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."
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C O N F I D E N T I A L SECTION 01 OF 03 RIYADH 002441
DHAHRAN SENDS DEPT OF ENERGY PASS TO MWILLIAMSON, GPERSON, AHEGBURG, AND JHART CIA PASS TO TCOYNE
E.O. 12958: DECL: 12/10/2017
TAGS: EPET, ENRG, ECON, SA
SUBJECT: FORMER ARAMCO INSIDER SPECULATES SAUDIS WILL MISS 12.5 MBD IN 2009
REF: RIYADH 1950
Classified By: Consul General John Kincannon for reasons 1.4 b, d and e .
1. (C) SUMMARY: On November 20, 2007, CG and Econoff met with Dr. Sadad al-Husseini, former Executive Vice President for Exploration and Production at Saudi Aramco. Al-Husseini, who maintains close ties to Aramco executives, believes that the Saudi oil company has oversold its ability to increase production and will be unable to reach the stated goal of 12.5 million b/d of sustainable capacity by 2009. While stating that he does not subscribe to the theory of "peak oil," the former Aramco board member does believe that a global output plateau will be reached in the next 5 to 10 years and will last some 15 years, until world oil production begins to decline. Additionally, al-Husseini expressed the view that the recent surge in oil prices reflects the underlying reality that global demand has met supply, and is not due to artificial market distortions. END SUMMARY...
At first glance it looked like a story to shake the world: the WikiLeaks cable suggesting Saudi Arabia's oil reserves -– the most bountiful on the planet -– may have been overstated by 40%.
It opened the door to a future in which oil would be depleted far more quickly than anybody believed -– raising the threat of sky-high prices and cut-throat competition for scarce resources...
The global economic recovery will fuel ever greater demand for oil this year, with higher fuel prices expected to add a 15 percent burden on advanced economies, the IEA warned on Thursday.
"Under current assumptions for global GDP, oil price and oil demand, the global oil burden could rise to 4.7 percent in 2011, getting close to levels that have coincided in the past with a marked economic slowdown," the International Energy Agency said in its latest monthly Oil Market Report...
There's pretty broad agreement these days that we're in the midst of another commodity super cycle and the only way is up for the oil price.
The International Energy Agency reaffirmed this view Thursday, saying that despite the world adding an extra half a million barrels a day to oil supply last month, demand increases spurred by emerging market growth means prices will probably continue to hover around their current rather expensive level...
The Organization of Petroleum Exporting Countries raised estimates for the amount of crude it will need to produce this year, and said that prices at their highest in two years don't signal any supply shortage.
OPEC predicts it will have to provide 29.8 million barrels a day this year, about 400,000 a day more than it estimated last month. The revision is based on economic growth and a colder- than-normal winter. Still, oil's surge through $100 a barrel in London this year for the first time since 2008 does not signal any global supply deficit, the organization said...
OPEC is under pressure from consumers to boost supply as most of the world's benchmark crudes surpass $100 a barrel amid political unrest in North Africa and the Middle East.
Oil prices are high enough to "derail" the global economic recovery, Fatih Birol of the International Energy Agency said this week. Saudi Arabian Oil Minister Ali al-Naimi said last week prices nearer $75 would be "appropriate." Goldman Sachs Group Inc. says the Organization of Petroleum Exporting Countries has already raised output...
There is no respite in China's hunt for energy assets. A month after taking a stake in a British refinery, PetroChina is paying $5.4bn to buy into a large Canadian gas field project owned by Calgary-based Encana.
The state-controlled company is taking a 50 per cent in a transaction that dwarfs the two recent deals totalling $1.3bn by rival CNOOC with US-based Chesapeake Energy for American gas projects. In 2010, Chinese oil groups spent $24bn on foreign acquisitions. Given the flying start to 2011, it could be even more this year...
The United States is ill-equipped to deal with a major oil catastrophe in Alaska, the Coast Guard admiral who led the US response to the massive Gulf of Mexico oil spill and others warn.
Only one of the US Coast Guard's three ice breakers is operational and would be available to respond to a disaster off Alaska's northern coast, which is icebound for much of the year, retired admiral Thad Allen told reporters this week...
