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27 June 2015

Press review 27-06-2015 - Stepping back for the bigger picture

Once in a while it is good to step back from the daily precession of events and reflect on the bigger picture. Why are energy and other resources important today? Why are they the main motivation for this weblog?

This time this reflection can be made through the pen of Herman Daly, with whom the publication of an essay is an event in itself. Daly elaborates on the steady-state economy that will impose itself throughout this century and asks once more for a revision to the goals of Economics. Not only Neo-Classical economics, but also its Keynesian nemesis, were developed with the underlying assumption of infinite growth.

Economic growth is not a physical measurement and as such can grow indefinitely. But in a scenario where the flows of matter and energy through the economic system cease to expand the economic policies used heretofore cease to function as expected. What Herman Daly lays down is a real challenge in this transition, in a dimension that is rarely contemplated.

Great Transition Initiative
Economics for a Full World
Herman Daly, June 2015

Because of the exponential economic growth since World War II, we now live in a full world, but we still behave as if it were empty, with ample space and resources for the indefinite future. The founding assumptions of neoclassical economics, developed in the empty world, no longer hold, as the aggregate burden of the human species is reaching — or, in some cases, exceeding — the limits of nature at the local, regional, and planetary levels. The prevailing obsession with economic growth puts us on the path to ecological collapse, sacrificing the very sustenance of our well-being and survival. To reverse this ominous trajectory, we must transition toward a steady-state economy focused on qualitative development, as opposed to quantitative growth, and the interdependence of the human economy and global ecosphere. Developing policies and institutions for a steady-state economy will require us to revisit the question of the purpose and ends of the economy.
On more mundane subjects, there is one more monthly world petroleum extraction figure adding to the statistics. The effect of the under-priced market is starting to show with a slightly declining trend setting in.
Peak Oil Barrel
New International Energy Statistics
Ron Patterson, 22-06-2015

The Eia has finally updated their International Energy Statistics with data through February 2015. All data in the charts below are Crude + Condensate and is in thousand barrels per day with the last data point February 2015.

Following is a nice round up of petroleum extraction in Latin America. There are many exporting countries in this continent that rarely show up in the press. In general Latin America seems well into into its mature phase; the Orinoco basin is at this stage the only resource with relevant hopes for the long term.
Havana Times
Peak Oil in Latin America
Erasmo Calzadilla, 22-06-2015

Black gold production in the region has been stagnant for about a decade. Large discoveries are conspicuously absent and mature wells have been spitting out nothing by mud. The definitive fall will begin soon, if it hasn’t already.

The heavyweights (Brazil, Venezuela and Mexico) have already reached the peak. Ecuador and Colombia are roughing it, but won’t be able to for much longer. Over the past decade, this group of countries have made important investments, but at the cost of selling all future production to the big oil-eaters: China, India and the US.

In North America the "shale sub-prime" still hangs on the head of the financial system. Everyone expects it to fall, no one really knows when.
Bloomberg
The Shale Industry Could Be Swallowed By Its Own Debt
Asjylyn Loder, 19-06-2015

[...] Interest payments are eating up more than 10 percent of revenue for 27 of the 62 drillers in the Bloomberg Intelligence North America Independent Exploration and Production Index, up from a dozen a year ago. Drillers’ debt ballooned to $235 billion at the end of the first quarter, a 16 percent increase in the past year, even as revenue shrank.

“The question is, how long do they have that they can get away with this,” said Thomas Watters, an oil and gas credit analyst at Standard & Poor’s in New York. The companies with the lowest credit ratings “are in survival mode,” he said.

The problem for shale drillers is that they’ve consistently spent money faster than they’ve made it, even when oil was $100 a barrel. The companies in the Bloomberg index spent $4.15 for every dollar earned selling oil and gas in the first quarter, up from $2.25 a year earlier, while pushing U.S. oil production to the highest in more than 30 years.
The "shale sub-prime" story is part of larger plot of sour in the regional energy sector.
Finantial Post
Energy investors haven’t made money in a decade — why are they still clinging to false hope?
Martin Pelletier, 22-06-2015

It has been a very challenging time for investors in the energy space, but we find their resiliency impressive, considering they have endured a decade of little to no returns.

Investors haven’t made any money over the past decade with the S&P TSX Capped Energy Index gaining a paltry 0.3 per cent annually while the Canadian dollar-adjusted West Texas Intermediate oil price is up only 0.7 per cent per year. This compares to the S&P TSX Index that has gained just over seven per cent per year over the same period.

