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07 May 2016

Press review 07-05-2016 - Tragedy in Alberta

Image from BBC, click it for more.
It has been a very long while since petroleum related news last made headlines. This week happened again, and for all the wrong reasons. A gargantuan wild fire has engulfed the city of Fort McMurray in the Canadian province of Alberta, what was until this week the heart of tar sands extraction in that country. The images and reports out of the region are overwhelming, 80 000 folk evacuated, 1 500 buildings destroyed (including shelters), numerous roads unusable. And the fire is now projected to double in size before abating. The only positive news is the lack of casualties so far.

Beyond the human drama pouring into our living rooms, this sad happening is a stark reminder of how fast the fossil fuel predicament can change. Rebuilding this city and reviving the industrial complex around it in the present petroleum price environment is not going to be easy. Canada's aim of rivalling the Persian Gulf petroleum exporters has been adjourned sine die.

Unmoved by such events, the Brent index erased almost all the gains it made the previous week, settling just over 45 $/b.
CBC News
Fort McMurray wildfire remains out of control after city evacuated

A huge wildfire in Fort McMurray, Alta., destroyed an entire neighbourhood and burned homes and businesses in several others Tuesday, and continues to rage out of control.

By late afternoon, the entire city of 60,000 had been ordered evacuated. Residents by the thousands fled the fire and for hours caused gridlock on Highway 63, even overwhelming oilsands work camps, where beds and meals were offered. Police were patrolling the highway with cans of gas, after fuel supplies ran out in Fort McMurray, Wandering River and Grasslands.

[...] Officials said about 17,000 residents escaped the city to the north, while another 35,000 drove south, at least half that number headed for Edmonton, 430 kilometres away.

Gas stations were emptied of fuel along the way leaving many motorists stranded on the highway.

Reuters has been reporting an extraction loss of some 700 kb/d to this wildfire. However, some analysts are claiming the impact on synthetic crude production (the lighter pre-processed product Canada is able to export) to be over 1 Mb/d.
Fires Cause Drop in Canadian Oil Output

Many companies evacuated staff and cut production because of pipeline outages and the risk from encroaching blazes. No oil operations reported fire damage, but their efforts to protect themselves led to a reduction of at least 645,000 barrels a day, or almost one-quarter of Canada's 2.5 million barrels in total oil sands production. Much of that output is sent to refineries in the U.S.

[...] In the latest of a series of plant closures, Suncor Energy Inc., Canada's largest producer, late Thursday shut down all of its wholly owned oil sands assets, including two mines and a pair of well sites, which had been producing a total of 300,000 barrels a day. It had previously reduced output at another mining operation called Syncrude, in which it owns a controlling stake.

Exxon Mobil Corp.'sImperial Oil and ConocoPhillips also shut some production earlier Thursday. Exxon cut output by an undisclosed amount at its 194,000 barrel-a-day mine, citing "uncertainties." Conoco halted a 50,000 barrel-a-day mine and evacuated all staff due to a fire near the town of Anzac. They followed a move Wednesday by Nexen Energy ULC, a subsidiary of China'sCnooc Ltd. On Wednesday, the Canadian unit of Royal Dutch Shell PLC shut down two oil-sands mines, which produce 255,000 barrels a day, that it owns in partnership with Chevron Corp. and Marathon Oil Corp.
Lest not forget the tar sands industry was already in trouble before this disaster. The market slump created a wave of debt defaults that is threatening the entire financial industry (that seems even more exposed than its US counterpart). Even if authorities avoid the worse for the finance industry, the petroleum industry has a though road ahead.
Financial Post
Canadian Western Bank reignites concerns about energy loan losses at big banks
Barbara Shecter, 03-05-2016

A dramatic increase in expected energy-related loan losses at Canadian Western Bank has reignited concerns that the effects of the energy downturn are just beginning to be felt by the country’s biggest lenders.

In a pre-announcement before second quarter financial results are released later this month, the Edmonton-based bank said it will record $33 million of provisions for credit losses on its oil and gas production portfolio, owing to the weak oil price environment and borrowing base redeterminations.

