Monday 21 July 2008

Vacation videos part III: Soil, Food, Gardens

Thinking more and more about soil, farming & gardens.


Forest Gardens

Permaculture & Peak Oil

Learning from Cuba's Response to Peak Oil

"If one does not understand soil, one does not understand life."

Saturday 19 July 2008

Vacation Watching - Paul Saffo on Forecasting

From the wonderful The Long Now Foundation, a presentation by a professional forecaster Paul Saffo

Favorite quote:
"Never mistake a clear view for a short distance."
- Paul Saffo

Monday 14 July 2008

On holiday - food for thought

George Carlin, 1936-2008, RIP

Wednesday 9 July 2008

Oil Price Manipulation - One almost final time

Here is a final-interim look at Oil price speculation and manipulation. In due time, the reality will either prove this wrong or make life fairly miserable for all of us.

Speculation vs. Manipulation
There is a difference between speculation and manipulation. Most non-commercial actors in futures markets are speculators. They speculate in regards to where oil price might be headed by buying futures contracts and options on futures. This allows them to hedge against oil price risks in their operations. This is normal market activity; there is nothing shady about it. Further, futures market prices, however speculated, do not directly affect spot-prices. Spot price is what determines the price of oil in actual physical market or the premium over the long contract oil prices (effectively the same thing).

In theory markets can also have financial manipulation, which refers to the attempt at deceiving the market by artificially manipulating physical oil markets (i.e. physical availability or actual spot-price). This means that they would somehow control spot-prices of oil in way that does not reflect the fundamental supply & demand situation. However, this manipulation would only be possible, IF futures prices were able to dictate spot prices (we'll get to that later), or alternatively if the manipulators bought the physical oil off the market and hoarded it in oil inventories. Hoarding has not happened. This much is fact. It has been covered here and elsewhere many times. Discussion about that should be laid to rest, unless somebody has new factual data that actually differs from that already shown (ref: IEA/EIA stock/inventory data). We need data, not mere accusations.

Now, how about the manipulation of spot-prices through futures trading? Some have claimed it is possible, without really explaining how or without providing causal data that backs up this argument. The best that has been given is some correlating data that might or might not explain price manipulation, if there was an actual mechanism of causation. However, no mechanism has been proven and instead, many accusers have resorted to insinuations, factual errors and an argumentative fallacy of ‘guilty by association’.

Let us now assume that it was possible to affect spot-prices through futures prices. There’s no proof of this that I can find, in fact there is proof of otherwise. However, for the sake of the argument, let’s assume it was possible.

Unfortunately for this manipulation argument, the data does not support it.

Futures options are roughly balanced for long/short positions, thus they are not signaling the markets in any one direction:

NYMEX WTI Oil futures market has been evenly balanced for net long and short positions

Source: CTFC, Jeffrey Harris, 5/2008

Further, non-commercial actors (banks, funds, etc) have been halved their long positions in the past year, while oil price prices have doubled. Now, if non-commercial speculators - who have been accused of squeezing ICE futures markets (London), could actually control the price through long positions, then the oil price should have come down in the past year. But instead, it has gone up:

Non-Commercial speculators have bet less on price rise, when oil price has gone up

Source: CTFC/Reuters/Norges Bank, 6/2008

So, futures trades at ICEF cannot explain the rise in oil prices.

Theory of unregulated overseas markets

Additional accusations have been laid against ICE Futures (London). These are unfounded.

ICE Futures (London) has been accused of being a 'dark and regulated exchange". This is plain wrong. ICE Futures is independent party cleared market governed by Financial Services Authority (UK) and operates under a legal framework of Financial Services Act 2000 by UK law. So far, their regulatory track record is better than that of US counterparts of late (Enron, WorldCom, Arthur Andersen, Global Crossing) so that should put an end to all the silly 'dark and unregulated' accusations which are little more than fear-mongering.

Another argument has been that does not restrict the size of trader’s positions like NYMEX on oil futures. This lack of restriction appears to be correct. However, ICE Futures trade only 15-20% of WTI futures and options, rest flowing through NYMEX. There is no futures price differential between the two (ICE vs NYMEX). If there were - it would be a guaranteed arbitrage of silly proportions. Markets neutralize such imbalances rapidly.

Price manipulation & price speculation summary
There is no data that I can find that currently oil futures prices would be able dictate oil spot-prices, or that such effect – if it existed – is now raising the spot price of oil. In fact, data suggests that non-commercial futures speculative positions changes would lower the price.

