Back to the showAs you go further back in time, fewer links actually work. 

Analyze This

The US government is full to the brim with serious analysts, each with several advanced degrees, each capable of whipping out some advanced math to beat into shape any piles of data you may have lying around. The trouble is that in recent years the government hasn't gotten squat right about the future, whether the subject is the federal budget, energy analysis, foreign intelligence, or nearly anything else. David Brooks of the New York Times suggests why there may be a problem with full blown social science analysis. q.v.


Bubble Fodder?At what interest rate can Bungalow Bill do this on his civil service pay?

As the promotional sales brochure advises, the picture is deceiving because an addition to the house has been made behind the part shown.  The addition includes a gourmet kitchen with granite counter tops. Even so, in Pete's view, the pictured house, which is for sale in one of the neighborhoods northwest of Washington, DC, is at best one or two steps removed from an ordinary Cape Cod, albeit one fixed up to a faretheewell. The point is that the asking price is $1.295 million, and the house is being sold by a broker with a reputation for pricing homes realistically. Ah, the mysteries of life inside the beltway...

But of course it is not a mystery. It is a small and by no means unique instance of the bubble, the bubble that can best be described as waiting to pop. The only question is who will pop it and when, and how much worse the situation will become until they do. q.v.*


ANWR Revisited

Since authorizing oil drilling at the Alaska National Wildlife Refuge looks as though it will be the main legislative accomplishment in response to $55 oil, Roger Blanchard takes another look at what it will and won't do:

 Impact of ANWR Oil Production on Future U.S. Production

2000

2015

2020

2025

US/48, excluding deep-water GOM production (mb/d)

3.95

2.03

1.60

1.26

Deepwater GOM production (mb/d)

0.74

1.58

1.36

0.90

Production from presently active Alaskan oil fields (mb/d)

1.02

0.50

0.38

0.28

ANWR production (mb/d)

0.00

0.19

0.68

0.92

Other Alaskan Production* (mb/d)

0.00

0.21

0.28

0.14

Total U.S. production (mb/d)

5.71

4.51

4.30

3.50

Oil demand (mb/d)**

15.12

17.61

18.12

18.39

Oil imports (mb/d)**

9.41

13.10

13.82

14.89

% imports

62.2

74.4

76.3

81.0

Increase in oil imports from 2000 (mb/d)

 

3.69

4.41

5.48

The U.S. Senate recently approved oil development in the Arctic National Wildlife Refuge (ANWR) of northeastern Alaska and it appears likely that development will take place.  What will oil development in ANWR do for future U.S. oil production?  The table provides estimated future production from various regions of the country, including ANWR, for making a projection of future U.S. oil production.  Several assumptions were made for the projection of future U.S. production.  First, it’s assumed that US/48 oil production, lower 48 states excluding the Gulf of Mexico (GOM), will continue to decline at the rate that it did for the 1992-2001 period, 4.46%/year.  It’s assumed that the shallow-water Gulf of Mexico, less than 1000 feet of water depth, will continue to decline at the 1997-2001 decline rate of 5.54%/year.  It’s assumed that the deep-water GOM, water depths >1000 feet, will ultimately produce 15.1 billion barrels with peak production occurring in 2013-2014 at 1.59 mb/d.  The 15.1 billion barrels figure assumes that the deep-water GOM will ultimately produce as much as the shallow-water GOM.  The shallow-water GOM is assumed to produce 15.1 billion barrels based upon a continuation of the 1997-2001 decline rate.  At this point, it appears that the deep-water GOM will only produce about 10 billion barrels with peak production occurring around 2010 or a little earlier.  A recent U.S. Department of Energy/Energy Information Administration (U.S. DOE/EIA) report projected that maximum production for the deep-water GOM would occur in 2008.  Alaska production from presently active fields is assumed to decline at 5.77%/year, the average decline rate for 1988-2000.  Alaska’s production had a plateau for a few years due to development of the Alpine and Northstar fields, but last year it declined at a rate a bit higher than the 1988-2000 average as both fields have achieved full production. 

The U.S. Geological Survey (USGS) has produced estimates of the technically recoverable oil from ANWR and the coastal plain outside of presently active fields and ANWR.  The USGS has a history of greatly exaggerating technically recoverable oil amounts.  In their 1995 assessment of technically recoverable oil resources for the U.S., excluding oil from federal offshore waters, they estimate that the US/48 could technically produce 82.8 billion barrels after Jan. 1, 1994.  Based upon the decline curve for the region from 1992-2001, the region will ultimately produce 34.8 billion barrels after Jan. 1, 1994.  The USGS assessment is high by a factor of 2.38.  The oil production data in the table assumes that the ultimate recovery from ANWR will be the USGS average estimate divided by 2.38, which comes to 4.4 billion barrels and that production will start in 2010.  Other Alaskan production in the table is for future North Slope production outside of currently active fields and ANWR and is based upon the USGS average estimate divided by 2.38. 

The 4.4 billion barrels estimate for ANWR may be optimistic.  Colin Campbell, an international petroleum geologist, makes the case that because of geological differences between ANWR and the Prudhoe Bay area, ANWR will have little recoverable oil.  The bulk of the oil found on the North Slope has been in the Prudhoe Bay area, Prudhoe Bay and Kuparak fields, and exploration results outside of the Prudhoe Bay area have been poor.  In the late 1990s, the Clinton administration opened ~4.6 million acres of the National Petroleum Reserve-Alaska (NPR-A) and the Bush administration opened 9 million acres in 2003.  Years of exploration have not turned up any nuggets in the 4.6 million acres opened by the Clinton administration. 


Katrina summary: 60% of oil and 40% of gas production is still shut in 10 days after Katrina. q.v.

Pete likes this one - Sec. Bodman actually spent public funds on a neglected research area in need of lots of funding. q.v. Now if only DOE directed about a billion of clean coal nonsense in the same direction.....

From time to time, and for no particular reason, Pete has considered the gold price of oil. Once again, the ratio is doing weird, unprecedented things... q.v. [From the referenced site: ] "... an ounce of gold costs just 6.6x a barrel of crude oil.  Digesting this four-decade chart should give you an idea of just how rare any GOR [gold to oil ratio] extreme lows are, let alone one shattering all-time records.  Note also in each previous GOR extreme low case that the ratio didn’t linger at extremes for long, but promptly shot back higher at least up to the long-term average of 15.2." While the author goes on to suggest immanent gold price increases, it could also revert by oil falling in relative terms.  Whichever is right, it is an unusual situation.

