Welcome to the ODAC Newsletter, a weekly roundup from the Oil Depletion Analysis Centre, the UK registered charity dedicated to raising awareness of peak oil.
BP announced this week that it has made a ‘giant’ oil discovery in the Gulf of Mexico. The find, which boosted the company’s shares, will require new feats of technology to exploit as the well is, at 35,055 feet, one of the deepest ever drilled. BP has overcome significant challenges before so the long-term prospects of the discovery are good, however with annual depletion rates of existing global reserves running at 6.7% many more finds of this size would need to be found and brought into production simply to replace existing output.
While BP celebrates its new discovery, other oil corporations will have been disappointed this week with Brazilian President da Silva’s plans to make the state run company Petrobras the sole operator for the entire pre-salt oil fields. The bill which would also give Petrobras a minimum 30% stake in each block has yet to pass congress but would further tip the scales in the global oil industry toward state owned companies at the expense of multinationals.
In the UK this week a regular look through the energy pages in the Daily Telegraph could leave you feeling rather dazed and confused. Should you upgrade your car for ‘a new era of cheap energy’ or buy candles ready for ‘Blackout Britain’?
George Trefgarne’s article entitled ‘A new cheap era of energy approaches’ extrapolates US success in exploitation of tight gas and OPEC spare capacity to herald a great new dawn for cheap energy. For analysis on tight gas and premature triumphalism see Richard Miller’s Guest Commentary.
The flip side is a series of articles published this week on Blackout Britain which warn about impending rolling blackouts across the UK due, not to any resource constraints (indeed we are informed that “The world is swimming on a sea of oil, natural gas is being found in increasing abundance, there is more coal in the ground than the world can ever consume, and nuclear energy has been proved a safe and reliable, if expensive, source of power.”) but to the low carbon energy policies of the Department of Energy and Climate Change. While ODAC has frequently warned about gaps in government energy policy due to complacency with regard to future oil and gas supply, these latest pieces (which have almost identical twins in the Daily Mail complete with blackout images from the seventies) have the whiff of politics, climate change scepticism and business interests behind them. After all, if resource constraints are the stuff of deluded doomsters then the government’s plan to move to a low carbon future via gas as the transition fuel would look pretty solid. Indeed with all this cheap gas why bother with nuclear at all? Comparisons with the seventies are fashionable, but when it comes to energy they are misleading.
Disclaimers
Oil
Crude Oil Is Set for Weekly Decline as OPEC May Maintain Output
Crude oil traded near $68 a barrel, poised for the biggest decline in eight weeks, on speculation OPEC will keep output steady as gasoline demand slows with the end of the U.S. summer driving season.
The Organization of Petroleum Exporting Countries will probably maintain its output target at 24.845 million barrels a day at a policy meeting next week, according to all 26 analysts surveyed by Bloomberg. Floor trading for oil in New York will be closed for Labor Day, marking the end of the peak gasoline consumption period in the U.S., the world’s biggest oil user…
BP hails ‘giant’ oil find
BP was given a shares boost today after the group announced a “giant” oil discovery in the Gulf of Mexico.
The find was made at BP’s Tiber well, which was drilled to a depth of more than 35,000 feet – making it one of the deepest wells ever drilled in the oil and gas industry, according to the firm…
Giant oil find by BP reopens debate about oil supplies
BP has reopened the debate on when the “peak oil” supply will be reached by announcing a big new discovery in the Gulf of Mexico which some believe could be as large as the Forties, the biggest field ever found in the North Sea.
The strike comes days after Iran unveiled an even larger find of 8.8bn barrels of crude oil, and the moves have encouraged sceptics of theories which say that peak production has been reached, or soon will be, to hail a new golden age of exploration and supply…
BP, already the largest producer of hydrocarbons in the US, said its “giant” Tiber discovery in 4,100ft (1,250m) of water was particularly exciting because it promised to open up a whole new area.
