Tuesday 25 September 2007

One Hurricane away from Energy Crisis

Shell Oil President, John Hofmeister, quoted in an interview at New Orleans had this to say:
"We are one hurricane away from energy scarcity and volatile, high prices... We are so tight on the demand-supply relationship... We have seen our country pass, in my opinion, a tipping point of energy supply keeping up with demand."
While at the same time crude oil price has hit a new record high, UAE is saying they will have to reduce production in November for maintenance, Mexico is feeling harder declines than expected, Venezuela export capacity appears to be falling, Iraqi production is suffering from new attacks on the infrastructure, Gulf of Mexico is getting an unusual number of tropical storms this year, all while the worldwide demand keeps going up.

It is a struggle to find new ways of saying the same thing all over again: the other shoe has dropped, the cat's out of the bag, devil's playing the banjo and we seem to be going about our business as usual.

Other than that... it's a very nice weather outside today. Never mind that pesky energy business, it's not like our life is dependent on cheap oil and gas, is it?

Monday 24 September 2007

Cassandra as a role model for a politician

Dr James Schlesinger (former US energy secretary) said the following in an interview with David Strahan (the author of The Last Oil Shock):

"If you speak to people in the [oil] industry, they will concede... that whatever my company may say publicly, we understand that we are facing decline in our own production and worldwide we will not be able to produce more oil or liquids in the near future."

"One does not want to be the bearer of bad tidings. Cassandra has never been a appropriate role model for politicians. You do not ask the public to make sacrifices. If you concede that indeed a peak is coming that we should be making adjustments now, those adjustments are costly and the public will bear the costs... that is not the way to a successful re-election."

"What you hear privately from almost all [oil industry] people is, that we are coming to it [oil peak]"

"Energy independence is not attainable as long as we have the internal combustion engine."

"There is not going to be a turn around until there is a public support, and the public has to got be frightened... a serious crisis, which persuades that indeed the wolf is at the door."

"The reality is that concern about the supply of oil is always a consideration, because the Middle-East contains so much oil."

"War is not the way to increase [oil] production."

"We should be helping oil prices rise, particularly for gasoline."

"We are going to face a GREAT difficulty ahead."

[emphasis added]
He also admits that Saddam was stopped due to concerns over oil supply. Basically he concedes that the American military is and has been acting mainly in the role of oil supply protection for the past years in the Middle-East, be that Saudi Arabia, Iraq (or Iran in the future). Very candid and interesting interview.

Monday 17 September 2007

Peak Oil Reading

Tired of reading blogs, low-quality forum discussions and mish-mash newspaper articles with not enough background checking? Still want to learn more about are current and worsening energy predicament?

With the risk of sounding like a cheap infomercial, here are The Energy Standard's picks for Peak Oil books you should consider.

The Last Oil Shock
David Strahan
John Murray, 2007

One of the latest and most
up-to-date books. A bit of
geopolitics, energy politics,
war on Iraq and geological
reality of oil peaking. ****

Addicted to Oil
Ian Rutledge
I.B. Tauris, 2006

Really well researched
book written by a long
time energy economist.
Can be a bit heavy reading
at times, but for researching
the background this is
excellent stuff. ****

Energy Beyond Oil
Paul Mobbs
Matador, 2005

What is peak oil, what
it means, what is our
energy consumption,
what are our energy
sources. What are the
alternatives. How much
energy use can we cut.
Many issues covered and
very balanced. Good have
used a bit more editing. ***

Beyond Oil
Kenneth Deffeyes
Hill & Wang, 2006

Written by a retired oil geologist
who understands the oil reality.
Where are we now in production
(2005) and where are we going.
May be a bit repetitive for
those who read Deffeyes
earlier book, but still good
reading. ***

Eating Fossil Fuels
Dale Allen Pfeiffer
New Society, 2006

What does oil have to do with food?
How does our agri-industry work?
What does it mean to be eating
fossil fuels? Can we do without
oil and natural gas? Will food
supply diminish? What are the
consequences? Many topics
are covered. Just wish the book
was a bit more longer and more
thorough. ***

The New Great Game
Lutz Kleveman
Grove Press, 2004

Sometimes reads more like a
detective story than investigative
journalism that it is. A good
round up of the situation in
the Stans (countries around
the Caspian sea). A primer for
the oil history and potential
future of the Caspian region.
Throws in some geopolitics. ****

The Prize
Daniel Yergin
Free Press, 1993

The history of oil. Can be frustratingly
anglo/american myopic at times
at times, but nevertheless invaluable
in it's "bic picture" view about oil,
Middle-East, geopolitics and
the American predicament. ****

Not recommended: End of Oil, Paul Roberts (in part sloppily researched, doesn't explain the system or infrastructure picture, misleading).