Homeland security for the petroleum industry. q.v. (pdf), for the natural gas industry q.v. (pdf).  Talk about inadequate plans -- see sec. 5  and 6 of the latter.

Pete keeps getting difficult to substantiate reports that the problems of the domestic oil production industry, caused by storm damage in the Gulf, are very extensive. Any reader with real information is urged to report in.

Same thing for the situation in Venezuela.  Regrettably, this would be an excellent time for Mr. Chavez to stir up the pot a bit and, heaven knows, the Bush administration has been looking for a fight.  But they sure don't need it now.

New technology for improving heavy oil production. q.v.

Some of the US government's sponsored work on peak oil. q.v.

EIA has published the latest estimates of world petroleum reserves. q.v. Isn't it a bit weird how the governments of the world continue to rely on tallies prepared by petroleum magazines?

How well did the US manage Iraqi oil revenues once it took control? How well did it handle the cash sent from back home? The sad answer to both is not well. q.v.

Understanding Bretton Woods II q.v., or government by incompetents may not always be a good thing. "...As the designated hedonist in this arrangement, the U.S. gets to live beyond its means and living beyond your means is a rather pleasurable thing to do. ... [R]eflationary policies have served as a 'pump' that has inflated asset prices but with limited capacity to do so in the future. The best example of the effects of this asset pump is in five-year TIPS [Treasury Inflation Protected Securities]. In 2000, real rates on five-year TIPS were 4%. That 4% rate is now 1%. You don’t have to be a math major to figure out that we are 75% of the way toward 0% real rates and there can’t be much more to go. ..."

Pete opened the back door, looked in the general direction of the fetid and jejune miasmas surrounding Capitol Hill, and pronounced:  later this week or early the next an energy bill will emerge. This prospect did not fill him with the joy it should have...

Say, Pete, how much is that energy bill you see coming going to cost anyway? More than you'll ever know or would ever venture to guess, thinks Pete, but that's another issue.   Here's one estimate for a few of the less squishy bits. q.v. Here's another. q.v.

CRS study on China's exchange rate policy. q.v. Or 'Ou sont les Soros d'antan?' for you literary types. Or even, buffeted yet bound.

Exxon's new interactive financial statement is well worth considering. q.v. Check out 'North American Gas' to glimpse the extent of coming US dependence. So where are all the righteous dudes who are going to stop it?

Who would have thought that Prince Bandar, the Saudi's US ambassador and Pete's suggested candidate for early retirement, was actually Bandar The Magnificent, running the world behind our backs? q.v.

EIA models an amalgam of policy proposals floating around Capitol Hill and finds the effects largely inconsequential. q.v.  The exception appears to be the return of serious CAFE standards on vehicle fuel consumption, as though Congress would ever do that.

The Bilderbergers views on energy and most everything else, q.v., for whatever they may be worth.

Why producing countries nationalized their oil sectors. q.v. by Alií Rodríguez Araque, President & CEO of PDVSA

In the culmination of a multi-year exercise of interest only to students of the lunacy of the US legal system, it was decided that the people who helped dream up the vice president's zen-like, proto-existent energy policy could remain anonymous. q.v.

Venezuela calls for return to the OPEC price band. q.v.

What is "Bretton Woods II" and who authorized it? q.v. "Someone on the wrong end of the Mall's been enacting treaties on the qt, if you ask me," sniffed Pete.

Bad boys in Tehran. q.v. Or not? q.v.

Technology is the ticket. President Bush's energy policy. qv1 qv2 (video)The ticket to where?

Saudi monetary and exchange rate policy. q.v.

Washington's top 250 lobbyists. q.v. Get in on the really good gravy - carbon sequestration. q.v.

According to the Energy Economist Venezuela is instituting retroactive tax hikes, forcing joint ventures with PDVSA, making payment of existing obligations in local currency rather than dollars, and making other unilateral changes to past commercial practice with US firms.  Looks like push comes to shove.

More on the Saudi / Simmons "Of course we have it" / "Maybe you don't" battle on the size of Saudi oil reserves. qv1    qv2 qv3

Chinese oil imports. q.v.

Northern heat. q.v.

Policy Pete readers should be aware that the US federal government has come up with a new category of information -- public but not to be made available over the internet. (It is known as NIP, or non-internet public. See, for example, FERC's new rule [pdf]). As PP relies on information available via the internet, this may have an effect on what and how stories are covered. Pete is way too lazy to go digging through agency hard copy files. If not the bud, nip it in the bush.

It's an ill wind farm that ... q.v.

Prince Bandar has resigned as the Saudi ambassador to the US. q.v.

 


 

 

Nanotechnology and Energy

Steve Gillett's survey q.v. (pdf) of the possible impacts of molecular nanotechnology on various types of energy production, and the transition away from fossil fuels, was originally published by The Foresight Institute.  The new technology offers another set of possibilities for mitigating the economic problems in the post oil peak world.


 Mitigating the Economic Impact of Peak Oil

Bob Hirsch has sent in a report he and colleague Roger Bezdek prepared for the Department of Energy on how the effects of peak oil could be mitigated. The strategies include enhanced oil recovery, increased use of heavy oil and oil sands, coal liquefaction, and clean substitute fuels produced from remote natural gas. Timing issues of when the mitigation begins in relation to the onset of the peak are also considered. q.v. (pdf)


Oil Price Impact on Production

Roger Blanchard has sent a report showing the relationship between increasing oil prices and production from mature producing countries:

The table below shows the impact of increasing oil prices on oil production (crude oil + condensate) in the top 10 oil producing countries that are in long-term production decline. Data is from the US DOE/EIA except for Norway, which is from the Norwegian Petroleum Directorate (NPD). ... The summed decline for the 10 countries in the table for 2002-2003 was 4.78%, while for 2003-2004 it was 5.63%. It can be argued that the 2003-2004 decline was made larger by the impact of Hurricane Ivan (in September) on U.S. oil production. If only the first 8-month data is used for the U.S., the summed decline for the 10 countries is still 5.32%.


