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ODAC News - Apr 22

Courtesy of The Oil Depletion Analysis Centre.


Threat to food crops as Australia prepares to turn off farmers’ water

Bernard Lagan, The Times,
Australians have been told to pray for rain or face a ban on irrigation in the main food-growing region so that there is enough water to drink.

The Prime Minister’s warning yesterday heralded a dramatic increase in food prices and the prospect of tens of thousands of farmers having to watch their crops fail.

John Howard said that an expert panel had advised the Government that the worst drought in the nation’s history left it no choice but to turn off irrigation systems in the agricultural heartland of the Murray-Darling basin in the east.

Its 55,000 farmers supply virtually all of Australia’s vegetables, stone fruits, citrus fruits, cotton and rice. It is also home to many of its vineyards. Food prices are expected to rise immediately and there were predictions last night that scores of farmers would be forced to walk off their land. Winemakers said that the 2008 vintage would be crippled.

... Years of drought have devastated many small towns as farm incomes have shrunk, but Mr Howard said that the experts had made clear that the situation was now “unprecedentedly dangerous”. If water supplies were not shut off to farmers, it would be impossible to guarantee that people in inland towns and cities would have enough water to drink or wash.

Jolyon Burnett, head of the Irrigation Association of Australia, said: “If it continues like this we will see food becoming increasingly scarce and it will be reflected in the price of it. Annual crops simply won’t be planted.”

Ben Fargher, head of the National Farmers’ Federation, said supplies of stone fruits, grapes, avocados and almonds would be seriously affected for years. Once trees died, it would take four or five years for replanted trees to produce fruit. Winemakers predicted that the 2008 vintage would be even worse than this year’s, which has suffered a 40 per cent drop in the grape harvest.

... Mr Howard’s plan includes upgrading pipelines, making farm irrigation systems more efficient and improving storage systems. But yesterday his appeal went higher: “We must all hope and pray there is rain,” he said.
(20 Apr 2007)
ODAC Comment: The conversion of corn to ethanol in the USA is not the only thing sending corn, wheat and soya prices up. Australia, normally a wheat exporter, is currently experiencing the worst drought in its history, and it looks like food production there is about to nose dive.
If the Australian government had planned properly years ago and treated its water as a scarce and valuable resource, it would not be in such dire trouble now. It, and most of the rest of the world, seems to be following the same example for Peak Oil. Ignore the problem, then when things come to a head, hope and pray. If you like Australian wine, buy it now whilst you still can.


Australia's epic drought: The situation is grim

Kathy Marks, The Independent
Australia has warned that it will have to switch off the water supply to the continent's food bowl unless heavy rains break an epic drought - heralding what could be the first climate change-driven disaster to strike a developed nation.

The Murray-Darling basin in south-eastern Australia yields 40 per cent of the country's agricultural produce. But the two rivers that feed the region are so pitifully low that there will soon be only enough water for drinking supplies. Australia is in the grip of its worst drought on record, the victim of changing weather patterns attributed to global warming and a government that is only just starting to wake up to the severity of the position.

The Prime Minister, John Howard, a hardened climate-change sceptic, delivered dire tidings to the nation's farmers yesterday. Unless there is significant rainfall in the next six to eight weeks, irrigation will be banned in the principal agricultural area. Crops such as rice, cotton and wine grapes will fail, citrus, olive and almond trees will die, along with livestock. ..

Releasing a new report on the state of the Murray and Darling, Mr Howard said: "It is a grim situation, and there is no point in pretending to Australia otherwise. We must all hope and pray there is rain."

But prayer may not suffice, and many people are asking why crippling water shortages in the world's driest inhabited continent are only now being addressed with any sense of urgency. ..
(20 Apr 2007)
ODAC comment: The Independent tends to be more direct with its descriptions of situations than The Times.


British Gas Sees Billions in Green Energy

Pete Harrison, Reuters via Planet Ark
British Gas said on Thursday it was launching a new green energy unit, targeting a market it values in billions of pounds.

British Gas New Energy will offer rooftop solar heating panels and give customers the chance to offset their CO2 emissions through schemes that buy credits from other firms or countries whose own emissions are well within targets.

