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13 March 2016

Press review 13-03-2016 - Farewell Ron

Brent returned back above 40 $/b after three straight months below the historical figure that market the end of "cheap oil" back in 2004. After two volatile sessions Monday and Tuesday, the index found some sort of normality in the reminder of the week. The cries for negative prices are no longer heard. A turning point? Perhaps, as the news of declining extracted volumes multiply.

Undisturbed by market idiosyncrasies, China presses on with its energy transition. The figures on alternative electricity capacity installations are staggering, with Wind, Solar, Nuclear and Hydro all well into GW territory. It is a dramatic transformation unfolding in front of our eyes, completely at odds with the stance of European governments and institutions like the IPCC.

Throughout the next decade I expect similar transformations to take place in other regions of Asia, Africa and South America, where energy cost and security resound louder than in Europe.

Institute for Energy Economics and Financial Analysis
China Delivers Global Record Wind and Solar Installs While National Coal Consumption Drops

China has formally confirmed two new clean-energy world records in 2015—one for installing a record 32.5 gigawatts (GW) of wind in a single year, and the second for installing 18.3 GW of solar, both higher than initial estimates. Coal consumption fell 3.7% year on year (yoy) on the back of just 0.3% yoy electricity production growth and a rapid diversification of China’s electricity generation capacity.

“The latest figures confirm China’s record-breaking shift toward renewable power and away from coal,” said Tim Buckley, Director of Energy Finance Studies at the Institute for Energy Economics and Financial Analysis (IEEFA). “Solar and wind continue to be the big winners, as illustrated by a 73.7% increase in grid-connected solar generation capacity. Declining consumption coupled with an over-abundance of domestic supply, meaning coal imports into China were particularly badly hit, dropping 30.4% yoy.”

[...] “China’s official 2015 wind installations are an all time global record of 32.5GW, 30% ahead of even the most optimistic forecasts by financial markets made only a year ago. China itself is the only nation to have come anywhere near this, delivering 20.7GW of new installs in 2014,” he said.

“The National Bureau of Statistics also reported 18.3GW of grid-connected solar installations in 2015,[i] again surpassing the previous world record of 12.9GW set by China in 2013. The 14.9GW of hydro electricity and 6.0GW of nuclear capacity installs by China in 2015 round out a year of rapid grid generation diversification.
If the energy transition is feasible on the electricity sector, the same can not be said of transport, the main driver of continued petroleum consumption growth in China. Some sort of quantum leap is still required in this sector for a sustainable economy to ever become a possibility.

In other news, there are renewed hints that Russia is at, or very near, its petroleum peak. There has been a back and forth of claims on this issue, all originating in the Kremlin itself. In any case, the remaining resource is relatively well known and does not leave much of a margin for optimism.
Russia Today
Russia may be running out of oil

[...] In the best case for oil producers, short-term growth remains possible only until 2020, according to the report. After that, production will contract. The figures vary from 1.2 percent to 46 percent, depending on prices, taxation and whether or not anti-Russian sanctions will be in force.

A slight increase in production is possible only for smaller companies like Slavneft and Russneft, while the market leaders are facing the depletion of existing deposits. Added to an unfavorable tax environment, their production is set to fall by 39-61 percent.

To counter the decline in oil production, the Energy Ministry proposes giving private companies access to the Arctic shelf, to soften the tax regime and support for small and medium-sized independent companies.
Even facing an imminent peak, Russia remains the world's largest petroleum extracting country. And this position is slowly providing a relevant clout on the petroleum market, particularly in face of the paralysis engulfing OPEC.
Will Russia End Up Controlling 73% of Global Oil Supply?
Rakesh Upadhyay, 06-03-2016

Russia has played a master stroke in the current oil crisis by taking the lead in forming a new cartel, but it’s a move that could spell geopolitical disaster.

The meeting between Russia, Qatar, Saudi Arabia and Venezuela on 16 February 2016 was the first step. During the next meeting in mid-March, which is with a larger group of participants, if Russia manages to build a consensus—however small—it will further strengthen its leadership position.

