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Pete's Quick Guide to World Oil Production 

World Crude Oil Production Leading Crude Oil Producers
Figure 61.  World Crude Oil Production

Source for both figures: EIA

Figure 62.  Leading Crude Oil Producers

 


Pete's Quick Guide to US Coal Production

By Mining Method By Geographic Location
Figure 41.  Production by Mining Method Figure 42.  Production by Location

Tough Job

Jon Thompson, President of ExxonMobil Exploration Company, describing the challenges that face the industry:*

"...we estimate that world oil and gas production from existing fields is declining at an average rate of about 4 to 6 percent a year. To meet projected demand in 2015, the industry will have to add about 100 million oil-equivalent barrels a day of new production.  That's equal to about 80 percent of today's production level. In other words, by 2015, we will need to find, develop and produce a volume of new oil and gas that is equal to eight out of every 10 barrels being produced today.  In addition, the cost associated with providing this additional oil and gas is expected to be considerably more than what industry is now spending. 

Equally daunting is the fact that many of the most promising prospects are far from major markets -- some in regions that lack even basic infrastructure.  Others are in extreme climates, such as the Arctic, that present extraordinary technical challenges. ..."

Actually the job may be even more difficult that Thompson supposes, since he used an unrealistically low growth rate for change in oil demand.  Here is A. McKillop's analysis:

We had the shock statement from Jon Thompson of Exxon Mobil Exploration - some 100 Mbdoe of combined new oil and gas capacity needed by 2015 also including his statement that depletion loss of capacity was running at 4% to 6% annual. He said  100 Mbdoe was equivalent to 80% of total current combined output.
  • Taking current world oil supply at 78 Mbd we get 47 Mbdoe as the current gas energy equivalent output figure
  • Taking annual depletion loss for oil at 5% we have a yearly loss number for 2003-04 of 3.9 Mbd
  • Taking his figure of 100 Mbdoe new capacity requirement through 2015 and splitting it 47/78, and taking the yearly requirement as a straight line 8.5 Mbdoe (when in fact it will higher than that at end of period and lower at front end), we get an annual average need of 5.12 Mbd of new oil production capacity worldwide
  • The difference between the two (5.12 - 3.9)  is the Exxon Mobil Exploration demand growth figure - about 1.22 Mbd, or 1.56% on a base of 78 Mbd
  • This is a laughably LOW number. Even the IEA has to own up to growth through 2002-03 running at 2.25% and in reality the year outturn could be somewhat, even a lot, more than that.
  •  If Thompson & Co key in real world demand growth trends to their forecast future production capacity needs they will generate even more somber and impossible numbers.  All this is possible with oil at prices not even 50% their price levels in real terms of 1983-84 ?

*The Lamp, Vol. 85 No. 1 p. 20.


Woe Unto Thee, Ye Gas Turbine Builders, The New Day of the Nuke Even Now Draws Near

Pete can't but note that a plague of biblical proportions has fallen on your house.  Perhaps you were foolish to believe the errant prophesies of government savants and the whores of natural gas Babylon.  Perhaps your day will come again once a new pipeline from the north appears in a decade or so.  But just at the moment your operating expenses are like festering sores and your supply security has vanished in the wind.  Nuclear power producers, operating at 90 percent capacity factors for the past several years, now enjoy a cost advantage over most natural gas and even most coal-fired plants.  There are indications that even in the slow-to-figure-it-out US, the electricity generating industry is going to start ordering new nuclear plants. q.v. There are several promising pre-approved new technologies to choose from and more on the way.  EIA has prepared an excellent summary of the state of play and coming changes. q.v.


Round Up: Commodity Price Volatility

Is this anyway to run a railroad, wonders Pete.  Just how flexible, transparent, and competitive can the key commodity markets be if prices have to bump up or down by such huge relative amounts just to balance supply and demand, particularly in a period of overall price stability and relatively constant aggregate demand?

Source: EIA, Derivatives and Risk Management in the Petroleum, Natural Gas, and Electricity Industries q.v.


Round Up: Uranium Production

Some of the points made in a recent EIA report

Graham Cowen points out that the significance of these figures can be better appreciated by putting them into their corresponding volumes of oil-equivalents. If you translated pounds U3O8 into barrels of petroleum equivalent based on thermal yield in current practice of one to 40, 2.3 million pounds = 92 MBoe, 52.7 million pounds = 2,100 MBoe.


Pete's Quick Guide to World Oil Reserves

  

Oil:  Proved Reserves

 
 At end 1982 billion barrels  At end 1992 billion barrels  At end 2002 billion barrels Share of total  R/P    ratio
 North America                   91.6                   90.9                     49.9* 4.8%            10.3
 S. & Cent. America                   30.2                   72.5                     98.6 9.4%            42.0
 Europe & Eurasia                   88.8                   75.0                     97.5 9.3%            17.0
 Middle East                 369.0                 661.8                   685.6

65.4%

           92.0
 Africa                   57.8                   61.9                     77.4 7.4%            27.3
 Asia Pacific                   39.2                   44.6                     38.7 3.7%            13.7
 WORLD 676.7 1006.7 1047.7 100.0%            40.6
 Of which OECD  116.7 108.9 72.0 6.9%              9.7
               OPEC 443.3 769.9 819.0 78.2%            82.0
               Non-OPEC  170.4 179.8 150.9 14.4%            11.9
              Former Soviet Union 63.0 57.0 77.8 7.4%            22.9

For most of the world, the situation has been getting better rather than worse, but not for North America. Adapted from BP Statistical Review. q.v. See original sources for notes. R/P ratio = reserves to production. Note that not all observers grant the accuracy of the data. q.v.

*While both the US and Canada had slightly less proved reserves at the end of 2002 compared to previous decades, the big drop was caused by Mexico, which had been carrying proved reserves of 51.3 billion barrels in 1992 but had either written them down or depleted them to 12.6 billion by 2002, presumably the former.


Trading Our Way Out of Climate Change

EIA has taken a crack at analyzing S. 139, which has been proposed as a way to reduce greenhouse gas emissions. q.v. Let's see, coal prices up by 500%, oil, gas, electricity up by a further 50% ... Why not just start subsidizing new nukes with the proceeds from a moderate carbon tax?


This Year's Boondoggle 

Saying "clean coal" over and over again is nothing if not oxymoronic. Spending a billion to get others to say it too shows how power works in Washington. q.v.*

*Gregson Vaux writes in response: " ... I do have a complaint about your most recent addition about clean coal being an oxymoron. What is wrong with the concept of clean coal? I will grant that coal has an impact on the environment but we are trying to lessen that impact and succeeding. I work at the National Energy Technology Laboratory on clean coal so I do have a bit of a bias here.

Today were are able to clean out much of the particulate matter, SOx, and NOx. If we choose, we can also clean up much of the mercury but at a monetary cost. Now I will admit that coal will most likely always emit some sort of pollutant in the real world, under real conditions but so does pretty much anything. What other solutions do we have? Perhaps some day wind will play a larger role than it does today but I doubt it will ever provide a majority of the power to our country.

We have a choice: greatly reduced standard of living, greatly reduced population, coal, nuclear. Which do you choose? ..."

Pete agrees that those are the choices and chooses nuclear--no surprise there.  But he basically agrees that these pages haven't been fair to clean coal and will try to improve the coverage.  

Much progress has been made removing some of the nasties from coal. He detests coal sequestration strategies (which attempt to remove the most difficult nasty, carbon dioxide) because they are just another diversion that will use up far too many resources going down a path that, ultimately, is the wrong path. Instead the US should pursue an electrification strategy where the main base-load fuel is nuclear. The ultimate objective would be to phase out natural gas use in electricity production for all but peaking, and to more gradually phase out coal. Coal is of immense economic importance and can't be phased out rapidly. One of the problems with phasing out coal is that the various aspects of clean coal technology at the rudimentary level (scrubbers and what not) add significantly to the costs that must be recovered from what are, for the most part, fully depreciated older plants. The thought of adding on all the massive amounts of supporting facilities that would be required for sequestration really only ensures the continuation of the coal industry almost indefinitely. While there's no reason to undo the progress that's been made toward clean coal, future resources should be reallocated in favor of reinstituting the construction of nuclear plants, particularly while one of the main capital cost components -- interest rates -- is so low.

Given the string of incompetents in charge for several decades, the US government has been guilty of sending a great many bogus signals to the utility industry. They have too often been asked to flirt with approaches that looked good but really weren't sustainable in the long run. Included in the sorry litany are deregulation; green energy projects, because there are only fairly rare special situations where they'll work adequately;  greasing the skids for too much natural gas use which is supply- and delivery system-constrained; and 'clean coal' because it suggests coal could be the fuel of the future when it really can't be longer term. The prospects of global climate change are sufficiently dangerous that the scales must be tipped toward nuclear, even though it remains unpopular mostly due to misunderstandings and misinformation spread by others, and a graceless and uncreative nuclear industry.


The Big Picture on Big Oil 

Back in the days when there were Seven Sisters, and a penchant in Congress to tear them apart, the federal government got the right to insert special data probes at key points in the biggest oil companies' financial structures.  The largest oil companies were required to supply much more elaborate detail about financial returns in their functional segments than they ever made available to the markets: it was several layers deeper into the onion than the aggregate recap required by a 10K or 10Q.  No one really knows what it was for but it probably had something to do with ensuring they didn't benefit from anti-competitive practices as they danced, not always at arm's length, with OPEC. But that was before four of the sisters ate the other three. 

The graphs displayed are not exactly peeling back layers of the onion. It's what anyone could get reading annual reports nowadays, but the data are from the folks who maintain the special probes. The top one shows where the profits come from; the bottom one shows domestic production of oil and natural gas by the big companies. Even though the biggest oil companies more or less gave up on the US as an important supply province decades ago, they continue to make a very tidy* profit on their remaining activities here.

*Okay, either unreasonably huge and proof that the less you do the more you make, or an adequate return on capital given the risks involved, depending on your politics.


OPEC Oil RevenuesOPEC Net Oil Export Revenues, 1972-2003 graph.  Having problems contact our National Energy Information Center on 202-586-8800 for help.

