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01 August 2015

Press review 01-08-2015 - Something must break

There is no bottom in sight for commodities at this moment, and petroleum is no exception. The Brent index closed down for the fifth consecutive week and is now just 3 $/b over the secular bottom set last January. Sour news for the fossil fuel industry in general mar the business pages of the mainstream media: investment deferrals, staff cuts in the tens of thousands, quarterly losses, unavoidable mergers; the spectre of a bankruptcy wave haunts on.

With far less impact on the mainstream media these long months of volatility and under-price petroleum is brewing all sorts of instability among petroleum exporting countries. From Venezuela come news of mass plundering, pointing to an relevant loss of control on the economy by the government. Ailing public finances in Angola foster contest to the regime, that in its turn replies with ad hoc arrests. The UAE is raising petrol prices by 25% overnight.

Something must break. This market is simply not sustainable, part of the supply curve is about to be shaken off. Rest to know exactly which. Will a wave of bankruptcies wipe off the mal-investment in North America? Or will it come down to the implosion of one or more exporting economies?

The spectacular petroleum extraction decline in Mexico goes on, with a 10% contraction in a single quarter. Here is an obvious casualty of the present market, that sees the end of its days as an exporter ever closer.
Reuters
Mexico's Pemex Posts Wider 2Q Loss On Lower Prices, Output
David Alire Garcia, 28-07-2015

Mexican state-run oil company Pemex said losses widened in the second quarter, marking its eleventh straight quarter in the red, on slumping prices and a nearly 10 percent drop in crude output.

Losses grew nearly 62 percent to 84.572 billion pesos ($5.388 billion) from 52.226 billion pesos in the year-ago quarter, Pemex said in a statement on Tuesday.

[...] Crude oil production for the quarter stood at 2.225 million barrels per day (bpd), down from 2.468 million bpd in the year-earlier period.
Saudi Arabia itself is still extracting petroleum as it ever did. Revenues however, have pretty much halved from an year ago. While for the moment the Saudi government has kept things under control, the present situation can not last for long.
Ring Of Fire
Saudi Arabia Having to Borrow Billions – Could Be Bankrupt by End of the Decade
KJ McElrath, 24-07-2015

Over the past year, Saudi Arabia – once among the richest nations on the planet – has wound up having to sell some $4 billion in bonds. It has been necessary in order to maintain levels of spending on public works and continue financing the war against Yemen. The Saudi government has also had to draw on its reserves of foreign currency. Falad al-Mubarak, who heads the Saudi Arabian Monetary Agency (the nation’s equivalent of the U.S. Federal Reserve), predicts “an increase in borrowing” in the face of a projected $130 billion deficit.

The primary cause is the drastic decline in the price of crude oil. Since hitting a peak of around $125 in February 2011, the price of a barrel of oil is currently under $50. It’s not going to get better anytime soon. Oil company executives predict it may be years before petroleum prices rebound. In order for the Saudi government to balance its budget, oil would need to be at least $105 a barrel. According to Dr. John Sfakianakis, an economist who oversees [Persian] Gulf Cooperation Council funds for the U.K.-based Ashmore Group, “reality is hitting home, and necessity is also hitting home.” Given the current state of the crude oil market, Dr. Sfakianakis predicts that Saudi Arabia will be broke by the end of the decade.
For the western petroleum countries the word of the moment is disinvestment. And it is interesting to see which resources are they setting aside, indicating where the lower EROEI is.
Reuters
Deep-sea oil projects make up most of $200 billion deferrals: Wood Mac
Karolin Schaps, 27-07-2015

Oil and gas projects in deep basins account for most of deferred investments worth more than $200 billion made due to the oil price crash, analysts at consultancy Wood Mackenzie said in a report.

Oil and gas majors have slashed capital expenditure budgets between 10-15 percent this year in response to oil prices halving over the past year.

A large chunk of these cost savings have been made by deferring investment decisions in expensive projects, shelving more than $200 billion worth of investments, the analysts said.
In spite of the current market, the push for a lift to the petroleum and gas export ban in the US has gained renewed traction in past weeks with support from top politicians. At this moment the US is a net importer of both fossil fuels.
Post Carbon Institute
Shale Gas Reality Check
David Hughes, Asher Miller, 22-07-2015

In October 2014, Post Carbon Institute published the results of what likely remains the most thorough independent analysis of U.S. shale gas and tight oil production ever conducted. The process of drilling for shale gas and tight oil is known colloquially as “fracking” and has drawn a great deal of controversy—considered by some as an energy revolution and others as an environmental and human health catastrophe.

