukraine towards the EU think ill.

Supply side energy modelling with Steven Kopits

Some hours ago I had no idea who Steven Kopits was, much less the kind of work he has been doing. During the past week I received several times a link in my mailbox to a presentation of his at Columbia University. Last evening I finally found the space to give it a look and ended up watching the whole thing through. It is somewhat unexpected to get this sort of view from someone pretty much at the core of the industry, but you can not be a successful strategist basing your analysis on fairy tales.

Pity though that Steven Kopits falls into the common confusions between production and supply, consumption and demand. Nevertheless, he bluntly dismisses that mathematical and economic aberration termed "peak demand". Aside that I have no other criticisms, this is the best presentation on the petroleum market I have seen in a few years. Sharp remarks on the lack of consumption growth in China are enough to leave the demand side modelling out in the open for the hoax it is.

The video is below the fold. Jump to the Columbia University website for the presentation document and further information on the event.

Press review - 22-02-2014 - Copper in the mainstream

Copper come to prominence in the news-wires this week, pretty much out of the blue, and for different reasons. Science magazine dedicates one of its poppy articles to the matter, with the simple and suggestive title "The Coming Copper Peak". It draws a lot from Stephen Mosher's recent work with raw materials extraction. I had the opportunity to meet Stephen at the last ASPO conference in Viena, in 2012, when his work was already gaining notoriety. The main take away from the article is that a peak of world copper extraction is most certain this side of 2050.

Beyond putting a date to a peak the most important is price. This past decade copper prices advanced 500% while production volumes have merely moved. It might be very possible for production to continue increase for decades to come, but at what price? Is any economy sustainable with copper at, say, 1000 €/t?

Press review 15-02-2014 - 90% renewable electricity possible today

In the midst of not so pleasant times there are also good news to go about. Last month over 90% of the electricity consumed in Portugal was generated by renewable energy sources. Persistent stormy weather meant both the hydraulic and wind parks functioned at high power outputs. Hydraulic sources supplied 51% of the electricity consumed, with wind providing 35%. Even though this record has been greatly facilitated by the reduction of economic activity imposed on the country, it still serves to prove, yet again, the viability of these modern electricity sources.

In spite of the negative press renewable energy sources receive, their dominance in the supply to Portuguese households hasn't meant high prices. Electricity rates were kept artificially low throughout the last decade, masking a tripling of coal and gas prices. A slow adjustment to cover the deficit created during those years translates into rates today in the order of 0.14 €/kWh, on par with the European average and, for instance, with France, a country that generates most of its electricity from nuclear. Electricity prices in Portugal should peak somewhere between 0.15-0.16 €/kWh still this decade, to then entail a slow decline as fossil fuels phase out of the electrical mix.

Press review 08-02-2014 - German government scrambles to protect electricity suppliers from cheap PV

The past year I spent a good deal of time studying the declining costs of solar power technologies, particularly PV. This work was summed up in an article published by the Frontiers in Energy Systems and Policy journal. In it I put forward the reasons why not only the scrapping of feed-in tariffs can not stop the growth of installed PV capacity in Europe, but also that a demand decline on the electricity provided by traditional suppliers is unavoidable; all of this on purely economic grounds.

In a ditch to save these traditional electricity suppliers - large multinational companies that employ ex-ministers and ex-parliament members at large - governments are scrambling to change the rules of the game. Imagine that every time you cooked at home you would be obliged to pay McDonalds a fee - that's exactly what the Spanish and German governments are trying to impose. Note that in each of these countries the initiative is being taken by supposedly opposing parties: conservatives in Spain, social-democrats in Germany. I can't possibly see how such legislation can comply to market laws, not even speaking of human rights. I expect long and spectacular legal battles to follow.

