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


The Problem List Grows Longer

Back in the days when there actually was a military industrial complex, and the idea that a firm like, say, Halliburton, was in any way a key part of it was laughable, many powerful people would be getting a bit nervous looking at the geopolitical state of play.  Here for instance is EIA's list of hotspots where petroleum is produced and an indication of what the problem is or will soon be. 

Country/Region Strategic Importance/Threats
Algeria Armed militants have confronted gov't forces
Bolivia Large reserves of NG (24 Tcf), exports may be delayed due to controversial new laws unfriendly to foreigners
Caspian Sea BTC [pipeline] opened, many ethnic conflicts, high expectations for future oil production, no maritime border agt.
Caucasus Region Strategic transit area for NG and oil pipelines
Colombia Destabilizing force in S. America, oil exports subject to attack by protesters, armed militants
Ecuador Unstable politically, protests threaten oil export
Indonesia No longer a net exporter, separatist movements, Peacekeeping forces in place, Violence threat to Strait of Malacca
Iran Even though no direct imports to US, still exports 2.5 million bbl/d to world markets
Iraq April 2003-May 2005 - 236 attacks on Iraqi Infrastructure
Libya Newly restored diplomatic relations, Western IOCs not awarded contracts in 2nd EPSA round
Nigeria High rate of violent crime, large income disparity, tribal/ethnic conflict and protests have repeatedly suspended oil exports
Russia 2nd only to S.A. in oil production, Yukos affair has bred uncertain investment climate
Saudi Arabia Long term stability of al-Saud family, Western oil workers subject to attacks
Sudan Darfur crisis & N-S conflict threatens government stability, security of oil transport. 
Venezuela Large exporter to U.S., President Chavez frequently threatens to divert those exports, nationalize resource base

Source: EIA

Meanwhile the remains of the military-industrial complex are still turning out useless anachronisms like nuclear submarine missile platforms.


The Fix Is In, Or How Pete Took Over the Plunge Prevention Team

We all agree these are perilous times. A national catastrophe has occurred and the market has yet to fully digest the implications of living without an appreciable fraction of its oil and gas, let alone that fraction of supply and demand generated along the gulf coast.  Ugly rumors surface about the extent of the bankruptcies and disruption that will inevitably happen. It is said that shadowy meetings at the Federal Reserve are mapping a way out, or staunching the damage, or what? Who knows?  A group in Canada has charged that the US government has been actively intervening in the stock markets to prop them up. qv1, qv2. The charge is that an elusive, secret group inside the US government, known as the Plunge Prevention Team and established by Treasury Secretary Robert Rubin during the Clinton Administration (now with Citigroup), has played an unspoken but very significant role in maintaining our collective financial well being. You may well wonder how Pete ended up its chairman. [continued]


Estimates of Louisiana off-shore damage are in. q.v.

Jim Schlesinger on energy security. q.v.

Chinese pipeline play. q.v.

Saudi Arabia has at long last joined the World Trade Organization. q.v.

DOE solicits public comment on whatever it is that's happening to natural gas supply and demand. q.v.

Progress toward hot fusion. q.v.

The circus comes to town: the political class drags before itself the rich, hapless pirates from the oil patch. Will  some one please say they're sorry and look sort of sincere about it? Note to Congress:  force majeur is not the same thing as price gouging.

What's an oil minister here or there? Iran has gone through four of them in recent weeks.

NY Times begins to understand the dangers of natural gas this winter. q.v.

The Saudi oil minister on the need for additional  oil deliverability  q.v. That is, Exxon, BP, Shell: build some refineries with some of your loot.

On not confusing current petroleum market conditions with peak oil. q.v.

Greenspan may have whipped deflation but can Bernanke master the consequences? Grant warns. q.v.

What is the North Atlantic oscillation and who will it be keeping cold this winter? q.v.

Why the dollar didn't tank-- it seems Congress offered a one-time amnesty-like provision that allows multi-nationals to repatriate foreign profits at a special low tax rate. q.v.

Good jumping off point with links to many of the important things happening in Canadian energy. q.v. Pete's view remains that while Canadian coal seam methane can't save us this winter, it can make the next decade a lot better by reducing the need for so much LNG.

State energy officials on the need for a greater federal role in getting people through the winter. q.v.

State by state laws or proposals on price gouging. q.v.

The American Bankers Association reported that consumer credit card delinquencies reached a record high. Nearly 5% of accounts were delinquent in the second quarter. What will $3 gasoline and $14 natural gas do? Well, you can always refinance the house again, right? Yes, but be warned: Alan Greenspan appears to have decided that he was wrong all along and there really is a housing bubble.  qv1 qv2 qv3 Too bad he won't be around when it bursts.

Foreign oil firms doing business with Venezuela have a new partner who's in for a 60-80% share. q.v.  Guess who? Maybe windfall profit taxes really aren't all that bad after all.

On historical forecasts of resource exhaustion. q.v. (Pdf)

Russian government consolidation of oil and gas positions continues. q.v.

GM recently purchased to full pages of the New York Times to announce that it had nine cars available for consumers that get more than 30 m.p.g.

The Iran oil bourse, whatever that may be, will price oil in Euros. q.v.

Liquidity floods: how many know that the Bank of Japan's balance sheet is now the size of 30% of Japan's GDP? q.v.

"The average US family spends $1.22 for every dollar it earns, has 13 credit cards and $9,312 in credit card debt – twice as much as 10 years ago, according to CardWeb."

-cited by S. Schurr q.v.

"The reality is that the cost of energy in real terms is less than it was 25 years ago, even with crude prices at $40 or $50 per barrel."