... British Gas said demand for microgeneration alone -- such as fuel cell boilers and solar panels -- might be worth approx 1 billion pounds annually in another five years.

The group has formed a partnership with some local authorities, which will give council tax discounts of up to 500 pounds for households that install solar panels.

The new business will also provide Energy Performance Certificates, which become mandatory for people selling their homes from June 1.
(20 Apr 2007)
ODAC comment: British Gas have been offering cavity wall and roof insulation at cut-prices for years, with little take-up. Now they are setting up a new unit to promote energy efficiency, perhaps because Energy Performance Certificates become mandatory for people selling their homes from June 1.


Peaking of world oil production: Recent forecasts

Robert L. Hirsch, World Oil Magazine
We summarize recent forecasts for peaking world oil production. Our focus was on people and organizations that have special oil industry expertise and/or significant influence, recognizing that we may have overlooked some that are worthy of mention.

Peaking world oil production.3 According to the IEA, “Worldwide, the rate of [oil] reserve additions from discoveries has fallen sharply since the 1960s. In the last decade, discoveries have replaced only half the oil produced. Nowhere has the fall in oil discoveries been more dramatic than in the Middle East, where they plunged from 187 billion bbl in 1963–1972, to 16 billion bbl during the decade ending in 2002.4

No one knows precisely when peaking will occur, because much of the data needed for an accurate forecast is either proprietary to companies, state secrets of major oil exporting countries, or politically/economically biased.

However, even large differences in estimated remaining world oil reserves would not significantly change the date of world peaking, when viewed from the perspective of mitigation.

According to the US Energy Information Administration (EIA), “[Our] results [related to oil peaking] are remarkably insensitive to the assumption of alternative resource base estimates. For example, adding 900 billion bbl (more oil than had been produced at the time the estimates were made) to the mean USGS resource estimate in the 2% growth case, only delays the estimated production peak by 10 years. Similarly, subtracting 850 billion bbl in the same scenario accelerates the estimated production peak by only 11 years.

A number of forecasters have accepted OPEC reserves estimates at face value, in part because there is no independent source of verification. This acceptance is troubling in light of the fact that past history raises significant questions about the validity of OPEC reporting.

In the words of the IEA,6 “What is clear is that revisions in official (Middle East and North Africa [MENA] reserves) data had little to do with actual discovery of new reserves. Total reserves in many MENA countries hardly changed in the 1990s. Official reserves in Kuwait, for example, were unchanged at 96.5 billion bbl (including its share of the Neutral Zone) from 1991 to 2002, even though the country produced more than 8 billion bbl and did not make any important new discoveries during the period. The case of Saudi Arabia is even more striking, with proven reserves estimated at between 258 and 262 billion bbl in the past 15 years, a variation of less than 2% (in spite of production of well over 100 billion bbl).”

However, while the lack of transparency about OPEC reserves is troubling, the fact that they made no new discoveries does not rule out major additions to reserves through extensions and revisions—which are common in many oil provinces…

Robert L. Hirsch is Senior Energy Program Advisor, Science Applications International Corporation.
(Apr 2007)
ODAC Comment: A brief summary of who is saying when Peak Oil will occur. The large majority in Hirsch’s list have Peak forecast between now and 2020. Only a handful are post-2020, the usual suspects: Shell, EIA, CERA, ExxonMobil, M. Lynch, J. Browne (BP), OPEC.

Hirsch makes a good point about the IEA that is becoming more noticeable. The IEA are increasingly saying that the global oil and gas industry is under-investing, and issuing similar warnings. What exactly does this mean? One might think that the IEA is suggesting not enough oil is going to be coming onstream, at some point not very far away. As pointed out before, the IEA graph that shows how much new capacity is coming onstream 2006-2011 is also a cause for concern. Peaks in 2008 at 3Mb/d, down to 1 Mb/d by 2011, and they overestimated 2006 by almost 1 Mb/d.


Gasoline price rises as supply falls

Sam Fletcher, Oil and Gas Journal
The front-month gasoline futures contract rose modestly Apr. 18 on the New York market after US gasoline supplies fell for the 10th straight week.

