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21 February 2015

Press review 21-02-2015 - The real divestment

An out-of-touch campaign calling for divestment from fossil fuels made some fuss last weekend. It gained a good deal of momentum, with calls on major banks to stop financing the fossil fuel industry. Such is the world of cornucopians.

The real world is somewhat different, however. Throughout 2014 this review thoroughly reported how the industry has been cutting back spending, particularly on exploratory activity. This trend formed when petroleum prices still stood above 100 $/b and is driven by a simple fact: the declining quality of remaining resources. This week we learnt the consequences of this divestment: 2014 was one of the worst fossil fuel discovery years since the II World War.

The galore perspective on resources continues to dominate the popular discourse and is one of the main reasons why energy policy has been such a failure in Europe this century. Without acknowledging the profound transformation the fossil energy sector underwent this past 15 years, we remain condemn to failure.

Financial Times
Discoveries of new oil and gas reserves drop to 20-year low
15-02-2015

Discoveries of new oil and gas reserves dropped to their lowest level in at least two decades last year, pointing to tighter world supplies as energy demand increases in the future.

Preliminary figures suggest the volume of oil and gas found last year, excluding shale and other reserves onshore in North America, was the lowest since at least 1995, according to previously unpublished data from IHS, the research company.

Depending on later revisions, 2014 may turn out to have been the worst year for finding oil and gas since 1952.

The slowdown in discoveries has been particularly pronounced for oil, suggesting that production from shales in the US and elsewhere, and from Opec, will play an increasingly important role in meeting growing global demand in the next decade.
Over at PeakOilBarrel, Ron Patterson collected valuable insights from some luminaries, such as Jean Laherrère, that is well worth the read. Dramatic developments may be about in Libya. The Italian government is reportedly waiting the green light from the United Nations to advance with a terrestrial invasion. Fighting the Islamic State is the reason put forth, but the real aim is to stop the overwhelming migration of desperate folk into Europe.
Associated Press
Italy to Weigh Military Action in Libya If Diplomacy Fails
Frances d'Emilio, 16-02-2015

Italy would weigh participating in any military intervention to keep forces from the Islamic State group from advancing in Libya should diplomatic efforts fail, Italian officials said Monday.

Defense Minister Roberta Pinotti has said Rome could contribute 5,000 troops to lead such a military mission. But Pinotti and Premier Matteo Renzi on Monday sought to dispel the notion Italy already decided on military operations if launched under the auspices of the United Nations. Renzi told the private TG5 TV news "the proposal is to wait, so the U.N. Security Council can work with a bit more conviction on Libya" diplomatically.

U.N.-sponsored efforts must involve "all the players, the local tribes, African Union countries, Arab countries, the Europeans," Renzi said.

With Libya's security rapidly deteriorating, the number of migrants who set out in smugglers boats from Libyan shores toward Italy has surged. On Sunday alone, Italian authorities rescued more than 2,100 migrants and refugees, many of them fleeing the Syrian war.
Oil exports out of the territory seem to be completely shut off for the moment. An Italian invasion would certainly target too a re-opening of export terminals and refineries.
Gulf Business
Libyan Oil Exports All But Shut Off As Violence Spreads
18-02-2015

Libya’s oil exports have collapsed to just a trickle from two small offshore platforms, officials and industry sources said on Tuesday, as violence in the country has shut all major ports.

Not a single crude oil tanker has departed Libya in the past week, industry sources say and ship tracking shows, with supplies to the last operating port of Hariga disrupted over the weekend by a pipeline fire.

While the sabotaged line to Hariga may be repaired in the coming days, the collapse in oil exports to the lowest level since the 2011 civil war is another illustration of how the country is on the brink.

“I’ve not seen any Libyan exports in over a week,” one trader at a company that buys oil from the country said.
However, the infrastructure has been hit at large by the raging conflict. There are reports of attacks on petroleum fields, pipelines and export terminals. Even if the Italian army succeeds in bringing some sort of stability to the territory, recovering the lost export capacity is going to take time.
About Oil
Libya in crisis, and without oil
Alfonso De Lucia Lumeno, 19-02-2015

The oil industry has collapsed in Libya, an inevitable consequence of the dramatic period the country is going through. The oil fields and infrastructure aren’t new to attacks and sabotage, but recent events have made things for the sector even worse.

The state-owned National Oil Company (NOC) recently announced that crude oil flows have been interrupted by an explosion on 14 February that hit one of the country’s most important pipelines, which connects the El Sarir field, the largest operation oil field in Libya with a production of 200,000 barrels, to the port of Hariga on the Mediterranean coast. In the last few days, the conflict between the government and Islamic militias, already spread across the entire region, has further worsened, and even the Makruk and Bahi wells have been the target of attacks. The two major oil terminals, Ras Lanuf and Sidra, have been closed for some time following armed conflicts between rival militias struggling for control.