It's not as lucrative a national business as it used to be. But don't worry, things are looking up. EIA has released a report. q.v.  According to that report, "Assuming the U.S. Energy Information Administration's (EIA's) June 2003 'reference case' forecast for world oil prices and production, OPEC net oil export revenues for 2003 are projected to be $223 billion ..., a 19% increase over 2002, and a 16% increase over EIA's forecast made in December 2002.  Increased OPEC oil export revenue projections for 2003 result in large part from an 11% increase in oil prices compared to 2002. These higher prices, in turn, have resulted from a combination of factors: 1) unrest and a major oil supply disruption in Venezuela starting in December 2002; 2) a bitterly cold winter in the northeastern United States; 3) persistent low oil inventories in the United States; 4) the Iraq war, which led to a cutoff of Iraqi oil exports starting in mid-March 2003; and 5) troubles in Nigeria, which has resulted in the loss of some oil production in that country since March 2003."


Energy and Housing(2)

Steve Andrews, who has had several decades of experience as a residential energy consultant and has published  frequently on the topic, has sent in his take on the current state of play: 

With respect to housing and energy, yes we use too much energy in our homes and yes we could do a lot better. The Scandinavians and Canadians are ahead of us, but not by a whole lot. And yes, a decade or two from now our largest homes could lose considerable value due to the huge drain to keep them heated. Yet since the first energy price warning shot was fired across our bow back in the early 1970s, our average housing has made great strides in terms of heating energy consumption.

Consider natural gas and the residential sector. In 1970, we in the US heated about 35 million homes with about 5 Tcf of natural gas (see chart). Last year, we heated about 58 million homes (close to half the total) with roughly 5 Tcf of natural gas. That per-house reduction in consumption is impressive. At a guess, we could squeeze 20% more savings out of that 58 million, cost-effectively; pre-1980 homes would receive the bulk of the attention. Beyond that 20% (50% in older homes, 10% in newer ones), it starts to not be cost-effective at today's gas prices. But I'm confident we'll see those prices rise over time, so more efficiency measures. 

Throw cooling energy and related potential energy savings into the mix and the economics improve substantially. Electricity for cooling, increasingly fired by natural gas, will get more costly. Consumers will eventually be sent price signals to change their peak demands. Investments in residential energy efficiency, though mundane and expensive to achieve, can make a dent in our national energy problems. Now if we could just get the Bushies treat efficiency as anything other than a four-letter word...


How Do Changes in Energy Prices Affect Demand? (2)

Andrew MacKillop, former expert in policy and programming for the European Commission and founding member of the Asian Chapter of the International Association For Energy Economics, has sent in several additional pieces on demand elasticity:  

Like it or not, the world is moving rapidly to absolute peaks in the capacity to find, prove and extract ever more oil and gas. The time to reach Peak Oil, the maximum possible production rate for ‘all liquids’, that is including heavy oil and tars and or bitumen based oil as well as conventional crude, is probably less than 7 years depending on how world and regional demand profiles evolve.

This can be understood by just a few figures. The ASPO organisation, using widely available data forecasts that world peak oil production will be around 83 Mbd (Million barrels per day). The USA with about 285 M population consumes about 20 Mbd. When or if China, with its current 1.25 Billion population, achieved today’s rates of per capita oil consumption in the USA it would need slightly more than 80 Mbd. When or if India, with its current 1.1 Billion population and, like China experiencing explosive industrial investment and output growth, achieved the same levels of oil consumption and the economic wellbeing (in classic terms) that goes with an energy intense economy, then India would need about 70 Mbd.                       

Together, China and India would require about 150 Mbd, if we assumed they experienced zero population growth, but continued the current and rapid expansion of their automobile, aerospace, military, consumer manufacturing and urban development sectors, and made no ‘energy transition’ away from oil. Even if the USA made that transition, and achieved a complete replacement of its current oil utilisation by non oil, or domestic-only oil and other sources, the net increase of world oil demand due to China and India attaining 2003 levels of US per capital oil demand would be some 130 Mbd. In theory, and it is pure theory, this could take place in not much more than 30 years, for example if China and India made the same progress to industrialisation and urbanization achieved by South Korea through 1965-2000. [Continued]

The US economy attained it highest ever postwar growth of real GDP, achieving what today would be the completely unthinkable rate of 7.5%, in the Reagan re-election year of 1984. At the time, in dollars of 2003 corrected for inflation and purchasing power parity, the oil price was over $60/barrel. Before that, in 1980-82, the industrialized world had experienced its deepest recession since the 1930s, with interest rates attaining extremes today associated with the meltdown process in Latin American and African countries unable to achieve ‘structural adjustment’ – US base rates exceeded 22%/year in 1981. Any attempt at raising today’s interest rates to double digit levels in the OECD countries would most surely and certainly entrain complete collapse of world stock market indices, runaway ‘domino effect’ bankruptcy of many major corporations, mass layoffs and unemployment, and grave problems for the financing of structural trade and budget deficits of the US and UK, perhaps leading to uncontrollable flight from the dollar. All European Union countries, and Japan would also face severe national budget financing difficulties, as tax revenues collapsed and spending to limit economic damage, including unemployment compensation, spiraled up as the crisis deepened. Financing of increased state spending through borrowing would then lock on the upward spiral in interest rates, the higher cost of borrowing itself intensifying recession and any inflation that would occur or arise through constantly falling economic growth. Current near-zero economic growth would be replaced by slump. [Continued

Please refer to Pete's policy on reader submissions below.  Here Pete questions whether the world production peak is either here or all that imminent, but most would agree it can't be too far off, give or take a decade or so. While he thinks the idea that energy price increases spur even greater economic activity is provocative and worth debating, he remains skeptical. Above all else, how could Pete pass up a chance to publish an article that uses nolens volens?


Energy and Housing(1)

Everyone understands that the American love affair with SUVs is a guilty pleasure: whatever their advantages it's well understood that they come up short in the energy efficiency department. But many don't know that the US housing stock is far less efficient than it should be.  A typical McMansion may have a more efficient furnace than its predecessors would have had, but it is used to heat a lot more empty space at a location that requires the use of a car to get anywhere.  Home ownership remains a sacred secular value, and the system is willing to encourage it by letting homeowners carry extraordinary debt burdens secured by unproductive piles of bricks.  But how will this system fare, once the energy realignment that is only now beginning has taken hold?  Jeffrey Brown has sent in a review of the new book, The Coming Crash in the Housing Market by John R. Talbot:

The referenced book was just recently published by McGraw-Hill, and the WSJ published (on 6/4/03) a fairly skeptical view of the prospect of a housing market crash. What the reviewer--and almost everyone else--fails to consider is what will happen to housing prices if we are, as I believe, past the peak of North American gas production and past the peak of world oil production. Assuming that we are past these two peaks, the economy will decline until the rate of growth of alternative energy is equal to the rate of decline of conventional energy. As the economy declines, fewer people will be able to afford homes--especially larger homes. As energy prices rise, single family homes--especially larger homes--will become more expensive to heat and cool. 

The author of the book devotes an entire chapter to the FM's (Freddie Mac and Fannie Mae) and the risks that they represent to the financial system. In addition to these risks, the massive federal subsidies of the housing market--which encouraged single family homes, which are much less energy efficient than apartments and townhouses--have made us far more vulnerable to rising energy prices. Fundamentally, I don't think that the government should be in the business of encouraging home ownership over renting. However, because they are doing precisely that, I think that they have massively distorted the housing market and encouraged the profligate and inefficient use of energy. As energy costs rise, this situation is going to be a major drag on the U.S. economy. 

There is also the demographic factor. In 2010, there will be 50% more people aged 50 to 60 than in 2000. Even if we had a growing economy, one could assume that for every "X" number of people selling their large family homes and downsizing as empty nesters in 2000, one would expect to see 1.5 X empty nesters downsizing in 2010--assuming a growing economy. In fact, this probable cascade of selling is going to accelerate as Baby Boomers realize that their large family homes are depreciating--instead of appreciating. 

One other item that is lost in the housing debate is what columnist Scott Burns has described as the 5% factor. On average, a homeowner spends about 5% of the value of the house per year on taxes, insurance, maintenance and utilities. For example, for what the owner of a $400,000 home spends on these items, he could rent an apartment or townhouse for $1,500 per month, plus about $160 per month for utilities. (As energy costs, property insurance and property taxes go up, this 5% factor will actually increase). In any case, if the above  hypothetical homeowner had $200,000 in equity, he could clear about $170,000 after selling the home, rent the above $1,500 per month apartment and save, depending on the type of loan, about $1,500 per month in out of pocket expense (no house payment).


Natural Gas (5) - Risk Transfer Mechanisms

Suppose for the sake of conjecture you own a large apartment building, say one of those ugly towers that are hard to avoid as you leave New York City. Being a clever fellow who reads Policy Pete and therefore has known for a long time what the problem was, you went long NYMEX gas for the full next winter heating season. So now you're feeling pretty smug that you hedged yourself about as well as it can be done. Bring it on, you think.  Except what risk are you facing? You may have the price risk covered, but what about the risk that somewhere around Feb. 15, following a sizzling summer and the longest, worst cold spell in recent memory, you aren't going to be able to provide any heat for your tenants because the gas company has declared force majeure when pipeline pressure dropped dangerously low and has shut off your part of the city.  It won't be too long before the tenants are using the lobby furnishings for bonfires. And not long after that it's going to get really frightening. So what then?

Or suppose you're one of the bankers that has been helping everybody and their sister-in-law get into the utility business by buying GE gas-fired turbines to generate electricity. To show the requisite amount of due diligence, you made them pop for a two year futures strip back when gas was cheap. But you didn't insist on anything longer-term than that because the far end of the market was too illiquid, and everyone kept saying gas was the abundant fuel of the future. So now their main customer is begging off because the electricity costs too much, and they couldn't afford to roll the hedge over anyway.  And even though they had a firm gas delivery contract, the system's new special emergency authority is going to reroute their gas to help out the apartment buildings near NYC. So what then?

Pete isn't saying that any of these bad things are going to happen, and he certainly hopes they won't. But maybe someone should start thinking about them.  Perhaps you've noticed that GE is now marketing their wind turbines.  


Miscellaneous

Pete has often worried that the Energy Secretary is so nondescript, he may have become totally invisible without anyone noticing. Now the Post is also worried, "Abraham has not traveled with Bush in nearly 13 months. White House officials say he is nearly as scarce in the West Wing as an Enron executive these days. In May, Bush announced he was sending Abraham to the Philippines in advance of Bush's trip there; Bush's trip came and went without such a trip by Abraham. ... For a president who lavishes praise on his subordinates, 'his silence is deafening,' said one insider.... " q.v. (may require registration). Harsh.

China is working on a new energy policy. q.v. Is a policy established by The 86 Experts better than one set by Billy Tauzin and Chuck Grassley?