Until the current oil crisis, Saudi Arabia called the crude oil price shots; however, its clout has been weakening in the aftermath of the massive price drop with the emergence of US shale. The smaller OPEC nations have been calling for a production cut to support prices, but the last OPEC meeting in December 2015 ended without any agreement.

Now, with Russia stepping in to negotiate with OPEC nations, a new picture is emerging. With its military might, Russia can assume de facto leadership of the oil-producing nations in the name of stabilizing oil prices.
If petroleum extraction is still growing in Russia, it is taking a different path elsewhere. Nigeria was a country already in trouble due to the depressed market, this bombing guarantees a marked extraction decline in 2016.
Financial Times
Bombed pipeline to hit Nigeria oil output
Maggie Fick and Anjli Raval, 08-03-2016

The damage caused by an attack on an underwater pipeline is set to halt flows of Nigeria’s Forcados crude oil to one of the country’s biggest export terminals until May.

[...] As a result of the oil spill, inflows to the terminal and exports out were stopped.

Almost 250,000 barrels a day of oil were scheduled to be exported from the Forcados stream in both February and March. The Forcados terminal has the capacity to export about 400,000 b/d, according to people familiar with the matter.

The incident has curbed production — which was previously at 2.3m b/d — by 300,000 b/d, Mr Kachikwu said. Nigeria had a target of 2.4m b/d for 2016.
Analysts and pundits have been making faith on the above ground inventory statistics issued by the IEA to issue such claims as "negative prices" and "lower for longer". It turns out that about half of the supposed inventory growth is actually unaccounted for.
Where has the oil gone? Missing barrels and market rebalancing
John Kemp, 08-03-2016

Global oil production exceeded consumption by just over 1 billion barrels in 2014/15, according to the International Energy Agency (IEA). Production exceeded consumption by an average of 0.9 million barrels per day in 2014 and 2.0 million bpd in 2015 (tmsnrt.rs/1pvIEw8). Of the 1 billion barrels reportedly produced but not consumed, roughly 420 million are being stored on land in member countries of the Organisation for Economic Cooperation and Development (OECD). Another 75 million barrels are thought to be stored at sea or in transit by tanker somewhere from the oil fields to the refineries.

That leaves 550 million "missing barrels" unaccounted for, apparently produced but not consumed and not visible in the inventory statistics ("Oil Market Report", IEA, Feb. 2016). Missing barrels are recorded in the "miscellaneous to balance" line of the IEA's monthly Oil Market Report as the difference between production, consumption and reported stock changes. The miscellaneous item reflects errors in data from OECD countries, errors in the agency's estimates for supply and demand in non-OECD countries, and stockpile changes outside the OECD that go unrecorded.
Over at the US there is finally a ruling on the pipeline contracts tied to failed "shale oil" companies, a topic that has been followed in this review. While this latest ruling is not binding to other similar cases, it points to where most of these contracts are headed, and to the inevitable spill over of the shale sub-prime.
Financial Times
Pipeline investors shaken by bankruptcy ruling
Gregory Meyer, 08-03-2016

A judge has allowed a US oil and gas company to abandon pipeline contracts while in bankruptcy, in a first-of-its-kind decision that has rattled investors in energy infrastructure.

Sabine Oil & Gas, a shale energy producer under Chapter 11 bankruptcy protection, sought permission to break contracts with two pipeline companies so it could pursue better deals and save as much as $115m.

On Tuesday a judge ruled in its favour. “The court defers to the business judgment of the debtors to reject the agreements,” Judge Shelley Chapman said at a hearing in US bankruptcy court in Manhattan.