Financial Fundamentals affecting price of oil
What is the effect of financial fundamentals other than speculation? Real economists have also weighed in on the matter:

Norge's Bank analysis of the situation and actual market data concludes (6/2008):
“To date, there is little empirical evidence that pure speculation has driven oil prices higher than the underlying fundamental and financial factors would suggest.” - Norge's Bank
What are these underlying financial factors? Well, Look at the correlation between crude oil prices and USD trade exchange value:

When USD value drops, oil producers raise the USD nominated prices

Source: Thomson/Norge’s Bank, 6/2008

Value of USD and price of oil almost perfectly inversely correlated for the past year

Source: TDE/IEC, 5/2008

In turn, Bank of England wrote in their analysis (6/2008):
“Speculation seems to have played a normal role along the futures curve. It remains quite difficult to explain the large rise in the oil price as due to the presence of speculators.” - Bank of England

Further, this is what several other economists had to say on the issue:
“The mismatch between unabated global desired savings and lower realized investment, between the amounts available for finance and the flow of hard assets to absorb it, has led to a liquidity glut which has pushed long term real interest rates the world over lower. This has spilled over into markets for existing real and financial assets - real estate, high-risk credit, private equity, art, commodities, etc - pushing prices higher.” - Raguram Rajan, 2006

Another noted economist Jeff Frankel has cited low interest rates as one of the most important factors for increase in commodity prices. The Central Banks have been blamed for the recent rise in commodity prices as they kept the monetary policy too loose for a long period of time. Guillermo Calvo, another renowned economist echoed similar thoughts.

In plain English: when the reserve currency of the world (USD) goes down in value, oil goes up (not necessarily in that order). Of course, we all knew that already. More importantly, correlation is of course not causation. Regardless, if somebody wants to look for guilty parties for the rise in the price of oil (in nominal USD) based on correlation alone, then they should be looking at the Bush Jr government and particularly the Federal Reserve plus some of the other loose-money-policy central banks. If there has been financial reason for the price of oil in the past year, then it's coming from these sources.

An astute observer might add that the very reason US congress is holding hearings about oil price manipulation is for the very reason that they want to divert attention away from themselves. However, I think Hanlon’s razor applies here as well: “never attribute to malice that which can be adequately explained by stupidity.” Regardless of the reason, this is - as Euan has stated - a failure of leadership by G8 politicians and to some extent financial institutions.

Unsolved issues and accusations
Perhaps there are still some issues left unwrapped which I’m sure will continue to be debated:
  • Several oil industry seniors claim the fundamentals in oil industry have not changed since oil was $65/barrel. In their opinion, the price rise is either due to financial fundamentals (USD value) or to financial manipulation.

  • CTFC is undertaking a detailed study on the issue of market manipulation. If they find manipulation, then the levers that allow for this will likely be removed swiftly. So far, they’ve found none.

  • Bank of England has, imho, correctly pointed out that in a hypothetical situation of a manipulative bubble, OPEC has very little incentive to keep growing their own inventories due to increasing inventory costs in the face of bubble bursting. When the bubble finally bursts, the producer inventories can be so low that that the increase in demand hits another supply wall, rapidly bouncing up the price of oil again.

  • Further BoE suggests that the old oil market fundamentals may not hold true anymore. We may have moved beyond the earlier assumed OPEC price band and that new fundamentals may be setting in.

  • Now that both oil price demand elasticity and oil price income elasticity have gone down in the world according to economists, it is likely that the rise in prices will affect spending habits much slower than assumed earlier. Sure, demand response and even destruction will happen, but will it magically save us by quickly cutting demand so much that the prices crash? Nobody can know for sure, but the data on this does not offer immediate cause for relief.
Please note that these completely acknowledge the fact that futures prices normally alone can do very little to affect spot prices of physical delivery. Further, they do not explain, how futures prices could currently affect spot-prices. Even more, their arguments are contradicted by data given above.

In the end, all parties seem to agree that the supply-demand situation has tightened considerably in the past 10 years and that it continues to be tight in the near-term. This includes almost all the so-called cornucopian optimists.

So, even if speculation was effecting the physical oil market, the majority of price rise is more likely to stem from the fundamental supply/demand issues.

And again, just like pointed out in various TOD analyses, this does not exclude the likelihood of a significant price drop in crude oil prices in some future time. In fact, this type of see-saw price curve is exactly what some Peak oil analysts have predicted already years ago. If the see-saw manifests itself, prepare for more of it in the future.

A way to put an end to the discussion?
Is there any way we could finally resolve this question of manipulation/speculation?

The data we all would like to see and which would go a along way in either proving or disproving various price theories:
  • Future flow rate of each crude variety (API/sulphur) offered to the market
  • Future flow rate of each crude variety demanded by the market
  • Better understanding of oil price demand elasticities and their effects on various regions
  • Existing refinery capacity + capacity under construction as time series into the future broken down by input crude variety and distillate output capacities
  • Forecast for flow rates of each crude variety, based on known megaprojects and the little spare capacity we have left currently (this we know roughly vias aggregates of light/heavy/unconventional, but data is not publicly available broken down into smaller API/sulphur categories)
  • Transparent transaction data in all physical and financial oil markets
This data would show how the mismatch between supply and demand in various crude oils has developed and is likely to develop. It would also lay bare all speculative and manipulative levers in the market, if they existed. Further, through elasticity data, we could at least better guess what would likely happen to various economies due to oil price rises.