In addition to the updated credit losses for the quarter, the bank sharply increased its full-year loan loss guidance to 35 to 45 basis points from 18 to 23 basis points.
Wildfires apart, negative news for petroleum exporting economies multiply. Nigeria hardly gets any attention from the western mainstream media, but this does not mean all is well around the Niger delta. The vicious circle of lower revenues, less social mitigation takes its toll once again.
Militants Blow Up Chevron Oil Platform in Niger Delta
James Burgess, 05-05-2016

Nigerian media are reporting that militants have blown up Chevron’s offshore Valve Platform in the Niger Delta, though authorities have issued no reports as to casualties yet.

The group behind the attack is said to be the Niger Delta Avengers, and the attach took place overnight, according to Nigerian naval officials cited by local media today. The group has reportedly claimed responsibility for this attack.

"This is what we promised the Nigeria government since they refuse to listen to us," the group said in a statement about the Chevron attack, adding that it happened shortly after 10.30 p.m. (5.30 p.m. ET) on Wednesday, according to a Reuters report.
The Nigerian government itself puts up a dire prospect on what is to come to the country's petroleum extraction. Some folk claim "Peak Oil" is a theory, but Nigeria knows all too well the concreteness of it.
Nigeria’s oil production may decline by 40% in 2021
Clara Nwachukwu and Sebastine Obasi, 04-05-2016

Expressing this concern at the ongoing Offshore Technology Conference, OTC, taking place in Houston, Texas, the Managing Director of SEPLAT Petroleum Development Company Plc, Mr. Austin Avuru, noted that production from the JVs has continued to decline from 2.2million barrels per day (bpd) to 1.2million bpd as at the last count, due to poor JV funding.

He said: “Go and check production records, you will discover that JV production has declined from 2.2million bpd to 1.2million bpd. The only reason we are still doing 2million bpd is that deepwater production made up for the gap.

“In the next five years, our deepwater production will also be declining and the real impact of poor funding of the JV will start to manifest when as a nation, we will producing not more than 1.6million bpd. So we must begin to address the challenges by doing the right thing,” he said.
A country that the mainstream media loves to report on is Venezuela, rejoicing with the failure of the bolivarian government. The country has pretty much ground to an halt, with most folk spending their days on ration lines. The impact on petroleum extraction is already visible and could get worse with the spiralling effects of an electricity supply crisis.
Venezuela 2016 oil output seen down at 2.35 mln bpd - consultancy

Venezuela's oil output may fall to average some 2.35 million barrels-per-day this year, as the South American OPEC country's cash crunch and shortages weigh on production, according to energy consulting firm IPD Latin America.

IPD's prediction comes on the heels of its quarterly sector survey, which estimated Venezuela's oil output tumbled 6.8 percent to 2.59 million bpd in the first quarter compared with the same period of 2015, due to drilling delays, insufficient maintenance, theft, and diluent shortfalls.

That estimate is a whisker above the 2.53 million bpd Venezuela produced in the first quarter, according to OPEC numbers. But it marks the first time since the third quarter of 2008 that production fell in all districts, including the extra-heavy crude Orinoco Belt, IPD added.

Given the operational woes, IPD has revised its 2016 output estimate for Venezuela, the country with the world's largest oil reserves to 2.35 million bpd.
From China come more news of a dying giant: Daqing. It seems the petroleum price rout is cutting short the life of what once was the country's fossil fuel work horse. A terminal peak in China's petroleum extraction appears now inevitable.
EMerging Equity
China Struggles As Oil Losses Climb
Michael Lelyveld, 27-04-2016

China’s biggest oilfield is suffering huge losses as the government seeks to avoid layoffs despite prices that have dropped below production costs.

On April 8, the official Xinhua news agency reported that the Daqing oilfield in northern Heilongjiang province lost over 5 billion yuan (U.S. $769 million) in the first two months of the year.

In spite of the costs, production in the first quarter held steady at year-earlier levels of 9.28 million tons (755,800 barrels per day), according to PetroChina, the listed subsidiary of state-owned China National Petroleum Corp. (CNPC).

Output has been declining for years at Daqing, China’s mainstay oil resource, which has fueled the economy for over six decades.

Annual production of 50 million metric tons (1 million barrels per day) lasted 27 years until 2003 before slipping to the 40-million-ton range, the official English-language China Daily and Global Times said.

