Peak Oil Review - Apr 20

1. Production and Prices
Oil prices started last Monday at $52 a barrel, quickly fell to circa $50, and remained there for the rest of the week. Bad economic news and forecasts of lower demand for oil dominated the energy story, punctuated with occasional bursts of optimism from Wall Street which continues to maintain there are early signs of an economic rebound.

As the world’s economy continues to slip, more investors are seeing oil and other commodities as a safe haven to store wealth. China is making a major effort to convert some of its $2 trillion in reserves into oil and other minerals as a hedge against what might happen to the value of dollar-based securities. This safety-in-oil may prove to be a major factor in supporting oil prices if consumer demand continues to drop.

Recent reports about OPEC efforts to cut production appear to show that the enterprise has stalled after achieving about 3.8 million b/d of the 4.2 million that was mandated. So long as prices remain around $50 a barrel, OPEC seems content to let matters stand. The next OPEC meeting is about 5 weeks away.

2. Off-Shore Drilling
US Interior Secretary Salazar has been traveling around the country conducting hearings on whether to permit off-shore drilling in areas that were off-limits until October 1, 2008. The Secretary visited Atlantic City, New Orleans, Alaska, and San Francisco. Public testimony was mixed as environmentalists and pro-drillers continue their decades-old argument. In Anchorage, Governor Sarah Palin warned that the trans-Alaska pipeline was in danger of shutting down unless new sources of oil were opened up. Fishermen raised the specter of another Exxon-Valdez.

At the San Francisco hearing, California officials unanimously opposed opening the coast to offshore drilling saying the country should concentrate on renewable energy sources and higher energy efficiency standards.

On Friday a federal appeals court ruled that the Bush Administration did not properly study the environment impact of drilling off the Alaska coast and ordered the Interior Department to assess the areas before moving forward. The decision stops work on drilling projects already underway in Alaska and applies to other coastal projects under consideration. The Interior Department has already announced that it will delay further leasing by five years to complete the necessary studies. The offshore drilling issue appears to be out of the energy debates for a while.

3. EPA
Last week the White House reversed long-standing policy and permitted the EPA to issue a proposed endangerment finding that greenhouse gases pose a danger to public health and safety. Under the Clean Air Act this finding would permit the EPA to set limits on how much coal, oil and natural gas could be burned in the US without capturing and sequestering the CO2 and other emissions.

This finding marks the first step in what could turn out as a mega-policy shift in a class with nationalizing health care or reining in military spending. The issue is so important and has such far ranging consequences it is likely to be decided after lengthy debate in Congress and not by EPA regulation.

At the heart of the debate will be the long-running and long-ignored issues of whether global warming is caused or exacerbated by burning fossil fuels, how imminent and serious is the threat of global warming, and whether expensive restrictions on fossil fuel consumption are needed or can be put off until after the economic rebound. Hearings start this week.

In other times, the result of this debate likely would have been a watered-down compromise that would not have resulted in major restrictions in emissions. However, these are not normal times. The alarms sounded by climate scientists are becoming steadily louder and the UN Climate Change Conference in Copenhagen is coming up in December. Unless the US takes definitive action prior to the Conference, many countries such as China and India are likely to continue pumping out greenhouse gases until their fossil fuels run down or until the countries are impacted by climate.

In Washington, both sides of the debate are already predicting dire consequences if emissions restrictions are, or are not, imposed.

