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Peak Oil

The crystal ball, though murky, is not empty

Heading out, The Oil Drum [blog]

Halfin has commented on the risks of projecting demand, and the inaccuracies of those who anticipate Peak Oil. Now, being one of those that, 30 years ago, would post predictions on the board outside my office, I now know that there are a lot of unforeseen circumstances that can influence demand, and hesitate to date peak oil.

But that being said, it is a fool that ignores the warning signs of trouble ahead. This awareness of concern began, for me, with a Michael Lynch comment last year that oil prices would, by now, have dropped back to $30 a barrel. And from there, as I looked further, that price seemed harder and harder to defend. Move ahead a year and a bit, and this situation remains much worse than the optimists might have it. I suppose that I would be less concerned if I could find more credibility in the arguments thrown up against the positional sense that has developed at this site over the past few months.

As one sees that one of the optimists is willing, shall we say, to gild the lily, in regard to future supply, then concern grows. When Saudi Arabia promises the world enhanced production, yet the number of tankers from that region are reported as not being as high as they should be, then that concern grows. When China builds new refineries it is naïve to believe that they won’t be used, and concern grows. And when hopes of increased production from Russia seem doomed to be filed under dreams, then concern grows. …
(5 August 2005)

A half-truth is still a lie

I had a horrible experience the other night. It was brief but it knocked me on my butt for a second. We were at my engagement dinner (that’s right, I’m getting married to a wonderful woman next Spring). One of our guests looked at me and said, “You know, I just don’t believe in Peak Oil. It’s in the media every day now and I never believe what I see in the mainstream media.” Ouch! …

It’s easy to admit something that can no longer be concealed: the proverbial elephant in the room. But to admit only half the truth is a damnable lie and it further endangers the lives and safety of billions and I’ll be damned if I’ll shut up or be politically correct.

Big Oil tells us that actual peak is further away than we know it to be. And the fact that in some cases they are even acknowledging a possible peak in three to five years means that it’s probably here right now. Remember Karen Silkwood?
Big Oil tells us that the problem is basically solvable. It is not. In the present reality, mankind is faced with only a partial chance of success in a desperate bid to soften the blow.

Big Oil makes this startling admission now, when just two years ago their annual reports to shareholders and press releases painted a completely different picture. In fact, they flatly contradict what Big Oil is saying today. Do the shareholders care? If we had a real SEC, it might care. Hail Caesar! …
(August 2005)

Transcript of Matt Simmons online interview

Washington Post
An online interview hosted by the Wash.Post, with questions from readers globally. Its long, but worth reading for anyone fielding similar questions from family or firends. Note that the WaPo vetted which of the questions sent in would be addressed.

Two excerpts:
Question (from Saint John, Canada): “Given that there is a well understood technology for synthesizing other fossil fuels into oil (mostly coal) do you believe it will be possible to offset the production declines from conventional oil wells by increased coal liquefaction? How environmentally destructive is that process?”
Matthew Simmons: “I don’t understand the environmental impact of coal gasification. Almost every single aspect of using unconventional oil, whether it’s coal or Canadian tar sands or oil shales are all incredibly energy intensive, so they use a lot of energy to convert them into usable energy, and they don’t come out of the ground at high amounts. So it becomes a daunting task to begin offsetting oil coming out of a highly pressurized oil field, which can come out at a rate of 5-10,000 barrels per day per well with unconventional oil sources, which are energy intensive and come out in small amounts.”