The Impact of Price on Oil Production in Mature Producing Countries*

Year

2002

2003

2004

% Decline 2002-2003 

% Decline 2003-2004

Oil Price

$26.07

$31.04

$41.38

U.S.

5.746

5.681

5.430

-1.13

-4.42

Norway**

3.150

3.068

2.964

-2.60

-3.39

U.K.

2.292

2.093

1.845

-8.68

-11.85

Indonesia

1.267

1.171

1.113

-7.58

-4.95

Oman

0.897

0.781

0.751

-12.93

-3.84

Argentina

0.757

0.741

0.691

-2.11

-6.75

Egypt

0.631

0.618

0.594

-2.06

-3.88

Australia

0.626

0.512

0.455

-18.21

-11.13

Colombia

0.577

0.538

0.529

-6.76

-1.67

Syria

0.511

0.464

0.410

-9.20

-11.63

Total Production

16.454

15.667

14.782

-4.78

-5.63

 *From GASearch Energy Intelligence. Country production figures are million b/d.
**Data from the Norwegian Petroleum Directorate. The US DOE/EIA has questionable data for Norway with production increasing 4.46% in 2004 while the NPD has both crude oil and condensate production decreasing, with a summed decline of 3.39% in 2004.  The US DOE/EIA has a history of significantly downgrading production numbers, which is illustrated in their recent revisions for Syria.  Through August 2004, the US DOE/EIA was reporting Syria’s oil production in 2003 as 527,000 b/d and 2004 as 507,000 b/d.  When they recently came out with their final 2004 data, they had revised Syria’s year 2003 oil production to 464,000 b/d and 2004 to 410,000 b/d (there was no unusual production decline in late 2004 to explain the dramatic drop since August).  Maybe they will ultimately downgrade their data for Norway.


News from the Awl Patch

Bob Ehrlich has sent in a report on what's been happening in the domestic industry:

A short note from the edge of the oil patch.

As usual there are a complex web of strategies among oil companies in the Patch.

Geophysicists, geologists, and petroleum engineers are getting jobs. As a result of more than a decade of layoffs and "restructuring" there are few students majoring in these areas and a lot of people have left the industry in search for a healthier work environment.

Smaller companies are especially becoming quite active in this. However the rumor is that Shell is looking for a 1000 (!) petroleum engineers and that the Majors had a bidding war over the latest crop of PE's from Texas A&M.

On the other hand (as you have emphasized over the past year) the Majors have pretty much given up on finding salvation by discovering giant offshore oil and gas fields. They are becoming (with good reason) more risk averse. More than ever, deep water prospects are being shopped around the industry. In many cases the seismic interpreters are primary salesman to other companies. If this continues, there will be major layoffs of deep water petroleum technologists; including seismic interpreters.

Second tier companies (those that have been buying fields and acreage cast off from the majors) are following diverse strategies. Many are land rich and prospect poor and their exploration people are beginning to feel the heat to prove up the value of acquisitions that were made in haste. There seems to be a divergence of opinion of the value of acquisition of of seismic data by purchase or by shooting. Those companies where reservoir engineers have gotten the upper hand are actively downgrading seismic; saying that the kinds of hydrocarbon habitats that remain are not being efficiently discovered using new
3D seismic cubes or endlessly reprocessing older seismic data. Part of this is due to a lack of success in pinpoint sweet spots in shale gas and coal bed methane exploration. However there are many brave souls out there who predict that new technology (primarily software) will once again improve the value of seismic.

Third tier and smaller companies are hiring seismic interpreters. As has been the case for the past year or so, there is a shortage of experience petrophysicists (aka log analysts) at every level of the Industry.

The minnows (including our company) are actively picking up the scraps onshore and the shallow offshore that have been left behind. For the past few years we have been basing our economics on a range in crude prices from $18 to $30 dollars a barrel. We now are guessing that the range for the next 5 years will be $45 to $65 per barrel. At that price, a 50 bbl per day well is a wonderful objective for a minnow.

None of this will be the answer to the worldwide underproduction of hydrocarbons with respect to consumption. The onshore and shallow offshore efforts by the smaller companies will to some extent reduce our balance of payments deficit. However most of us agree that major changes the energy picture are going to come about in the next 15 - 25 years--whether or not there is a sane energy policy promulgated by our betters at the helms of government.


Earning More Than Ever, Spending Less Looking For OilIt is going to be, uh, difficult to come up with oil equivalents required to fill the red area

... more or less summarizes the key point about oil industry finances in EIA's just released annual study of the largest firms. q.v. According to the report, "Higher oil and natural gas prices brought an increase in cash flow from operating activities. Cash flow from operations reached $105.1 billion in 2003, the highest level reported in the 18 years that the FRS survey has collected this information. Over the past 4 years, coinciding with higher crude oil, petroleum product, and natural gas prices, cash flow from operations has been sharply higher, averaging $28.1 billion per year more (in constant 2003 dollars) than the average from 1986 to 1999... The largest use of cash was for capital expenditures (measured as additions to investment in place). Despite the increased cash flow, capital expenditures fell $20.7 billion in 2003 (in constant 2003 dollars) although the $80 billion in 2003 was higher than all but four of the 18 years of survey data. The high level of expenditures for mergers and acquisitions of the past few years slowed significantly in 2003, falling to $11.4 billion in 2003 from $34.8 billion in the previous year." 

This is not exactly good news for those who believe that the business as usual approach just won't be sufficient to find the oil required to keep the world economy going even a dozen years out. The oil companies are making so much, they seem to be having trouble remembering why it is important to find more.  Take a look at the chart, from Exxon's web site q.v., which shows the desperately large amount of oil equivalent that Exxon and the oil industry know they MUST find to keep the world economy going just 10 years from now.  They know all too well how daunting it will be to find the equivalent of 10 new Saudi Arabias in a decade (daunting, hah!).  But the big ones, Exxon, Royal Dutch, BP, Aramco, etc. show no signs that they are making anything like the investments they know are required.