Chinese power shortages. q.v.

Even though Pete favors nuclear power, it seems that the US press has not covered a serious nuclear accident that occurred in Hungary.  Apparently a crane gave way during refueling and some of the damaged fuel rods may be leaking gamma radiation, even though contained in a secondary pool. qv1 qv2

Exxon has announced that it will soon begin work on a new LNG facility to bring in about 2 bcfd of natural gas from Qatar beginning in 2009.  The plant will be located south of Pt. Arthur, Tx. 

‘‘(3) For a hybrid vehicle with at least 20 percent but less than 30 percent maximum available power, the Secretary shall allocate 75 percent of 1 credit" and all the rest of the 1,700 page sea of nonsense -- the US congress takes another crack at an energy bill. q.v.  Perhaps someone needs to take another crack at explaining the urgency of the problem to them.  They've got about a decade to actually get it right, which means they don't have a minute to lose; unfortunately,  it's the same decade they have to get social security right and large parts of the remedies to the two problems are likely to be mutually exclusive. True, the energy bill's not all bad, but most of it isn't that good, or even that close to being good. 

ConocoPhillips increases its involvement with Canadian tar sands. q.v. The steam required to manipulate the bitumen will come from natural gas: at first from the existing Alberta pipeline network, but ultimately supplemented by gas from the Mackenzie delta when that becomes available.

Brazil backs ethanol increase. q.v.

Structure of the US natural gas market q.v.

A new way to generate very small amounts of electricity. q.v.

BP's very big play in Russia q.v.

How Canada became the proud owner of the second largest oil reserves in the world. q.v. Throwing in the kitchen sink helps, but, what the hey, not that bad a sink.

The Russians have picked up on Saddam's one good idea: that a larger portion of the world oil trade should be paid for in Euros. q.v. Pete's all for it.

The Industrial Physicist has prepared a primer on what ails the US electricity grid. q.v.

According to the Nuclear Energy Institute, during 2002, nuclear power's electricity production costs averaged 1.71 cents per kilowatt-hour, compared with 1.85 cents/KWH for coal, 4.06 cents/KWH for natural gas, and 4.41 cents/KWH for oil.

GM's electric car q.v.

BP has published the 2003 edition of the annual statistical review of world energy q.v. 

 

Energy policy agitprop. q.v.

The web site of King Fahd bin Abdul Aziz q.v.

 


The Range of Alternately Fueled Vehicles

The dog days of summer are upon us, meaning it's time to clean up any remaining controversies on boron vs. hydrogen.  Mr. Zorbas writes as follows:

It is not normally necessary to make boron in the laboratory and it would normally be purchased as it is available commercially. The most common sources of boron are tourmaline, borax [Na2B4O5(OH)4.8H2O], and kernite [Na2B4O5(OH)4.2H2O]. It is difficult to obtain pure. It can be made through the magnesium reduction of the oxide, B2O3. The oxide is made by melting boric acid, B(OH)3, which in turn is obtained from borax.

I cannot say that your friend on boron is correct.

There are many variables that must be factored in for a fuel to be considered as I am sure we must all be aware of, otherwise the replacement of oil will never happen. The energy equivalence of boron is known ,I have known it for years, yet there are many factors as I reiterate that need to be considered.

Warm Regards,

Stephen Zorbas
Director -Technical/ Systems, The National Hydrogen Association of Australia.

Director-Solar Hydrogen Research Pty Limited

This was directed at Graham Cowan's earlier comments appearing here.  In reply, Graham notes:

[Mr. Zorbas is referring to] my contention that if we want to nuclearize or solarize transportation, and just switching to nuclear- or solar-generated liquid hydrocarbon and continuing to use the vehicles we have today seems too straightforward, the several difficulties with hydrogen mean it's not straightforward enough.

Boron has a different set of difficulties that are dwelt on in http://www.eagle.ca/~gcowan/Paper_for_11th_CHC.doc.

I think they're less; and one very significant difficulty that in my opinion it will *not* have is rejection by the motoring public.

BMW made a hydrogen fan of me shortly after, in 1978 or 1979, it demonstrated its 520h, a hydrogen-burning car whose cryogenic liquid tankage gave it approximately a 300-km range. Since then, however, I've only seen one hydrogen Bimmer, parked indoors at a hydrogen conference. It was a 750hL, introduced I think in 2000, a model whose cryogenic liquid tankage gave it about 300-km range. It's not a terribly unusual gasoline car that can go 1,000 km on 29 gallons, a quantity that produces 1 MWh of chemical energy, 300 kWh at the driveshaft. For the same 300 shaft kWh, these numbers -- left column is fuel reservoir internal volume, right one is maximum mass of reservoir plus contents -- show what can be expected from various zero-local-emissions fuels, plus gasoline.

· Gasoline                    108 L           96 kg
· Hydrogen, -253°C liquid     448 L          516 kg
· Hydrogen, 10-kpsi gas       972 L        1,222 kg
· Zinc pellets                666 L        1,533 kg
· Boron pellets               245 L          331 kg

When someone gets around to constructing a prototype boron vehicle, it will readily be able to match the range of gasoline cars now in production. Moreover, the range will to some extent be at the experimenters' discretion, for of the 245 liters volume, only 57 are actually for boron pellets. The rest is for the boron oxide they will become.

Non-cryogenic plastic sacks full of boron pellets could ride in the back seat and allow transcontinental range without taking on fuel, although not without offloading ash. I believe after seeing this, the public won't forget, and there will be no need to reannounce it 20 years on. Rather, the ensuing 20 years will bring real progress, and a real reduction in hydrocarbons' share of personal transportation. -- Graham Cowan


DOE Comes Up With Another Long-Term Energy Strategy

And not a bad one, at that: "The long-term solution to our economic and environmental challenge is to make a fundamental change in our mix of energy options and, therefore, America’s energy future. To aid this transformation, the Department will develop advanced technologies to reduce the cost and environmental impacts of nuclear energy; to produce, store, and use hydrogen as a sustainable and emissions-free energy carrier; and to develop fusion energy, the process that powers the sun." OK, so Pete selectively lifted the part his liked.  The rest is available to read if you choose to wade through it. q.v.  Too bad Spencer Abraham released it with the word Draft stamped in 500 point type across every page, as though it were the policy just until someone in the White House noticed and then it would soon stop being the policy. But that's Washington for you.


More Andrew McKillop On Oil Prices

Pete was going to title this one 'Everything You Know About Oil is Wrong' but thought better of it: it could just be what Pete thought he knew about oil price elasticity or what the political class thinks it knows about cheap oil.  Still, McKillop's arguments are interesting and challenging. q.v. Within a very broad band, oil price increases are more salutary than harmful, and a structural supply deficit will soon be upon us to ensure we get those benefits. For Pete at least there is no argument on the point that the transition away from fossil fuels must begin as soon as possible and it will take serious price signals to get it going. It also seems reasonable to suppose that it won't be too long until those price signals come from more than political disruption in the middle east.


Natural Gas (4) - Just How Cold Was It Last Winter and How Hot Will the Summer Be?

Last winter drained the natural gas storage system to the lowest level ever recorded.  We made it through the heating season, but were definitely limping toward the end. So last winter must have been really, really cold, right? On a population- weighted basis it was only 6.5% colder than normal. q.v.  

Even though it wasn't that cold, we now have the largest deficit ever to inject back into storage by next October in order to be ready for the next heating season (3,200*-614=2,586 Bcf). The natural gas supply system has only once in the previous 25 years had to replace this much gas, so it won't be easy.  It will depend on the extent of the shutdowns in the nuclear industry occasioned by the discovery of a possible system wide problem q.v., and by the heat this summer.  Is anyone bold enough to predict how hot the summer will be? For whatever it may be worth, the National Weather Service has issued a forecast. q.v.  

*Since no one but the invisible hand is in charge of the natural gas delivery system, it's an open question how much gas ought to be in storage in order to be responsible to all the people who need gas to keep warm.  When everything is working well, 3,200 Bcf or thereabouts is a good number, but there have been outlier years when the system entered the winter heating season with only 2,732 Bcf and the world didn't end.  It did however lay the groundwork for what was, until last March's record, the then largest storage deficit ever the following year, and that was after a notably warm winter. 


Voodoo and the American Political Class

You have to hand it to them -- Their forecasters warn of red ink seas lapping at toes and maybe knees for a decade or two. q.v. The balance of payments on current account falls off the cliff. q.v. The dollar gets trounced, dropping by a third. q.v. So what do they do? They just cut taxes anyway, and tell everyone wet feet feel good. When energy shortages reallocate the wealth from their constituents' portfolios, they think big and invade Iraq. So what do they do with it? Nothing. The oil sits there and the conquered territory slides into anarchy. Pension system going broke? SUVs out of control? Corporate sector rife with fraud? Bring on the gris-gris. 


Would Drilling ANWR Make A Significant Difference to Future Oil Imports?

Roger Blanchard has sent in a report:

President Bush, administrative representatives and some congressional representatives have expended considerable effort in attempting to open the Arctic National Wildlife Refuge (ANWR) to oil and gas development, ostensibly to reduce U.S. oil imports.  Oil imports into the U.S. are significant.  This year U.S. oil* imports will average ~11.0 million barrels/day (mb/d).  To place 11.0 m b/d in perspective, no other country consumes as much as 6 mb/d.  

Quantitatively, how would oil production from ANWR affect future U.S. oil imports?  According to the U.S. Country Analysis Brief at the U.S. DOE/EIA website, ANWR could produce 1.0-1.35 mb/d at peak production.  That range is based upon a mean technically recoverable amount of oil of 10.3 billion barrels.  I would expect the economically recoverable amount of oil to be less, and possibly considerably less, but I’ll use 1.3 mb/d for the analysis.  I’ll assume that production would start in 2010 and reach peak production in 2020 (It took 11 years for the initial North Slope oil development to reach peak production).  

The U.S. DOE/EIA is projecting that U.S. oil consumption will rise 6.1 mb/d from 2000 to 2020.  Subtracting 0.5 mb/d for the approximate consumption increase from 2000 to 2003 leaves a 5.6 mb/d increase from 2003 to 2020.  Crude + condensate production from the Lower 48 states, excluding the deepwater Gulf of Mexico, has declined 5.6 mb/d since 1971.  I’m projecting that it will decline 2.0 mb/d between 2003 and 2020.  Deepwater Gulf of Mexico production is presently rising rapidly but I’m projecting a peak around 2010.  I’m further projecting that deepwater Gulf of Mexico oil production will be 0.3 mb/d less in 2020 than it is in 2003.  The U.S. DOE/EIA is projecting that oil production from mature Alaskan fields will decline 0.8 mb/d between 2000 and 2020.  Subtracting 0.1 for the decline from 2000 to 2003 leaves 0.7 mb/d for the decline from 2003 to 2020.