Peak Oil - Sleepwalking into a crisis

People who do not understand or care to study the underlying geological reality behind peak oil often ask, why is it that people from the oil industry deny oil production peaking [1]? Doesn't denial mean that they don't believe in it all [2]? Don't they have the best data to make conclusions [3]?

Answering those three questions isn't as easy as it sounds, but let's make an attempt.

1) Not all oil industry people deny peak oil. In fact a growing number understand and publicly admit it is inevitable. Here's a small sampling:

"We may be sleepwalking into a a problem which is actually going to be very serious and it may be too late to do anything about it by the time we are fully aware." - Lord Oxburgh, ex-Chairman of Shell, on peak oil (Independent, 2007)

"So when Buckee suggests, as he did at Talisman's annual meeting Wednesday, that Peak Oil has arrived." -Jim Buckee, CEO of oil company Talisman Energy, (paraphrased in Canada.com, 2007)

"World conventional oil production will top at c. 84 million barrels per day." - T. Boone Pickens, ex-oil driller, current oil industry investor (Business Week, 2005)

"The precise timing of what people call Peak Oil will really be governed by the actions that all parties, producers, consumers and the industry, choose to take over the coming years." - Tony Hayward, chief executive of BP Group (EAGE Conference, 2007)

"While revealing that the world's peak oil will be reached sometime between 2025 and 2035." - Louis Heuze, General Manager of Total E&P Deep Offshore Borneo BV, paraphrased in an interview (Brunei Weekend Bulletin, 2007)

"A peak in petroleum liquids production, resulting solely from resource limitations, is unlikely in the next 25 years." - R. Vierbuchen, VP of ExxonMobil Caspain/Middle East Region (Houston Geological Society, 2007)

"While other global companies are reluctant to offer predictions on when oil production might peak, Mr. Lund said Statoil's view is that it will come between 2010 and 2015 for the 30 countries in the Organization for Economic Co-operation and Development." - Helge Lund, Chief Executive, Statoil ASA (paraphrased in Financial Post, 2007)

In summary: all oil companies admit peak is inevitable, but disagree publicly (important!) about the timing of the peak.

2) From above it should be obvious oil companies do believe in oil production peaking. It is a historically known fact for various fields and combined fields of a single countries (US, UK, Mexico, etc). It must be said that they would be foolish to deny it. Reality is based on physical hard sciences, not wishful thinking of the run-of-the-mill economists (e.g. "if we throw enough money at it, we can generate oil out of thin air").

The more interesting question is: do they believe peak oil is imminent (for all practical mitigation purposes within 20 years is imminent)? And even more so: do they think it is a problem?

Here most execs still active in the industry say, it's not a problem and that it is unlikely to happen within 20 years. Jim Buckee, Boone Pickens and investment banker Matthew Simmons are part of the smaller group of people who make the exception.

However, what is telling is that once people leave their official position, they tend to say things they would not have dared to say while in an official position. A good example is Lord Oxburgh of Shell quoted above. Even more interesting are the former high ranking officials of Middle-East national oil companies:

"The big risk in Saudi Arabia is that Ghawar's rate of decline increases to an alarming point. That will set bells ringing all over the oil world because Ghawar underpins Saudi output and Saudi undergirds worldwide production." - Ali Morteza Samsam Bakhtiari, former senior expert of the National Iranian Oil Company (2006)

"The West is deluded to rely on Saudi oil.” - Al-Husseini, former head of exploration and production for Saudi Aramco oil company (2004)

"Kuwait's Oil Minister Sheikh Ali al-Jarrah al-Sabah confirmed on Saturday that Kuwait's proven oil reserves are 48 billion barrels -- a figure conflicting with the previous official estimates of nearly 100 billion barrels." - Sheikh Ali Al-Jarrah Al-Sabah, former oil minister of Kuwait, quoted in People's China Daily (2007)
There appears to be an emerging pattern here. While in power, oil insiders say: "Trust us, there is nothing to worry. Sorry, we will not share our studies or numbers". After they quit (or are sacked), the tune changes: "There's really not that much oil, in fact we are heading into trouble... technology will not help us."