In December 2014, PetroChina announced plans to cut output by 1.5 million tons and scale back production at the depleted field to 32 million tons by 2020.

But even at lower levels, production at Daqing with enhanced recovery methods is proving uneconomic.
From the United States the news of bankruptcies in the petroleum industry multiply. Nevertheless, extraction figures remain almost untouched, meaning that a good number of unprofitable wells on tight reservoirs are still being regularly brought online.
This Data Shows The Shale Debt Crisis Is Hitting Record Levels
Dave Forest, 02-05-2016

The bankruptcies are continuing fast and furious across the energy sector. With the ill-effects spreading beyond just the oil and gas business — evidenced by major renewables firm SunEdison filing for Chapter 11 last month.

But the U.S. E&P sector still remains one of the biggest unknowns when it comes to bad loans. With numerous observers having recently warned about a big wave of defaults coming in this space.

And a new data point late last week suggests we may be reaching a tipping point.

That came from leading American investment bank JPMorgan. Which said in an SEC filing Friday that its holdings of potentially bad loans took a major jump over the past quarter.

JPMorgan reported on its holdings of “criticized” loans — a term used in the banking industry to refer to “substandard or doubtful” debts. With the bank saying that its criticized loan portfolio leapt by 45 percent over the last quarter — to $21.2 billion as of March 31, up from just $14.6 billion at December 31, 2015.
On other news, Luxembourg is back with its asteroid mining agenda. The minister of economy attempts to put more flesh into the bones of this strategy, revealing that it aims at providing commodities to future manned space missions. Mind here that only a dozen of humans have ever been outside the planet's magnetosphere and for very short periods of time.
Financial Times
Luxembourg boldly goes into asteroid mining
Clive Cookson, 05-05-2016

The first commercial mission to harvest resources from asteroids could be launched within five years, as Luxembourg’s government works on joint missions with two US space research companies to prospect for water and minerals in outer space through robotic missions.

Since Luxembourg said in February that it was seeking to become a global centre for asteroid mining, events have moved rapidly, according to Etienne Schneider, the deputy prime minister. “Space agencies and companies from around the world have contacted us about collaboration,” he said.

Luxembourg is working on a joint mission with California-based Deep Space Industries called Prospector-X, a small and experimental spacecraft that would develop the technologies that might be used to send robotic explorers to investigate asteroids after 2020.
Ending on a more positive note is another remarkable figure for solar power costs. Certainly, sunshine in the Persian Gulf can not be replicated around the globe, but this new record shows how fast this technology is evolving.
The price of solar power just fell 50% in 16 months – Dubai at $.0299/kWh!
John Fitzgerald Weaver, 02-05-2016

Dubai received bid of $.0299/kWh for 800MW of solar power. This price represents the lowest yet recorded for solar power.
Dubai Electricity and Water Authority (DEWA) has received 5 bids from international organisations for the third phase of the Mohammed bin Rashid Al Maktoum Solar Park, said HE Saeed Mohammed AlTayer, MD & CEO of DEWA. The lowest recorded bid at the opening of the envelopes was US 2.99 cents per kilowatt hour. The next step in the bidding process will review the technical and commercial aspects of the bids to select the best one.
[...] In 2015, we saw Dubai sign a deal at a fixed rate of $0.0584 cents over 25 years with no incentives. In the summer of 2015 Autin, TX received almost 1,300MW`of bids at under $.04/kWh. Shortly afterwards, we saw Berkshire Hathaway Inc.’s NV Energy agreed to pay $.0387/kWh for power from a 100-megawatt project that First Solar Inc. is developing. Lastly, just this month Enel Green power signed contracts for $.036/kWh in in Mexico and $.03/kWh in Morroco.

The price per kWh just fell 50% – and it did it in less than sixteen months.
The sun is definitely out in this part of the world, and perhaps because of that, I have been in the mood for more light hearted music. I once came across Kraan in a Krautrock index - the band shares that vintage but could not be farther apart from the singature sound of German rock. Somewhat inexplicably I ended up enjoying their sound, even though it remains an absolute singularity in my catalogue. The following is a reduced quality excerpt from their 1980 live LP Tournée.

Have a good weekend.

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