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Natural Gas concerns continued

Heading Out, The Oil Drum
This past week has been one where, despite the torpor that starts to fill the summer press, the progress of reality across the energy supply situation is beginning to make its uncomfortable presence known in the MSM. We have, it appears, reached that time where demand destruction, a phrase I heard for the first time not that much more than a year ago, is now beginning more evidently to impact the demand side of the oil and gas balance between supply and demand.

As I noted the other day, when talking about the oil sands, cornucopian thinking still seems to control the attitude of government. The comment by the Canadian National Energy Board that Dave cited includes the comment on gas needs

It takes about 34 cubic metres (1 200 cubic feet) of natural gas to produce one barrel of bitumen from in situ projects and about 20 cubic metres (700 cubic feet) for integrated projects. Currently, the oil sands industry uses about 21 million cubic metres (0.7 billion cubic feet) per day of purchased gas, or about five percent of the Western Canada Sedimentary Basin production. By 2015, this increases to about 60 million cubic metres (2.1 billion cubic feet) per day, or nearly 12 percent, assuming gas production remains at 482 million cubic metres (17 billion cubic feet) per day.

This seems to imply that the demand increase is not that significant relative to supply. But to continue Dave’s thread onto a slightly larger scale, the failure to put the demand into a global picture can lead to considerable, and unfounded, complacency.
(25 June 2006)

Even OilCos still cannot deal with aftermath of Katrina

Jerome a Paris, Daily Kos
…The lessons I take from this:

* Katrina caused irreversible damage. Even entities with lots of money (OilCos) cannot or will not spend money to bring things back to where there were. Hydrocarbons production is down, and the region is no longer inhabitable – and won’t be.

* The sudden destruction created (or unveiled) very real shortages in the supply chains. We’ve seen this elsewhere (see this diary on the lack of tires in the mining sector), but it appears that the extractive industries are increasingly struggling against shortages in many different sectors (drilling rigs, port capacity, transport, qualified personnel, specialised components, etc…) and unable to respond to demand, even when paying whatever price it takes.

* in the case of Katrina, this means that if the best endowed industry, with the strongest incentives to repair things cannot cope, everybody else is doing even worse and the region is most likely unable to rebuild and start again in any meaningful way.

And yet, we hardly ever hear about New Orleans and Katrina anymore – or nearly not enough, anyway. Do we need another hurricane to strike what remains in the area for us to (briefly) care?

Has the whole area been written off? Who’s next?
(26 June 2006)

Norway Crude-Oil Output Slides
As Hurdles Rise for Meeting Goals

Ian Talley, Wall Street Journal
OSLO — Norway, the world’s third-largest oil exporter, is battling to stem falling crude output as high costs, maturing resources and labor disputes threaten to undermine near- and long-term production goals.

For years, the Nordic country has been a top supplier of crude to world markets, particularly Europe and the U.S. Despite record oil prices and investment, however, government and industry officials say oil-union strikes, a tight rig market and a dwindling number of big-field discoveries may accelerate the inevitable decline in crude production and prevent the country from meeting its output targets.

The Norwegian Petroleum Directorate, the Oil Ministry’s administrative arm, hopes to increase crude output from its decade-low record in April of 2.2 million barrels a day to around 2.8 million to three million barrels a day by year end and through 2007. It also aims to add five billion barrels of petroleum resources by 2015 — equal to the past decade of reserve growth in Norway — flattening what would otherwise be a sharp fall in output beyond 2008.
(26 June 2006)
The article is behind a paywall.

High cost of asphalt steamrolls plans

CHANAKYA SETHI, Globe and Mail
Some cities forced to scale back road work, while contractors’ profit margins squeezed

The city of Regina began this year with an extra $1.2-million in its road construction budget, but the cash isn’t expected to last. It’s rapidly being consumed by the rising cost of asphalt, as soaring oil prices find new ways to wreak havoc.

Regina is lucky; it probably won’t have to cut back on projects. But other cash-strapped municipalities are being forced to scale back or delay road work because liquid asphalt, the glue that holds roads together, has doubled in price to $500 a tonne in the past year.

Some contractors expect further price hikes of $100 in coming months.

“None of us, none of us saw this coming,” said Mike O’Connor, executive director of the Ontario Hot Mix Producers Association, a group of asphalt makers. “I hate to use the term ‘perfect storm,’ but I think it’s what we’ve seen.”
(26 June 2006)
Related: Asphalt putting holes in repair budgets, towns say.

With all the heavy oil coming onto the market I thought we might have seen a glut of asphalt. Can anyone explain this? -AF

UPDATE from reader jap:

Actually, asphalt is not made with “heavy oil.” It is primarily a much heavier, denser grade of petroleum. In the past, it has sold at a lower price than oil which is converted to fuel. That is no longer the case. In fact, this dense petroleum product is increasingly processed into a “synthetic” oil and then sold for refining into fuel. Now, the price of the asphalt petroleum has increased in price at a relatively higher percent of rise than normal petroleum. Thus the large increase in asphalt petroleum. BTW, my understanding is that the preferred asphalt petroleum in North America is exported from Venezuela and I note that Venezuela’s exports to to North America have dropped even though their production has remained steady. This would also have an effect, in theory.

I have always maintained that that the first casualty of peaking oil will be roadways. They are ribbons of petroleum and take prodigious amounts of fuel just to operate the machinery and transport the personnel who lay the roadway.