3) Do oil companies then have the best data about their own proven oil reserves and the maturity of the oil fields, both of which together translate into possible production? This is the most difficult question to answer. The reasons are several.

First, oil companies, both national and private, have a long history of distorting their oil reserve data. This has had to do with tax avoidance as well as political game of "mine's bigger than yours"inside OPEC.

Due to this, we can conclude, that the publicly available data is often suspect, sometimes proved to be false and occasionally and outrageous lie.

Now, a more interesting question arises: do oil companies internally know their reserves and production capabilities?

They should. They have the capability. It really makes sense for them business-wise/politically to ensure they have the best data.

Of course, we can't know for sure, but it would make sense that the internal data is more accurate.

Now, the last remaining question, which cannot be answered, remains:

Why is there often a discrepancy between the publicly given data (PR) and the actual reality from the oil fields (the truth), when companies internally really ought to have accurate data (best estimate)?

Without answering this unanswerable question, it seems obvious that the publicly given PR data can be untrustworthy, and unknowably so. In other words, we cannot be sure, when the PR data is the best estimate and when it is just the best distortion of the truth they could come up with.

So, in the end, the critical observer only looks at the data from the field. The real production numbers, real seismic graphs and drill sample analysis.

However, even this is not always enough, as US did exactly that in the 70s, but the peaking of their oil production came as a "big surprise" to many, although not to the experts. So, one must, even with the data available, expect the unexpected when it comes to conventional wisdom. Follow where the data leads you, not wishful thinking or repetitive news headlines.

Matthew Simmons put it into words, when he said:
Look at the data first, then draw conclusions. Not the other way around.
That is the only way to avoid sleepwalking into the crisis. Understand reality, accept limits, find the actual number data, draw conclusions, validate and prepare for the unexpected.

Greenspan: "The Iraq war is largely about oil"

Ex Federal Reserve Chairman, Alan Greenspan has come out on the record to state that:

“I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil."
- Alan Greenspan

So, is the cat now finally out of the bag for good? Can we please stop pretending it was about the WMDs (that US knew didn't exist), about the horrible dictator (put into power by the CIA), the almost non-existent Al Qaeda Iraq (that ironically enough seems to only grow stronger due to the Iraq war), how Iraq had something to do with 911, or the myth of moral superiority of the the United States (an oxymoron, if I ever saw one).

No? Well, I guess some people are just beyond reason.

Regardless, it is good to remember a time when Americans could be relied on as a sanity check:
"The truth does not change according to our ability to stomach it."
- Flannery O'Connor (1925-1964)
Back to our regular energy posts after this.

Tuesday 4 September 2007

The Iraq war, Oil Reserves and the Oil Law

Peak Energy blog has such a remarkable compilation post about Iraq war, Iraq's oil reserves and the yet to be ratified Iraq Oil law, that it is a must read for anybody who hasn't followed the situation.

Some quick excerpts:

"Now the truth is evident as the United States pulls out all the stops to manipulate the Iraqi Parliament to pass an oil law in September that would give control of Iraqi oil to foreign interests" - International Herald Tribune
"Iraq is sitting on a mother lode of some of the lightest, sweetest, most profitable crude oil on earth" - Alternet

"33-page draft of the law effectively lays the foundation for the privatization of Iraq's oil industry" - Huffington Post

"Senate Chairman of the Armed Services Carl Levin (D., Mich.) declared the Iraqi government 'non-functional’ and recommended that Prime Minister Nouri al-Maliki and his cabinet be replaced'" - Daily Reckoning
So, there you go: Iraq probably has a lot of untapped oil, the war was (mostly) about oil control, the plunder isn't done yet, but soon approaching. If current cabinet does not pass the oil law, they will be kicked out.

That's the situation in 5 mins or less.