The Energy Information Administration said US gasoline stocks dropped 2.7 million bbl to 197 million bbl in the week ended Apr. 13. Due to a total drawdown of 30 million bbl over a 10-week period through that date, US gasoline supplies now are below average, just weeks before the start of the summer driving season.

"The market shrugged off bullish draws across the board and instead focused on the sharp rise in refinery utilization over the prior week," said analysts in the Houston office of Raymond James & Associates Inc. "Gasoline inventory levels, however, have fallen below the 5-year low and continued strong gasoline demand (firmly above the 5-year average) should keep the gasoline market tight."

Working capacity of US refineries rose 2 percentage points to 90.4% in the latest week, with the input of crude rising by 372,000 b/d to 15.4 million b/d. Gasoline production increased to 8.7 million b/d while distillate production declined to 4.2 million b/d. The US also imported 1 million b/d of gasoline during the latest week (OGJ Online, Apr. 18, 2007).

"The latest weekly US data shows another huge 4.4 million bbl draw in gasoline inventories east of the Rockies, masked somewhat by a 1.7 million bbl build on the West Coast," said Paul Horsnell at Barclays Capital Inc., London. "Gasoline inventories should now be at, or very close to, their second-quarter minimum, after which increases over the rest of the quarter would normally be followed by a resumption in inventory falls at the start of the third quarter. We expect that the usual seasonal pattern in [refining capacity] utilization and inventories is likely to beguile much of the market into the incorrect belief that the system is coming out of the woods.

Heating oil inventories have fallen for the 13th straight week, a period during which they have fallen by a cumulative 22 million bbl, and they should now be pretty much close to their low for the year," Horsnell said...
(19 Apr 2007)
ODAC comment: It is beginning to look like the USA might have problems with its gasoline supplies later this year, in other words gasoline/petrol could get more expensive, and it is relatively high at the moment.


The Peak Oil Crisis: Have the Troubles Begun?

Tom Whipple, Falls Church News-Press

..For the last two years, we have seen gasoline prices spike to over $3 a gallon, but these were caused by transitory events and gasoline soon settled to what has become “acceptable levels.” We are now approaching a national average of $3 a gallon again, only this time it is happening in April with only the normal level price-inflating geopolitical threats out there and the hurricanes, if they come, are still four months away.

This time the problem seems to be more systemic and is based on the fact that we here in America simply can’t quite produce or import enough gasoline to keep up with even late winter, much less summer, demand. For the last couple of months, gasoline stockpiles have been dropping at unprecedented rates. If gasoline stockpile depletion continues much longer, could it be the unmistakable beginning of mass troubles for everyone?...

While US refinery utilization is now back up above 90 percent of capacity, a question remains as to how much longer the US can import sufficient quantities of finished gasoline and the proper grades of crude that enable our refineries to produce the optimum amount of gasoline in their current configuration... Last week US gasoline inventories dropped for the 10th straight week by another 2.7 million barrels...
(19 Apr 2007)
ODAC comment: Tom Whipple, in his FCN-P weekly PO column, makes a very good point that is not stated often enough. Serious economic consequences of Peak Oil could happen long before Peak Oil actually arrives if, for example, demand was to outstrip supply for a particular commodity. Assuming Peak Oil refers to 'total liquids' and not just crude oil, then Peak might not occur for another five years. But as Tom discusses, the USA may be having problems producing enough gasoline/petrol now, which may lead to much higher gasoline/petrol prices later this year.


Coal imports hit new high

Staff, China Daily
Coal imports in the first quarter of this year exceeded exports for the first time ever.

Fuelled by a need to power its robust economy, the world's largest coal producer is expected to import more and more coal in the near future.

As the need for coal grows, China might see a rise in prices within the next two years despite them rising sharply last year, experts said.

The country imported 14.3 million tons of coal in the first three months of this year, a year-on-year rise of 60.4 percent. Meanwhile, it exported 11.42 million tons, a 32-percent drop from last year, according to customs figures.

"China may see a pure coal import this year and the domestic coal price has room for further inflation," Zhao Jianian, deputy secretary-general of the Coal Industry Economic Research Association, said.