Question (from Wheaton, Md.): “Are you predicting a world oil shortage? Don’t you think newly discovered oil in central Africa and the former Soviet states will compensate for the loss of oil from Arab-occupied lands?”
Matthew Simmons: “The oil coming out of West Africa and Central Africa is not likely to significantly increase the oil supply of Africa because of the declines taking place in the existing base. The oil coming out of Russia is now apparently starting back into decline because they haven’t really come up with any significant new discoveries. So it’s hard to find an area that could come on fast enough to ever start to mitigate a decline in Middle East oil.”
(4 August 2005)
There is also recent audio of Mr Simmons on the Financial Sense Online Newshour

US targets oil in Africa

Staff, People’s Daily Online
US Occidental Petroleum Corporation announced on July 30 that Libya had approved the company to resume operation in the country. This is a substantial step of American oil companies’ return to Libya since the United States eased the economic sanctions against Libya in 2004. This is also one of the measures of the United States in stepping up implementing its strategy on oil resources in Africa in recent years.

Africa has huge oil reserves, next to only the Middle East and South America, thus is called “the second Gulf region”. The proved oil reserves in Africa have increased from 58 billion barrels in 1984 to 112 billion barrels in 2004. Currently the daily oil production in the African continent exceeds eight million barrels, about 11 percent of the world’s total. Experts predict, by 2010, Africa is expected to take up one fifth of the world’s oil production. Its rich oil resources have become an indispensable chip of the United States in its global energy strategy. …
(6 August 2005)

Other Energy

Official: Mexico spending on oil exploration rising
But problems in infrastructure remain

Will Weissert, Associated Press via
MEXICO CITY – Mexico’s state-run oil monopoly will spend more than 137 billion pesos (US$13 billion, euro10.5 billion) on oil exploration, extraction and production this year – but its outdated infrastructure system remains a serious liability, a presidential spokesman said Friday. Ruben Aguilar said state-run oil company Petroleos Mexicanos’ 2005 budget for recovering and readying new oil for the market represents more than double the amount spent on those activities five years ago.

In 2004, Pemex’s daily production was nearly 3.4 million barrels of crude oil, the highest in Mexican history, Aguilar said. Carlos Morales, head of exploration and production at Pemex said this week production reached 3.4 million barrels a day of crude between April and June. Pemex is one of the world’s biggest oil producers and a top supplier of crude to the United States.

The oil monopoly gives about two-thirds of its revenue to the Mexican government to cover taxes and royalties, an arrangement that often leads the company to report net losses. But high crude prices bolstered Pemex’s second-quarter results, even as the company’s production levels held steady and exports declined to 1.8 million barrels a day, a 3 percent drop compared to the same period last year. …

About 40 percent of the country’s 35,000 miles (56,000 kilometers) of pipelines are damaged or corroded. Many of those pipelines were built during the last oil boom, in the 1960s and 1970s. Congress has approved only about one-third of the annual funds needed to maintain and upgrade the most antiquated ducts, officials say. …

Also Friday, Pemex said it expects to more than double crude output to 800,000 barrels a day at its Ku-Maloob-Zaap field in less than five years. The company expects the field, Mexico’s second-biggest known crude deposit, to help compensate for declines in the country’s biggest oil field, Cantarell.
(5 August 2005)

Kerr-McGee to exit North Sea for £2bn

R.Orange and I.Dey, The Scotsman (UK)

US OIL major Kerr-McGee is aiming to make a surprise £2bn exit from the North Sea, in what would be the largest sell-out yet from UK waters. Although the company has been marketing a small portfolio of non-core North Sea assets, worth around £120m, industry sources claim its entire North Sea portfolio is now up for sale. …

The deal will be an unwelcome shock to the smaller North Sea players, which have recently put in bids for the five smaller packages of Kerr-McGee assets. It is understood that JP Morgan and Lehman Brothers, the two firms running the sale, were instructed to change the sale strategy earlier this summer. One banker familiar with the deal said: “They [the bankers] kept the bigger package quiet. They only approached a few buyers on that basis.” …

The sale is a dramatic step for Kerr-McGee, which is aiming to leave regions where production is declining, moving instead to higher growth areas such as deep water Gulf of Mexico, Canadian oil sands, and China’s Bohai Bay.

It may also reignite the transfer of North Sea assets from their original developers to ‘scavenger’ oil firms such as Apache and Paladin.

