Further into the Red Zone

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

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

Exxon Gets A Golden Pass

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

• No one doubts the project is mammoth: 2 Bcf a day from a facility designed to handle 200 LNG carriers a year. But has anyone correlated the site entry point into the gas delivery network and the dependency created for the components of that system? Who makes up the replacement supply in the event of a prolonged shortfall in deliveries? How will a possible loss be shared out? Which cities will be forced to stop LDC distribution? Have plans for all this been approved at the local, state, and national levels?

• What are the economic and security implications of relying on Qatar and Saudi Arabia instead of relying on Canada's 500 Tcf of coal seam gas?

• Even though natural gas is somewhat less harmful than coal on a Btu equivalency basis in terms of greenhouse gas emissions, it is still very harmful when compared to almost as. The US remains the world's bad boy on global warming, but technically has an environmental policy promoting the use of these alternatives, including nuclear power. Just which alternatives were evaluated by the commission in light of the impending environmental danger? And why was gas, which now costs far more than most environmentally benign alternatives, found to be more desirable?

• Isn't Exxon a key part of the effort to bring US gas from Alaska's north slope down to lower 48 markets? Won't it have a conflict of interest when it gets to play both ends against the middle? Or when it gets to reduce one effort in order to boost results from the other?

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

The Curious Vision of the USGS

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

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

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

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

Background: Canadian Gas

Source: EIA

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

Market to GE: No More Gas Turbines For A While

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

Domestic Uranium Production

Source: EIA

Energy Department Budget

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

Oil Industry Finances

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

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

Climate Climax: Toward the Edge

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

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

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

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

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

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

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

Do Price Signals Still Work?

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

Source: WTRG Economics

US Federal Debt In Perspective

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

Background - World Primary Energy Production By Region

Source: EIA

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

Energy Stalemates

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

Pete's Fable

Gulf of Mexico Gas Production Continues Decline

Source: Mineral Management Service

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

US Contribution to Global Climate Change Continues to Grow

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

EIA Gets Religion

... sort of. q.v.

Dance of the Real Estate Moguls

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

• Average U.S. home prices increased 12.97 percent from the third quarter of 2003 through the third quarter of 2004. Appreciation for the most recent quarter was 4.62 percent, or an annualized rate of 18.48 percent.

• According to Falcon, "The growth in house prices over the past year surpasses any increase in 25 years."

• According to their economist, "The increase is particularly steep when compared to the price of non-housing goods and services ....House prices grew 12.97 percent in the past year, while other goods and services as measured by the Consumer Price Index grew 2.68 percent." q.v.

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

Dance of the Belgian Dentists

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

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

Source: EIA

Spencer Abraham Resigns

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

Exxon's Take on Asian Demand

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

• "....The world will see total growth in energy demand of about 50% by 2030. ...This will be a huge amount of energy. The increase in demand alone will be equivalent to more than 100 million barrels of oil per day, or about ten times Saudi Arabia's current oil production.

• ...when you also factor in that production from existing fields declines over time, oil and gas supplies from new developments will need to be about 170 million barrels per day oil-equivalent, one-third higher than today's total oil and gas production.

• We project that oil and gas demand will each grow by close to 40 million barrels a day oil equivalent by 2030 and coal by almost 30 million oil equivalent barrels per day. The remainder will come from other sources. ... These increases will come despite an improvement in global energy intensity, which is the amount of energy used per unit of economic output. That improvement we forecast to average about 1.1% per year, or about one-third faster than the pace since 1970.

• ...[T]he increase in petroleum and coal energy demanded will come about even as alternative energy sources grow even more rapidly. For example, we believe wind and solar energy may grow at about 10% per year, but because they are such small contributors today, they will remain less than 1% of total energy in 2030. ... These alternative energy sources are much discussed in the press, and they will become more important, but we cannot ignore the limitations that each have. ... For example, solar energy has very high costs, wind and hydroelectric power have siting limitations, and there are constraints to significantly increasing biomass fuels due to economics and competition with alternative needs for food crops and forests.

• Another energy type -- hydrogen -- has been increasingly mentioned as a possible long-term option. However, it is important to remember that hydrogen is more a battery than a primary source of energy. Hydrogen has to be produced from other materials, either hydrocarbons or water, and this process uses lots of energy and is very expensive.  In addition, broad consumer use of hydrogen poses important safety and infrastructure issues that will take decades to manage or resolve in the best of circumstances. ...

• ...For Asia's most rapidly growing countries -- which I call emerging Asia -- oil needs will likely more than double by 2030, largely due to increases in the numbers of cars and trucks. Electricity demand will likely triple, and in turn drive a tripling in natural gas demand. Coal, which today represents 35-40% of emerging Asia's energy, and about 55% in China, will continue to grow and likely double by 2030. ... These trends are very different from what we expect to see in the United States and Europe. In these areas, energy use will grow much less rapidly, and will be only 20% to 30% higher in 2030 than today. That is due mainly to efficiency gains, more moderate economic growth and a much lower increase in population....

• If [forecast Asian] demand and import growth materializes, the bulk of the imports will need to be supplied from Africa and the Middle East. ... As a result, political stability and political developments in the Middle East and Africa will be as important to China and other countries in Asia as to anyone in the world.  Asian countries, including China, will have an ever-greater stake in the resolution of problems that have arisen in the Middle East and Africa.  ... Overall, meeting Asia's energy needs will be quite challenging in the next several decades...."

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

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

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

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

China and Iran Sign Enormous Gas Deal

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

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

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

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

McKillop on Oil Prices

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

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

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

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

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

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

Click here for the analysis.

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

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

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

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

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

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

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

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

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

Spain sells arms to Venezuela q.v.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

BP on Oil Prices

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

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

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

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

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

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

Does Exxon Do Enough? - 2

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

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

Miscellany

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

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

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

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

-- FERC staff brief q.v.