-- Lee Raymond, Exxon


Now is the Winter of Our Discontent (5): Natural Gas Prices Spike to Record High

Source: Climate Prediction Center

Staying balmy.


Energy Expense as a Percent of GDP

Just the beginning?

Source: EIA

Anyone can rack-up popularity points while the ratio is declining, but who can govern when it is not?


Oil Prices: Geopolitical Spin

It has always been Pete's policy to steer clear of the political currents affecting the Arab-Israeli conflict, divisions within Islam, and so forth.  But readers in the rest of the world who wonder how the American public can support such peculiar policies in the middle east may find the PBS production, "The Road to 9/11" interesting, if only as an instance of a flawed attempt to set the mental weather. Even though most of the show is a fairly standard recital of recent history, there is a troubling overlay that purports to explain that history. (Hint: Islamic fundamentalists are nazis at heart and the Saudis are the bad guys). The trouble is that it works all too well. 


Oil Prices: How Much Is Too Much?

Leigh Yaxley, a Petroleum Engineering Manager based in Indonesia, has sent in an analysis of the issue. q.v.  He suggests that the key ratio is the percentage of GDP spent on net oil imports. Based on the economic downturn following events in the late 1970s / early 80s, he believes that a sustained period where the ratio exceeds 1.5% will bring on stagflation.*

*It is worth noting that Saudi Arabia may have a similar view, as it has taken unilateral steps to reduce the selling price of its marker crude. It also should be noted that net oil imports currently account for a smaller fraction of total imports than they did in 1980.


Oil Prices: Who Said $70 Oil Was a Good Thing?

Oil prices mckilloped up through $70 / bbl. and the economy refused to tank, just as the master* predicted.  While a few observers noticed the fed had thrown caution to the wind and had its collective foot no where near the hose, one must give credit where due.  The new oil price regime was undoubtedly helping provide some incentive to transition to whatever comes next and as far as anyone knows, the economy, if not booming, was certainly holding its own.** So McKillop had been right all along.

Regrettably, Pete, last seen cowering in the shadows with both hands protecting his head and muttering something about the sky falling, was not his usual magnanimous self and refused to acknowledge McKillop's obvious prescience. He had just bet the farm on Walmart puts (metaphorically, that is), and was too busy pondering the damage to energy infrastructure q.v. to notice.

*Andrew J. McKillop, author of Why We Need $70 / Barrel Oil q.v. Price Signals for Energy Transition q.v. etc. that appeared on these pages several years ago. **Second quarter 2005 GDP was growing at 3.3%.


Background - US Energy Production and Consumption

Energy Production in the US Economy

US Per Capita Energy Consumption

Energy Production by Major Source

Energy Consumption per Person
Energy Use per Dollar of Real Gross Domestic Product
Energy Use per Dollar of Gross Domestic Product

Source: EIA


IMF's Quick Guide to Parts of the US Economy

Who needs to save when you can go into debt up to your eyeballs?

The juicy parts, in Pete's view. Of course, the real picture is far more complex. See the full report. q.v. (pdf)


From a Future History

"...There is no support for the idea that the First Energy War was caused by the impotent Energy Policy Act of 2005.  Whatever its obvious deficiencies as policy, the act represented the best the US political system could offer after years of trying.  The problems it failed to address were neither new nor difficult to understand technically, but they lacked a politically tenable solution. Over-reliance on fossil fuels had been ignored for a generation, and the situation was passed down from one Congress to the next with much hand wringing but without noticeable change. Quite simply, there was no constituency for the drastic revamping of American life that would be required to deal with either the coming petroleum shortages or global climate change.  The people who had fashioned a totally new way of life following World War II, based on removal of transportation constraints and cheap energy, proved incapable of adjusting to life not only without SUVs and the suburbs, but above all without secure and reasonably-priced energy supplies. When the act at last was signed, to no fanfare, the economic system shrugged and sent energy prices even higher. However clear and long-standing the warnings, Americans continued to live as they always had.

US democratic institutions retained a superficial semblance of functioning throughout, but had already failed at a deeper level, particularly the links between the economic and political systems.  The economic damage caused by the inexorable redirection of capital and savings away from the advanced elements of the American economy back into the primitive energy economy grew worse over time until little could be done to correct it, even though the domestic energy sector was incapable of providing a remedy.  The famously flexible economic system that had always managed to adjust to each new situation, and had just embarked on globalization in the fullest sense, grew less and less capable of providing what Americans had come to expect once resource constraints took hold. Levels of debt reached record proportions and continued to grow without corresponding increases in real income, external payment flows gradually hardened into structural disequilibria, the pension system started to fail, bankruptcies grew, interest rates rose, and the dollar threatened to collapse. Added to the chaos was an ineffective war undertaken in the mistaken hope that the components of Islam could be remade into democratic pluralist states.

The initial financial crisis struck toward the end of 2009, but it was the military crisis that followed two months later that caused events to spin out of control.  For more than two decades, the governments of the oil importing countries had been laying plans for just such an eventuality. Finally, for reasons still not clear but having to do with fear of inadequate future petroleum supplies, the Indian intelligence service used a false flag operation to induce Iranian terrorists to detonate a radiation device in Washington, DC. Without hesitating, the Americans moved residual troops from Afghanistan and Iraq to seize oil facilities in southern Iran and throughout the Middle East. However, the Americans were taken off guard when the Chinese quickly dropped troops into Indonesia, western sections of Kazakhstan, and portions of Siberia. The Europeans, Russia, and Japan followed these events with a general mobilization and demands that China and the US withdraw. Within days, the situation lapsed into a bitter stalemate which lasted for several months as the Americans pieced the real story together, but behind the scenes two makeshift coalitions were being formed. ... "


What Kind of Handshake Is This, Anyway? - 2Buying up the tar sands ain't exactly as good as buying up Gahwar, but it'll have to do for the next generation.