It may also be worth noting, as the industry starts to get used to the joys of $55 oil, that the real finding cost in 2003 was only $7.48 per barrel worldwide. Perhaps it is time to start talking of windfall profit taxes again, if only to get the majors to spend a greater share of their earnings on finding more oil.  It's not like there aren't a few good deficits that would be worth reducing, even at the cost of putting a dent in their post-tax cash flow that they haven't spent on finding new oil and gas.  It may also be worthwhile to decide whether the overall international oil industry, divided between a few extremely large private companies and a few extremely large state-owned monopolies, has become a bit too dysfunctional to be entrusted with the collective future.


Further into the Red Zone

Meanwhile, at least a few of the more important central banks in Asia were starting to hint that they'd thought about the advantages of diversifying away from a single reserve currency.  Keep that up, and after a time it may seem imprudent not to have diversified a long time ago.  Indeed, would you want to be the finance minister left holding gobs of rapidly depreciating dollars, only to find your counterparts had already started to make the switch? (According to published reports, q.v., "a study by the Bank of International Settlements, which acts as a bank for the world's central banks, shows that the ratio of dollar deposits held in Asian offshore reserves declined to 67% in September, down from 81% in the third quarter of 2001. India was the biggest seller, reducing its dollar assets from 68% of total reserves to just 43%. China, which directly links the yuan to the dollar and is under US ressure to allow a freer movement of its currency, trimmed the dollar share from 83% to 68% over the same period.")

Given what's at stake, wouldn't it make more sense to price oil in Euros, or better yet, SDRs, as a sop to avoid, and in lieu of some of, the incredible pain that will inevitably result if central banks become further spooked? The problem is that the adjustment mechanism, floating rates, can't work so long as it is gamed by return flows back into US treasury paper by the same central banks that now imply that they're ready to end the era. This nonsense of a rigged current account should have been stopped a long time ago by a system that depends on market signals for health, but it wasn't. If and when the former players pick up stakes and think they're going home, or think they're going to be able to sink half of their foreign reserves into Euros, it's going to be a very hard game ever to play again at anything like a similar level. Pricing oil in trade-weighted SDRs, while painful, would accomplish central energy policy objectives and be better than letting the dollar fall through the floor.


Exxon Gets A Golden Pass

OK, Pete hasn't actually read it (as FERC refuses to put it online) but since when does that sort of thing stop him?  He thinks he knows the game far too well to actually have to read the environmental rubber stamp FERC is giving Exxon's Golden Pass LNG project, q.v. so here is why FERC's staff has it wrong:

Exxon remains a fine company.  Pete has no doubt they've thought through the inherent dangers of LNG as a commodity very carefully and have responded appropriately. This will undoubtedly include planning for almost all possible eventualities involving terror attacks as well as can be done.  Even so, they just may have missed a few important considerations...


The Curious Vision of the USGS

The USGS is charged with the impossible job of assessing/guessing how much oil and gas remains to be discovered in the world.  Even though this is unknowable, with so much at stake that other more circumspect analysts shy away from the problem, the USGS does its job and comes up with a number.  Indeed, it comes up with a very large number (the sum of tables 1 and 2 for the non-US component) that at first glance is hard to reconcile with the apparent reality that the world's oil producers are producing flat out and still can't satisfy demand. If two thirds of the original planetary endowment still remains, as USGS seems to think, what's the problem? Why aren't producers producing it to let us get on with our SUV-loving lives?

As an aside, USGS's 2000 analysis incorporates for the first time the interesting concept of reserve growth.  This might be loosely defined as all the stuff the oil companies know, or sort of know, they have but don't tell you about, since their estimates are conservative and a lot can change. So if they say they have x, USGS assumes they mean about 5x.  Putting it this directly may be a little unfair because there are sometimes good reasons for reserve growth having to do with changes in economic or technological capabilities, but it gives the idea. Of course, more recently, investors have been burned by the opposite phenomenon where oil company reserves are revised downwards, but USGS still sticks to the idea that the growth is always positive and always substantial. Even more interestingly, it doesn't set reserve growth off against undiscovered resources; it just creates a new category somewhere between reserves and undiscovered resources and throws them in.Logarithmic scales

But the real problem comes with the concept of economically recoverable (or "economically perceptible" in the USGS's odd turn of phrase) . Reserves, by definition, are both known and recoverable at current market prices.  But USGS is not saying that all of the undiscoverable resources are economically recoverable or anything close, just that the hydrocarbon molecules are out there somewhere waiting to be discovered if someone gets around to it.  To give the world some idea of how non-economically recoverable the rest of the world's hydrocarbon resources may be, look at the USGS chart to the left. q.v.

The fuel for your future SUV may be out there, but only if someone is willing to go after puddles a mile and a half down and if the mysterious 'fractal' curve doesn't slip-slide around too much. Welcome to the green zone. Still, in fairness, we probably aren't there yet.  Here's the USGS estimate of the most promising regions for further development:

 

 

 

 

 

 

 


Background: Canadian Gas

Source: EIA

Looks like the beginnings of a problem? Don't worry... you probably haven't considered the extent of Canada's unconventional gas reserves, particularly coal bed methane.  According to EIA, "Coal bed methane (CBM) production is still in its infancy in Canada, with the first wells drilled only in 1997. There is a strong belief that CBM production will eventually replace the decline in conventional natural gas production: in 2004, CBM production was at 100 Mmcf/d, with predictions that it could average over 1,400 Mmcf/d by 2010. Analysts estimated that Canada has 500 Tcf of recoverable CBM deposits, concentrated in British Columbia and Alberta." [Emphasis supplied by Pete who still thinks $6.50 gas and the LNG it attracts are abominations]


Market to GE: No More Gas Turbines For A While

Source: EIA [Chart depicts index of real natural gas prices as of two years ago]


Domestic Uranium Production

U.S. Uranium Concentrate Production and Shipments, 1993-2003. Having trouble? Source = EIA

Source: EIA


Energy Department Budget

It contains the usual foolishness such as clean coal research, but steps up funding for nuclear power, which Pete favors.  Overall, it isn't worth getting too excited about either way. q.v. (pdf)


Oil Industry Finances

Everyone already knows 2003 was a damn good year.  Most profits ever, except for 2004 which would prove even better. (Keep in mind that it takes a while for the government to get the oil companies to report, so 2003 is the latest year with official data). But just how well did the biggest US companies do compared to the rest of the industry? Here is a part of EIA's annual scorekeeping (Table B25) from their report. q.v.