Much of the cost-benefit debate over fracking has come down to the perception of just how much domestic oil and gas it can produce and at what cost. To answer this question, policymakers, the media, and the general public have typically turned to the U.S. Department of Energy’s Energy Information Administration (EIA), which every year publishes its Annual Energy Outlook (AEO).

In Drilling Deeper, PCI Fellow David Hughes took a hard look at the EIA’s AEO2014 and found that its projections for future production and prices suffered from a worrisome level of optimism. This lead us and others to raise important questions about the wisdom of some energy policies and infrastructure projects (for example, the approval of Liquified Natural Gas export terminals and the lifting of the crude oil export ban) that have been pursued largely on the basis of the EIA’s rosy forecasts.
Iran is fast rebuilding its economic ties with the rest of world. An interesting drive is Iran's willingness to export gas to Europe. A new east-west pipeline may be in the making, perhaps merging with the so called "Turkish stream".
Hellenic Shipping News
Iran Starts Negotiations to Export Natural Gas to Europe: Official
27-07-2015

Iran is in a good position to meet the growing gas needs of the European Union and has started its talks in this regard, the secretary general of the Gas Exporting Countries Forum (GECF) said.

“Iran and the European Union have already engaged in negotiation that involved several options for the export (of gas) to the European Union,” Sputnik News quoted Seyed Mohammad Hossein Adeli as telling reporters.

Iran could partially meet the growing EU energy demands both through pipeline supplies and liquefied natural gas deliveries, he added.

Adeli said the demand for natural gas in Europe is set to increase after 2020, with European gas imports to double by 2040.
Related to gas supplies comes another mea culpa by the western media concerning its support for the nationalist revolution in Ukraine last year. Bit by bit the mainstream media allows itself to lift the veil over what are political organisations that for decades have not been tolerated in Europe. This article points to important fragilities with the nationalist regime and to how is it far from being what in Europe is considered a democracy.
Reuters
Special Report: Ukraine struggles to control maverick battalions
Elizabeth Piper and Sergiy Karazy, 29-07-2015

Dressed in a colorful peasant-style shirt, Korchynsky told Reuters that he follows orders from the Interior Ministry, and that his battalion would stop fighting if commanded to do so. Yet he added: "We would proceed with our own methods of action independently from state structures."

Korchynsky, a former leader of an ultra-nationalist party and a devout Orthodox Christian, wants to create a Christian "Taliban" to reclaim eastern Ukraine as well as Crimea, which was annexed by Russia in 2014. He isn't going to give up his quest lightly.

"I would like Ukraine to lead the crusades," said Korchynsky, whose battalion's name is Saint Mary. "Our mission is not only to kick out the occupiers, but also revenge. Moscow must burn."
The weekly note on renewable energy highlights the recent price drop in PV electricity in India, now coming on par with Coal fired electricity. These recent cuts in costs have been artificially barred from Europe by the import tariffs posed on Chinese made solar panels.
Clean Technica
How Solar Power Is Transforming India's Energy Market (Part 1)
Tobias Engelmeier, 26-07-2015

In the last three years, the Indian market grew by 1 GW per year. This year, India is expected to add as much as 5 GW (1.1 GW already commissioned). Until recently, our estimate was 3 GW, but now revised our projections upwards (see our India Solar Handbook). In 2016, India may add 7–10 GW of solar (the government plans to auction 10 GW this year).

[...] The most competitive bid in October 2014 was INR 6.01 kWh or US$ 0.0875 for a 40 MW plant by US-based First Solar. In Madhya Pradesh bids, opened last week, the highest winning bid was INR 5.64/kWh for a 50 MW plant by Indian developer Hero Future Energy and the lowest bid was an incredible INR 5.05/kWh or US$ 0.0795 for a 50 MW plant by Canadian developer SkyPower Solar.

[...] Consider also, that the price for new thermal power from coal in India is between US$0.70 and US$0.90 per kWh (as based on recent PPAs signed).
Next is a piece of Science Fiction that may point to the future of the internet. It sounds very appealing: a high level of de-materialisation and exclusively powered by renewable energy.



A closing note on technology, this week I started using the novel Reader View feature provided by Firefox. I can but recommend it.

Enjoy the Sun.