Must be one of those "We'll supply the money, you supply the oil" handshakes. Presumably that's the reason US Treasury Secretary Snow is shown with Canadian Finance Minister Ralph Goodale at the oil sands facility at Fort McMurray, Canada instead of US Energy Secretary Bodman. But who'll supply the natural gas?

Pete hopes this doesn't mean Secretary Bodman has already attained the obscurity that his recent predecessors achieved.


The Growing Capacity Dependence of the US Refining Sector

As US petroleum demand has grown, there has been a decline in the portion of petroleum products supplied to the domestic market that was refined by US based capacity. 

US Refining Sector: Refining Capacity v. Actual Petroleum Demand (Thousand Barrels per Calendar Day)
  Crude Oil Distillation Capacity Petroleum Products Supplied Percent of US Demand Refined by US Capacity
1980 17,988 17,056 105%
1985 15,659 15,726 100%
1990 15,572 16,988 92%
1995 15,434 17,725 87%
2000 16,512 19,701 84%
2005 17,125 *20,700 83%

* estimated.   Source: EIA1 and EIA2

There are many potentially valid commercial reasons to import product refined abroad, ranging from lower labor costs to the absence of EPA regulations.  But there are also national security consequences and potential regulatory problems when the lack of adequate US capacity causes prices to spike as happened earlier this year.  The growing use of off-shore refining is in itself a form of energy dependence, but unlike crude oil dependence, is a potential source of weakness that can be readily addressed by government policy.* **

*As Jim Williams has pointed out, these numbers are probably understated.**Apparently, Sec. Bodman agrees, perhaps a bit late. q.v.


The Reality Facing Ethanol and Biodiesel

The problem with ethanol and biodiesel is not that they don't work: in the right configuration they both work well as fuels.  The problem is they consume more energy in production than they make available as fuel. q.v.  According to the referenced study,

There's nothing new in this; the net energy problem has been known for a long time.  But subsidies to grow plants for fuel remain wildly popular politically, however much they cost, because most other agricultural subsidies are scheduled for phase out, and people love the idea of using renewable plants to replace non-renewable fossil fuels. And so there is always a very vocal segment pushing the strategy despite it's inability to produce fossil fuel savings. Unfortunately, Congress has yet to catch on, much like the businessman who thought he could make up a unit loss per item by increasing sales volume.

Nick has written in to suggest that readers may be interested in some of the links mentioned in the article that draw different conclusions, "...In the first, we have, 'In the United States, ethanol yielded only about 10 percent more energy than was required to produce it...' which is at variance with the article you linked to. [The article] adds, ' in Brazil, where a different process is used, ethanol yielded 3.7 times more energy than was used to produce it.' Interesting. The second article is about a new process that, '..will allow ethanol to become economically competitive with fossil fuels for the first time.' Also, 'His ethanol genes served to redirect the digestive processes in these bacteria to produce ethanol at 90 to 95 percent efficiency.' "

*Pete apologizes for originally putting methanol when ethanol was meant.


Getting Deep Gas Right Instead of Getting LNG Wrong

The US energy jones is about to start getting really nasty. The petroleum industry and the government, having totally misunderstood as recently as 2000 what was going to happen to the natural gas supply beginning now, are really panicked.  Several dozen crash LNG projects are all on the fast track, being considered by good old FERC on a myopic case by case basis, and pretty soon a growing part of the natural gas 56 million American families use to cook their food and heat their residences will be brought in (at what threatens to be ungodly expense) from the same unstable regions that provide export oil.  But unlike oil, where bidding up the price can resolve any short-term supply problems, natural gas dependency is fraught with danger.  Miss a half dozen shipments through political action or terrorism or what have you in the early stages of a bad winter, and suddenly not just the region where those supplies were destined, but the system itself, that has a big, big problem. And it's not the sort of problem you can buy your way out of, or send in troops to cure.  True, there is already a small trade in LNG and it has worked out fairly well, but that doesn't mean much. LNG is not the sort of dependency a rational government would ever choose. Nor has the government set aside any natural gas in the equivalent of an emergency reserve the way it has done for oil, despite the more dire consequences.

The point is that there are alternatives. The first is to relieve some of the demand pressure on the system by getting as many electricity producers using gas year round off the system as soon as possible. This can be done by requiring all new and larger existing non-seasonal gas-fired turbines to demonstrate actual alternative fuel capability or other replacement capacity. The second is to try and figure out what, if anything, is happening to traditional proved reserves.  On the books, at least, gas supply is a non-problem over the near term, made even more of a non-problem by prices persistently higher than $5 per mmbtu over the past several years. According to the formal reserve accounts filed by petroleum companies for years, there should have been plenty of conventional proved reserves to get the US through at least the start of the new millennium, so where are they? Who's playing games?

But the most import thing to do is use available non-conventional domestic supplies including those most people know nothing about. Of the non-conventional supplies, the most important is gas trapped in tight sands in Wyoming and other parts of the west. The importance of this resource for the future is already well understood, and sufficient efforts are being made to develop it. 

