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Oil prices: the new reality
Stanley Reed, Business Week
Futures traders are already assuming sky-high prices are here to stay
Everyone knows it: oil prices have gone through the roof. The price of benchmark crude rose 11% this year alone, to about $67 per barrel, before pulling back a little. But many in the industry have always figured that prices would sooner or later simmer down. One indication: Even when short-term prices soared to alarming levels, the futures market had until recently valued oil much more modestly. As new supplies came onstream, traders figured, prices would drift back down to their long-term average, which for years was about $20 per barrel. This thinking still influences the big oil companies, who have held back from investing massively in new projects.
But the futures market is now sending a radically different, and disturbing, message. Until 2002, oil futures rarely moved above $20 per barrel, and by 2005 they still lagged current prices. But in the last year long-term futures prices have been soaring, reaching $62 per barrel for benchmark West Texas Intermediate crude for delivery seven years out. Paul Horsnell, an analyst at London-based investment bank Barclays Capital (BCS ), says the markets are sending a message: “Whatever the long-term price is,” he says, “it is not $20 per barrel.”
Horsnell and other analysts believe a profound rethink about prices is occurring, with the market trying to figure what price will spur new production without killing demand. As a result, they say, the world has to prepare itself for a long stretch of oil at $50 to $60 or higher. There are plenty of reasons for the shift…
(6 February 2006)
Cradle To Cradle
Big Gav, Peak Energy (Australia)
Another batch of energy/sustainabiity news, with a longish piece on the influential book “Cradle to Cradle” by Bill McDonough and Michael Braungart.
(5 February 2006)
North Sea production slump casts doubt on government figures
Ian Fraser, Sunday Herald
A marked downturn in North Sea oil production means that the UK will become a net importer of oil at least three years earlier than the government anticipates, according to new figures from the Royal Bank of Scotland.
Even the contribution from the Buzzard field – which will add about 180,000 barrels of oil per day from 2007 – is seen as insufficient to prevent a looming dependence on the vagaries of world markets.
Andrew McLaughlin, group chief economist at RBS, said: “The International Energy Agency is predicting UK demand of 1.8 million bpd in 2007. But we’ll be lucky to produce an average of 1.7 million bpd in 2005 and it seems unlikely that North Sea production is going to rise above 1.8 million bpd over the next 12 months.
“There had been a hope both in the oil industry and within government that a period of sustained high oil prices would create more incentives to produce in the North Sea. But that has not come through.”
…UK crude production peaked at 2.9 million bpd in 1999 but has been in long-term decline ever since. Since 2004, the UK has been a net importer of gas.
(5 February 2006)
Related: Shell in talks on Brent closure: “Oil giant Shell is to begin talks on taking Britain’s biggest oilfield out of service, BBC Scotland has learned.”
Petrocollapse and food security at the South Central Farm
Jennifer Murphy, Indy Media
Jan Lundberg, oil industry analyst, founder of Auto-Free Times and www.culturechange.org came to Los Angeles last weekend to speak on the issues surrounding peak oil. I attended the Sunday afternoon talk on “Petrocollapse and Food Security”, an appropriate title for the location, the South Central Farm.
The farm may be receiving an eviction notice any day now, and in the light of Jan’s talk, this makes no sense at all. The average distance food travels between the farm and the dinner table in this country is 1500 miles. Our city’s food supply lines are dangerously dependent on petroleum-powered transportation and petroleum-based fertilizers and pesticides. Rather than destroy existing vibrant, community-operated agricultural production we should be supporting and expanding it to every neighborhood in town.
Despite his gloomy message of petrocollapse, Jan opened with an upbeat song called “Get up and change the world”. He accompanied himself with his guitar and encouraged the audience to sing along. The sound system for this event was bicycle-powered. A simple generator and battery was hooked up to a bike on a trainer. It was created by Eric Einem of LA Post Carbon. Audience members took turns quietly pedaling throughout the talk.
According to Jan, “Oil use is hard-wired into our culture”.
The U.S. has put little effort into alternatives because we have a blind faith in technology, believing naively that “they’ll think of something”. The problem with that is, to adequately prepare for petrocollapse takes decades. We should have started 30 years ago. Jan sees unavoidable changes coming. He calls these impending changes petrocollapse, rather than peak oil.
“Peak oil is a single event, while petrocollapse covers the widespread impact of that event.”
(4 February 2006)
New book: advice for oil addicts
Alex Kingsbury, US News and World Report
President Bush called on the country to break its addiction to Middle East oil in his State of the Union address last week. Easier said than done, says former Chevron geophysicist Peter Tertzakian, who talked to U.S. News about his new book, A Thousand Barrels a Second: The Coming Oil Break Point and the Challenges Facing an Energy Dependent World, and why kicking the oil habit will be a tough slog. Excerpts follow.
Is Bush on the right track?
There was recognition that there is a problem, and that is a first step. Having said that, the solutions that [he] presented were oversimplified. The dependency runs deep, and it takes more than just saying, “We’re going to grow more corn” to solve the problem. But we are addicted to oil, and it’s nice to finally acknowledge that.
What about plans to develop alternative sources of energy?
In the United States, less than 3 percent of electrical power is generated from oil. When we talk about clean coal, windmills, and nuclear power, we address only the electricity issue, not the oil issue. Those alternatives are not large-scale substitutes, and they cannot push oil out of its largest market, which is transportation.
Oil consumption has always been on the radar. Why are we trying to change things now?
The core issue is the way we live. The most problematic trend for oil consumption to emerge in the past 20 years has been the continued migration to the American suburbs. Twenty years ago, the average American vehicle traveled 10,000 miles per year. Today, it travels 12,000 miles. That’s a 20 percent increase, right there. On top of all this, we have larger and heavier vehicles. We came to accept the fact that we would have cheap energy whenever we pulled up to the pump. Finding solutions to these demographic changes and trying to mitigate gasoline consumption is very difficult.
(13 February 2006 issue)
The book by Peter Tertzakian looks reasonable and non-threatening. Interestingly, it is being published by mainstream publisher McGraw-Hill and seems to be getting a marketing push. -BA Related:
Author’s website
America’s Oil Needs and New Energy Options (NPR discussion with Tertzakian)
Book description at McGraw-Hill site
Sweden and U.S. agree about the oil dependency problem, but for different reasons
Alan Cowell, NY Times
After he heard President Bush tell Americans they were “addicted to oil,” Prime Minister Goran Persson of Sweden said he was relieved that “at last there’s one more who understands the problem.”
Indeed, in a conversation, he seemed to suggest that Sweden’s example might offer what could be termed an American detox.
As the leader of a country that has thrust itself to the fore of environmental protection, and that has promised to greatly reduce its remaining dependence on oil by 2020, Mr. Persson has sought to persuade Sweden’s motorists to use less gasoline, fill their tanks with ethanol and promote ways of heating homes without polluting the atmosphere.
Like Mr. Bush, Mr. Persson is worried about his country’s dependence on vulnerable foreign oil supplies. He is troubled that reliance on oil is itself perilous because of the economic impact of ever-higher petroleum prices.
(5 February 2006)