Keep track of the status of road maintenence this winter and after. It should be a good indication of coming problems with petroleum supply.

Royal Society of Edinburgh Energy Report published

Last year, during 2005, the Royal Society of Edinburgh (RSE) ran ayear-long Inquiry called Issues for Scotland’s Energy supply. Many submissions were received, including one from Depletion Scotland which emphasized Peak Oil and Gas: “An increasing number of individuals and organisations are predicting that global oil production is approaching peak, an event known colloquially as ‘Peak Oil’. These organisations now include some of the world’s largest banks [1] and multinational oil companies [2]. While there are still several organisations suggesting that global oil production will not peak for decades, Depletion Scotland is one of the growing number that believe Peak Oil will occur 2005 – 2007. Natural gas supplies for the UK are already becoming an issue with global peak in production expected 2020 – 2030 [3]. The issues for Scotland’s energy supply and demand between the present and the year 2050 will therefore be dominated by declining oil and gas supplies for the entire period.”

The RSE Summary Report (PDF 154KB) covers a lot of issues, but makes no mention oil or gas depletion in the North Sea, or Peak Oil/Gas. On the contrary, it is confident that the UK can expand its number of gas-fired power stations without any issues relating to gas supply:

“New gas fired power stations are a more realistic option than coal to meet the range of energy policy objectives. Our support is on the proviso that there is an effective means of dealing with carbon emissions. We support the Peterhead Power Station/Miller Field project which provides the opportunity for CO2 injection into hydrocarbon reservoirs for tertiary recovery of oil and gas. We note that there are many sources of gas supply, including continuity of supply to Scotland from Norway for the next 25 years and the provision of Liquified Natural Gas (LNG) into the UK market from a variety of sources. As a result, Scotland and the UK do not have to become entirely dependent on the so-called ‘end of pipeline supply’ from Russia.”

The item World’s Largest Gas Field Disappoints below suggests that future gas supplies, especially LNG, may be tight for some time to come. See also UK Natural Gas Supply in the Context of the European Union (posted 01 March).

The Full Report (PDF 1.3MB) discusses reserves in a section entitled Global fossil fuel reserves. On Natural Gas it states:

Natural gas resources “can easily meet the projected increase in global demand” over the next 25 years (IEA, WEO 2004). “Proven reserves have outpaced production by a wide margin since the 1970s and now are equal to about 66 years production at current rates.” Moreover, potential gas resources are much greater. According to the US Geological Survey (USGS, 2000), only slightly over 10% of the world’s ultimately recoverable gas resources had been exploited by 2000: reserves at that time amounted to 166 years-worth of consumption at 2002 rates.

See Jean Laherrere’s and Colin Campbell’s reviews of the USGS, 2000 report referred to above.

Regarding global crude oil reserves, the authors share the very optimistic view of the International Energy Agency (IEA) and United States Geological Service (USGS) i.e. we have huge reserves of crude oil and Peak will not occur any time soon.
(X June 2006)
Nature journal gives a remarkably different perspective on the report:

Energy problems demand a coherent solution, not a quick fix.

The energy issues facing many of the world’s governments are now acute. And there is a disturbing tendency for this urgency to generate polarizing debates on plans that could have only a marginal effect on the unfolding crisis. In the United States, such an argument has taken place over oil drilling in the Arctic National Wildlife Refuge. In Britain, an almighty row is looming over the replacement of a small number of ageing nuclear power stations.

The urgency of the current crisis is driven by stubbornly high oil prices, the clear need to do something about greenhouse-gas emissions, and the benign neglect that has characterized many national energy policies for the past two decades. But the crisis demands more than the flailing efforts of governments or political parties to develop headline-grabbing initiatives. It calls, instead, for a thorough, rational and rapid analysis of how effective energy policies should be rebuilt.

A report released this week by the Royal Society of Edinburgh (RSE) attempts to provide such an analysis for Scotland — a small country whose energy issues are not untypical of those facing Western Europe.

The exhaustion of North Sea oil and gas, together with the rapid ageing of coal and nuclear power stations, presents a challenge for the Scottish Executive and the British government in London. Under Scotland’s 1999 devolutionary settlement, London sets the energy policy, but Edinburgh is responsible for implementing it.

As the RSE’s report explains, the energy crisis won’t be addressed either by building wind-farms on the Isle of Lewis, or by licensing replacements for the nuclear plants that now produce half of Scotland’s electricity. What’s needed instead is a wide diversity of approaches to electricity generation and to energy use and distribution, and a comprehensive, integrated strategy for their implementation. The report’s 37 recommendations are not a cop-out from making choices, but are instead a realistic acknowledgement of the breadth of the problem.

The full Nature article is behind a paywall. -AF

Hanford plant cost rises to $11.55 billion

Shannon Dininny, Seattle PI
The cost to build a waste treatment plant at the highly contaminated Hanford Nuclear Reservation in south-central Washington has risen to $11.55 billion, according to a new cost estimate released Wednesday by the Energy Department.

The vitrification plant is being built to convert millions of gallons of radioactive waste to glasslike logs for permanent disposal underground in a nuclear waste repository. The plant has long been considered the cornerstone of a future cleanup at the Hanford site, but the project has been mired in cost overruns, construction problems and delays.

The Energy Department hired contractor Bechtel National in 2000. At that time, the cost of the project was estimated at $4.3 billion.
(22 June 2006)