This, however, is not the case with shallow-water deep gas (sometimes known as geopressurized methane; others call it deep shelf gas).  This is gas, at least 55 Tcf worth in the federal offshore, drilled from platforms located at water depths of less than 600 feet, but only accessible by drilling to 15 thousand feet or more.  The onshore amounts are not known but are also believed to be substantial.  Drilling that deep is very expensive, and the same technology that guides drilling choices in conventional geologic structures doesn't apply in quite the same way since the methane is not trapped in rock but dissolved at great pressure in the brine, so the risks are far greater. Even so, there are lots of companies that either have deep shelf projects (Anadarko’s Hickory, El Paso’s ST 204, and Shell’s Alex Discoveries) or are just starting them (McMoRan’s “JB” Mountain and Mounds Point in South Marsh Island). This resource should be given top priority.  Interior's Mineral Management Service already has special incentives, q.v., but more companies, including those fronting big LNG facilities, need to be involved. It should be possible to quickly boost production from this source and rely on it until the new pipeline from the north slope can be built.*

And while at it, why aren't restrictions removed so someone can drill that humongous amount of conventional gas lying off the gulf coast of Florida?  Once that has been done, then we can talk about the 600 Tcf of Canadian coal seam gas waiting to be developed, or the 100,000 Tcf of gas hydrates that could/might also be used.  There are many alternatives that can staunch the threat posed by LNG and they need to be brought on line as the need develops.

*Peter Hunt writes with the fascinating suggestion that readers wishing to know more about deep gas recovery should read the original oil company patents qv1, qv2 on how it can be done and what proportions will be recovered. He agrees that it's a cheap bet that should be reexamined.

 


Background - Expected World Natural Gas Consumption

World Natural Gas Consumption, 1980-2025 (Trillion Cubic Feet)

Source: EIA


Background - World Crude Oil Production 1973-2004

Souce: EIA


End of the Line

Time to add some more capacity

Source: EIA

That capacity factor can't go up forever, so time to add some more capacity -- a lot more as part of an overall electrification strategy, thinks Pete.


Exxon's Quick Guide to Future Oil Demand

Let's see, was that assuming $40, $60, or $80 oil ...


China Buys Into the Oil Patch?

With the US Congress busy thinking up protectionist schemes to apply against China for buying too much US treasury paper instead of converting trade surpluses back to yuan, China's national oil company offered to buy Unocal for $67 all cash per share. q.v. Chevron thought it had already bought the company with its $62 cash and stock bid the previous month.  While only 27% of Unocal's oil reserves are in Asia, 67% of its natural gas reserves are there, and they are thought to be the interesting asset for the Chinese. But who knows, it may be the oil, which may cause Congress, after the apoplexy dies down, to politely explain that this isn't what they had in mind. But it raises the question: what are trade surpluses if not a claim on US assets, and since when can't the new owners of assets sell those assets wherever found and send them to wherever they choose? Too bad for US geopolitical interests in Asia, but the disadvantages of having neither trade equilibrium nor an energy policy are becoming all too clear.


When in Doubt, Sue

Not having an inkling of what to do about $60 oil, the US Senate has threatened to direct the Justice Department to sue OPEC. q.v.  Ah, the political class strikes again. Brilliant.*

*Of course, it's deja vu all over again.  Try entering 'OPEC antitrust' in the Google search for Pete's flip-flopping opinion back in 2001 (see, Unsung Hereos).


Poor OPEC

With oil prices hitting new records, Pete was at a loss for something sympathetic to say about oil exporters.  So he turned to EIA, and discovered just how tough the cartel business can be:

OPEC -- Per Capita Crude Oil Export Revenues (Constant $2000) graph.

O for halcyon days of yore. *

* Pat Murphy writes in with the observation, " Your chart showing oil revenues per capita in OPEC would be even more interesting if it showed the per capita total income and the per capita total income of the major oil importing nations. It would give the Arab point of view. "  To which Scott Wilkes offers, "I would like to see two charts:  One chart showing the Saudi Royal Families per capita income from crude oil exports.  The second chart showing non-royal families per capita income.  That, Pat Murphy, would give the Arab people the proper point of view. "


Sorry State of Iraq's Oil Industry

Things ain't what they used to be ...

EIA reports that Iraq may possibly return to the export capability that existed prior to two wars with the United States, but it will be years before it happens. q.v. A combination of mismanagement, war damage, sabotage, and bad luck has plagued petroleum operations and only a return to peace and the preconditions required for major investment can help the situation.  But when the investment is made, it should be profitable, as Iraq has the potential to be one of the world's least expensive producing regions.


Background: GM's Hourly Work Force

-1991: 258,700

-1993: 235,240

-1997: 160,000

-1999: 148,000

-2001: 126,000

-2004: 111,000

But that was before GM announced a further reduction of 25,000. q.v. Don't worry, all you laid-off UAW guys, your pensions are secure and we're all earning the benefits of globalization, right?


The Problem With Nuclear Power

At long last, there are signs that the system is finally beginning to catch on -- if you want even the possibility of limited energy independence and think something major should be done about global warming, the only reasonable policy is nuclear power. The time is right: the major difficulty with nuclear is that it is highly capital-intensive to build the plants, but capital can be rented free in real terms these days. The last time the industry was looking to expand, around the time of Three Mile Island, short-term money was going for 18%. Also, the vaunted alternative fuels for generating electricity turn out not only not to be abundant, they are in critically short supply and are priced accordingly, to the point that it is a real waste to burn say natural gas to generate electricity, or run city buses, or any of the other stupid ideas of the 90s.

The problem with nuclear is not that it doesn't work extremely well -- the trouble is that the utility industry, generally, is full of half-baked idiots who belong in another line of work. The people in charge in the Clinton and Bush administrations deregulated the electricity production industry and sold off most of the best assets, leaving energy traders as the résumés of choice, under the premise that whoever could purchase fuel feedstocks at least cost would win the biggest rewards for shareholders.