 2003 Financial Performance Profiles United States Foreign
 Total
Total Onshore Offshore
         
Exploration and Development Expenditures (million dollars)  
  FRS Companies 27,196.0 14,743.0 12,453.0 28,208.0
    Percent Change -14.5 -34.0 31.3 -10.1
Wells Completed        
  FRS Companies 7,886.1 7,605.4 280.7 5,687.3
    Percent Change  10.5 13.6 -37.1 5.0
  Industry 30,583.0 30,029.0 555.0 31,079.0
    Percent Change 14.7 14.6 18.3 44.6
Success Rate        
  FRS Companies 95.3 95.8 80.2 92.7
  Industry 86.8 87.3 62.9 94.1
Crude Oil and NGL Production
(million barrels)
       
  FRS Companies 1,277.8 819.2 458.7 1,753.7
    Percent Change -5.1 -5.7 -3.9 -1.4
  Industry   2,679.0 1,872.0 807.0 24,063.4
    Percent Change -2.9 -8.6 13.5 5.7
Crude Oil and NGL Reserve
Interests
(million barrels)
       
  FRS Companies 15,327.4 11,088.6 4,238.8 25,380.5
    Percent Change -3.3 -2.6 -5.1 0.1
Natural Gas Production
(billion cubic feet)
       
  FRS Companies 8,343.6 5,871.7 2,471.9 7,047.1
    Percent Change -4.2 -0.8 -11.5 0.2
  Industry 19,425.0 14,873.0 4,552.0 71,832.0
    Percent Change 0.4 1.3 -2.4 5.1
Natural Gas Reserve Interests
(billion cubic feet)
       
  FRS Companies 85,379.6 70,527.9 14,851.7 120,097.5
    Percent Change -0.5 3.5 -16.2 1.1

Note that EIA refers to the bigger companies as the FRS (for financial reporting system) companies. See the original table for footnotes Pete has omitted.


Climate Climax: Toward the Edge

Too bad global climate change won't wait until the Bush administration finally gets it: it is dangerous not just to Americans but to everyone on the planet.  The world's largest energy consumer thinks it can continue to depend on carbon-based fossil fuels, and refuses to make a real effort to change or even take the first steps of that effort. The Europeans and Japanese are starting to think the situation looks dire q.v. and, unlike the US,  are doing something about it.  All the administration has got is good old Paula Dobriansky painting florid pictures of a future that isn't going to happen, and a few minor programs to promote the appearance of change.

The administration was right to refuse to go along with Kyoto. But that doesn't mean that doing nothing is doing something. In the words of the actual report, "The vast majority of international scientists and peer-reviewed reports affirm that climate change is a serious and growing threat, leaving no country, however wealthy, immune from the extreme weather events and rising sea levels that scientists predict will occur, unless action is taken." q.v. (pdf) Everyone should spend some time considering what is really going on and who is going to end up paying....


OCS Natural Gas Resources in the Gulf of Mexico Revised Sharply Upward

 

Mean Undiscovered Technically Recoverable OCS Resources -- Natural Gas (Tcf)

Alaska OCS 122.1
Atlantic OCS 33.3
Gulf of Mexico OCS 232.5
Pacific OCS 18.2
Total OCS 406.2

Source: MMS

Interior's Mineral Management Service has determined that there is 20% more gas in the outer continental shelf portions of the Gulf of Mexico than had previously been thought. The study also registered a major increase for the Atlantic OCS, while the Pacific and Alaskan OCS provinces remained largely unchanged from the estimate made in 2000. Overall, OCS gas resources increased about 12% over 2000 levels. Since the gulf gas resources are expected to be the second largest source of additional supplies of future gas (after unconventional resources in Wyoming), the revisions are significant. q.v.

So once again, the obvious question: given that FERC has already approved two new LNG terminals, how many more are really necessary?


Aside From OPEC, Who'll Be Big in the Oil Export Business

Major Non-OPEC Countries: Estimated / Forecast Net Oil Export Revenues
 
Constant $2004 (Billions)
 

1980E

1998E

2003E

2005F

2006F

Angola $2.8 $3.4 $8.8 $14.6 $17.3
Colombia -$0.5 $2.3 $3.1 $2.7 $2.4
Egypt $6.9 $1.5 $1.6 $1.6 $1.3
Mexico $20.6 $6.1 $16.6 $21.1 $20.7
Norway $9.3 $15.1 $32.1 $37.7 $35.8
Oman $6.3 $4.2 $7.2 $8.9 $8.9
Russia $268.0 $17.0 $59.1 $88.6 $87.9
Sudan -$0.4 -$0.1 $1.8 $3.8 $4.7
Syria $1.3 $1.4 $2.6 $2.6 $2.6
United Kingdom -$0.4 $5.7 $7.1 $1.9 -$0.1

Source: EIA.  Note: links go to individual country studies on EIA website


Do Price Signals Still Work?

Rotary Rig Count - World

Won't it take more than the same 2,500 rigs to add the 9 Saudi Arabias worth of oil equivalents the world will need by 2015? Yes, yes directional drilling, 3-D seismic and all that, but how high does the price have to be just to get some more crews out making hole? The real problem is that so many components of the international oil industry are not profit maximizers. They are direct or indirect extensions of national policy.  As such, they lack the coherence and drive, whether or not they have the technical and financial resources, required to ramp up the supply curve to where it needs to be.  This is not just the fault of the commercial entities of OPEC members, or the heavy handed policies of the current Russian regime.  It is also a function of the misallocation of capital implicit in the extraordinarily high dividend/stock repurchase programs maintained by the international majors. As the crisis unfolds over the next decade, it is important that available resources be marshaled in a consistent, high-priority effort to increase supplies, rather than through the on/off behavior that follows price spikes.

Source: WTRG Economics


US Federal Debt In Perspective

Pete loves to rail against the hedonistic abandon implicit in current debt levels, but the relative situation is not that bad, according to the Congress' joint economic committee. q.v. (pdf)


Background - World Primary Energy Production By Region

World Primary Energy Production By Region

Source: EIA

The world produced about 405 quads of usable energy in 2002.  About 31% of that came from the Americas.