The high oil price has inhibited sales from companies such as BP, Royal Dutch Shell and Exxon Mobil, making them keen to hold on to all existing oil production. Industry publication Petroleum Intelligence Weekly estimates that even under its previous disposal plan some 40% of Kerr-McGee oil and gas production would still come from the declining US Gulf and North Sea.
(7 August 2005)

Howard seizes Northern Territory uranium

A.Wilson and K.Murphy, The Australian
THE HOWARD Government has seized control of uranium mining in the Northern Territory [‘youngest’ of the Australian states] to give “certainty” to the industry and ensure the expansion of exports to meet growing demands for nuclear energy worldwide. In a move defying an election pledge by Clare Martin’s Labor Government to block new mines, federal Resources Minister Ian Macfarlane declared in Darwin that the Territory was “open for business” …

There are only three operating uranium mines in Australia: Ranger in the Northern Territory and Olympic Dam and Beverley in South Australia. However, there are dozens of deposits around the country, including several in the Territory, that have been left undeveloped because of mining bans. …

The commonwealth has always retained the power to approve new uranium mines under self-government rules for the Territory. Territory Mines Minister Kon Vatskalis said Canberra had “bulldozed” the Territory Government. Mr Macfarlane said the Territory contained about $12 billion of known uranium deposits and that mining companies could now approach the federal Government to seek approval to mine them.

He said there were more than 12 companies exploring for uranium in the Territory. “Those companies are reporting various grades of uranium and it will then be a case of deciding whether or not these grades are commercial and able to be developed,” he said. One of those companies is French mining company Cogema, which has begun lobbying Aboriginal traditional owners to mine the Koongarra uranium deposit in Kakadu National Park.
(5 August 2005)
The 2003 closure by Rio Tinto plc. of the Jabiluka uranium mine in Kakadu National Park followed years of opposition from the indigenous Mirrar People and a national and international lobbying and direct action campaign. Many of the same groups involved in the Jabiluka campaign can be expected to vigorously oppose any expansion of uranium mining (or nuclear/toxic waste dumping) in Australia. -LJ

Politics and Economics

Why America Is More Dependent Than Ever on Saudi Arabia

Jad Mouawad, New York Times
“The Saudis are in a great position today,” said Jean-François Seznec, a professor at Columbia University’s Middle East Institute. “We cannot be enemies with everybody. We need their oil desperately.” All this has added to Saudi Arabia’s already impressive clout. What is more, other powers – mainly from Asia – seek greater access to its resources and have been increasingly courting the Saudis. “They can play the United States against other buyers, like China,” Mr. Seznec said. “And why wouldn’t they?”

President Bush might not have turned up personally in Riyadh yesterday but he certainly sent a high-powered delegation to pay his respects to the new leader of Saudi Arabia, King Abdullah. The American turnout, led by Vice President Dick Cheney, former President George H. W. Bush, and former Secretary of State Colin L. Powell, was the latest signal that relations between the two countries have thawed since the strains of 9/11. But it was also an acknowledgment of a simple fact: like it or not, the United States is more dependent than ever on Saudi Arabia. …
(6 August 2005)

Arab oil producers to increase production: OAPEC

Staff, Xinhua news Agency (China)
KUWAIT CITY — Oil-producing Arab states plan to raise their production from 32.2 percent of the world oil market to between 38 and 40 percent by 2010, the Organization of Arab Petroleum Exporting Countries (OAPEC) said on Saturday. OAPEC said in a monthly bullet in that in light of global market developments, oil consumers and international companies look to the Arab region and Iran for accommodating the increased oil demand,especially as they are home to 71 percent of the total world oil reserves.

The bulletin said the region’s ability to increase oil production brings peace to the market, Saudi Arabia comes in the forefront of producing countries with a production capacity of 1.5million barrels per day (bpd) which may be raised between 12.5 and15 million bpd in the future. …
(6 August 2005)

Opec production level hits 26-year high

Opec oil production increased 290,000 barrels per day in July to the highest level since December 1979, Reuters reported. Record crude oil prices have encouraged the Organisation of Petroleum Exporting Countries (Opec) to push output to near 26-year highs.