So we end up not with Homer Simpsons in charge of nuclear, but with the Jeff Skillings. And they, Jeff and his ilk, quite simply can't be trusted with a technology as demanding and (potentially) dangerous as nuclear power. Nuclear power requires skilled professionals averse to risk, hedged to their eyeballs, willing to pay for whatever safety may require, not riverboat gamblers with no spare capacity betting on how high they can squeeze prices. As California proved in spades, electricity deregulation doesn't really work unless it is really not deregulation at all.  It's analogous to airlines, you can't be cutting corners, avoiding safety checks, dumping pension plans on the government, and so forth, and hope to have an industry worthy of trust.  After all, no one other than a few executives benefited from deregulation, ratepayers certainly didn't.   

These comments have drawn a quick and fairly decisive response. From Lisa Shell:

I understand your aversion to the folks that drove Enron into the ground, but those kind of crooks do not run nuclear power plants.

Furthermore, even honest CEOs, CFOs, and executives don't run the plants. Highly-trained operators, engineers (like me), and skilled craft do.

I, and my colleagues, are the skilled professionals you speak of and we do everything that safety requires not only because we are ethically and professionally bound to, but because we work at and live near the plants ourselves. Doing anything else would mean jeopardizing our own health and safety and that of our families and friends. Taking such risks is not an option.

From Eric McErlain, Senior Writer and Editor, Nuclear Energy Institute Nuclear Notes, :

With all due respect Pete, I've never met a more risk averse and safety conscious crew than the folks in the nuclear energy business.

When it comes to industrial safety and security, there's nobody better than these guys, and to lump them together with the criminals at Enron is unfair and inaccurate.

This didn't just happen overnight, but rather is the result of decades of work from the nuclear industry, and the efforts of the Institute of Nuclear Power Operators -- an organization that effectively uses peer review (and pressure) to keep plants operating safely and efficiently.

OK, Pete stands corrected as far as operating personnel are concerned, but still thinks it is an interesting question whether the dynamic created by deregulation is really the one that will help the nuclear industry begin to grow again.


Which Policies Are Likely to Restrain Transportation Fuel Demand in a Supply Emergency?

 

Source: IEA Symposium q.v., estimates by Robert Noland, Imperial College, London q.v.


Where US Petroleum Imports Come From

Top 15 Sources of US Petroleum Imports
(Thousand Barrels per Day)
Country Mar-05 Mar-04
CANADA 1,985 2,077
MEXICO 1,648 1,639
SAUDI ARABIA 1,623 1,531
VENEZUELA 1,517 1,563
NIGERIA 953 1,300
ANGOLA 675 347
IRAQ 548 621
RUSSIA 463 193
UNITED KINGDOM 447 448
ALGERIA 378 496
ECUADOR 305 113
VIRGIN ISLANDS 278 284
NORWAY 259 287
KUWAIT 207 220
GABON 196 108

Note: The data above exclude oil imports into the U.S. territories. Source: EIA


Who Brings It In

Largest Petroleum Company Importers of Crude Oil in 2004
(Thousand Barrels)
Company Importing to US Total Persian Gulf % Persian Gulf
VALERO MKTG & SUPPLY CO 322,393 126,838 39%
EXXONMOBIL CO USA 292,516 130,906 45%
CHEVRON CORP 280,661 111,266 40%
SUNOCO INC 261,586    
PHILLIPS 66 CO 251,664 26,675 11%
MOTIVA ENTERPRISES LLC 226,531 182,271 80%
EXXONMOBIL OIL CORP 204,806 16,506 8%
BP PRODTS N AMER INC 201,439 44,990 22%
MARATHON ASHLAND PETRO LLC 189,550 88,905 47%
CITGO PETRO CORP 146,328 5,976 4%
FLINT HILLS RESOURCES LP 142,778 12,285 9%
SHELL OIL CO 114,564    
PREMCOR REFG GROUP INC THE 99,480 20,904 21%
LYONDELL CITGO REFG LP 97,443 1,400 1%
PHILLIPS PETRO CO 92,644 14,850 16%
Totals (including others not listed) 3,674,058 876,558 24%

Persian Gulf includes = Bahrain, Iran, Iraq, Kuwait, Qatar, Saudi Arabia, and United Arab Emirates. Source: EIA


Does Exxon Do Enough? - 3

OK, Lee Raymond, president of Exxon, makes $2 million less than the $40 million said to be pulled down by the comedian who plays the Raymond that everyone loves, and Pete is a jealous soul, but he just can't figure out why an oil executive should get paid so much. Yes, 2004 was the best year in the history of the universe for oil companies and Exxon made more money than ever before, but it still seems an order of magnitude too much.  Here is the scorecard as Pete sees it:

Pro

  • Exxon's earnings were $16.7 billion, up 15% and an all-time record
  • Upstream return on average capital employed was 33% !!!
  • Net income per oil-equivalent barrel was $10.81
  • Exxon's liquids and gas production was greater than all nongovernmental competitors
  • 125% of proved reserves were replaced (1.8 net oil-equivalent barrels were added, without even counting the impact of economic price/cost revisions and excluding net asset sales)
  • Reserve replacement was greater than production for the 11th straight year
  • Exxon's total proved oil-equivalent reserves were more than those of any nongovernmental competitor
  • Finding costs per oil-equivalent barrel were only $0.44 !!!!!
  • Exxon managed to reduce upstream capital and exploration expense in 2004 ($11.7 billion v. $12 billion in 2003)

Con

  • The rest of the US economy got screwed  -- in significant part by lack of refining capacity, by lack of commercial storage facilities, and by the resulting $55 per barrel oil price

Background - Nuclear Reactor Locations

Third world: not for you it would seem

Source: International Nuclear Safety Center


Background - Stripper Wells

From a recent DOE press release:

...The United States has 393,000 oil stripper wells and 260,000 natural gas stripper wells, and they are typically operated by small, independent companies in fields that are long past their peaks. The definition applies to oil wells delivering no more than 10 barrels per day and gas wells delivering no more than 60,000 cubic feet per day.