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

OPEC is aiming for prices above $60 and is frustrated with Russia for not reducing exports in line with the cartel’s record cuts this year. Russia’s oil exports increased 6.3 percent in February and 2.2 percent in March, including a 10-fold increase in exports to the US. At the same time US imports from OPEC fell by 818,000 b/d. (4/18, #2)
Russia’s oil output, including gas condensate, declined 1.3 percent, year-on-year, from January through March 2009. Russia’s Economic Development Ministry expects oil output in Russia to drop 1.1 percent and oil exports to fall 2.5 percent in 2009. (4/16, #3)
OPEC nations will earn about $476 billion from net oil exports this year, the lowest since 2004 and down from more than $970 billion last year, according to the US EIA. (4/17, #4)
PetroChina, Asia’s biggest crude producer, plans to pay as much as $1.4 billion for a stake in an oil company in Kazakhstan. China is securing energy resources to feed its economy, the world’s third largest, by providing loans to Brazil, Russia, Venezuela, and now Kazakhstan. (4/17, #6)
Petro-Canada is laying off about 200 of the 661 people in its oil sands division as its Fort Hills mining development continues to slow. (4/17, #16)
Daily US demand for oil products averaged 18.7 million barrels over the past four weeks, down 5.2 percent from a year earlier. (4/16, #2)
A plunge in supertanker rates to their lowest in at least 11 years will likely spur owners to scrap ships and cancel orders for new ones, according to Frontline Ltd., the world’s largest operator of the ships. (4/16, #4)
Shell is talking to two of China’s biggest state-owned oil companies with a view to pursuing a joint venture in Iraq. (4/16, #5)
Shell’s Nigeria unit shouldn’t return to the oil fields because staff safety can’t be guaranteed, according to the main militant group in the oil-rich Niger River delta. (4/16, #7)
Angola, OPEC’s newest member and holder of the group’s rotating presidency, will increase daily crude shipments by about 9 percent in June as OPEC’s production cuts stall.(4/17, #5)
Venezuela’s oil minister said OPEC should create an oil price band of $70 to $90 per barrel if oil prices stabilize, adding he expected prices to reach $60 per barrel by the end of the year. (4/18, #3)
Petrobras last year was a net exporter of 100,000 barrels of oil a day — not enough, in CEO Jose Sergio Gabrielli’s opinion, to warrant joining the cartel. (4/18, #7)
The American Petroleum Institute said domestic crude oil and condensate production increased 4.7 percent year over year in the first quarter to average 5.3 million b/d. (4/18, #10)
A last-minute addition to Alaska’s budget will provide funds to push ahead on a small pipeline to bring gas from the North Slope down to Fairbanks and Anchorage, where most Alaskans live. There’s a lot of natural gas on the North Slope, but very few people live up there. There’s some gas in Cook Inlet, near the population centers, but that is running out. (4/18, #15)
In an ambitious proposal to counter global warming, power developer SCS Energy wants to build a coal-fired electric plant on the outskirts of New York City that would capture emissions of carbon dioxide and pump the pollutant 70 miles offshore. The gas would be injected into sandstone a mile beneath the ocean floor in the hope that it would stay there for eons. (4/18, #17)
The ‘oil shock’ of 1979-81 (an approximate doubling of average price-per-barrel) was not only driven by geopolitics and supply shortage, but also by very high and growing inflation. This can be the near-term outlook again, today. Absent from the earlier oil shocks was oil reserve depletion, chipping away at total production and world oil export capacities today. (4/18, #20)
The Brazilian navy, still eyeing the need for a nuclear submarine, has completed Operation Aderex-1/09, a military exercise using conventional weapons which aimed at defending the country’s offshore oil and gas regions. (4/18, #11)
Shell is delaying or dropping some alternative-energy projects in China — coal-to-liquids, coal gasification, and oil shale — as too costly, given current oil prices. (4/16, #15)
In India, according to latest available estimates, 23 power stations were facing “critical” coal stocks, with fuel in these plants expected to last less than seven days. (4/16, #16)
Emerging from years of technical problems, BP’s Thunder Horse platform has significantly ramped up its oil and gas output – with output increasing from 200,000 to 300,000 b/d — making the company the largest producer in the US Gulf of Mexico. (4/16, #18)
The Alberta government needs to be worried about falling natural gas production to fill its gaping fiscal hole, oil patch insiders said in the wake of Tuesday’s record $4.7 billion budget deficit. Natural gas makes up two-thirds of all activity in the oil patch and production has fallen almost 15 per cent over the past two years, taking the biggest contributor to the government’s revenue stream down with it. (4/16, #21)
The number of exploration wells being drilled in the North Sea has collapsed by 78 percent in the first quarter of 2009 versus the same period last year. (4/16, #23)
State oil giant Saudi Aramco has delayed the $8 billion project to expand capacity by 400,000 b/d at its Ras Tanura refinery. (6/15, #6)
A stringent standard for calculating emissions from corn ethanol could include the impact from clearing land to make room for corn production, which absorbs less greenhouse gases than forests or grasslands. Such a regulation could force some ethanol producers to report large emissions, which would disqualify their fuel from federal biofuel targets. (4/15, #15)
To help reduce consumption and the military’s $18 billion annual fuel bill, the Pentagon is using $300 million of the $7.4 billion it received from the economic stimulus package to accelerate existing programs for developing alternative fuels and saving energy. (4/15, #16)
Washington’s energy and environmental policy risks plunging the US into an economic tailspin that could make it “the world’s cleanest third world country,” James Hackett, Chairman and CEO of Anadarko told The Financial Times. (4/14, #11)
Some US natural gas producers may have become victims of their own success with the stunning growth of deep shale gas production, according to Frederick Lawrence of the Independent Petroleum Association of America. (4/18, #10)
Chesapeake Energy said it is making deeper cuts to production due to low prices. About 400 million cubic feet per day, or 13 percent of the company’s gross capacity, will be curtailed. (4/17, #13)
Protecting and conserving water resources will be the key challenge in developing domestic deep shale gas, the US Department of Energy said as it released a primer for regulators, policymakers and the general public. (4/18, #13)
A staffer with the Federal Energy Regulatory Commission said that a slowdown in gas drilling may lead to “much higher prices” when demand recovers, and current gas prices don’t reach the “break-even” level companies need for unconventional gas supplies. (4/17, #14)
Despite a far-reaching industry downturn, a new report says unconventional natural gas from shale is expected to account for more than half of North America’s gas supply by 2020. Unconventional gas production from shale, coal beds and “tight” sandstones will more than double to 46 billion cubic feet (bcf) per day from 21 bcf per day in 2000. (4/15, #13)

Quote of the Week

“We are witnessing a collapse in oilsands-related construction. As far as we can tell, as much as 75 per cent of the oilsands-related work slated for 2009 has been cancelled.”
— Gil McGowan, president of the Alberta Federation of Labour