Lula Oil Rules to Stir ‘Intense Debate’ as Lawmakers Vow Delays
Brazilian President Luiz Inacio Lula da Silva’s proposal for increasing government control over oil reserves will stir debate in Congress that could delay approval, opposition leaders said.
Lula attached an urgency clause to the bills that would require a vote within 90 days. Opposition parties began a filibuster in the lower house and are demanding the clause be removed, Gustavo Fruet, a deputy with the Social Democracy Party, Brazil’s biggest opposition party, said in an interview…
PetroChina Agrees Biggest North America Acquisition
PetroChina Co. has agreed to pay C$1.9 billion ($1.7 billion) for a stake in a Canadian oil sands project in its biggest North American acquisition, widening the search for energy resources overseas.
China’s largest oil company will buy 60 percent of Athabasca Oil Sands Corp.’s MacKay River and Dover oil-sands projects, the Canadian company said in a statement yesterday…
India hungry for foreign oil despite home finds
India’s biggest oil find in decades is now on stream but the country, with its rapidly growing economy, will still be one of the hungriest consumers of foreign crude, analysts say.
Prime Minister Manmohan Singh turned on the tap at the weekend to start crude gushing from British exploration company Cairn Energy’s remote oil field in western Rajasthan state…
Gas
A new age of cheap energy approaches
We have all become so used to reading that the end of the world is nigh that we tend to close our eyes and stick our fingers in our ears when there is evidence to the contrary. So you have probably missed one of the biggest pieces of good economic news to emerge recently: energy prices are coming down, in some cases to record lows. Furthermore, even if prices start to recover, they are not likely to return to the ridiculous levels of 2008 any day soon.
Stay with me before you raise an eyebrow to stratospheric heights. This is excellent news, of great import. The trend for gas and electricity bills is downwards; diesel is back at the same price as regular gasoline; the world is practically choking on gas, and is potentially awash with oil…
“George Trefgarne has contributed a rather trite piece to the Telegraph, one hopes against its better judgement. Published on 27th August, the item is headlined, “A new age of cheap energy approaches”. As it says on the tin, his thesis is that energy prices are coming down, sometimes to “record lows”, and won’t return to last year’s levels any day soon. Gas and electricity bills are coming down, diesel is the same price as petrol, and “… the world is practically choking on gas, and is potentially awash with oil.” Can this be the same George Trefgarne who was once economics editor of the Telegraph?
Mr Trefgarne’s explanations are, firstly “a surplus” of new gas supplies from North America. This he ascribes to free markets developing the technology to produce so-called “tight” gas, which isn’t held in conventional reservoirs but in pores in almost impermeable rock. And, to the sound of his own cheering, he announces that this technology could even be used outside the USA. Secondly, he has discovered that there is idle oil capacity, due to OPEC production cuts and new projects coming on stream. This he believes will all lead to energy bills being cut by several hundred pounds a year, providing a global stimulus of trillions of dollars. That’s right, trillions.
Right. First, the technology and geology. Tight gas has long been known about, and wasn’t exploited much in the past because it takes a lot more drilling, and thus costs more, than conventional gas. Let’s add, before Mr Trefgarne announces it as news, that there are even more unconventional but well-known sources of gas, such as sea-floor clathrates, which are an ice-like solid composed of gas and water, stable only at high pressure. And it’s perfectly true that US gas reserves have now been raised by the development of tight gas, and US gas prices have dropped sharply. However, that fact doesn’t support the romantic vision that Mr Trefgarne has assembled.
And now, the facts. The wholesale gas price has certainly dropped sharply in the UK for some months, but not to a record, only to a three-year low – and three years ago we couldn’t believe how expensive it was. The average UK diesel price is actually still slightly higher than ordinary unleaded, but more importantly, both are still over £1/litre, which is not exactly cheap.
The reason for falling gas prices is more complicated than Mr Trefgarne’s supply-side analysis. Tight gas resources have indeed eased the US market, but so has a rapid growth in supplies of LNG (liquefied natural gas), which can be shipped globally rather than piped. But consumption has dropped during the recession, and I rather think that’s the bigger price lever.
