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Oil - May 2

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Fuel to Byrne

Chris Nelder, Smart Planet
The mainstream press never seems to tire of re-writing the new “energy independence” story, despite my repeated debunkings (here, here, and here) of recent Pollyannish articles projecting massive growth this decade from marginal unconventional oil resources.

An April 10 article in the New York Times (”Fuel to Burn, Now What?“) raised the bar on American oil optimism once again, going so far as to suggest that the U.S. might become “a top energy exporter, rivaling some members of the Organization of the Petroleum Exporting Countries.” This was a remarkable claim, considering that we are still the world’s top oil importer by far, at a net 8.4 million barrels per day (mbpd) according to the Energy Information Administration.

One statement in particular that just begged for debunking was the claim that the U.S. produced 9 mbpd of oil in 2011.

When oil is not oil
To come up with 9 mbpd, one needs to include several categories of liquids that are not actually oil. It is these additional categories that have posted the greatest growth in recent years, and without them, there wouldn’t be much of an optimistic oil story to tell...
(2 May 2012)



Marginal oil production costs are heading towards $100/barrel

Kate McKenzie, FT Alphaville
Bernstein’s energy analysts have looked at the upstream costs for the 50 biggest listed oil producers and found that — surprise, surprise — “the era of cheap oil is over”:

Tracking data from the 50 largest listed oil and gas producing companies globally (ex FSU) indicates that cash, production and unit costs in 2011 grew at a rate significantly faster than the 10 year average. Last year production costs increased 26% y-o-y, while the unit cost of production increased by 21% y-o-y to US$35.88/bbl. This is significantly higher than the longer term cost growth rates, highlighting continued cost pressures faced by the E&P industry as the incremental barrel continues to become more expensive to produce. The marginal cost of the 50 largest oil and gas producers globally increased to US$92/bbl in 2011, an increase of 11% y-o-y and in-line with historical average CAGR growth. Assuming another double digit increase this year, marginal costs for the 50 largest oil and gas producers could reach close to US$100/bbl.

While we see near term downside to oil prices on weaker demand growth, the longer term outlook for higher oil prices continues to be supported by the rising costs of production.

This is important because, as Bernstein analyst Neil Beveridge and colleagues note, the cost of producing marginal barrels of oil plays a big role in determining oil prices...
(2 May 2012)



Book review: Steve Coll's "Private Empire"

Steve LeVine, Foreign Policy
So far in 2012, ExxonMobil has made $104 million a day -- and that's an off year. In 2005, the oil giant earned a net profit of $36.1 billion, or "more money than any corporation had made in history," writes Steve Coll in his illuminating saga of the most successful and largest heir to John D. Rockefeller's strangling monopoly, Standard Oil. Simply put, ExxonMobil has been among the world's largest and most profitable companies since the 1950s, and it is so confident of its future that it recently raised the dividend paid to shareholders by a whopping 21 percent.

Private Empire begins in 1989 with the tale of the Exxon Valdez, the company oil tanker that ran aground in Alaska's Prince William Sound, and ends 22 years later with ExxonMobil's credit rating surpassing that of the U.S. government. The title derives from the company's need to control actual physical territory in order to profitably pump. The result is amassed power and influence, used mostly for ill (if one's interest is human rights, economic development or combating climate change), or good (if one's focus is cheap gasoline).

Coll, a two-time Pulitzer Prize-winning author of previous books on the CIA's history in Afghanistan and on the Bin Ladin family, here weaves a work around a profile of the reigns of two emperors. There is South Dakotan Lee "Iron Ass" Raymond, who parlays a relentless focus on safety in the wake of the Exxon Valdez into imperial corporate control, whether it is the initiation of a "safety minute" at the start of any meeting or the installation of tracking devices in the vehicles of known speeders. Raymond's successor, the Texan Rex Tillerson (the "Eagle Scout"), attempts to soften the company's image by doling out medals for good work, an incentive reminiscent of scout merit badges, and embracing a carbon tax to control greenhouse gas emissions.

ExxonMobil perhaps looms largest in the U.S. on this subject of climate change. Early in the book, Coll lays out the company's apparent objectives via an American Petroleum Institute memo from the 1990s:

Average citizen "understands" (recognizes) uncertainties in climate science; Recognition of uncertainties becomes part of the "conventional wisdom"; media "understands" (recognizes) uncertainties in climate science; media coverage reflects balance on climate science and recognition of the validity of viewpoints challenging current "conventional wisdom"; those promoting the Kyoto treaty on the basis of extant science appear to be out of touch with reality.

If that was also ExxonMobil's goal, the many millions of dollars that the oil company spent worked. Each item on that memo can be checked off -- thanks largely to Raymond's close relationship with then-Vice President Dick Cheney. "We just gave away the environment," observed then-Treasury Secretary Paul O'Neill after the Bush Administration repudiated action on climate change in 2001...
(2 May 2012)


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