Press review 01-02-2014 - Petroleum majors struggling

In spite of stable petroleum prices above 110 $/b throughout the year, international petroleum companies struggled to produce relevant profits in 2013. Investors expectations are far from being met in some of the largest companies in the sector. This week a deluge of not-so-good news hit the media, with the broad acknowledgement that petroleum resources are becoming increasingly expensive to find and develop. The optimism towards petroleum prices in the wake of the agreement between NATO and Iran over the later's Nuclear programme seems now forgotten.

The first observation to take is the progressive concentration of remaining cheap petroleum resources in a limited number of countries: Middle East, Russia and little else. Perhaps light petroleum resources are left in the Arctic, but these won't come cheap either. Another conclusion is a likely world wide slow down in exploration activity; barring the resurgence of Iraq in the market this could bring forward relevant price movements in the years ahead.

Press review 25-01-2013 - Iraq desintegrating

This past week Iraq was once again the source of the most relevant news concerning the World's energy predicament. The political and military situation is degrading fast, with several developments attesting the powerless of the Baghdad government. It seems the ISIL is just the tip of the iceberg, several other groups or organisations are in the fray, clearly matching Baghdad's army. Al-Maliki's government is clearly on the defensive, both politically as militarily.

A new front of conflict opened to the north with the Kurdish autonomous region, even if in this case it is purely political. The Kurds are set to bypass the Baghdad government and export petroleum solely by themselves. This can actually be more concerning to the Shiia establishment than the rebellion in Anbar.

For how long can Iraq's petroleum production stay where it is today?

Press review 18-01-2014 - Iran back to business

The most interesting news in the energy world seem to be still coming out of the Middle East. A new important step into the acceptance of Iran's nuclear program was reached, with a clear warming of relations between NATO and the Persian state. Tehran is wasting no time in making up the most of the ease in sanctions. The international oil majors remain on the sidelines for now, with watering mouths.

The Shiia now seem to have the favour of the US (and NATO) west of the Euphrates. With some cooperation, the western powers prefer to deal with Shiia hierarchies than with the conservative Sunni structure (often "linked" to Al Qaeda by the media). Why the attitude is pretty much the opposite elsewhere remains something of a mystery.

Press review 11-01-2014 - ISIL expands its territory

The territory controlled by the ISIL according to the Wikipaedia.

The Islamic State of Iraq and the Levant (ISIL), there's a name every one should know by now. This organisation has become the most visible facet of the aspirations by the Sunni folk in the Near and Middle East. Their aim is simple: create a Sharia ruled caliphate for the Sunni in the region, similar to those existing south of the Gulf.

The information coming out of the newly acquired territories by the ISIL in Iraq is scant, but the western media has still managed to join the fray. Earlier this week the American media was reporting that "tribesmen" where helping the Iraqi army fighting the ISIL; days later the French press claimed that "tribesmen" had helped the ISIL taking full control of Fallujah.

The slowness of the Shia-led government to fight back may mean on the one hand that the local population is not on their side and on the other that the ISIL may have more resources than reported by the mainstream media. One remarkable aspect of this conflict is that so far it has produced a relatively limited number of refugees, 15 000, when compared to the estimated 320 000 living in Fallujah alone.

Press review 04-01-2014 - Iraq falling into civil war

Followers of this blog know that I'm on the optimistic side regarding petroleum reserves in Iraq. The argumentation by the late Dr. Ali Bakhtiari lead me years ago to regard this country as the last bastion of cheap conventional petroleum. The eastern part of the country is largely unexplored and it is possibly that the geological structures that loked the resources today tapped by Saudi Arabia and Kuwait extended further into the north. If there is a country able to positively impact petroleum markets today is Iraq.

There is just one problem: Iraq is not a real country, it is but a synthetic creation, a legacy of colonial times disregarding any ethnic or cultural realities. The insistence on this format by modern powers seems reaching exhaustion, after a decade of violent power reshuffling. Earlier this week the Sunni representatives quit the Iraqi parliament, delivering the final blow to an already politically moribund government.