The decision has important implications for the midstream energy sector, which gathers, processes, transports and stores oil and gas. Income-hungry investors had flocked to midstream companies on the belief that their generous payouts were backed by long-term, immutable contracts with customers.
This is just the beginning. The collapse of the so called "shale industry" is yet to unfold. The huge figures at stake leave some wondering how it could have ever developed. And indeed, the bond bubble inflated around this mystical industry certainly was no product of rational decision.
Oil Crash Risks $19 Billion Wave of Junk Debt Defaults
Asjylyn Loder, Steven Church and Jodi Xu Klein, 11-03-2016

Investors are facing $19 billion in energy defaults as the worst oil crash in a generation leaves drillers struggling to stay afloat.

The wave could begin within days if Energy XXI Ltd., SandRidge Energy Inc. and Goodrich Petroleum Corp. fail to reach agreements with creditors and shareholders. Those are three of at least eight oil and gas producers that have announced missed debt payments, triggering a countdown to default.

"Shale was a hot growth area and companies made the mistake of borrowing too much," said George Schultze, founder and chief investment officer of Schultze Asset Management in New York, which has been betting against several distressed energy companies. "It’s amazing that so many people were willing to lend them money. Many are going to file for bankruptcy, and bondholders and equity are going to get wiped out en masse."
Ukraine has survived another winter of far right drift. Although poorly reported by the mainstream media, the country continues to deepen in trouble and the nationalistic sentiment rising. Europe can not possibly continue supporting such a state of affairs for much longer. The far right will have whatever is left of Ukraine all for itself.
This is how we spooked Putin: What the New York Times won’t tell you about the American adventure in Ukraine
Patrick L. Smith, 24-02-2016

Ukraine has gone from political crisis to armed conflict to humanitarian crisis with no break in the regress since the American-cultivated coup in February 2014. But for many months now we have had before us a textbook example of what I call the Power of Leaving Out.

The most daring attempt at “regime change” since righteous Clintonians invented this self-deceiving euphemism in the 1990s has come to six-figure casualties, mass deprivation, a divided nation and a wrecked economy. If you abide within the policy cliques or the corporate-owned media, it is best to go quiet as long as you can in the face of such eventualities.

The short of it, readers, is that all three chickens now take up their roosts at once: The Poroshenko government is on the brink of collapse, neo-Nazi extremists have forced it to renew hostilities in the east and there is no letup in the blockade Kiev imposes on rebelling regions. The last differs from a punitive starvation strategy only in degree.
And here is a preview of things to come. The technology is already there to replace many professions we are familiar with - it is all a matter of time and legislation. While it may induce important gains in energy efficiency, the consequences of this industrial revolution in the making will be major drivers of social and political struggle the next decade or so.
Russia Unrolls Autonomous Trains
Kyle Park Points, 05-03-2016

A Rostec company, the V. Tikhomirov Scientific Research Institute of Instrument Design, recently deployed its newest software for autonomously controlling trains on Russian lines. The “driver-less train control” software will deploy first in Circle Line, Moscow Metro. The fully autonomous trains will be responsible for everything but opening and closing the doors — and even then, the software will have something to say about it.

After 10 years of research and development and a brief half year of field testing on the Moscow Metro lines, the new autopilot began driving the trains in mid-February.

The system is capable of running trains between stations, stopping with a 3 centimeter margin of error, maintaining safe speed limits, and in turn, reducing driver fatigue and human error. The driver can switch to manual controls whenever needed and operate the doors. The software checks if the train is idle and at the platform for safe loading and unloading.
This week I was informed that Ron Patterson is retiring from blogging. Ron was an habitué at TheOilDrum and would later found the much popular Peak Oil Barrel blog. I got used to consult Ron's posts and graphs on monthly energy statistics instead of browsing through the many times cumbersome sources. My farewell and best wishes to Ron, he provided an invaluable service to the energy community.

This does not mean Peak Oil Barrel is to close down. Ron relayed the blog to Denis Coyne, whom has already proved himself as an able energy analyst. Best of luck to him.
Peak Oil Barrel
Coal Shock Model
Dennis Coyne, 11-03-2016

And that is it for this time. Have a good week.

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