Energy Stalemates

Pete notes for the record that something called the National Commission on Energy Policy issued a report some weeks back called "Ending the Energy Stalemate: A Bipartisan Strategy to Meet America’s Energy Challenges."  Pete looked for it on the web when it came out but couldn't find it. It might have been a sort of semi-important report, since there sure is an energy stalemate and it sure needs to be ended. Fortunately, Pete's sources were nice enough to send in an evaluation of the report as follows: "Much to my disappointment it was weak, late, and will be better known for its production values than the significance of its content. Holldren and Sharp should have been much stronger, as they (should) know better than to publish this sort of pabulum. Their sponsors should sue for a refund.... [And what do the authors propose?] ... More research, more oil (thank god they at least recognized the tar sands, even if they were well out of date on the economics), cellulosic ethanol? more coal in IGCC 's as if they were a new thing, and the control of the oil industry was clearly apparent. Pipelines from the north and nuclear. Hell, you can read it but where is coal-based methanol? Unmentioned. New nuclear, like the cold fusion issue? Unmentioned, even if it was to be sonoluminesence from Oak Ridge or catalyst run like ONR or Los Alamos? Nobody home. Oh I forgot - improved CAFE standards as if this was a big surprise." Sigh...


Pete's Fable

There once was a town full of impoverished, good people.  One day a very grand widow moved into the formerly abandoned manse that sat on top of the hill. She brought with her a retinue of retainers of all sorts.  Soon the retainers were scouring the town looking for expensive foodstuffs and everything else offered by the town merchants. With each order, which were always well received by the merchant folk even though they never saw the widow, the retainers paid by scrip, promising to make good after the next ball at the grand house.  And sure enough, after each ball, a supply of real money went out to the merchants to redeem the scrip.  It was a wonderful system because the mansion needed a full supply of the best the town had, and that brought joy to the merchants, and through them, to everyone else in the town.  Soon the scrip had assumed the status of currency, and was universally accepted by all.  A few skeptical merchants demanded money at first, and whenever they did, it was always paid, but all eventually agreed that scrip was just as good.
 
The town flourished. The grand widow grew old and no longer attended the balls, which were held with diminishing regularity. No one noticed.  Each member of the merchant class grew prosperous and fat and had substantial accounts full of scrip. All of the townsfolk lived well and in peace.
 
And then one day an outsider showed up, and, with his faithful sidekick Pete, moved into a suite of rooms at the now luxurious hotel. The two wondered the streets by day marveling at the industrious merchant folk, and spent each evening in the local pub questioning the folk about how they had achieved such a wonderful prosperity. At length they formed a special friendship with the butcher's son, who was a bright lad and well versed in both the ways of the town and the theoretical underpinnings that supported it. The two being cold, calculating types, they were soon able to instill in the lad some doubt whether the old lady was still alive and if so whether she could still be solvent after so many years of excessive spending with no visible income, and pointed out that there had been no ball for many months, and that no one had been paid real money by any of the retainers for some time, and anyway, most of the retainers had grown old too and had moved away. The lad pondered these things and was sorely troubled. Still he saw no cause for alarm, but thought it would be worthwhile meeting with the two outsiders again to hear what they thought best to do next.
 
Do we a) tell him to sell all the scrip he can find for real money and head for the exits; b) keep the faith and let it go?

Gulf of Mexico Gas Production Continues Decline

Source: Mineral Management Service

Since the Gulf of Mexico is the single largest source of oil and gas for US domestic consumption, the decline in OCS production at a time of record prices is a cause for concern.


US Contribution to Global Climate Change Continues to Grow

...but for those who like to pretend the administration is doing something about it, note that the dollar intensity of our contribution to global warming continues to decline.


EIA Gets Religion

... sort of. q.v.


Dance of the Real Estate Moguls

Everyone who owns a house thinks they're getting rich whenever housing prices take off. Consider the latest news from one A. Falcon, Director of OFHEO (more formally known as Office of Federal Housing Enterprise Oversight but usually known as the guys at HUD who oversee Fannie Mae and Freddy Mac):

But everyone is not getting richer, whatever their mortgage lenders may say. They're just living in that peculiar shadowland that so far has characterized the new millennium -- the purgatory of waiting for the bubble to burst when real interest rates inevitably start to rise.  They're only going to get rich if they sell out at the top before it bursts and if they manage to find someone to rent from on a short term basis while housing prices fall. Pete, who's only seen housing prices go north, is still convinced there's nothing to guarantee they can't go the other way, given the profligacy of the administration.


Dance of the Belgian Dentists

You can't say Pete didn't warn you about this -- for years he's been convinced the Belgian dentists* were just about to stampede for the exits, even though year after year they continued to sit demurely, look at their dance cards, and wait. OK, even now maybe they are only beginning to glance nervously toward the doors, and there is no headlong rush yet. Maybe they are assembling just to waltz serenely around the room once more, but watch out when the music stops and the lights go out, thinks Pete.**

*That is, everyone from some other currency who prefers to hold assets in dollar form. **In the interest of true confessions and full disclosure, Pete admits to a certain fondness for European government bonds.

Background -- Which OPEC Members Supply the US?

Imports From Selected OPEC Countries

Source: EIA


Spencer Abraham Resigns

His only accomplishments were to watch as oil and gas prices hit all-time peaks and domestic oil production sunk to levels not seen for more than a generation.  He didn't get a energy bill through, despite having majorities in both houses.  He made no real progress with climate change, energy demand, or energy supply. He continued the process of turning the Energy Department into a prime source of legislative pork, and left it coated with even more useless layers of bureaucracy. He wasn't a bad man, and wasn't nearly as inept as Reagan's dentist, but he continued the long tradition of second-rate, ineffective energy secretaries.


Exxon's Take on Asian Demand

For the first time, ExxonMobil has made public its thoughts on how much oil the world will need by 2030. The following excerpts are taken from a recent speech made by its chairman, Lee Raymond, to a Chinese audience with an emphasis upon satisfying Asian demand:

As always, it is better to read the full speech, which can be found here.  A similar audio presentation made by Rex Tillerson, President of ExxonMobil, is also well worth listening to. q.v.