Adding the increase in consumption and the decreases in production, 5.6 + 2.0 + 0.3 + 0.7 mb/d gives 8.6 mb/d.  Subtracting 1.3 mb/d for ANWR oil production leaves 7.3 mb/d.  Based upon this analysis, the U.S. would have to obtain 7.3 mb/d from somewhere beyond ANWR for oil imports in 2020 to be 11.0 mb/d, the present value.  Because of limited further oil resources in the U.S., I would expect most or all of the 7.3 mb/d value to come from imports which would cause imports to rise from 11.0 mb/d at present to as much as 18.3 mb/d in 2020.

All projections are incorrect to some degree.  The assumed increase in U.S. oil demand is based upon the belief that global production can continue to increase to meet demand.  I’m skeptical of that but time will tell.  I am certain that even if oil development occurs in ANWR, U.S. oil imports will continue to rise.

*For this note, oil includes crude oil, condensate, natural gas liquids, refined products and refinery gain    


Natural Gas (3) - Greenspan Begins to Understand

There are few signs at the moment that anyone in the administration understands the seriousness of the natural gas situation (beyond EIA's short-term forecasters).*  However, the Fed Chairman is beginning to catch on:

... In contrast, prices for natural gas have increased sharply in response to very tight supplies. Working gas in storage is presently at extremely low levels, and the normal seasonal rebuilding of these inventories seems to be behind the typical schedule. The colder-than-average winter played a role in producing today’s tight supply situation as did the inability of heightened gas well drilling to significantly augment net marketed production. Canada, our major source of gas imports, has little room to expand shipments to the United States. Our limited capacity to import liquified [sic] natural gas effectively restricts our access to the world’s abundant supplies of natural gas. The current tight domestic natural gas market reflects the increases in demand over the past two decades. That demand has been spurred by myriad new uses for natural gas in industry and by the increased use of natural gas as a clean-burning source of electric power. ... q.v.

*Pete could be wrong about this. q.v.


Natural Gas (2) - Fundamental Source of the Problem

It is common to assume that because of improvements in imaging technology and directional drilling capabilities, the natural gas production industry will be able to continue to produce an ever increasing amount from what is generally thought to be an abundant resource.  The chart of decline curves below doesn't necessarily contradict those assumptions but it does suggest that the level of drilling required to stay even is getting bigger all the time as more and more reserves are tapped and then used up relatively quickly:

Copyright EOG Resources. Used by permission. By way of contrast, for a representative taste of the all-is-hunky-dory view see the AGA's Fueling the Future q.v.


Natural Gas (1) -- Warning: Risky Times Ahead

According to the Nuclear Regulatory Commission, "As a result of recent discoveries of reactor vessel head degradation in Davis Besse Nuclear Power Station's reactor pressure vessel head, the NRC is investigating the structural integrity of reactor vessel heads at 69 pressurized water reactors (PWRs)." q.v.  The implications of the NRC story are really chilling: if the system has to turn off a number of nukes for unscheduled maintenance and replace them with gas-fired electricity, we'll never be able to set aside the already record amount of gas required to be in storage by next October. With natural gas storage already abnormally low, a widespread problem in the nuclear sector could have extremely serious consequences for next winter.*

Pete was reluctant to publish anything on the gas storage problem because it can seem irresponsible to warn readers of a dangerous situation and then have nothing happen. Ultimately, the severity of any problems depend on the weather, and no one can predict that months before the fact. A change in the weather of the 2000/2001 winter saved us from another unusual storage drawdown situation that had developed.  The same thing may happen again, and of course Pete is the first to hope the summer is cooler than usual, and the winter warmer, and that boric acid hasn't been eating holes in reactor vessel heads. But watch out if this isn't the case, especially if gas has to be used to replace one or more nukes.  

Here is what Pete wrote more than six weeks ago. q.v.  There are a number of points that could be made to update what's in the paper.  First of all, there are more encouraging signs now that the gas production industry is working harder to address the need for more supplies, and there are a few new pipeline connections opening up that Pete hadn't known about and which may alleviate the situation somewhat.  Finally, EIA has changed its views to recognize the possibility of a shortages and price spikes to offset them. q.v.  Still, with any kind of sustained problem in the nuclear sector, the situation could get much worse.

Working Gas in Underground Storage Compared with 5-Year Range 

Working Gas in Underground Storage Compared with 5-Year Range

EIA estimates as of May 9,2003, Source: EIA.  For Pete, the only issue is whether the system can get back over 3 Tcf by November.

*Graham Cowan was good enough to provide some perspective: "One reason they can put B(OH)3 in some reactors' water is the same reason people can, as some do, put it in their eyes: it's not very corrosive. But the water in the reactors is hot, up to around 600 K, versus 310 K for the eyes, and at that sort of temperature boric acid in water solution can attack some kinds of steel. Evidently the inner surface of the Davis-Besse reactor's pressure vessel, and I guess of any pressurized water reactor, is not any of those kinds. But its *outer* surface, and most of its thickness, is, and there are holes for control rods and instruments, and seepage through one of these allowed aqueous boric acid to pit the vessel from the outside in, all the way to the stainless steel liner.  If that liner had been more susceptible, it might have sprung a leak before plant personnel, along about March 2002 if I recall correctly, discovered all the junk on the outside -- which was quite a long time later than it might have been, I understand. Such a leak would not have been catastrophic; much attention has been paid to planning how to deal with leaks, even very large ones, not newborn corrosion pinholes. So we can be certain boric acid won't one morning demolish all the PWRs, or even one. But it, along with inattention to seepage, has put one, Davis-Besse, out of action for many months, and evoked a heightened state of alertness to seepage throughout the industry; hence the South Texas reactor shutdown, on whose vessel's underside a boric acid crust about a million times smaller than the one at D-B turned up. " 


How Do Changes in Energy Prices Affect Demand? (1)

Easy, you say. When energy prices spike upward, aggregate demand deteriorates rapidly, and vice versa. Econ 101. Right? Well maybe it's a bit more complicated than you thought. Andrew McKillop writes from the UK with his analysis:*

Conventional or received wisdom, embodied in the notion of ‘price elasticity’ of demand, is that large oil price rises will necessarily reduce economic growth and oil demand growth rates, perhaps resulting in zero economic growth, or recession, and producing a contraction of world oil demand on a year-by-year basis. The higher the rise of oil prices, the faster it is assumed that ‘price elastic’ responses will play. Higher oil prices will “of course” reduce economic growth, generate stock exchange panics and produce inflation, leading to monetary and financial instability; higher interest rates, and even a plunge into recession will be needed to combat this menace through intensifying the fall in economic growth rates “inevitably caused” by higher oil prices, thus cutting world oil demand. [continued]  

*Author's postscript:

In my article that you kindly published, it ends like this:... Depending on oil price rises, and certainly with price levels of up to $50 - $60/barrel, composite or aggregate world economic growth rates are more likely to grow, than to shrink. In such case, overall world oil demand growth rates may well break out of the 'long term trend rate', that is used by OECD agencies such as the IEA to forecast future demand, and attain levels of considerably above 2%/year (perhaps 2%-2.25% per year with prices at $50-$60/barrel).

Today I saw this information:  "ENERGY MATTERS: Mayday! distress call from US May data / Posted: Thursday, June 05, 2003 /By: PETROLEUMWORLD: US oil demand in May set a record for the month, at 20.081 million bpd, following on from an April demand record and first-quarter demand which was at the highest level in 24 years. Demand was up 2% from a year ago and is averaging a 2.9% gain through the first five months of the year. 

Now I am the first to accept there are all kinds of technical and other factors in play (but mostly price related) like fuel switching away from natural gas, but the oil price rise impact on demand trends is rather well demonstrated by these real world numbers for the US energy economy. 


Why Does California Have to Pay So Much More?

It's not a simple problem and EIA's culprit for the most recent spikes -- the phase out of MTBE in favor of ethanol and back luck in refinery outage scheduling -- may not seem fully satisfactory. q.v.


Exxon's Results Are Off The Charts

                                                       First Quarter
                                                       2003     2002
Net Income
  $ Millions                                          7,040    2,090
  $ Per Common Share
     Assuming Dilution                                 1.05     0.30

Earnings Excluding Merger Effects,
Discontinued Operations, Accounting
Change and Other Special Items
  $ Millions                                          4,790    2,123
  $ Per Common Share
     Assuming Dilution                                 0.71     0.30

Revenue - $ Millions                                 63,780   43,393

Capital & Exploration
Expenditures - $ Millions                             3,496    2,974

It's no one's fault that the oil markets went berserk in the first quarter, thinks Pete.  What do you expect when the Nigerians, Venezuelans, Iraqis, and Americans all go extreme simultaneously?  The rest of the world may need to keep a few more tranquilizer darts on hand in case it ever happens again.  Certainly Exxon's management can't claim much credit, except maybe for holding on tight during a wild ride.


BP Posts Record Results

Even though Pete has no idea what the caveat means, BP's warns that "the pro forma result, adjusted for special items, has been derived from the group’s reported UK GAAP accounting information but is not in itself a recognized UK or US GAAP measure." Whatever that may mean, and assuming replacement cost profits are artfully reduced versions of good old profits, here are BP's results:

                                                                      1Q
                                                                       2003
                                                    1Q     4Q     1Q  vs.1Q
$ million                                         2003   2002   2002   2002
                                                 ==========================
Replacement cost profit before exceptional items 3,128  1,697    924
Special items(a)                                   (27)   416    120
Acquisition amortization(b)                        628    522    538
                                                 --------------------------
Pro forma result adjusted for special items      3,729  2,635  1,582   136%
                                                 ==========================
-  per ordinary share (pence)                    10.44   7.61   4.94
-  per ordinary share (cents)                    16.70  11.78   7.06   137%
-  per ADS (dollars)                              1.00   0.71   0.42
                                                 ==========================
  • BP’s first quarter pro forma result, adjusted for special items, was a record $3,729 million compared with $1,582 million a year ago, an increase of 136%. 

Perhaps the good old profits were embarrassingly large.  Rest of the news release q.v.