Turning to oil, OPEC has indeed reined in production to maintain the price – as, in Mr Trefgarne’s adored free market, I guess they are entitled to do. But if they don’t, they may be unable to finance the next phases of raising OPEC production, which I would have thought was rather important. As for Mr Trefgarne’s “new projects”, he has carefully avoided noting how many of these have been delayed or completely mothballed, partly for lack of finance and partly because of the falling oil price due to the recession. There may be trouble ahead as a consequence.
Lower fuel prices do of course lead to lower energy bills all round – at least, lower than they have been for a couple of years, although anyone writing in the Telegraph must be old enough to remember much, much lower bills than that. But when Mr Trefgarne then equates several hundred pounds off energy bills with providing a global stimulus of “trillions” of dollars, I’m just speechless. Even if we all saved £200 a year on energy bills, and even if we all went out and spent it rather than saved it or paid down debt, how many of us would have to do that to raise even one trillion dollars of consumer stimulus in one year? Who can tell the class? George? What’s that? Over three billion of us? Oh George – do you really think there are 3 billion people in the world who could possibly save and spend as much as that, due solely to falling energy prices?
Mr Trefgarne finally throws in some gratuitous side-swipes at “panic about climate change”, the forthcoming climate “Copenhagen shindig” and Cameron’s commitment to reduce carbon emissions, should he be elected. I don’t know why he does this, as it isn’t relevant to his argument. I suppose he’s entitled to ignore the evidence if he finds it inconvenient.
In brief, then: there is no new cheap energy. There is quite a lot of tight gas, but it’s more expensive. Energy prices are coming down somewhat, because they went up dramatically and consumption then fell, but wiser heads see that this can only be temporary. When consumption starts to recover, so will prices. All this is following, and will follow, normal market forces. And, George, peak oil will come along and bite you, and although you will still be able to afford to fill your car, it will still bite you, from the food you eat to the electricity you waste composing such pieces on your PC. And I expect you’ll still blame someone else.
Dr. Richard Miller is an Independent Consultant, and former geochemist for the BP Exploration Department
US natural gas store may near capacity
The US Department of Energy said on Monday that peak natural gas storage capacity rose by a modest 100bn cubic feet in the year to April, suggesting gas stockpiles will be close to tapping out capacity this fall…
Russia lets Ukraine slash gas purchases
Russian Prime Minister Vladimir Putin agreed on Tuesday to let Kiev import much less gas than previously arranged, saving Ukraine’s economy from potentially huge fines before an election early next year.
The deal, struck at talks with Ukrainian Prime Minister Yulia Tymoshenko, allows Ukraine to slash the volumes it had originally agreed to take after a row with Moscow that led to the worst disruption of European Union supplies in decades…
Renewables
US utilities hit as consumers go green
After an energy audit on her home this summer, Meredith Keelan spent $12,000 to install six solar panels and deep insulation in her attic.
She fitted a solar-powered attic fan and bought a new fuse box. The solar fan means her mechanical ones rarely blow. Ms Keelan uses three times less power during the day, when the solar panels power her home, than at night, when she relies on the grid. Once she pays off these energy improvements, Ms Keelan will invest in six more panels, at $1,700 each (€1,190, £1,045)…
China tightens its grip on technological future
Spiralling fears that China is plotting to choke off the global supply of critical “technology minerals” used in products ranging from hybrid cars to laptop computers appeared to be confirmed yesterday.