Mr. Raymond does not exactly make clear how many of the needed 10 Saudi Arabias he may be sitting on or otherwise think the international majors have a chance of finding. Not too many, thinks Pete. Mr. Raymond may also want to double check his math, since the company already established in correspondence with Pete some time ago (q.v.) that the world will need 9 additional Saudi Arabias just to get to 2015.  Seems unlikely the world could get fifteen years even further down the road by only adding one more.*

But there should be no disagreement with his conclusion that meeting 2030 petroleum needs will be a challenging job indeed.

*Curiously, while Mr. Tillerson's presentation contains a slide that purports to carry the analysis underlying the number of Saudi Arabias question to the year 2020, instead of 2030, both the slide and all discussion of the issue are missing from the referenced supporting document on the Exxon web site.


China and Iran Sign Enormous Gas Deal

The deal is said to be either for $100 billion or $200 billion of LNG over a ten year period, and comes after China has also just agreed to pop $3.5 billion for a pipeline from Kazakhstan. q.v.  Once again, the US's ham-handed sanctions have been bypassed.  Meanwhile, the US may be attempting a rapprochement with Iran in its own cautious way: the librarian of Congress is visiting Tehran. Dr. James H. Billington, is leading a small delegation that is discussing prospects for exchanges with the Iranian national library. At this rate, the US will be lucky to get a crack at the scraps of South Pars, but only if it returns the library books.


Germany: It's An Ill Wind That Blows No Good

Wind Turbines and Installed Capacity in Germany, 1990-2004 graph.

Bush's re-election may have laid to rest any prospect of sustained renewables development in the US, but Germany has continued to move aggressively toward the target of using renewables for 20% power production by 2020 (with a long-term goal of providing at least 50% of total primary energy consumption by 2050, which is either beautifully idealistic or just plain lunatic, depending on your point of view*). The massive scale-up of wind has brought it to the point where more than 5% of electric power production comes from this source, which makes Germany first in the world.  EIA has just published an analysis. q.v.

*Pete heard from Swiss energy legislator Rudolf Rechsteiner who suggested that 50% is not only possible, it is easy. Here is a link to Mr. Rechsteiner's Ten Steps to a Sustainable Energy Future (pdf).


McKillop on Oil Prices

Oil prices may be off their recent highs, but no one knows for how long.  Andrew McKillop has been considering the implications of higher oil prices for the inevitable transition away from fossil fuels that must occur at some point and he offers his thoughts below.  [Excerpts appear here and a link to the full paper follows]

...Far from ‘hurting’ economic growth, therefore, higher oil prices in 2004 have at least in the real world, real economy been associated with ever rising economic growth trends. Inside the essentially deflationary and slow growth OECD bloc, however, oil price rises to beyond about 75 USD/bbl will likely create a ‘deflation shock’, able to cause a large fall in economic growth rates.

Since about 1994-96 world energy and oil demand growth rates have increased from previous, exceptionally low annual rates. Following the 1998-99 approximate tripling of oil prices, this trend of ever increasing energy and oil demand growth has continued and amplified. This ‘demand shock’ is due to a number of resource, economic, energy-economic, social and technological reasons. In the absence of grave economic recession, which can be quickly triggered by fast and large increases of interest rates, energy and oil demand growth rates are likely to remain high. Current short-term ‘trend growth rates’ for world energy and world oil demand are about 3% for oil and about 3.5% for energy on an annual basis. The longer-term trend rate for oil is at least 2.5%/year as a median value.

The ‘cheap oil interval’ of 1986-99 was an anomaly from many perspectives and for many reasons. One key reason is physical depletion...

...In theory the ‘price signal’ of higher oil and energy prices must be present if a range of goals stretching from intensified activity in exploration-development of conventional and depleting fossil fuels, reduced greenhouse gas emissions, and concerted moves towards ‘energy independence’ are regarded seriously. If they are not, or they are denied as being of any importance this can well explain the basic unpreparedness of large oil and gas consumer countries to accept higher and more stable oil and energy prices. Piecemeal measures, including hastily developed ‘strategic oil reserves’ will have little leverage in a context where any interruption in supplies, of more than 5% or so for under 6 months, or depletion linked failure of world production capacity to match demand growth over 2 years or less, will very certainly create an inextricable crisis. ...

...Because of depletion, but also because of environment and climate limits, energy transition away from fossil fuels must and will happen. Price signals, in the existing economic system and framework, are needed if this is to start, and to build from the immediate near term. Existing and developing frameworks provide by the Kyoto Treaty offer some potential for adaptation and direction to the task and goals of energy transition.

Click here for the analysis.


Muddled platitudes from the new energy secretary. q.v. Give him the honeymoon break: let's pretend what he said was not a restatement of the obvious, badly put.

EIA takes a crack at figuring out what trading mercury credits will do for the coal industry. q.v.

Tabletop fusion, again. q.v. (NY Times)

OPEC's official explanation of what is going on. q.v. (PDF) Perhaps some comfort can be taken from, "Assuming that oil demand would continue its steady growth, OPEC is committed to making the necessary investments to maintain spare capacity in the years ahead." Or, "As always, OPEC Member Countries will continue to closely monitor the
market and stand ready to make the timely and necessary decisions to ensure adequate supplies consistent with robust economic growth, in particular in the
emerging economies of the developing world." Or perhaps not...

Some indication of the relative unimportance of energy and security for the Bush administration can be inferred from the fact that no one has bothered to update the State Department web page on the topic  q.v. since good old Colin what's his name was secretary. What remains would serve as prime an example of meaningless blather as can be found. Unfortunately, this lack of substance also applies to the section on oil geopolitics, even though it was written by a specialist who presumably knew more than he/she let on. q.v. Meanwhile, the current secretary was gushing on about "marches to democracy" and the "forward advance of freedom." q.v.

GM-Europe's study of possible future fuel pathways and their greenhouse gas emission consequences. q.v.

Canadian oil sands: net energy issues and other problems. q.v.  See also the Irish analysis of methanol vs. hydrogen. q.v.

The subsidy for deep gas in the Gulf of Mexico. q.v.

The US Department of Defense and fuel efficiency: antithetical concepts? q.v.  Keep fighting those energy wars....