Running Iraq

Suppose you had been appointed the petroleum specialist on General Garner's staff and were trying to figure out what to do with the largely intact remnants of the Iraqi oil industry.  You'd first have to make sure enough crude got to the functioning refineries to give the locals the chance to heat food, get to work, and so forth. That's in the process of being done. What then? You'd obviously be well advised not to think that you were running the show: that your elders and betters back in Washington were going to let you know what do next.  Rumsfeld's instruction would almost certainly be full steam ahead -- pump all you can and get it to the world market as soon as possible. Except there is the little matter of the economic sanctions still very much in place legally.  Changed circumstances, you'd be told.  But shouldn't the UN at least be given the chance to remove them? We'll handle that one would come the reply. Okay, oil exports start flowing big time. Your accountants start transferring out the funds needed to pay the victorious army for reconstruction costs. You take a phone call from the OPEC secretary general who reminds you that Iraq is a founding member of the cartel and sworn to keep to its production quota, now down near zero. That was then, this is now, you'd tell him. You next take a call from either Paris or Moscow and speak with the chair of the Iraqi creditors committee, who'd remind you about certain bills that are very much past due, that you have no legal title to the oil, and, regrettably, at each port ready to receive your tankers legal actions had been brought seizing the oil. Your riposte would be something along the lines of do you know who you're dealing with here. And their demurrer would be to tell it to the judge.  Pete thinks that judge, or whoever must sort the whole thing out, is going to earn his or her pay.*

*Robert Ehrlich suggests a more down to earth approach: "Well if I were the technocrat involved, I would offer big hiring bonuses to all of the Iraqi petroleum engineers and geologists who are working everywhere from the U.S. to Libya to Saudi Arabia. Those whom I have met have been top-notch. Then have them recommend the best hardware and software, etc. to get the ball rolling. That is, let them be the buffer between Iraq and the Halliburtons, Schlumbergers, etc. "


On the Saudis

Randy Udall wrote some time ago suggesting that the cover piece on the Saudis in the current Atlantic was worth reading.*  It took Pete an unreasonably long time to find it, but here are several representative passages that at least give the flavor of the thing:

... Saudi Arabia today is a mess, and it is our mess. We made it the private storage tank for our oil reserves.  We reaped the benefits of a steady petroleum supply at a discounted price, and we grabbed at every available Saudi petrodollar. ... We cannot walk away morally from the consequences of this behavior -- and we really can't walk away economically.  So we crow about democracy and talk about weaning ourselves from our dependence on foreign oil, despite the fact that as long as America has been dependent on foreign oil there has never been an honest, sustained effort at the senior governmental level to reduce long-term U.S. petroleum consumption. ... Signs of impending disaster are everywhere, but the House of Saud has chosen to pray that the moment of reckoning will not come soon -- and the United States has chosen to look away. So nothing changes ... But sometime soon, one way or another, the House of Saud is coming down. ("The Fall of the House of Saud" Atlantic Monthly, May, 2003)

As always, it is much better to read the original because Pete's ellipses leave out a lot of good stuff.  Mark you, Pete neither likes nor dislikes the Saudis per se, and thinks everyone should be grateful they provided the extra oil that helped get us through the recent crisis without too much economic damage.

*Randy Udall also recommends High and Mighty: The World's Most Dangerous Vehicles and How They Came to Be That Way... by Keith Bradsher. It explains "how automakers (in collusion with federal regulators and politicians) have driven 20 million SUVs through the light truck loophole created by CAFE way back when. It's also a reality check for those who believe that fuel-efficient hybrid electric vehicles will be dominant anytime soon."  Perhaps had the US political class been more responsible we wouldn't have to shudder at the thought of the fall of the house of Saud and the shadow it casts on all those SUVs.


League Tables

 
Top World Oil Net Exporters, 2002

Country

Net Exports (million barrels per day)
1) Saudi Arabia 6.76
2) Russia 5.03
3) Norway 3.14
4) Iran 2.30
5) Venezuela 2.26
6) United Arab Emirates 1.95
7) Nigeria 1.85
8) Kuwait 1.73
9) Mexico 1.69
10) Iraq 1.58
11) Algeria 1.27
12) Libya 1.16

 

U.S. Net Petroleum Imports, 2002
Country Total Net Oil Imports (million barrels per day) 
Canada
1.83
Saudi Arabia
1.55
Venezuela 1.37
Mexico 1.28
Nigeria 0.60
United Kingdom 0.47
Iraq 0.44
Norway 0.38
Angola 0.33
Net Imports 10.38

Source: EIA


Quick Recap: Why the Middle East Matters

Graph of Net Oil Imports from the Persian Gulf as a Percent of Net Oil Imports for the US, Japan, and OECD Europe. Source: EIA.Persian Gulf as a Percent of World

 

 

 

 

 

 

 

 

 

EIA has published the rest of the story. q.v.

 


Uninterrupted Progress

 An extraordinary accomplishment ....(Millions of barrels per day)

Looking at the larger picture, it is extraordinary how the world's oil industry has been able to meet sustained increases in petroleum demand, despite major political upheavals like the end of the Cold War.  Perhaps it is no less remarkable that the world's political leaders seem to think their petroleum suppliers will be able to do so indefinitely. There is good reason to suppose the next third of a century will present more difficulties than the last.


China and Oil Imports

Roger Blanchard has sent in a report on Chinese oil imports:

People in China appear to want to live the Chinese dream, which parallels the American dream.  The American dream involves consuming large quantities of fossil fuels, most notably oil.  China is rapidly increasing its use of oil as well.  Because of limited Chinese oil resources, Chinese oil imports have risen rapidly in recent years.  The figure shows Chinese production and consumption. 

  Chinese Oil Production and Consumption
 
  Red = production; green = consumption

China started importing oil in 1993.  In 2002, Chinese imports were 35.9% of consumption.  If the rate that Chinese imports have increased since 1993 continues, imports will be 50% of consumption in 4 years.  Increasing conflict in coming years between the U.S. and China over Middle East oil resources seems likely as both countries import increasing volumes of oil from the Middle East.


EIA and Prices

Anyone who reads this page regularly will have noticed that Pete filches a large portion of his stuff from EIA. They may also have noticed a certain deference, bordering on servility, in Pete's attitude toward the hard-working, multi-talented lot who season after season churn out energy statistical reality. The problem is that not all observers are quite so favorably impressed when EIA lifts its forecasting finger to the wind. Take Steve Andrews, who writes

It's interesting to note that EIA thinks this will be an all-time high year for natural gas prices. No surprise to you or me or visitors to Policy Pete's PP&G, but just 18 months ago, they projected that natural gas prices were back in their  regular ol' saddle and would reside there for the foreseeable future. Their bad.

In fact, EIA is so bad at energy price prognostication that I wonder why they bother. I think they have the historic record for being wrong. My favorite piece of dartboard material to this end is a clip from the Denver Post (Dec 3, 1998) in which Jay Hakes, then-head of EIA, projected oil prices at $14/barrel for 2000 (actual was $29) and below-$20 oil out through 2007...all because of the "Asian economic flu" that lasted from mid-1997 through the writing of that ill-fated prognostication. A close second place for the wrongo energy price award would be The Economist, with their headline of March 6, 1999 entitled "Drowning in Oil." They wrote that oil might bottom at $5/barrel. Indeed. Some day when one of your readers is bored and has nothing but time on their hands, they could go back through old issues of Oil & Gas Journal and document EIA farcical price myopia. Too bad people in decision-making positions actually listen to those fellas."

Harsh. Anyone from EIA have a reply?*

*Nothing from EIA yet but Dave Westenbarger wrote from Texas to suggest, "Maybe the geologists will agree to quit forecasting prices if the economists will agree to quit forecasting reserves. Sound fair?"  Sounds fair to Pete.


Oil Production, Ghawar, and the Hubbert Peak

This is a complex topic, fraught with uncertainties.*  Jeffrey Brown has been good enough to send in a report:

Since 1970, world oil production (crude plus condensate) has dropped in consecutive back-to-back years only twice -- from 1981 to 1983 and from 2000 to 2002.

The 1981 to 1983 drop was because of a huge drop in Saudi Arabia's production of 4.8 million barrels per day--almost a 50% cut. World oil production fell by 2.8 million b/d over this time period.  If it were not for the huge Saudi cut, world oil production would have risen by 2.5 million b/d.

Saudi Arabia's production did drop from 2000 to 2002, but only by 800,000 b/d, while world oil production fell by 1.3 million b/d.  Even if Saudi Arabia's production had not fallen, world oil production would have still fallen by 500,000 b/d.  In other words, this is the ONLY time in the past 32 years that a back-to-back drop in annual world oil production has not been exclusively due to a voluntary cutback by Saudi Arabia. 

In any case, one very important question is whether the 2000 to 2002 cutback by the Saudis was truly "voluntary." The water cut in the Ghawar Field (the largest oil field in the world) has been steadily increasing, and the Saudis may be cutting back production to avoid damage to the reservoir. Following is an excerpt from a 2000 EIA report on Saudi Arabia (emphasis added), "As Shaybah light crude production increases (to 500,000 b/d), Saudi Arabia likely will CUT production of Arab Light from overworked parts (water content is rising) of the Ghawar reservoir, as well as Arab Heavy from offshore."

The key point is that this drop in production from 2000 to 2002 corresponds precisely to King Hubbert's predicted peak for world oil production. 

On the issue of Ghawar, the following comment was received from Ken Ainsworth of Continental Resources:

I found your observations on the Saudi cutback to Ghawar Field interesting, particularly in light of an observation I made at a conference in the fall. At that time, Aramco put on a half-day session dedicated entirely to the geotechnical aspects of the field. Most of the papers were of the propeller-head variety of interest to only such as myself, and the Aramco folks were extremely tight-lipped about their projections of future recoverable reserves and deliverability. But in the course of the presentations, they did show a series of maps illustrating the current oil-water contact of the primary producing zone, as well as the original contact. Strictly as a qualitative observation, it looked as though a good half the productive area has been swept. When placed in the context that a significant part of the field still above water is in what the Aramco folks themselves described as "poorer quality reservoir", I would say that this is not a field that will provide unlimited oil for future generations. Your thoughts appear to be right on target.

*Pete doesn't know whether or not Jeffery Brown is right or not about reaching the peak, and suspects it's the kind of thing you could only 'know' in retrospect. 