Prices have rallied to records this year on concern that a stretched global refining system would struggle to meet rapidly growing fuel demand. Total July Opec output came to 30.24 million bpd, according to the survey of consultants, shippers, industry and Opec sources. That was up 290,000 bpd from revised June output of 29.95 million bpd.

Opec-10 production was 210,000 bpd above the target of 28 million bpd, which came into effect on July 1 after Opec raised the ceiling 500,000 bpd at its meeting in June in a bid to dampen prices.
(5 August 2005)

EU offering to back Iran as major oil route -France

Staff, Reuters
PARIS – The European Union has offered to back Iran as a major supply route for oil between Central Asia and Europe as part of proposals to encourage Tehran to freeze its nuclear work, France’s foreign minister said on Sunday. Iran said on Friday the EU’s package — which it rejected as unacceptable — included an offer to support it as the main oil transit route from Central Asia.

Such an offer was not contained in a summary of the EU plan described by an EU diplomat as containing “all the substance of the full proposals”, although it did say the EU is prepared to declare Iran a long-term source of oil and gas. But French Foreign Minister Philippe Douste-Blazy appeared on Sunday to confirm that an offer to back Iran as a key oil transit route had been made. “Our offer is substantial,” he told Le Journal du Dimanche in an interview. …

The main route now for crude from Kazakh oilfields to world markets is via the Caspian Pipeline Consortium to a terminal near the Russian Black Sea port of Novorossiisk. A rival pipeline through Turkey, the Baku-Tbilisi-Ceyhan route, is to start carrying Azeri crude in the autumn, with capacity set to rise to one million barrels per day by the end of the decade. …
(7 August 2005)

Prices Fuel a Rebellion
Drivers Tired of Paying More for Premium Gasoline Switch to Regular

Margaret Pressler, Washington Post
For some people, it’s hitting the big five-oh that really hurts — that is, dropping $50 on a tank of gas. For others, it’s just that relentless upward creep in prices that gets their attention.
Whatever the trigger, drivers pulling up to the pump in vehicles that ostensibly require high-grade gas are wondering if they really need the more expensive fuel or whether it’s okay just to fill it up with regular. As gas prices soar, car owners increasingly are going for the cheaper stuff — no matter how fancy their wheels. And station owners and oil companies are seeing the impact: Sales of premium and mid-grade gasoline are tumbling. …
(6 August 2005)

Traders not only ones gambling on gas?

Staff, Reuters via CNN
NEW YORK – The largest sports betting site on the Internet expanded Friday into the energy arena, offering gamblers a chance to bet on soaring U.S. retail gasoline prices. “Record gasoline prices are affecting everyone, so why not let people bet on it?” said spokesman Kyle Fratini. “We’ve been thinking about this for months.”
The online betting site, which normally focuses on mainstream sports like football, basketball and soccer, is giving gamblers a chance to bet on whether gasoline will reach $3.00 a gallon in New York or Los Angeles by the end of the year, with 30 to 1 odds. …
(5 August 2005)

Airlines add routes to where the oil is

Bill Hensel, Houston Chronicle
Carriers such as Houston-based Continental Airlines, Air France, British Airways and Lufthansa have all honed offerings geared for energy-related companies in recent years. They tailor routes, food and even the type of seats offered on long-range planes. “There are major corporations actively engaged in the oil business in Houston, and we believe there is a lot of potential business to be tapped,” British Airways spokeswoman Diana Fung said.
Drawing energy-related travelers can be important to airlines, many of which have been hit hard by high oil prices. And for U.S. airlines, flying to foreign destinations is often more lucrative than flying to those within this country. With the energy business booming, the industry’s executives and employees — including the many who work and live in Houston — make a logical target for airlines. …
(7 August 2005)