Spain sells arms to Venezuela q.v.

The Israeli lobby, spying, and undue influence: was the federal civil service fighting back against improper influence by members of the political class? q.v.

As he does every year, Pete asks that you doff you caps and raise your glasses in honor of Calouste Gulbenkian, born March 29, 1869,  who was clever enough to be awarded 5% of middle east oil revenues for suggesting how to keep excess capacity off the market.  Would there was some excess capacity to divvy up these days.

Philip Agee's view on US policy toward Venezuela. q.v.

Are the Kurds getting ready to make their move: declare an independent state based on oil revenues from the Kirkuk field? q.v.

Lee Raymond of Exxon on oil prices. q.v.

Has Japan beaten the US on alternate fuels too? Not only is their auto industry way ahead of Detroit on fuel efficiency, the Japanese are making serious strides with photovoltaic homes. q.v. (pdf)

Saudi Arabia, worried that oil prices are too high, offers to increase production. q.v.

India and Pakistan play through ... more or less ignoring US anti-Iranian regulations. q.v.  But see this too.

That bastion of American capitalism, GM, is being valued by the stock market at levels suggesting it is never going to recover in the new world of $50 oil.  We all know that had it been smart and correctly anticipated the oil situation, it would have been a lot closer to rolling out hybrid vehicles.  But it wasn't that smart and is now paying the price, apparently also because of a misplaced belief it shared with the current administration that hydrogen cars would be the next big thing.  So it goes .... Ford is being treated nearly as badly by the stock market....So as the overall market approaches new highs, it seems to be without the former flagships of the industrial sector, suggesting someone has to sell one hell of a lot of computer chips.

Would someone be kind enough to explain to Ambassador Brownfield, who is supposed to represent US interests in Venezuela, that the loss of 1.5 million barrels per day would be damn serious for the US economy, and couldn't be made up from other sources in the near term, and that he would do well to stick with Washington's official line  that the Venezuelan leader's apparent belief that the US is trying to assassinate him is "ludicrous," rather than implying it would be easy to pull off. q.v.

Warren Buffet points out that the US is heading for a 'sharecropper' society rather than an 'ownership' society. q.v. Ah well, what's a few trillion between friends?

Even though it's just comic relief to Pete, consider one law firm's analysis of why the do nothing approach to corporate greenhouse gas emissions may not be best. q.v. (PDF) You too can profit from the eventual political fix ...

Recent work at the IMF on oil modeling, especially the inverse link between exchange rates and oil prices. q.v.

Realist view of what is happening to the US oil industry.  q.v.

The war in Chechnya has begun to spread.  Russia's problems with militant Islam grow worse. q.v.

CNN alleges that the US condoned Iraqi oil smuggling. q.v.

CIA retroactively determines Iraq abandoned WMD in 1991. q.v.  Titch titch

Sandia National Lab's analysis of LNG safety q.v. (pdf) and FERC chairman's reply. q.v. (pdf)


BP on Oil Prices

.... The level of demand will determine how much spare capacity will be available. For example, if demand growth goes back to a level of around 1.3 million barrels a day per year, which is the historic average, then by the year 2008, assuming no further geopolitical or other disruptions, global spare capacity should return gradually to the more normal level of around 3 million barrels a day.

OPEC would need to keep its production only slightly above 2004 levels and so most of the growth in OPEC’s production capacity would increase the amount of spare capacity available.

Lower demand would increase spare capacity further but if demand were to continue to grow at this year’s level the world would have no spare capacity.

These numbers appear rather precise but of course there are still remain uncertainties as to the growth in supplies from both OPEC and non-OPEC producers.

What conclusion can we draw from all this? First, it seems that on the basis of the recent track record and the supply-demand balance, oil prices have a support level of around $30 a barrel for at least the medium term, underpinned by OPEC discipline and their needs for revenue.

Prices could spike above this level if demand strength outpaces the rate at which additional production capacity comes on stream each year. ....BP


Does Exxon Do Enough? - 2

John Barnes has written in with an opposing view on the question of whether the majors are doing enough:

In your comment about Exxon not doing enough (and this would also apply to most other companies in the business), I don't think that you give enough attention to the massive loss of people in the industry (and the related experience) during the long downturn in the industry (as I recall it was around 500,000 -700,000 people). While it takes a lot of economic resources to discover and exploit oil reserves, the most significant resource needed is people and expertise, which are in much lower supply than was the case 10-15 years ago. The most significant limit on expanding exploration is people resources and expertise, not the expenditure of money. Try hiring a PE or petroleum geologist with 10-15 years of experience these days.
 


Miscellany

"...The question then becomes one of how much governments and the consumer are willing to contribute to the incremental costs of fuel cells during the market development phase. We estimate that, depending on the rate of cost reduction after fuel-cell vehicles are
introduced, it could cost US$1 trillion or more to cover incremental vehicle costs before fuel-cell vehicles become independently competitive in the market. Costs this high may prove to be unacceptable to businesses, governments and society, suggesting that most of the needed cost reduction may have to occur before significant market introduction and mass production of vehicles. ..."

--Lew Fulton, IEA, Reducing Oil Consumption in Transport

"Given the rapidly escalating price of gas, there are sound economic reasons to question whether pipeline discounting should be encouraged at all. A fundamental premise of allowing discounts (and a discount adjustment) is to meet competition from alternative fuels and encourage end users to use more gas. However, in an era when conservation is key and end users need to receive accurate price signals, does the Commission really want to continue to encourage pipelines to shield the rising commodity price of gas with transmission discounts?

Equally important, inasmuch as the delivered price of gas paid by end-users reflects an increasingly smaller percentage of transmission costs and an increasingly larger percentage of commodity costs, transmission discounts are becoming less valuable as gas commodity prices continue to rise. This raises the question, why should all the pressure and burden of competing with alternative fuels fall upon the pipeline, when most of the delivered price of the gas is dependent on the commodity price of the gas which is controlled by the gas commodity market? Indeed, the Commission’s policy of reimbursing pipelines for the entire cost of their discounts only provides the producers with less incentive to discount their commodity prices. Therefore, Staff’s primary recommendation is to eliminate the pipelines’ ability to selectively discount."

-- FERC staff brief q.v.