Record Real Natural Gas Prices

While everyone else has been focused on the ups and downs of the world oil price, Pete's been watching natural gas prices. Unlike oil prices, which are high in nominal but not real terms, gas prices are high any way you look at them, even though last winter's spike has now abated.  EIA is expecting 2003 to be the all-time record. 

Perhaps you think things have gotten out of hand, that the economic recovery is being choked by these price levels, and that gas prices ought to start falling soon. Au contraire. You should be glad prices are high and you should hope they stay that way, because its going to take every resource the gas production industry can muster to get us through next winter.  But that's another story....


Democrats and Energy Policy

Energy -- will the Democrats ever get it right?Energy is one policy the Democrats never get right. For twenty years they've believed there is no problem, that whatever the symptom of the day might be, it was produced by a conspiracy between Republicans and the oil industry.  And whatever the symptom, the Democrats have believed it to have been trumped by environmental considerations. Ironically, they produced the only president in the post-WWII period, Carter, who advanced a coherent, comprehensive energy policy, but then fought him all the way, encouraging Ted Kennedy to run against him and thereby ensure his defeat by Reagan. 

Ever since, the Democratic Party leadership has hummed a mantra of conservation and alternative fuels with cynical abandon, knowing full well that neither could ever provide a realistic basis for a modern economy.  Now, faced with a real environmental problem with extremely serious consequences, global climate change, they have once again proven unable to think their way out of the box Clinton left them in.  A recent instance of the cynical game came from Senator Boxer.  Her analysis of drilling a strip of the Alaska National Wildlife Refuge: the US could get the same benefit "by just getting the SUVs to have the same fuel economy as autos." q.v. This is quite true and would, in theory, be a major advance. But do the Democrats really want to accomplish it? Of course not, it's neither politically expedient nor physically possible, unless one redefines what an SUV is. Take another example, also from Senator Boxer, "After seeing the statistics, I don't buy the argument that higher gasoline prices are due to higher crude oil prices. That is what oil companies are saying, but financial records suggest that oil companies have been pocketing more profits as consumers pay record high gas prices." q.v.  It would be nice if that one were true too, because it's easy enough to investigate and stop if confirmed.  But once again, all it has going for it is that it sounds good, which is what the current crop of Democrat leaders almost invariably are willing to settle for. 


Who Imports Iraqi Oil?

Many Americans appear to believe that the UN security council refused to approve the US invasion of Iraq because France and Germany are dependent on Iraqi oil.  Here's the most recent data.

 

Oil Imports into OECD Countries  

OECD Europe Total

  United States
(2002 Daily Average) OECD Total France Germany
Total Net Imports 23.586 7.950 1.857 2.506 10.378
Total Gross Imports 39.719 17.796 2.238 2.916 11.358
Gross Imports from OPEC4 16.478 4.766 0.713 0.446 4.558
Gross Imports from Persian Gulf5          
 Total 10.546 2.311 0.450 0.083 2.254
 Bahrain 0.030 0.009 0.003 0.000 0.000
 Iran 1.316 0.626 0.074 0.001 0.000
 Iraq 0.893 0.302 0.080 0.001 0.442
 Kuwait 1.148 0.139 0.024 0.005 0.223
 United Arab Emirates 1.704 0.044 0.026 0.000 0.021
 Qatar 0.581 0.002 0.001 0.000 0.015
 Saudi Arabia 4.874 1.189 0.242 0.076 1.553
Gross Imports from OPEC-Africa          
 Total 3.398 2.213 0.264 0.347 0.865
 Algeria 1.133 0.677 0.115 0.104 0.269
 Libya 1.110 1.109 0.049 0.188 0.000
 Nigeria 1.155 0.426 0.099 0.055 0.596
Gross Imports from OPEC-South America        
 Total 2.025 0.241 0.003 0.016 1.383
 Venezuela 2.025 0.241 0.003 0.016 1.383
Gross Imports from OPEC-Asia          
 Total 0.539 0.010 0.000 0.000 0.055
 Indonesia 0.539 0.010 0.000 0.000 0.055

The data in the table were adapted from an EIA report. q.v.


What a Difference A Few Months Make

Pete, who's no longer in the forecasting biz, knows enough to know it's a black art at best. It's nice to think there's a group of people who know how to look over the horizon and ensure we're ready for whatever lurks there, but there isn't and we often aren't.  The figure on the left shows what EIA thought was going to happen to natural gas prices when it published Winter Fuels Outlook in October, 2002. q.v. The figure at the right shows the story after final revisions in March, 2003. q.v.

 

 

 

 

 

 

 

 

 

The dotted red lines are 95 percent confidence levels. Sometimes you get the bear, sometimes the bear gets you.


 


But Is It Legal?

The advent of war with Iraq has arrived. The US has decided to change the Iraqi regime and thereby alters the long-standing practice of not interfering in the internal affairs of its oil suppliers provided they do nothing to threaten future supplies. It does so without having secured permission from either the UN or any of the various multilateral organizations to which it belongs, despite having tried to do so.

Does the US go to war under color of law? The operative standard for claims of action taken in self-defense has been summarized as follows: "First, there exists a body of principled practice that permits pre-emptive military action by a state or states in limited circumstances of extreme necessity including anticipatory self-defense and humanitarian disaster. Two, whether in any particular instance the circumstances warrant such extraordinary resort to force cannot be determined solely by the state deploying such force, although authorization from its peers may sometimes, extraordinarily, be implicit or implied, rather than explicit and may even, extraordinarily, be ex post facto, rather than being invariably a priori. In any case, even in the most extraordinary circumstances, the onus of offering explicit and convincing evidence always rests with the state seeking to justify recourse to force. Whether that onus has been discharged can never be determined unilaterally by those seeking to use force." q.v. Then what about Resolution 1441? q.v. Read it and decide for yourself. 


The Climate Change Follies

Pete's favorite young comedian, Under Secretary of State Paula Dobriansky, has been at it again. She has promised an audience in Houston that adopting the president's energy intensity goals will, by itself, produce carbon dioxide savings equivalent to the removal of 70 million cars from the roads. Just imagine what would happen when you throw in the rest of her program -- carbon sequestration, the hydrogen economy, nuclear fusion, and a few unspecified new technologies. So we've solved that one. Her conclusion: "Former Czech President, Vaclav Havel, has written, by perceiving ourselves as part of the river, we take responsibility for the river as a whole." Sounds a bit wet to Pete.


World Excess Production Capacity At Second Lowest Level in Thirty Years

The 1991 low was AFTER Iraq and Kuwait had been knocked out, not before, so watch out ...EIA's assessment is that, "At estimated March production levels, OPEC spare capacity will be no more than 2.1 - 2.6 million barrels per day (1.5-2.0 million barrels per day excluding Iraq). This is the second lowest spare capacity level in the past three decades, trailing only the low reached in 1991 after the loss of Iraqi and Kuwaiti production. This low level of capacity is of concern in light of Kuwait's statement that it could have to curtail output in its northern and western fields if the Iraqi situation worsens. Still, the estimated March production levels suggest that 700,000 barrels per day of OPEC's spare production capacity has already been tapped and is on its way to markets in advance of any possible need for it." q.v.


Non-OPEC Oil Production

Roger Blanchard has sent in a report on how well the other oil producers are doing:

It’s common for media sources to state that oil production has been increasing rapidly in recent years in the Former Soviet Union (FSU), which it has, but how is oil production doing in non-OPEC countries excluding the FSU?  Graph 1 is a graph of oil production (crude oil + condensate) for the top 18 non-OPEC oil producers, excluding the FSU.1
  Graph 1: Oil production for the top 18 non-OPEC producing countries excluding the FSU.
  Non-FSU Non-Opec production
From 1990 to 1998, oil production from these 18 countries increased by 4.21 mb/d.  Since 1998, production has remained around 28 mb/d.  A major factor preventing a decline in production from these 18 countries is the rapid development of deepwater oil (>1000 ft).  Deepwater production from the Campos Basin, Brazil, and the Gulf of Mexico (GOM) has risen rapidly since 1998.  Year 2002 saw a significant increase in deepwater oil production from Angola as well.  It appears that global deepwater oil production increased ~500,000 b/d in 2002 with Brazilian oil production increasing 161,000 b/d, Angolan production increasing 163,000 b/d and U.S. deepwater GOM production probably increasing about 150,000 b/d.  It’s possible that Brazilian and Angolan production, excluding deepwater production, declined in 2002 so the deepwater production increases in those two countries could have been greater than the country production increases.  The 2002 production increase for the 18 non-OPEC countries associated with Graph 1 was 275,000 b/d.  The U.S. DOE/EIA is expecting a large increase in oil production from non-OPEC sources for the 2003-2020 period and that would necessitate a large increase in production from the 18 non-OPEC countries associated with Graph 1.

Graph 2 shows FSU oil production for the 1973-1991 period and liquid hydrocarbons production for the 1992-2002 period.2

Graph 2: FSU oil production for 1973-1991 and liquid hydrocarbons production for 1992-2002
 

Liquid hydrocarbons production within the FSU has risen rapidly in recent years. The table compares the liquid hydrocarbons production increase for the FSU and non-OPEC countries for the last 4 years.  

 

Oil Production Increases: FSU Compared to Non-OPEC

Years

FSU

Non-OPEC

FSU as % of Total

1999

390,000

250,000

156.0

2000

500,000

960,000

52.1

2001

690,000

780,000

88.5

2002

540,000

1,030,000

52.4

4 year total

2,120,000

3,020,000

70.2

1 Norway, U.K., Angola, Argentina, Australia, Brazil, Canada, China, Colombia, Ecuador, Egypt, Gabon, India, Malaysia, Mexico, Oman, Syria, and U.S.  Data is from the U.S. DOE/EIA.

2 The U.S. DOE/EIA stopped providing oil production data for the FSU in 1991 but provides liquid hydrocarbons data for the FSU.  Liquid hydrocarbons include natural gas liquids and refinery gain along with crude oil and condensate.


NonUtility Electricity Generators

The nonutilities like natural gas, but was it a mistake? More electricity is now generated by nonutilities than comes from nuclear power.* Of the 208,293 megawatts of capacity controlled by nonutilities (or 26% of total electricity generation capacity), roughly 9% was added in 2000 (the most recent year when statistics were available) and an incredible further 21% was sold or transferred in 2000 to nonutilities or unregulated affiliates of electric utilities. 

