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27 February 2015

Loglets Revisited

Remember this graph?
It might not feel that long ago, but more than eight years have passed since Samuel Foucher published at TheOilDrum the Loglet Analysis applied on petroleum. In the years that followed I used the results from this work intensively, regarding it as the most accurate model of fossil liquids extraction.

In reality, volumes extracted grew considerably slower than anticipated by this loglets model. Even if it captured accurately the dynamics of the petroleum system, the decline it portrayed has been considerably delayed. After all this time, how have the results from the Loglet Analysis evolved? Does it portrait a different scenario with eight data points more? This is what this work sets out to answer.

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.

10 February 2015

Press review 14-02-2015 - Back to the past

Europe has been stuck to the screen following the chess match between the already iconic Greek leaders and the lethargic EU leadership. Chronic recession, appaling youth unemployment, degrading social cohesion; an half-built Union that instead of federating seems itself at stake. Largely unnoticed, the EuroStat publishes a bare set of information that explains to a great extent the moment we live: energy consumption is back to levels of twenty years ago. In a document submitted to the Energy Commission almost five years ago I wrote the following:
Europe faces enormous challenges in the years, and possibly decades, ahead due to its reliance on foreign imports of fossil energy. By different factors, outright scarcity, geographic constraints or demand growth from competing importers, Oil, Gas and Coal are all set to become harder to afford for Europe. If no other way is provided for the reduction of their usage, then economic hardship shall take care of such task.
"If you do not deal with reality, reality will deal back with you". These sage words explain what Greece and the EU face: there is no point in slashing GDP if the fundamental issue of the trade balance is not tackled.

07 February 2015

Press review 07-02-2015 - Intertwining

It is interesting how sometimes events intertwine. The ever more complex war in Ukraine is rapidly merging with the stand off over Greece's sovereign debt. The freshly elected Greek government will probably use a veto to further sanctions on Russia as a trump card. Or even threaten to re-approach Russia if a new debt repayment programme is not struck. The geography of all this is nothing short of remarkable.

Europe faces another make or break moment, the frequency of which is less and less reassuring. The more of these D-days repeat the likelier a bad outcome becomes. The Greek democracy can not possibly survive another 4 years of abject austerity, but the masters of the Council seem tightly gripped to their beliefs.

On more mundane matters there was a noticeable rally in petroleum prices, with the Brent index consolidating gains that started late last week. It is however, to little, to late for the industry, and is more likely to signal a bottom than a definitive return to comfortable prices. Midweek I posted an entry level article on what this may mean to the US financial markets.

03 February 2015

Shale sub-prime and the Ides of March

Graphic from Sprott Money.
"Sub-prime" is the term by which became known the debt market segment that served low quality housing in the US. Essentially these were products supporting mortgages to low-middle class families, that in 2006/07, up against the simultaneous rise in interest rates and commodities prices, produced a wave of defaults that lead to the 2008 financial crisis.

The rise in petroleum prices was a key element to the 2008 crisis, but would eventually bring something positive to the US. Petroleum is usually extracted from large underground cavities known as reservoirs. However, it is formed at greater depth, within source rocks, where organic matter is slowly cooked by the internal heat of the planet until it degrades, first into petroleum and finally into gas. Prices persistently above 100 dollars per barrel meant that beyond traditional reservoirs it also became feasible to drill deeper for petroleum, down to source rocks and other rock formations of low permeability.