... Experts said the government's latest policies aimed at regulating the accident-plagued coal industry and protecting domestic energy resources have tipped the previously abundant coal market.

The country has streamlined its coal mining industry since last year by closing thousands of small-scale mines. As a result, there will be total production loss of 380 million tons through 2010.

... Additionally, to discourage coal exports and make the most use of foreign resources, the government has also scrapped tax rebates and now levies export duties on coal.

National statistics show that China produced 2.38 billion tons of coal in 2006 and consumed 2.37 billion tons, promoting a balanced market.

But with the country's GDP slated to grow at an average of 9 percent through 2010, coal consumption is expected to reach 2.87 billion tons in 2010, 270 million tons more compared with the 2.6 billion tons production scale planned.

But experts refuted the suggestion that domestic demand might generate an international coal price hike.

China's imports of coal have grown since last year, a sharp reversal of the country's previous image as the world's second largest coal exporter in 2003.

Last year, it exported 63.3 million tons of coal, down 11.7 percent from 2005, a decrease for the third consecutive year. Imports were 38.25 million tons, up 46.1 percent, according to the General Administration of Customs. Sources said 84.1 percent of the imports came from ASEAN and Australia, and 24.18 million tons went to private companies.
(19 Apr 2007)


China: Half of natural gas imported by '20

United Press International
By 2020, China will import half its natural-gas needs, which are likely to increase to 200 billion cubic meters per year, a new report says.

The official Xinhua news agency reported Friday that China's natural-gas consumption is to reach 100 billion cu m by 2010, almost twice the figure for 2006. China's domestic production is likely to reach that figure by 2020, but consumption will increase by between 11 percent and 13 percent to 200 billion cu m at that time, nearly half of it imported.

… The Xinhua report was based on data from the 2007 China Energy Development Report, which is published by the Social Science Publishing House of China…
(20 Apr 2007)
ODAC comment: Interesting that despite all the new gas China has found recently, a new report suggests that China will still be importing half its natural gas in 2020. For comparison, 100 billion cu m (annually) is close to the UK’s peak output, and its peak consumption. Both have dropped quite a bit over the last couple of years.


East Siberia May Produce 25-50 Mln Metric Tons of Oil Annually

Staff, FC Novosti (subscription required)
The current oil reserves of East Siberia allow producing 25-50 mln metric tons of crude a year. But implementation of projects with a production above 25 mln metric tons requires a sharp increase in geological exploration in the near term, said Deputy Natural Resources Minister Alexei Varlamov.

Moreover, exploration planned and carried out by all companies operating in East Siberia should aim at ensuring sufficient supply for the East Siberia-Pacific Ocean pipeline that is under construction, he said.
(20 Apr 2007)
ODAC comment: Over the past couple of weeks there have been a couple of announcements hinting that Russia is having problems finding enough oil for the East Siberia-Pacific Ocean pipeline that is under construction. 25-50 mln metric tons of crude a year = 0.5–1 Mb/d.


2nd Stage of East Siberian-Pacific Ocean Pipeline May Be Postponed

Staff, FC Novosti
The construction of the 2nd line of the East Siberia-Pacific Ocean pipeline may be postponed for three to four years, said Sergei Fyodorov, director of the Natural Resources Ministry's department for state policies in geology and natural resources. He said the reason was the existing lag in reserve growth.
(11 Apr 2007)


Oil and Gas Experts Pin Their Hopes on West Siberia

FC Novosti
The expected volume of oil has not been discovered in East Siberia, said Sergei Fyodorov, director of the Natural Resources Ministry’s department of state policy of regulating geological exploration and mineral use.

"We plan to appeal to the government for additional funds for exploration," he said.

Natalia Komarova, head of the parliamentary committee on mineral resources, said: "Many experts believe that we have not discovered the expected deposits in East Siberia because they are not there." She said that dramatically increased the pressure on West Siberia in the production of oil for the East Siberia-Pacific Ocean oil pipeline.

Fyodorov said West Siberia would account for the bulk of oil and gas production in the next two decades. ..
(10 Apr 2007)

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