Deregulation is certainly taking hold.  The independent power producer market has been growing incredibly fast.  Non-utility capacity tripled in the three years prior to 2000. EIA expects the torrid pace to be maintained and even expand through 2003, with the rate of growth falling off, but still positive, thereafter. While it's not surprising that so much of the capacity is fired by natural gas, it could be that more than a few of the new independent power producers are wishing they'd picked some other fuel. Pete, who doesn't think natural gas should be wasted on producing electricity, would require all new gas capacity to be dual-fired [but see Roger Arnold's letter to the right]. That wouldn't have solved the cost problem either, but it would help assure that there'll be enough gas for residential space heating a few winters down the road.

EIA has published an interesting report. q.v.

*Or thereabouts.  A surprisingly large amount of the capacity transferred by utilities to their non-regulated components was nuclear, so it gets a little complicated.

Bush Industrial Policy

The administration will spend a billion on a plant that first gasifies coal, burns it, and then returns 90% of the CO2 for reinjection into deep aquifers. q.v. This is "FutureGen." In addition the fact sheet for the project promises that by 2020 it will: (1) produce electricity with less than a 10% increase in cost compared to nonsequestered systems; (2) produce hydrogen at $4.00 per million Btus (wholesale), equivalent to $0.48/gallon of gasoline, or $0.22/gallon less than today’s wholesale price of gasoline. Too bad the net energy calculations weren't provided.


Natural Gas and Other Unpleasant Surprises 

Pete hears that spot physical gas is going for $12 - 14 mmBtu. Whether true or not, it is abundantly clear that we're no longer talking about Your Father's Natural Gas.  Futures prices are still rising.  The February contract goes off the boards with the March contract up more than a dollar over the February exit price.  As far as Pete can tell, the government's mid-term forecasters completely missed it for the second time in as many years.

When prices spiked two years ago to unprecedented levels, there was eventually enough of a supply response to fill storage to capacity. Pete knew the problem hadn't gone away, but thought it wouldn't reassert itself for a couple more years.  Wrong. Here it is again, big time, only two years later. Yes, the winter heating season is almost over, so the US will get through it, but it raises the standard questions whether the stock replenishment that occurs over the summer will be adequate to begin the next heating season at a responsible level. It also raises all of the questions about whether the economy can recover with consumers having to pay nearly double the previous year's oil and gas bills. This time there'll be no nice little tax rebate to make the pain go away.

Meanwhile, anyone (like the president, apparently) who thinks the natural gas delivery system is capable of providing consumer space heating in a cold winter, firing almost all future marginal electric production capacity, and most of the new hydrogen-based transportation economy has been smoking the wrong stuff. It's time to let the adults back in to figure out what's going on.


EIA's Most Recent OPEC Summary

OPEC Crude Oil Production 1   (Thousand barrels per day)

All data and estimates from EIA 

February 2003 Production

 2/01/03 Quota2

Production Capacity3

February Surplus Capacity3

Algeria

1,050

782

1,100

50

Indonesia

1,025

1,270

1,050

25

Iran

3,700

3,597

3,750

50

Kuwait4

2,125

1,966

2,200

75

Libya

1,370

1,312

1,400

30

Nigeria

2,225

2,018

2,300

75

Qatar

740

635

850

110

Saudi Arabia4

8,700

7,963

10,000-10,5005

1,300-1,8005

UAE6

2,200

2,138

2,500

300

Venezuela7

1,400

2,819

1,400

0

OPEC 10 Crude Oil Total

24,535

24,500

26,550-27,0505

2,015-2,5155

Iraq8

2,315

N/A

2,900

585

OPEC Crude Oil Total

26,850

N/A

29,450-29,9505

2,600-3,1005

Other Liquids9

2,761

N/A

 

 

Total OPEC Production

27,996

28,205

29,611

N/A

Notes: see original EIA source for footnotes q.v.


For the Record: 52 Week Utility Stock Price Changes

Company % Change
Texas Utilities -69.6
PG & E -62.6
Edison Intl -26.9
American Elec. Power -52.0
Public Services Entpr. -22.2
Duke Energy -59.5
Southern 11.2
Carolina Power -14.0

Should Builders Choose Natural Gas Space Heating for New Homes?

In view of the continuing price volatility, natural gas may decline as the fuel of choice for new home furnace installations.  Steve Andrews has sent in a report on the issue which originally appeared in Professional Builder magazine. q.v.


Who Pays When Gas Prices Spike?

While prices to consumers increase, residential users suffer relatively less than industrial and electric utility users. The figure, taken from EIA's December 2002 Natural Gas Monthly q.v., does not show this winter's run-up in prices, caused by unusually large storage withdrawals due to unusually cold weather. Even though the current spike has not been as great as the unprecedented spike in 2001, the figure suggests that revival of the industrial sector may slowed down at least until the heating  season finishes and prices head downward.

 

 

 


Norwegian Oil Production

Roger Blanchard has submitted the following report: 

In 2002, Norwegian oil production (crude oil + condensate) declined by 98,344 b/d relative to 2001.  Field production of liquid hydrocarbons (crude oil + condensate + natural gas liquids) declined by 87,688 b/d.  It could be argued that the decline in Norwegian oil production in 2002 was due to the agreement Norway made with OPEC, and several other non-OPEC producers, to limit production in the first half of 2002.  The problem with that argument is that the decline in Norwegian oil production in 2002, relative to 2001, was substantially greater during the second half of the year compared to the first half of the year.  Table 1 provides a comparison of Norwegian production in 2001 and 2002.

 Table 1

Period

0il (b/d)

Total Liquid Hydrocarbons - Field Production (b/d)

2001-First Half

3,213,776

3,383,721

2002-First Half

3,171,150

3,354,760

First Half Difference 2002-2001

-42,626

-28,961

2001-Second Half

3,283,099

3,454,378

2002-Second Half

3,130,083

3,309,058

Second Half Difference 2002-2001

-153,016

 

-145,320

2001 Yearly Production

3,248,740

3,419,375

2002 Yearly Production

3,150,396

3,331,687

2002-2001 Difference

-98,344

-87,688

    

 


  

The decline of Norwegian oil production in 2002 can be attributed to the rapid decline rates of a large number of Norwegian oil fields.  Of 12 major fields (that is, fields with an estimated ultimate recovery [EUR] greater than100 million barrels)1, the average decline rate in 2002, relative to the 2001 production level, was 17.65%.  Figures 1-4 (above) are the production profiles of 4 major fields that are clearly in decline.

What does the future hold for Norwegian oil production?  There are still 8 major fields yet to come on-line in Norway2 with a summed EUR of 1,972 million barrels.3  Those fields will be brought on-line during the 2003-2009 time period.  To place the 1,972 million barrels in perspective, 7 major fields were brought on-line in 1999 with a summed EUR of ~1,700 million barrels and that raised Norwegian oil production only slightly for several years.  Without the rapid introduction of many major fields, it’s reasonable to expect that Norwegian oil production will decline in coming years.  Figure 5 is a graph of historical Norwegian oil production and my projection of future production.  Figure 6 is a graph of historical Norwegian production and the U.S. DOE/EIA’s (U.S. Department of Energy/Energy Information Administration) projection of future production.  My projection only includes crude oil + condensate whereas the U.S. DOE/EIA projection includes NGL’s and refinery gain as well.  Norway’s refinery gain is miniscule and NGL’s production was ~181,000 b/d in 2002.  It appears that NGL’s production can be increased somewhat in coming years but can’t explain the large difference between the U.S. DOE/EIA’s projection and my projection.  The U.S. DOE/EIA makes an interesting statement in their 2002 International Energy Outlook. They state, “Production from Norway, Western Europe’s largest producer, is expected to peak at about 3.4 mb/d in 2004 and then gradually decline to about 3.0 mb/d by the end of the forecast period (2020) with the maturing of some of its larger and older fields.”  As Figures 1-4 illustrate, the statement suggests that the U.S. DOE/EIA has no idea what’s happening at the field level in Norwegian fields, and quite likely, fields throughout the world.  The U.S. DOE/EIA makes their projections based upon the global petroleum assessments by the U.S.G.S.  If my projection is reasonably close, the unusually high projection by the U.S. DOE/EIA may suggest a serious flaw in the U.S.G.S. assessment for Norway and possibly the world. 

 

Figure 5: Historical production (through 2002) and  my projection of Norwegian oil production through 2020. 

Figure 6: Historical production (through 2001) and   U.S. DOE/EIA projection of Norwegian oil production through 2020.

In 1998 I had projected that Norwegian oil production would peak in 20014, and it appears that 2001 will be the peak year based upon data from the Norwegian Petroleum Directorate (NPD).  I had based the projection of future Norwegian production on the creaming curve shown in Figure 7 and the knowledge that, on average, Norwegian fields will produce somewhat more than their initial EUR estimates.  With that, I assumed that the EUR for Norway would be ~30 Gb.   I am now projecting that Norwegian oil production will decline to ~0.75 mb/d in 2020.  The U.S. DOE/EIA is projecting that Norwegian liquid hydrocarbon production will decline to ~3 mb/d in 2020.

Figure 7: Creaming Curve for Norway.  Blue-Theoretical Curve Red-Actual Curve, Through 1998

Notes:

Unless otherwise noted, data are from the Norwegian Petroleum Directorate.  1Brage, Gullfaks, Gyda, Jotun, Njord, Oseberg, Statfjord, Statfjord North, Statfjord East, Ula, Veslefrikk, Vigdis 2Grane, Fram, Kvitebjorn, Lavrans, Skarv, Kristen, Snohvit, Tyrihans 3EUR values are from the Norwegian Petroleum Directorate 4http://www.hubbertpeak.com/blanchard/


Enhanced Oil Recovery and CO2 Sequestration

Roger Arnold writes to suggest readers might be interested in a site on enhanced oil recovery and the use of carbon dioxide. q.v.

Interesting information on enhanced oil recovery (EOR) with CO2 injection. Supercritical CO2 is miscable with oil. The oil-CO2 mixture has lower viscosity and flows freely. At the surface, pressure is reduced, and CO2 bubbles out, to be repressurized and reinjected.  The circulating CO2 effectively washes residual oil out of the rocks.

This has strong bearing on question of  when oil production will peak. Colin Campbell believes that EOR merely accelerates production of the recoverable fraction of the oil in place, without significantly increasing the fraction of oil that is recoverable.  The USGS and the EIA believe that technology improves the recovery factor, expanding the recoverable reserves over time. Campbell may be right about EOR from steam injection and water flooding, but it sounds like he's wrong when it comes to EOR using CO2. Anybody have more info about this?