Beijing is understood to be planning to impose tighter controls on exports of the 15 rare earth metals as part of a plan to make more aggressive strategic use of its natural resources. Several industry insiders say they have seen a draft proposal by China’s Ministry for Industry and Information Technology slashing rare earth export quotas between now and 2015…
Solar power’s bright future in Japan : Land of the rising subsidy
UNTIL five years ago Japan made around half of the world’s solar cells, thanks to its thirst for native energy and its expertise in the related fields of computer chips and flat screens for televisions. Sharp, which alone has made a quarter of all the solar cells ever produced, dominated the industry. But as solar technology matured and demand grew, new companies emerged, notably in China and Taiwan, eroding Japanese firms’ share of the market to around 20%. Sharp slipped to fourth place among manufacturers in 2008, after Q-Cells of Germany, First Solar of America and Suntech of China…
UK
Britain faces a blackout and politicians are to blame
The world is swimming on a sea of oil, natural gas is being found in increasing abundance, there is more coal in the ground than the world can ever consume, and nuclear energy has been proved a safe and reliable, if expensive, source of power. For those who live in windy and sunny places, throw in a bit of wind and solar power, and you have more energy than can ever be needed by businesses and consumers…
Britain facing blackouts for first time since 1970s
Demand for power from homes and businesses will exceed supply from the national grid within eight years, according to official figures.
The shortage of supplies will hit the equivalent of many as 16 million families for at least one hour during the year, it is forecast…
Motorists suffer 2p rise in fuel duty as first of five tax increases
Motorists face more pain from tomorrow when fuel duty is increased by 2p, the first stage in the removal of government assistance to help families and businesses through the recession.
The Treasury is planning five tax rises worth more than £10 billion between now and the general election. It is also planning to end temporary schemes to ease the downturn, such as car scrappage…
Climate
Climate camp targets BP oil plan
Climate Camp protesters have made energy giant BP their latest target by protesting against its plans to extract oil from tar sands in Canada. BBC News found out why.
Outside a smart, if anonymous, London office building is the last place you might expect to find an indigenous Canadian singing a traditional sundance ceremony song…
China’s high price for emission cuts
The cost of reducing China’s total greenhouse gas emissions is likely to reach $438bn a year within 20 years, and developed economies will have to bear much of that cost, according to a group of Beijing’s leading climate economists.
The figure, equivalent to about 7.5 per cent of China’s estimated gross domestic product in 2030, is likely to be deployed to support Beijing’s argument at December’s climate change summit in Copenhagen that industrialised nations must share the cost of cutting emissions in developing countries…
Man-made eruptions – ‘Plan B’ in the battle for the planet
Some of Britain’s most distinguished scientists have put their names behind controversial proposals to engineer the global climate with highly ambitious technology projects if international attempts to control man-made emissions of greenhouse gases show serious signs of failing.
The Royal Society, the UK’s national academy of sciences, has warned that if political leaders fail to reach agreement and enforce a significant reduction in carbon dioxide emissions following the climate conference in Copenhagen this December there may be no other option left than to introduce drastic measures involving the “geo-engineering” of the global climate…
Economy
Keep spending – Darling warns G20 against complacency
International complacency risks plunging the world into a double-dip recession, the Chancellor, Alistair Darling, warned yesterday.
In a stark message aimed at Germany and France, which want the G20 leading nations to discuss “exit strategies” from measures to stimulate their economies, Mr Darling insisted that governments must carry on spending to ensure the global economy returns to sustainable growth next year…
Indian economy continues to grow
India’s economy grew 6.1% in the second three months of the year compared with the same period last year, which was slightly better than had been expected.
The official gross domestic product figure was down from the 7.8% growth seen in the second quarter of 2008.
Although growth has slowed from last year, the economy is still expanding faster than most other countries…
Millions more Russians shunted into poverty
The stark social cost of Russia’s economic crisis was exposed today when new statistics revealed a 30% increase in the number of people living in poverty.
According to Russia’s state committee on statistics, the figure for Russians living below the poverty line went up to 24.5 million during the first three months of this year – a steep increase from 18.5 million by the end of 2008…
Airline losses ‘hit $1bn a month’
Airlines are likely to have lost more than $6bn (£3.7bn) in the first half of 2009, according to the International Air Transport Association (Iata).
This figure – an average of $1bn a month – is double the amount Iata said in December that airlines would lose during the whole of 2009.
Airlines made losses between April and June, when they would usually make 50% of their annual profits, Iata said…