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Peak Oil Review - Aug 25, 2008

1. Production and Prices
2. Electricity Supplies in Asia
3. Liquified Natural Gas (LNG)
4. Briefs

1. Production and Prices 

In recent weeks oil prices have been linked to the US dollar, rising as it falls and sliding as it rises. Occasionally the pattern is broken by some major fundamental or geopolitical development.  The dollar generally has been rising on the perception that the EU's economy may be doing worse than that of the US and efforts by European bankers to support the dollar.

Last week oil traded around $114 through Wednesday  and then surged to over $122 on Thursday due to increased tension between the US and Russia over the situation in Georgia and US missiles in Poland.  An unexpected 6.2 million barrel drop in US gasoline stockpiles may have contributed to the jump. On Friday, however, oil fell $6.59 a barrel to close at $114.95 as the US dollar rebounded and the 1 million b/d BTC pipeline was reopened after being damaged by an explosion on August 5th.

Tension over Georgia, however, remains high. Russian troops still occupy a few key locations in the country and on Sunday someone blew up an oil train bringing Azeri crude into the country.  While the BTC pipeline is open again, it remains vulnerable to the Russians, the Kurds, and Georgian insurgents. The pipeline across Georgia to the Black Sea remains closed and rail shipments are likely to be limited, if any, until the situation sorts out.

The $30 drop in oil prices during the last six weeks have more OPEC members talking about oversupply and cutting production at the September 9th meeting.

2. Electricity Supplies in Asia

Inadequate power supplies are doing serious damage to countries in many parts of Asia. Power cuts are lasting longer and longer and are not only hurting the quality of life and threatening health and safety, but are starting to do serious damage to industrial and agricultural production in several countries. In one or two cases, the possibility of complete societal collapse in the next few years is not out of the question.

The situation appears to be the worst in Pakistan, Bangladesh, and Nepal where civil unrest is likely due to a combination of electricity, natural gas, and oil shortages. Although India and China are in better shape, the overall energy situation is likely to get worse leading to pressures to import increased amounts of coal, LNG, and oil at any price.

Many other countries such as Thailand, Malaysia, Vietnam, Indonesia, and the Philippines are either experiencing electricity or liquid fuel shortages or are expecting them soon.

There are no short-term fixes for these problems. Hydro power is drying up due to droughts and melting of Himalayan glaciers. Demand for electricity and liquid fuels is rising rapidly.  Rebuilding and expanding aging power generation and transmission infrastructure is becoming prohibitive. Fossil fuels for power plants now are affordable only for wealthy societies.

Last week Beijing called for an unspecified reduction in Chinese coal exports starting next month in order to help with the worst electric power shortages in four years. This move will only exacerbate the situation in other Asian countries that are dependent on Chinese coal and will lead to higher world coal prices.

In India, the relationship between power cuts and the demand for oil was highlighted when it was reported that the demand for diesel in some cities jumped by 35 percent after the power cuts started. The Indian oil companies are already saying that they cannot supply such a surge in demand on a sustained basis. Others are suggesting that Indian economic growth is going to be seriously hampered

3. Liquified Natural Gas (LNG)

As prices for oil and coal have risen dramatically in the last six months more countries are seeking to import LNG. Japanese imports are up due to the earthquake damage to its largest nuclear power plant. Last month China paid a record $15 per million BTUs for three spot cargos. This was nearly five times the amount that China pays for LNG under long-term contracts with Australia.

As the coal and oil supply situation continues to deteriorate, more countries are going to want to import more LNG as a quick solution to emergency energy shortages.

The short-term outlook for additional LNG supplies seems good as additional production starts up in Qatar and Indonesia. Last year LNG exports were about 165 million tons and may reach 208 million tons in 2010.

Over the longer term, the situation does not look so good.  LNG projects in Australia, Nigeria, Algeria and the Baltic have been delayed or postponed suggesting that there will be 100 million tons less available by 2013 than had been anticipated.

4. Briefs

(clips from recent Peak Oil News dailies are indicated by date and item #)