But without the stripper wells' aggregate production, the United States would have to import an additional 860,000 barrels of oil a day (an increase of seven percent), and 1.5 trillion cubic feet of natural gas (an increase of 38 percent).

Life extension technologies will reduce plugging and abandonment rates and sustain the stripper wells' contribution to U.S. energy supply and security. In 2002 alone, more than 3,800 gas wells and 14,000 oil wells were abandoned, even though most were still producing. Once stripper wells are plugged and abandoned, the costs to re-access the reserves are prohibitive, and the energy resources may be lost forever. ...

The purpose of the release is to explain recent technical advances that should increase stripper production, or at least keep it from dropping too fast. q.v.


GM and Ford Descend to Junk

If ever there was damning proof that American energy policy doesn't work, the descent of the remainder of its auto industry into the netherworld of junk bond ratings seals it. It wasn't just that the two inept behemoths were unable to adapt quickly enough to the tripling of oil prices between 1998 and 2000, five years later they remain without a viable product slate despite a further near doubling of oil prices. The blame must also be assigned both to the government and the domestic energy industry which failed to honestly evaluate how supply and demand fundamentals were changing and to anticipate how dire the energy price situation would become. Nor was it understood how dysfunctional the capital allocation process would become: massive amounts of money required to retool the auto industry for the world of $50 oil and consolidate land use development were instead wasted on enriching the already wealthy but impotent domestic energy production sector.

The saddest part of all is how ineffective democratic institutions have been. It is often said that there's an energy bill just about to emerge from the labyrinths of capitol hill, just as it has been said for years.  If a bill does emerge, it will be of interest only to future historians favoring the Howard Cosell school of florid prose ("what could they have been smoking to think it was a tax break kind of problem?", "drill ANWR? who the hell cares"). This doesn't mean that GM and Ford will fail. They can't be allowed to fail; they owe too much and are at the center of a key component of the American economy. It seems likely the Fed will view the auto industry's troubles as a warning of how weak the real economy really is, and delay the return of interest rates to the levels required to bring the no less dangerous housing sector price situation under control.


What's Wrong With This Picture?

Perhaps the Federal Reserve has learned from the past and refuses to raise rates materially when oil prices fly up, thereby either preventing or forestalling the recession that otherwise would have followed. The macro economic effect of sharply higher energy prices has always been deflationary (periods of recession are marked in pink), but separating out whether the real cause was the disease or the cure, or the combination of both, has been difficult. Still, there seems little doubt that whatever is going on now is markedly different than in the past. Unless, of course, the usual cure is late but about to be applied to keep the dollar from sliding further. If so, one might expect the usual result.

The real problem is that the capital flows redirected toward the energy sector's higher returns produce a dysfunctional result, since the resource-constrained oil and gas sector, while able to enjoy the profits, is not able to use them productively.  No matter what the price, the industry has proved incapable of producing a supply response worthy of the name (supply effort yes, but not a real increase in supplies).  So capital is drained from the rest of the economy and used less than productively in the increasingly more challenging search for something even approaching the previous level of supplies.  Meanwhile, on the demand side, no one wishes to be bumped back to the 19th century, so higher oil prices mean that consumer debt levels keep setting new records only to be repaid by home refinancing that harvests the equity accumulated from bubble housing prices, which in turn result from the very low real interest rate.


The Chairman on Energy - 1

Greenspan, the only person in Washington with some influence over energy markets, did his best to figure out what was going on. Here are selected excerpts:

....Long-term demand elasticities have proved noticeably higher than those that are evident short term.

Altering the magnitude and manner of U.S. energy consumption will significantly affect the path of the U.S. economy over the long term. For years, long-term prospects for oil and gas prices appeared benign. When choosing capital projects, businesses in the past could mostly look through short-run fluctuations in oil and natural gas prices to moderate prices over the longer haul. The recent shift in expectations, however, has been substantial enough and persistent enough to bias business-investment decisions in favor of energy-cost reduction.

Of critical importance will be the extent to which the more than 200 million light vehicles on U.S. highways, which consume 11 percent of total world oil production, become more fuel efficient as vehicle buyers choose the lower fuel costs of lighter or hybrid vehicles. ...

... Besides feared shortfalls in crude oil capacity, the status of world refining capacity has become worrisome as well. Of special concern is the need to add adequate coking and desulphurization capacity to convert the average gravity and sulphur content of the world's crude oil to the lighter and sweeter needs of product markets, which are increasingly dominated by transportation fuels that must meet ever-more stringent environmental requirements. ...

....The larger question, of course, is what will increased world trade in LNG and expanded U.S. import capacity do to currently uncompetitive natural gas prices in the United States? During the past couple of years, when U.S. prices of natural gas hovered around $6 million Btu, import prices of LNG in Europe have ranged between $2 and $4 per million Btu, and those in Japan and Korea have generally been between $3 and $5 per million Btu. Estimates of production and delivery costs of LNG to North America appear to hover around $3 per million Btu. In the short run, exporters to the United States are likely to receive our domestic price, currently above $7 per million Btu. But unless world gas markets tighten aggressively, competitive pressures will arbitrage the U.S. natural gas price down, possibly significantly, through increased imports.

In addition to increased supplies from abroad, North America still has numerous unexploited sources of gas production. Significant quantities of recoverable gas reserves are located in Alaska and the northern territories of Canada. Negotiations over the construction of pipelines connecting these northern supplies to existing delivery infrastructure are currently under way. ...