Hackers working in China broke into the computer systems of five multinational oil and gas companies to steal bidding plans and other critical proprietary information, the computer security firm McAfee Inc said in a new report.
The report, which named the attacks Night Dragon, declined to identify the five known companies that had been hacked and said that another seven or so had also been broken into but could not be identified...
BG, the fast-growing oil and gas exploration company, dismissed predictions of a "global gas glut" as the group raised its production targets, sending shares to an all time high.
Chief executive Frank Chapman said that the International Energy Agency was "on its own" in its "conservative views" after it predicted in November that a surge in "unconventional" gas production such as from shale this decade would lead to lower prices and unused pipeline and liquid gas transportation capacity...
The announcement by Chesapeake Energy that it will sell several assets to raise $5bn to put toward paying down debt was warmly greeted by analysts who have been lamenting prospects for a sector under intense pressure by low US natural gas prices.
Indeed, Standard & Poor's, the ratings agency, placed a BB rating on Chesapeake, BB senior unsecured issue ratings and B preferred stock issue ratings on CreditWatch with positive implications. Here is what Standard & Poor's credit analyst Scott Sprinzen had to say:...
Dealmakers from the world's top investment banks are jetting into Ulan Bator this week to fight for a role in an extraordinary deal that is set to turbocharge the Mongolian economy and enrich its population of 3m.
The initial public offering of Erdenes Tavan Tolgoi, a state company that owns a vast untapped coal deposit in the Gobi Desert, is one of the hottest prizes in investment banking in Asia this year...
Solar companies have warned of "massive uncertainty" hanging over the market, after the Government said it would review subsidies for renewable electricity.
The subsidies, called feed-in tarrifs, were intended as a way to pay householders above market rates to generate electricity from solar panels and small wind turbines on their roofs. However, large-scale "photovoltaic farms" have been springing up all over the countryside to take advantage of the generous offer. It was revealed in The Telegraph that the Government was ready to act against "hot money and speculators" soaking up much of the £360m subsidies...
Welsh environment secretary Jane Davidson says approval for renewable power projects is being unnecessarily delayed, and indicates Welsh Assembly would support a replacement nuclear facility at Anglesey.
Wales's ambitions to become fossil-fuel free by 2050 are being held back by Westminster, according to the Welsh environment minister...
Strong demand from British windfarms helped the world's biggest turbine manufacturer, Vestas, raise profits by 25% over the past year and have boosted future prospects.
UK equipment deliveries totalled 530MW — a leap from 120MW over the previous year — helped in particular by shipments for the 300MW Thanet windfarm, which is currently the largest offshore windfarm ever built...
The U.S. Department of Energy said on Friday it will spend $27 million on a new effort to reduce the costs of solar power by 75 percent by the end of the decade in a bid to make the renewable power source as cheap as fossil fuels.
Energy Secretary Steven Chu dubbed the program a "sun shot" that was patterned on President John F. Kennedy's "moon shot" goal in the 1960s that called for the United States to land a man on the moon...
Republicans have launched an attack on the Obama administration's powers to act on climate change, proposing a 17% budget cut to the Environmental Protection Agency.
In a follow-up strike, they repeatedly challenged the legal authority of the agency to regulate greenhouse gas emissions during a contentious hearing in Congress...
Europe is struggling to meet its own energy saving targets, as an aversion to upfront investment holds back a strategy that could create jobs, cut climate-warming emissions and save billions of euros.
Energy Commissioner Guenther Oettinger will give European Union governments two years to get the strategy back on track before proposing legally binding targets, according to a draft EU document seen by Reuters on Wednesday...
European leaders agreed on Friday to give unprecedented leeway to the bloc's executive agency to help negotiate contracts with energy exporters like Russia in an effort to improve security of supplies and safeguard investment.
There is "a need for better coordination" among European Unioncountries and for more coherence in "relations with key producer, transit and consumer countries," the leaders said in a statement at the close of a one-day meeting in Brussels...
British Airways has raised its fuel surcharge for the second time in two months after the Egypt crisis pushed the global oil price to more than $100 (£62) a barrel.
BA first introduced the levy in 2004 to cover the fluctuating cost of oil and the cost of the add-on has rocketed since its debut at a modest £2.50 per flight...
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