Even though it remained fairly flat over the past 10 years, the energy index has experienced tremendous volatility with an average standard deviation of 30 per cent, more than double the TSX’s 14 per cent.
Something I missed from Tsipras' visit to Moscow last week was the inking of a more concrete deal on the extension of the Turkish Stream into Greece. The plans of the European Commission look to have been totally watered down.
Bloomberg
Russia Strengthens Greece Ties With Gas Link Deal to Europe
Elena Mazneva and Eleni Chrepa, 19-06-2015

Russia signed a preliminary agreement on building a natural-gas pipeline through Greece, a deal that signals strengthening ties between the countries as the crisis-stricken government in Athens is increasingly isolated from the rest of Europe.

Russia’s development bank, known as VEB, will own 50 percent of the 2 billion-euro link and provide all financing, Greek Energy Minister Panagiotis Lafazanis told reporters after the signing in St. Petersburg, Russia, on Friday. Greece will own the rest, Russian Energy Minister Alexander Novak said.

Russian President Vladimir Putin is luring Turkey and Greece with promises they’ll become energy centers for southern Europe if the Black Sea pipeline is built. He’s seeking a new route after the EU blocked the South Stream project. Russia dropped the $45 billion link in December as relations with the 28-nation bloc soured over the conflict in Ukraine.
On the Turkish side field work is start in short order. Russia blatantly display its influence in the region while in Brussels an ejection of Greece from the EU is considered seriously.
UPI
Gazprom's new pipeline inching forward
Daniel J. Graeber, 23-06-2015

Russian company Gazprom said it was issued a permit by the Turkish government to start survey work for the offshore section of the Turkish Stream pipeline.

"Turkey has issued a permit on engineering surveys for the offshore section of Turkish Stream," the company said in a statement. "The document stipulates that investigations will be carried out within the exclusive economic zone and territorial waters of Turkey in order to place the first offshore string of the gas pipeline."
The Coal story in China continues providing startling figures. Imports declined 43% in just one year, and looking at the present stocks further declines are to expect later this year. This can not possibly be explained solely by economic slowdown.
Hellenic Shipping News
China’s coal imports from Australia down 37.6 percent
25-06-2015

China imported 4.89 million tonnes of coal from Australia in May, down 37.6 percent from the corresponding period last year, figures from the country’s customs authority showed. The figure was also down 25.9 percent from April, despite some predictions that imports would rise over the summer months to meet growing seasonal power demand.

Deliveries from China’s top coal supplier have fallen 27.5 percent over the first five months of the year, to 27.44 million tonnes, hit by slowing demand and a concerted government effort to cut air pollution and curb a supply glut. The General Administration of Customs data also showed that imports from Indonesia, China’s second biggest supplier, dropped 34.6 percent on the year to 1.86 million tonnes, with shipments over the first five months falling 47.2 percent.

Total imports, excluding lower-grade lignite, reached 10.7 million tonnes, down 43.3 percent compared to the same period of last year.
Finishing off a good deal of insight on the integration of renewable energy to the US electrical grid.
Vox
Why wind and solar power are such a challenge for energy grids
David Roberts, 19-06-2015

[...] That is not the way humans typically approach big challenges. Engineers aren't granted the power to redesign large systems from scratch. Energy is not just a physical system, it's a social and political system too, and social and political change is unpredictable and messy. It lurches and stalls. Progress, when it comes, is often kludged, backward-looking, and incumbent-protecting. It's a fallen world we live in, but we muddle through.

Barring an unexpected sociopolitical mobilization on the scale of World War II, it's likely we're going to muddle through the transition to clean energy. That puts the challenge in a different light. It forces us to grapple with the system as it currently exists, with all its entrenched incumbents, sunk costs, and behavioral inertia. And it forces us to confront trade-offs between our ideals and political realities, trade-offs that cannot be waved away with ritual invocations of "political will." Thinking this way is more vexed and less fun than blue-sky modeling, but it's a necessary complement.

So here's our question: given current energy infrastructure and institutions, how much variable renewable energy (VRE) — wind and solar — can we integrate into the energy system?
And the Greece melodrama lives on. Another week went by without an agreement, but neither with a full on run on banks. Politicians were able to keep expectations high on a breakthrough, while at the same time vilifying each other. This week was akin to taming the masses with confusion. More make-or-break meetings are certainly to come.

Have a pleasant weekend.