....Conversion of the vast Athabasca oil sands reserves in Alberta to productive capacity has been slow. But at current market prices they have become competitive. Moreover, new technologies are facilitating U.S. production of so-called unconventional gas reserves, such as tight sands gas, shale gas, and coalbed methane. Production from unconventional sources has more than doubled since 1990 and currently accounts for roughly one-third of U.S. dry gas production. ....

...We are unable to judge with certainty how technological possibilities will play out in the future, but we can say with some assurance that developments in energy markets will remain central in determining the longer-run health of our nation's economy. ...

As usual, it is better to read the whole thing. q.v.


Pique Oil

Pete has always maintained you can't know when oil has peaked until many years after the fact.  But there is no doubt that it is a very important issue, deserving as much careful attention as possible since the stakes are so enormous.  Jeffrey Brown has sent in a report on the basics of what one needs to understand:

"Change is coming whether we like it or not; whether we are prepared for it or not. If we don't begin right away to make better choices then we will face political, social, and economic disorders that will shake this nation to its foundation."
 
James Howard Kunstler

 The Hubbert Curve and actual Texas oil production

 

Understanding Peak Oil in Four Easy Steps:
 
This analysis is based on Chapter Three of Kenneth Deffeyes latest book "Beyond Oil:  The View From Hubbert's Peak."   Dr. Deffeyes outlines a very simple method for predicting ultimate recoverable reserves and the production peak for a region.  I am using Texas as a model.  This takes less than five minutes.  You might consider doing this since Peak Oil will profoundly affect each and every American. 

(1)  Obtain a piece of graph paper and draw two perpendicular lines that intersect and terminate against each other in the lower left hand corner (or graph it using a computer program)..  The vertical (Y) axis is P/Q, where P = annual Texas oil production and Q = cumulative Texas oil production to date (for the corresponding year).   The horizontal axis is Q.

(2)  The P/Q (vertical) scale is from 0 to 0.08, in increments of 0.01.  The Q (horizontal) scale is from 0 to 68 billion barrels of oil, in increments of four billion barrels of oil.    

(3)  Plot the following points (Q & P/Q), corresponding to Texas production numbers for selected years:

1940:  (6.5 & 0.075)

1950:  (13.6 & 0.060)

1960:   (23.4 & 0.04)

1970:  (33.5 & 0.036)

1980:  (44.8 & 0.020)

1990:  (52.6 & 0.012)

2000:  (57.7 & 0.007)

The first few years are pretty noisy.  Lower 48 data settled down into pretty much a straight line in the Fifties.  M. King Hubbert made his famous and accurate prediction in 1956 (that Lower 48 oil production would peak in 1970).   

If you plot the above points, the data settle down into a linear plot from 1960 on.  Draw in your best fit for a straight line using the 1960 to 2000 data and extend the line to the horizontal axis.  At the point where the extrapolated line intersects the horizontal axis, P would be equal to zero, which gives you ultimate recoverable reserves (we would have produced the last barrel of oil).  When I plotted the best fit to the data, I came up with estimated ultimate recoverable reserves of about 66 billion barrels of oil. 

(4)   The assumption is that production peaks when about half of the estimated reserves have been produced.  Therefore, the predicted peak would be when we had produced 33 billion barrels of oil, which was in 1970.   The actual Texas peak was two years later in 1972.  Texas oil production has been falling for 33 years.   This model suggests that Texas has produced about 90% of all the oil that we will ever produce.   Note that I used an estimate from the Railroad Commission of 3.8 billion barrels for production prior to 1935.  The commission only shows 1935 and later data data on their website:
 
http://www.rrc.state.tx.us/divisions/og/information-data/stats/ogisopwc.html 

That's Peak Oil in four easy steps.   Note that the technique picked the Texas peak within two years and note that Texas oil production has followed the predicted path downward. 

Dr. Deffeyes has applied this same model to the world.  The P/Q versus Q data points settled down into a linear plot after 1983.   He is predicting that we peak this year and that conventional oil production will soon begin a permanent decline.  

Current events seem to suggest that Dr. Deffeyes is correct.   Oil prices closed at another all time (nominal) record high on Friday.  There appears to be no excess light, sweet crude oil capacity in the world, and the IEA is talking about emergency oil conservation measures this winter. q.v.  
 
While we are (or were) producing a record amount of oil, worldwide we have not found a truly large oil field (a million barrels per day or more) since 1976.   The latest EIA production data show falling world oil production.    In my opinion, the only real question is how fast the industry can bring on oil production from tar sands and increase production of non-conventional liquid transportation fuels (primarily ethanol).   In my opinion, non-conventional oil and non-conventional liquid transportation fuels will only serve to slow the rate of decline of total liquid transportation fuel production. 

My advice:  cut spending, get out of debt and consider moving to much smaller, more energy efficient housing closer to where you work or closer to mass transit lines.  This is the New Urbanism solution.  Where possible, you should look into organic gardening.  Small raised bed permaculture gardens can be pretty prolific.  The other model is for organic farms clustered around small towns.   Currently, for every calorie of food we consume, we consume 10 calories of fossil fuels used in food production.
For a critique of the Deffeyes Plot technique and a look at at least some of the alternatives, Conrad Davis has written to suggest the analysis (pdf) by John Walsh.

Further to the above, Jeffrey Brown has added a postscript. The graph for Saudi Arabia can be found here:

There are some fascinating comparisons between Texas & Saudi Arabia.

  The P/Q versus Q plot (the Hubbert/Deffeyes technique) for Texas shows 66 billion barrels in ultimate cumulative production (Qf).    Texas peaked in 1972 at 3.5 MMBOPD.  Texas peaked when we had produced 54% of Qf (two years past the 50% mark).

