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Our Man-Made Energy Crisis

NANSEN G. SALERI, Wall Street Journal
… Prices will eventually come down due to global excess capacity—estimated at three million to five million barrels of oil per day—and even more so due to migration of demand from oil to natural gas by electric utilities and industrial markets. Natural gas holds more than a 3-to-1 price advantage over oil on an equivalent unit energy basis in the U.S. So $200 crude is unlikely given market fundamentals.

In the context of global liquids production, the civil strife in Libya represents a minor disruption (less than 2% of the total, approximately 85 million barrels of oil per day). Nor is there any evidence to suggest that even a protracted scenario of instability will result in a sustained reduction of crude supplies.

… What is less widely recognized is the overall inefficiency of energy utilization. According to a 2007 study by National Petroleum Council, at the request of the U.S. Department of Energy, approximately 61% of energy produced is lost due to factors such as poor insulation, gas-guzzling vehicles or suboptimal power plants.

… At current rates of global consumption, there are sufficient oil and gas supplies to last well into the next century.

… The future energy picture for the U.S. or the planet is not constrained by the availability of supplies, either fossil or non-fossil, but by efficiency gains in generation and consumption.

Mr. Saleri, president and CEO of Quantum Reservoir Impact in Houston, was formerly head of reservoir management for Saudi Aramco.
(9 March 2011)

The truth about India’s coal

Viswanath Kulkarni, Businessline, The Hindu
Demolishing the myth that the country has plenty of coal, a TERI (The Energy Research Institute) Policy Brief says that India may be living in a fool’s world. It has less coal than it thinks. The coal that can be extracted — taking into account the geological, technical and economic aspects — is only a small per cent of the total coal inventory, without considering the no-go areas where mining may not be permitted, according to Mr R.K. Batra and Mr S.K. Chand, authors of the paper titled “India’s coal reserves are vastly overstated”.

The issue of coal availability assumes significance because the commodity accounts for more than half of the country’s energy mix. To sustain the growth rate of 8-9 per cent over the next few decades, the country has invariably to depend on coal. Demand for coal from the power sector is set to grow by a tenth, driven by new capacity additions, while the supply through domestic production is seen around 7-8 per cent.

Delay in clearances for Coal India Ltd (CIL) and tightening of environmental norms for existing projects have already caused considerable chaos in recent months, leading to a widening demand-supply gap.

The country has increasingly to rely on imports, which are set to grow to 142 million tonnes next fiscal, from 83 million tonnes this year.

Amidst tight global supplies and price rise, the ability to import large quantities could be restricted, thereby impacting energy security. In this context, it becomes imperative to take a re-look at the way reserves are assessed to get a realistic picture of coal resources so that the growth is not jeopardised.
(7 March 2011)
Suggested by Post Carbon Institute who writes: “As PCI Senior Fellow Richard Heinberg has been reporting for years, global coal reserves are not what “they” say…”

Will Federal Regulators Crack Down on Oil Speculation?

Christopher Hayes, The Nation
… the biggest threat to recovery is the price of oil. If oil prices in particular, and commodities in general, begin to rise, those trends will almost certainly constrain demand and consumer confidence at exactly moment it is most needed. This week oil traded at $104.42 a barrel, up 7 percent from last week and at its highest since the September 26, 2008, close at $106.89. And we know from recent experience the oil prices (along with all sorts of other commodities) can skyrocket with little warning. Cast your memory back to the summer of 2008, before the financial crisis and in the heat of the presidential campaign. That summer, oil hit $147 a barrel and gas hit above $4 a gallon; airfare went through the roof and nearly every single major carrier came very close to declaring bankruptcy. Food prices shot up as well, with wheat trading up 137 percent year over year in July 2008, and corn 98 percent. Famine and food riots spread throughout the globe.

… So the White House should not only be worried about oil prices and recovery. They should also be worried about the well-established fact that when price of gas spikes, the country’s politics go haywire.

… Commodities markets involve essentially two kinds of participants: there are so-called “end users” like farmers and airlines that use commodities markets as a form of insurance against future price fluctuations, and then there are speculators—hedge funds, investors, big banks that try to make money by correctly betting on those same price fluctuations. The presence of these speculators isn’t in and of itself a bad thing; in fact, they bring liquidity that should, in theory, make the market more efficient. According to an analysis by the House Energy Committee’s Subcommittee on Oversight and Investigations, in 2000, physical hedgers, trucking companies, farmers, bakers, made up 63 percent of the crude oil futures markets, with speculators accounting for the rest. By 2008, those proportions had basically flipped.

Of course, the Wall Street banks say there’s nothing to see here, but that’s hard to believe. It’s almost impossible to make sense of 2008’s massive commodity price spike without concluding that the speculators played an outsized role. When enough money floods into a booming market, Greenberger says it can “unmoor” the prices of commodities from their underlying supply-and-demand fundamentals.

… One way to attempt to constrain these volatile mini-bubbles is for the Commodities Futures Trading Commission to impose “position limits,” essentially limits on the size of the bets that speculators can make. The New Deal–era Commodities Exchange Act gives the CFTC power to curb “excessive speculation,” and the just-passed Dodd-Frank bill explicitly calls for the CFTC to promulgate position limits.
(7 March 2011)
Kevin Drum at Mother Jones writes:

there’s still considerable question about whether the 2008 spike in oil prices was driven by speculation, though I’m friendlier to that thought today than I was at the time. This time around there are the same problems trying to figure out what’s going on (the WTI-Brent price spread remains a bit mysterious, for example), but beyond that there’s also the obvious fact that there are pretty compelling supply explanations for recent price increases. Saudi Arabia may still be pretty stable, but plenty of other oil producers in the Mideast, with Libya in first place, aren’t. It would be strange if the events of the past couple of months didn’t produce a natural price spike.

Still, reasonable position limits might do some good and are unlikely to do much harm. For reasons both prudent and political, Obama might be well advised to find a CFTC commissioner who agrees.