Politically chaos reigns supreme, with two rival governments – the "legitimate" government led by Abdullah al-Thani and a parallel authority led by Omar al-Hassi that isn’t internationally recognised – each one with its own parliaments and armies. It’s this that is the primary cause of the collapse of the Libyan oil industry. The secondary cause is how infrastructure has become the key target of each militia and terrorist organisation trying to destabilise the country. And while the oil industry stops, the economic consequences could be devastating.
The Brent index is holding around 60 $/b, definitely putting an end to the decline trend. This price is however well under the required level to maintain the extraordinary extraction levels achieved late last year. This is particularly true for low permeability resources.
Energy Matters
Oil Price Crash Update
Euan Mearns, 16-02-2015

In the fast moving oil market much of the fundamental data only becomes available for general consumption at least one month in arrears. But EIA oil price data and Baker Hughes rig counts are available weekly and with much action going on it is worthwhile updating.

The price plunge seems to have reversed, at least for the time being (more on that below). But the most stunning data is the free fall in US oil drilling rigs shown in Figure 1, down 553 (34%) from the October top. The IEA also published their Oil Market Report early this month, on 10th February, reporting oil supplies were down 235,000 bpd in January, mainly in OPEC countries Iraq and Libya.

Arthur Berman calculates the impact of present prices on petroleum extraction in the US. Without a serious recovery of demand, petroleum might have to remain under-priced a while longer to purge the necessary volume of low quality resources presently on stream.
The Petroleum Truth Report
Tight Oil Production Will Fall 600,000 Barrels Per Day By June
Arthur Berman, 17-02-2015

U.S. tight oil production may fall 600,000 barrels per day by June 2015 based on reasonable projections of current rig counts.

I compared the decrease in rig counts that began in late 2014 to the rig count decrease in 2008 and 2009 following the Financial Crisis. I projected current total rig counts according to three scenarios out to June 5, 2015 shown in the chart below. I then applied those decline rates to rig counts and production in the 4 major tight oil plays: the Bakken, D-J Niobrara, Eagle Ford and Permian basin.

PeakOilBarrel also published this week a series of slides with some insights on the Shale sub-prime crisis in the making. Even in a more optimistic scenario (when compared to Arthur Berman's) a wave of debt defaults seems inevitable.
PeakOilBarrel
Bakken – Has The Bubble Burst?
Ciaran Nolan, 16-02-2015

As expected, the Minsk cease fire had little to no impact on the fields of the Ukranian war. Midweek the mainstream media was reporting a wide retreat of nationalist forces from the contentious regions. In the past days some media arte reporting an exhaustion of military and financial resources by the nationalists. This is possibly the best explanation for the call from the nationalist president for a peace keeping force. That might well be the only way out at this stage, but such scenario was vehemently put aside by Russia during the Minks peace talks.
EUObserver
Ukraine calls for international peacekeepers
Peter Teffer, 20-02-2015

Ukrainian president Petro Poroshenko has called for international peacekeepers to be deployed in the east of Ukraine amid a crumbling ceasefire.

They would help guarantee security "in a situation where the promise of peace is not being kept" he said Wednesday, referring to a 15 February truce brokered with the leaders of Russia, Germany, and France in Minsk.

The decision to make a UN request was taken during an emergency meeting of the country's security council.

“The best format for us is the police mission of the EU”, Poroshenko said according to his press office, after the meeting.

“It will be the most efficient guarantor of security in the situation when the word of peace is not observed either by Russia or those who are supported by it”, noted Poroshenko.
The new Indian government presses on with its energy policy underpinned on renewable energies. The cornucopian dreams of limitless cheap coal supplies have turned into nightmare for India last year and pragmatism slowly imposes itself. If this policy comes to succeed, it will once more expose the short-sightedness of energy policies in Europe, that try to delay or outright stop the expansion of solar power.
Economic Times
Clean energy push: Drop in solar power cost a game changer, says PM Narendra Modi
16-02-2015

Prime Minister Narendra Modi has said that India has the potential to lead the world in the domain of renewable energy, describing the narrowing difference between the cost of solar and conventional energy as a "game changer" for the sector.

At the inauguration of a three day global conference, RE-Invest 2015, Modi on Sunday described the thrust on renewable energy production as an effort to ensure universal energy access for India's poor. He said the price of solar energy has tumbled from Rs 20 a unit to Rs 7, bringing it close to conventional power. He recalled that as Gujarat chief minister he persisted with the solar power programme even as people found it scandalous that it was generated at Rs 20 a unit, but added that prices started falling as the industry scaled up. "Now prices are in the direction of conventional electricity. This is a game changer," he said.
In the UK the largest offshore wind farm project in the world was given green light. Wind power remains controversial in the UK, where utilities are allowed to refused electricity from this renewable sources. This has meant that the UK has one of the lowest wind load factors in the world, thus being possibly the country with the most expensive wind electricity worldwide.
The Guardian
World's biggest offshore windfarm approved for Yorkshire coast
Fiona Harvey, 17-02-2015

Plans for the world’s biggest offshore windfarm have been given the green light by the energy secretary, with planning permission for an array of up to 400 turbines 80 miles off the Yorkshire coast on the Dogger Bank.

The project, more than twice the size of the UK’s current biggest offshore windfarm, is expected to cost £6bn to £8bn and could fulfil 2.5% of the UK’s electricity needs.

Covering about 430 sq miles, the Dogger Bank Creyke Beck project will - if fully constructed - generate enough electricity to power nearly 2m homes, and could support an estimated 900 jobs in Yorkshire and Humberside, according to the government.
That's all for this week. I will be travelling next weekend, with no or limited internet connection. The next edition of this review should thus be out on the 7th of March. Until then.