  A  P/Q versus Q plot (by Laherrere*) for Saudi Arabia shows a Qf of 180 billion barrels.  They have produced about 55% of Qf. 

  If you do a simple ratio, the Texas model suggests a Saudi peak production rate of 9.5 MMBOPD.

  The latest EIA data show an estimated steady production rate of 9.5 MMBOPD in Saudi Arabia.

  Kind of spooky.  Saudi Arabia is precisely where Texas was in 1972.

 


EIA's Take on Summer Gasoline Price

Source: EIA


What Kind of Handshake Is This, Anyway?

Is it a "scuse me mr. your excellency, sir, but would you mind not killin' the economy just now. We gotta win the mid-terms" handshake? Or is it a "I know some A-rab boys thats gonna get a mighty whooping if they don't sit up and fly right" handshake? Or is it just the traditional Bush family expression of love for all democratic Saudi crown princes and a possible invitation to the prom next year?  Hard to say.* **

*According to the Saudi government, which should know, it was a "not our fault, old man, if your refineries can't keep up" handshake. In the words of the Saudi news release, "The current price of oil does not reflect a problem with the availability of supply; rather, it is a problem with the growing global demand for oil and the inability of existing related infrastructure, such as shipping and refining capabilities, to keep up.  For example, Saudi Arabia can ship as much oil to the United States as it wants, but if that oil cannot be turned into gasoline, the price of gasoline will not decrease.  Both Saudi and American leaders agree that oil at $50 per barrel is too high for the global economy to contend with.  Our two countries are addressing ways to deal with these issues that are affecting the price of oil."  Pete thinks it was damn nice of the Saudis to offer to become a Saudi Arabia and a half, oil-equivalent-delivery-wise. Half a Saudi Arabia down, only 9 1/2 more to go by 2020, right Exxon? (see below)

** A recent book (Gerald Posner, Secrets of the Kingdom) that claims to be based on reliable intelligence sources (ha!) is said to assert that the Saudi's have wired each component of their production infrastructure with explosives, to be used should the Wahabis ever lose control, be invaded by infidel foreigners, etc.  If so, it may have been an "unwise, my friend, unwise; do anything else to encourage the Shia and you'll have to ask yourself if you're feeling lucky" kind of handshake.


Uranium (U3O8) Prices

According to the Uranium Miner q.v. uranium prices have more than doubled as the world prepares to add as many as 64 reactors to combat greenhouse gases and provide additional power:

  • Apr 05 $23.00

  • Mar 05 $22.50

  • Feb 05 $21.80

  • Jan. 05 $21.00

  • Dec. 04 $20.70

  • Nov. 04 $20.50

  • Oct. 04 $19.90

  • Aug. 04 $19.25

  • Jan 04 $15.50

  • Jan 03 $10.30

  • Jan 02 $9.60

 

The prices represent a average spot price per pound as quoted by five major dealers or brokers.  However, these prices bear little resemblance to official statistics. q.v.


Dear Plunge Prevention Pete,

[Reprise of the part about the Plunge Prevention Team]

This sounds like a lot of conjecture, but it is not unprecedented. The HKMA intervened in the their stock market after the Asian Crisis, which was widely criticized, but looks like a canny move now. The Hang Seng bottomed at 6912 and subsequently climbed to 17.912, obviously not only on CB buying, but they turned the tide when it was against the index.

Also, CB have routinely intervened to stabilize currency markets. One could argue that concerted intervention also bridges the unfettered market principle, but is widely understood to be the perogative of CBs the world over. And, the fact that they intervene through commercial banks also sends a price signal first to those participants rather than giving all market participants equal access to this information, which again violates the idea of a level playing field.

I don't think it is unreasonable for the Fed and the Treasury to co-ordinate with investment banks and brokers to stabilize markets, which are in a crisis. However, we have to realise that intervention is usually only effective when the fundamentals point in that direction in any case. During the ERM crisis all the central banks in Europe could not defend their target bands once the market figured out that they were out of line with the underlying fundamentals. George Soros will tell you about the day he broke the BoE [Bank of England].

Many Asian CB's have also learnt the hard way (i.e. Bank Negara) that even privileged information is no guarantee of success when speculating against the wisdom of the market.

In any case, a highly entertaining and informative blog. Good luck in your new role as Plunge Protector.

Regards,

Mr. Bill

Thanks. I'll need it.  But you'll need it even more.

Pete


DOE Katrina situation reports. qv1, qv2, qv3

The DOE 'family' gets ready to open the SPR spigots. q.v. But can anyone refine it? Uncle Exxon, Cousin Valero? More to the point, what are Aunt Chicago and Aunt Boston going to use to cook Thanksgiving turkey?  To bad we forgot to add a SPR for natural gas.

That elusive hydrogen economy seems to have gotten lost again. Here's DOE's (and Pete's) best guess as to why: "The cost of producing and delivering hydrogen from a small scale reformer of natural gas for a fuel cell vehicle could be as high as $40 per million BTUs with today's technology. This would make hydrogen about four times as expensive as gasoline at the pump untaxed." q.v.  Maybe someone should have told Congress.  Curiously, the new energy bill not only thinks the hydrogen economy is not dead but gave hydrogen the full scale go-ahead spending wise, and seems to think it will somehow overcome these disadvantages in the future.  Pete [was] offering free lunch to the first reader who emails a photo of a new hydrogen gas pump taken down at his or her neighborhood filling station (the one at the Potempkin Village Shell on Capitol Hill doesn't count).

[Contest update: Helen Oros writes from Romania to point out that there are many, many hydrogen pumps in California. qv1, qv2. Pete concedes that he was wrong, and is only glad half of California didn't take him up on the lunch offer, but hopes she will when next in Washington, DC or he in Romania.]