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ODAC Newsletter - Feb 11

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.

Saudi Arabia's recoverable oil reserves may have been overstated by 40%. That was the warning sent to Washington from its embassy in Riyadh in 2007, according to a cable released by Wikileaks this week. The source was Sadad al-Husseini, former head of E&P at Saudi Aramco, who allegedly told US diplomats in Riyadh that Saudi's claimed reserves of some 700bn bbls were overinflated by 300 billion barrels of 'speculative resources', and that output would peak once the kingdom had produced half of its original proven reserves of 360bn barrels. With 116bn produced so far, the diplomats concluded that on this basis Saudi's peak could come in the early 2020s.

Al-Husseini has distanced himself from the report, according to the Wall Street Journal, although a close reading shows his backtracking did not extend to the imminence of the Saudi peak. The denial is made less credible by the fact that Mr al-Husseini has maintained the world's reserves are overstated by 300bn barrels for several years now, although without specifying in which countries the inflation has taken place. All of which simply reinforces the conclusion that Saudi is powerless to stave off the global peak or even calm the oil price in the medium term.

Both the IEA and OPEC raised their 2011 oil demand forecasts this week. In its January monthly oil report the IEA warns that at a $90/barrel average price, the oil burden on the economy would rise to 4.7%, not far off the 5% the agency estimates would be likely to cause a recession.

BG Group reported a rise in profits this week on the back of high oil prices. Interestingly however CEO Frank Chapman used the occasion to call into question the prevailing wisdom that the world would enjoy a glut of gas for the next 10 years, and pour cold water on the hype around shale gas.

Shale fever was also doused by a couple of other developments this week. Chesapeake's sale of its Fayetteville Shale assets, as well as its equity investments in Frac Tech Holdings LLC and Chaparral Energy Inc., highlighted the difficult economics around shale gas in the US. And a recent report by Lazard Capital Markets stated that "We believe 2011 will be the breaking point, where producers run out of assets to sell to fund growth that is driven by spending 80 per cent more than discretionary cash flow. Natural gas E&Ps are living on borrowed time."

In the UK this week the government threw renewed uncertainty into the renewables market by bringing forward the review of the feed-in tariff. The coalition is concerned that too much of the money is being taken up by investors in large scale solar farms rather than domestic installations. It is of course possible that solar farms could be more effective in generating energy than individual roofs with varying aspects to the sun. The government has promised that there will be no retrospective changes.

One of our readers asks why ODAC hasn't pointed out the link between oil depletion and the current unrest in Egypt, and goes on to suggest that Mexico could be next in line. While the situation is complex, clearly high oil and food prices are having a significant effect. Surprisingly Hilary Clinton recently said of the region that "with water shortages and oil running out, governments may be able to hold back the tide of change for a short while but not for long."

View our Reports and Resources page

Oil

US embassy cables: Saudi oil company oversold ability to increase production, embassy told

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Saudi Oil Reserves and the WikiLeaks Chinese Whispers Effect

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Oil demand to keep on rising, says Energy Agency

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Oil Demand Growth Vulnerable to Subsidy Cuts

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OPEC Raises Demand Forecast; Says Shortage Not Behind $100 Oil

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Egyptian Riots Add Pressure on OPEC With $100 Oil

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PetroChina: stepping on the gas

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US not ready for Arctic oil drilling: officials

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Chinese hackers infiltrate five energy firms: study

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Gas

BG raises gas production targets amid reports of 'glut'

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Chesapeake's move brings cheer to gloomy US gas sector

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Coal

Banks in Mongolian coal 'gold rush'

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Renewables

Blow to companies over solar power subsidies

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Welsh renewable energy plans 'stymied' by Westminster

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British windfarms blow Vestas towards 25% profit rise

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U.S. DOE seeks to cut solar costs by 75 pct

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Climate

Republicans propose $1.6bn cut to Environmental Protection Agency

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Europe

EU fails on energy savings, mandatory goals loom

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Europe Moves to Stabilize Its Energy Supplies

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Transport

British Airways blames oil price for fuel surcharge increase

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