  • Iraq's long-suffering petroleum legislation that would govern their oil industry and divvy up oil wealth has been stalled more than a year, bogged down in political squabbling and is symbolic of problems rippling below the surface despite success on the security front. (8/22, #6)
  • Iraq is likely to abandon plans to sign $3 billion in short-term oil contracts, a US diplomat said, putting in doubt deals that would give foreign oil firms their first major foothold in the country. (8/18, #8)
  • Oil production has begun falling at all of the major Western oil companies, and they are finding it harder than ever to find new prospects even though they are awash in profits and eager to expand. (8/19, #19)
  • OPEC's oil supply will probably increase in August by 400,000 barrels a day, or 1.2 percent, as Iran releases crude held in storage, according to preliminary estimates from PetroLogistics Ltd. (8/22, #3)
  • Natural gas in New York fell 5% to the lowest ($7.84) in more than six months amid speculation demand will decline as the U.S. economy slows and crude oil slumps. (8/23, #6)
  • UK natural gas prices jumped to a record for a second day after StatoilHydro ASA said it may halt exports of the fuel from a North Sea field until spring. (8/21, #16)
  • Goldman Sachs cut its US natural gas price forecast for North America this winter by 23 percent because of higher-than-expected output and lower demand from power plants. Gas futures, which have fallen 42 percent since July 3, may trade around $10.30 per million British thermal units this winter, down from a July forecast of $13.40. (8/18, #14)
  • Kazakhstan is considering pumping its oil through Russia as an alternative to the Baku-Tbilisi-Ceyhan (BTC) pipeline due to increased security concerns over the clashes in the Caucasus, according to a Turkish newspaper. (8/23, #3)
  • Ecuadorian President Correa is steering away from the energy nationalizations of leftist allies, Venezuela and Bolivia, in a show of moderation that could help him keep oil output steady this year. (8/23, #4)
  • The AAA said that Labor Day holiday travel was expected to fall this year by the largest amount in at least eight years as consumers struggle with higher gasoline prices and airfares. (8/23, #1)
  • The US Department of Transportation has been estimating the number of miles driven by Americans on a monthly basis for more than 20 years. For most of that time, miles driven rose by 3 percent or more per year. In the first six months of 2008 however, the number of miles driven fell 2.8 percent from a year earlier. (8/23, #8)
  • The average cost to fly one mile in the US on a commercial airliner rose 7.5 percent in July compared to the same month last year. (8/23, #10)
  • While American shale-gas recovery efforts are booming, Europe is just getting into the game. The first hurdle is to learn just how much shale gas might be available for recovery. Europe has numerous sites of potential interest. (8/23, #13)
  • In Nigeria, indications are that the volume of crude oil still shut in owing to attacks by militants as well as technical issues in the Niger Delta stood at 1.533 million bpd, more shut in oil than has ever been recorded in peace time anywhere. (8/22, #8)
  • Production at Mexico's largest oil field, Cantarell, fell 36% over the past year, eroding Mexico's overall oil production and causing a sharp drop in exports. July exports were down 21.7% on year to 1.38 million barrels a day. (8/22, #9)
  • Russian oil output growth, which will probably be flat or even decline this year after a decade of steady gains, is unlikely to exceed 2.2% next year and will slow to under 1% by 2011, the government said today. Falling oil production in Russia has become a major concern for the government, which relies heavily on export revenues. A focus on near-term profits by maximizing short-term production may lead to steep production declines within a few years. (8/22, #14; 8/24, #15)
  • The Wikipedia Oil Megaproject Database, maintained bya task force from The Oil Drum, indicates that net new capacity (i.e. once depletion from existing production is included) is around 1.5 mbpd for 2008 and 2009 after which depletion may dominate. (8,22, #15)
  • New York's Mayor Bloomberg, outlining his vision for a dramatic reconfiguration of urban energy sources, says he is exploring potential for installing turbines and other alternative energy generators throughout the city, in the water and on bridges and skyscrapers. (8/21, #13)
  • OPEC may decide to cut production at their meeting on Sept. 9 because the market is oversupplied, according to Libya's top oil official. (8/20, #4)
  • Although the last few months have seen international prices of almost all energy resources spiraling, the focus has been crude oil prices. But beneath the headlines, a silent coal supply crisis is brewing on the coal front with far-reaching consequences for India's economy. Coal imports have shot up by almost 130% between 2004-5 and 2006-7, and India's need for coal is growing rapidly. (8/20, #12)
  • A consortium of oil pipeline and storage companies plans to invest $1.8 billion to build the US's biggest deepwater oil import terminal off the Texas coast. The Texas Offshore Port System (TOPS) terminal will have double the import capacity of the Louisiana Offshore Oil Port, currently the only oil terminal in the United States capable of handling the biggest oil tankers. (8/20, #16)
  • Back in 1915 there were 9 privately owned vehicles per 1,000 Americans. That is precisely where China is today as it begins its own love affair with the automobile. China is already the world's second largest auto market after the US. (8/20, # 18)
  • The refining profit, or margin, to make heavy fuel oil will rise through 2010 as production falls amid refiners' investment to make more expensive gasoline, diesel and jet fuel, Lehman Brothers said in a recent report. (8/19, #17)
  • Japan plans to start trial drilling for methane hydrates in 2012 to extract frozen natural gas buried under the seabed and test if the methane hydrate is a viable next-generation fuel. The government will lead test production of the frozen methane in an ocean trench about 30 miles off the coast of the country's main Honshu Island. Japan will extend by 2 years a 16- year frozen methane project started in 2001 to find out if the fuel is suitable for commercial production. (8/19, #20)
  • China will complete the construction of its first four strategic oil reserves by the end of the year according to the administrator of China's new National Energy Administration. Their total capacity will be 16.4 million cubic meters. (8/20, #13)
  • Blackouts in the Dominican Republic are now lasting as long as 18 hours in some areas, leading to severe economic dislocations. The Republic's electricity company has always suffered from poor maintenance, internal inefficiencies and a lack of operating funds due to negligent bill collection and illegal tapping of electric lines, but recent increases in oil prices have aggravated the situation.
  • Power generation using geothermal energy is now taking place in 24 countries. Total geothermal power capacity is now over 10,000 megawatts and is expected in reach 13,500 by 2010. (8/20, #18)

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