CO2 injection is apparently not yet widely used for EOR.  According to the above site, fields where it is used are situated in west Texas, close to CO2 gas fields in New Mexico.  The gas fields are tapped to supply the CO2 for injection.  There's not yet an infrastructure for capturing pure CO2 streams from reformers and fuel cell power plants and delivering it to wellheads. It's speculation on my part, but I think we may see an initial oil production peak in the next few years, before that infrastructure for CO2 injection is well established, followed by resumed growth as depleted fields reenter production. In any case, it looks like the CO2 emission problem may have a very neat solution.


Roundup: Electricity Production in 2001U.S. Net Generation by Energy Source, 2001

EIA has released an interesting review of the electricity production sector. q.v. Not surprisingly, the pace of deregulation slowed after the California debacle, and the financial health of the industry deteriorated along with the rest of the market. But the transfer of utility assets from regulated to unregulated entities is still producing major changes. 

The industry emitted only slightly less carbon dioxide (and produced slightly less electricity) than the year before, but it continued to make considerable progress reducing nitrous oxide and sulfur dioxide emissions.

 


Alaskan Oil Production Update

Click on Oilfields Map for more detailed view from BP Alaska's web site.

Roger Blanchard has written from Michigan with an update on Alaskan oil production:

For the first time since 1988, Alaska's annual oil production increased, based upon data from the Alaska Department of Revenue. The increase was 5,839 b/d, to 1,030,170 b/d, and can be attributed to the introduction of the Alpine, Northstar, and several Prudhoe Bay satellite fields in the last few years. The Alpine field is now consistently producing above 100,000 b/d and the Northstar field is producing close to 60,000 b/d. The production increase may be short-lived because the U.S. DOE/EIA is projecting a decrease for Alaskan oil production of 2.1% in 2003, and they tend to be optimistic in their assessments.

Prudhoe Bay and satellites production continued its downward trajectory in 2002 with a decline of 22,904 b/d to a production level of 492,956 b/d. This is the first time since 1977 that Prudhoe Bay and satellites field production averaged below 500,000 b/d. The Prudhoe Bay field reached its highest production level in the late 1980s at ~1.6 mb/d. 


EIA's Summary of US Energy Sanctions

The United States maintains energy sanctions against several countries, including Iran, Iraq, and Libya (an oil embargo against Serbia was lifted by President Clinton on October 12, 2000). Iraq remains under comprehensive sanctions imposed after its invasion of Kuwait in August 1990. Iran and Libya are affected by the Iran-Libya Sanctions Act (ILSA), passed unanimously by the U.S. Congress and signed into law by President Clinton in August 1996. ILSA imposes mandatory and discretionary sanctions on non-U.S. companies which invest more than $20 million annually (lowered in August 1997 from $40 million) in the Iranian oil and natural gas sectors. The passage of ILSA was not the first U.S. sanction against Iran. In early 1995, President Clinton signed two Executive Orders which prohibited U.S. companies and their foreign subsidiaries from conducting business with Iran. The Orders also banned any "contract for the financing of the development of petroleum resources located in Iran." On March 13, 2001, President Bush, citing threats posed by Iran to U.S. national security, extended Clinton's two Executive Orders on Iran for another 6 months. On August 3, 2001, President Bush signed into law the ILSA Extension Act of 2001. This Act provides for a 5-year extension of ILSA with amendments that affect certain of the investment provisions.

Attempts by the United States to implement ILSA have run into opposition from a number of foreign governments. The European Union (EU) opposes the enforcement of ILSA sanctions on its members, and on November 22, 1996 passed resolution 2271 directing EU members to not comply with ILSA. On May 18, 1998, the EU and the U.S. reached an agreement on a package of measures to resolve the ILSA dispute at the EU/U.S. Summit in London, but the Summit deal is contingent upon acceptance by the U.S. Congress before full implementation may take place. 

On April 5, 1999, following the Libyan handover of two suspects in the 1988 bombing of Pan Am flight 103 to stand trial before a Scottish Court in the Netherlands, the United States modified its Libya sanctions on April 28, 1999 to allow shipments of donated clothing, food and medicine for humanitarian reasons (trade in informational materials such as books and movies is also allowed). However, all other U.S. sanctions against Libya remain in force. On February 1, 2001, one suspect was convicted by the Scottish court, while another was acquitted. The U.S. and British governments both said that they still expected Libya to accept responsibility for the murders, which Libya has said it would not do.

[source]


Is the UK in a Gas Fix?

Pete warned you some months ago that the UK's energy policy was far too reliant on natural gas, and that the North Sea was not going to be up to the task.  These views have now received partial confirmation from the Royal Academy of Engineers. q.v.  Meanwhile, BP is showcasing its UK solar solution -- a building that, at enormous expense, gets 10% of its energy needs from the sun. q.v.  Good luck going that route in the UK.

Note that Pete does not maintain there isn't enough gas for the UK to rely on gas turbines, just not enough domestic gas.  Russia and Kazakhstan have enough for all of Europe for many, many decades, but it will take some time to get it all hooked up and flowing.


For the Record: US Reserves

The early report shows that 2001 was a pretty good year for reserves, particularly for natural gas.  The oil industry certainly responded to higher prices with far higher activity levels, and a large portion of this activity resulted in a good year overall. q.v. The context for assessing the difference appears below.


Future Production from the Gulf of Mexico

Roger Blanchard has sent in an interesting analysis of future production trends for the deepwater Gulf Of Mexico production under several cases.  He writes from Sault Ste. Marie, Michigan as follows:

"{The three figures show] oil production (crude & condensate) for the mature producing area of the US lower 48 states (Figure 1) and two views of historical and projected production for the deepwater (>1000 ft) Gulf of Mexico (GOM) (Figures 2 and 3).  These graphs for deepwater GOM oil production assume ultimate recoveries of either 10 or 15 Gb.  I would expect claims that the ultimate recovery for the deepwater GOM will be higher than 15 Gb but I think 10-15 Gb is a reasonable expectation of ultimate recovery. I've separated the deepwater GOM productionfrom the rest of the U.S./48 production (Figure 1) to give a clearer picture of production from the mature producing area of the U.S./48. Production from the deepwater GOM started in earnest in the middle 1990s."

"Oil production from the deepwater GOM increased about 621,000 b/d from 1997 through 2001 and it should be above 1 mb/d this year. Oil production from the U.S./48, excluding deepwater GOM production, declined about 908,000 b/d from 1997 through 2001. The graph for the 10 Gb EUR (estimated ultimate recovery) (Figure 2) has a peak in 2008 at about 1.7 mb/d. The graph for the 15 Gb EUR (Figure 3) has a peak in 2010 at about 2.1 mb/d. At least 25 deepwater GOM fields will come on-line from 2001 through 2007 with at least 8 of them reaching a peak production level above 100,000 b/d. The Crazy Horse field will reach the highest production level with an estimated peak production of 250,000 b/d."

"If deepwater GOM oil production goes into rapid decline after ~2010, it will make it difficult or impossible for U.S. oil production to increase in the future even if the Arctic National Wildlife Refuge  (ANWR) is opened to oil production. It appears unlikely that ANWR will be opened and producing before 2010 and by then, increasing oil production from ANWR will be largely or wholly negated by decreasing production from the deepwater GOM, as well as that from the mature Alaskan North Slope and US lower 48."


Money For Nothing and Dollar/Euro Parity

Somewhere in the back of your mind, note two things:  the Federal Reserve lowered the real cost of money to nothing, and the Euro eased across parity with the dollar to close slightly north.  It will be interesting to see if the short-term money flows that drive the dollar up or down can be kept on this side of the Atlantic by the prospect of better stock prices. Because if stocks do not start to lurch upwards quickly, it certainly won't be short-term rates that keeps the Belgian dentist's money here.*  [Also see story above]

*Of course, not everyone thinks Europe is much of an investment just now. q.v.  Maybe she doesn't either.


The US Elections

Pete had hoped to provide some insight into the meaning of the US elections for energy policy, but can't think of anything useful to say. Energy wasn't an issue. While the political class had been, and no doubt still is, considering some relatively minor changes, they did their best to bury any public consideration of the issue.  They buried it so deep no one is now sure whether energy policy will again see the light of day anytime soon. True, for many people the possible war with Iraq was about oil, but even that issue wasn't really fought out, and it's fair to say the electorate didn't see it as an oil issue.  The consolidation of power in Republican hands undoubtedly means there'll soon be more talk of drilling Alaska, plus a few more obvious changes in emphasis, and perhaps even a watered-down energy bill eventually, but it would be hard to trace any of that back to the election.  Americans seem content to drift along with a minimalist approach to energy.

Perhaps the politest thing to say about the election was what the Washington Post said in an editorial: " ... the term 'election' -- with its implications of voter choice and real competition -- seems almost too generous to describe what happened on Tuesday. Voters went to the polls, and they cast ballots, and they did so without coercion. Yet somehow, at the end of the day, 98 percent of House incumbents seeking reelection won -- and by margins that suggest that many of the races were never serious." q.v.


Natural Gas Prices Enough to Increase LNG Imports

... or so says the Algerian energy minister. q.v.  Pete isn't quite sure what happened to the US energy bill, but if it still exists, and if the government is still going to game prices to hold the $4 mmBtu level required to build the pipeline for arctic gas, then the Algerians are clever to suppose they can get in on the game. May get a bit expensive for the rest of us. 

EIA has also published a recent piece on LNG. q.v.


Exxon, BP, and Thunder Horse

One of the really big plays in the deep Gulf of Mexico is about to be developed. The two Thunder Horse (also known as Crazy Horse) fields, about 150 miles southeast of New Orleans with over a mile of water above them, will be developed jointly by BP and Exxon using the world's largest semi-submersible.  Production will be begin in 2005 and is expected to reach a quarter million barrels of oil per day and 200 million cf of gas. (See Roger Blanchard's analysis below).  


More on who provided Iraq with WMD, reportedly from the redacted portions of the Iraqi UN declaration. qv1, qv2.

Who's to blame for Saddam having anthrax? q.v. Who's to blame for Saddam having smallpox? q.v. Who armed Saddam? q.v.


EIA Issues Its Report Card

Predicting the future is never easy, whether one's tools are extraordinarily complex mathematical models or a few sticks thrown on the dirt.  EIA, which prefers the former, has issued its own report card: good job overall on supply and demand; prices are harder to get right; consistent small underestimates of electricity demand, and natural gas wrong more often than it should be.  q.v.  Pete's view:  B+, well worth the money, needs to be slightly more adventuresome.