The supply data we can estimate, which is in fact what the good people at ASPO have been doing these many years. And the results are not encouraging, if one looks at the possibility of where the oil price and supply security is heading in the future.

However, as it remains likely that before we get any more accurate numbers even resembling those listed above, 2010 or even 2015 will have come and gone. We all know what that likely means:
“By 2010, the production of the fuel that has driven the world’s economy will start to rapidly decline. This will conflict with the steadily increasing demand for oil. The collision of these two trends will lead to shortages and increased prices, providing a strong incentive to shift to alternative fuel resources…Due to unequal distribution through the world of oil and gas supply and consumption, [the upcoming] transition will result in significant shifts in global power and wealth.” – Ray Leonard, VP of Kuwait Energy in a private meeting in June 2008, as reported by ASPO-USA
So, brace yourself. This could be a only the beginning of a big ride.

Monday 7 July 2008

Shell on Peak Oil, Coal and Climate Change

If you've been waiting for the cheer leading OilCos to save the day by yet again denying peak oil and saying we can battle climate change cheaply and effectively - well now is the time to stop reading.

Shell just put out their yearly scenarios up to year 2050. The estimates, while both critical and optimistic on the surface, are neither.

First, they now admit that the world oil production will peak in 2020 (somewhat optimistic I might add). Quite a change from three years ago, when they said that all people talking about peak were idiots.

However, by some odd magic oil production remains on plateau up to 2040 in their scenarios. No other geologists, oil analyst or oil company is able to manage such munging of data, even if they have tried. Well EIA has succeeded in that, but they have good track record of not being very accurate.

Shell's 20 year plateau would require us finding about hundred new Saudi Arabias worth of oil by 2040. That is not just possible - regardless of what type of weed one is smoking.

Alternatively it would require that the non-conventional oil sources, which in the optimistic EIA/IEA scenarios scale to 6-7 Mb/d by 2030 would need to be wrong on the downside by a factor of 10. Yes, estimates have been wrong before, but physical infrastructures and energy engineering mega projects don't build themselves overnight. They take an average of 10-25 years to complete.

Even if it somehow magically those figures would come to light, the environmental devastation and CO2 emissions from unconventionals production would be something the world has never experienced before. I doubt that is the future anybody wants. GHG emissions might be the least of our worries in such a scenario, due to groundwater destruction, climate pollution, electricity scarcity and utter devastation of environment in huge areas in North and South America.

So, either people at Shell are smoking some heavy-duty ganja or they are trying to pretty up the truth in order to retain our sanity. You take your pick from those two. Of course, it is possible they actually believe the data they published, but that remains a fairly improbable assessment.

As for coal, their assessment is more sober, but not a pretty sight in regards to global warming:
"Limiting GHG concentrations to 450 ppm CO2-equivalent is expected to limit temperature rises to no more than 2°C above pre-industrial levels. This would be extremely challenging to achieve, requiring an explosive pace of industrial transformation going beyond even the aggressive developments outlined in the Blueprints scenario. It would require global GHG emissions to peak before 2015, a zero-emission power sector by 2050 and a near zero-emission transport sector in the same time period"
That assessment is indeed a challenge, considering their view of the global energy mix to 2050:

Coal will dominate and keep growing up to and including 2050

I say we give Nobel prize for physics, peace and everything else for the person who comes up with a time machine, invents working commercial CCS ten years ago and gets it installed in every single coal plant in the world retroactively. The situation is almost that dire.

It is worth noting that at the same time EIA is assuming in their Annual Energy Outlook 208 coal use to go up by c. 1.7% per annum. That would mean the world would hit 560ppm for CO2 already in 2030 from coal emissions alone - unless we magically capture and store that CO2. With the same growth rate the figure would be 785 ppm by 2050 + emission from everything else, like oil, natural gas, biofuels, meat production, etc.

I'm not sure if 350ppm or 450ppm is the absolute safe limit, but I'm fairly sure that even by most optimistic geological records way back a few millennia 1000+ ppm is not a safe level anymore.

Now, there are kernels of truth in the scenarios as always with Shell (they know the scenario methods very well), like this final assessment:

"Neither of the scenarios is comfortable, which is to be expected given the hard truths we are facing. While both portray successful economic development and the globalisation that accompanies this, both also have branching points that could potentially lead towards escalating geopolitical chaos."

Replace the word 'could' with words 'will most likely' and you the situation staring us in the face. Every big multi-nation war has started at the end of a commodity cycle, with nations competing for access to precious primary resources, like energy. Tell me this time it's going to be different, when we are looking at immediate decline in oil and a possible decline in the next 15-20 years of natural gas.

In the end, this quote from the presentation is quite sanguine:

"If historians now see the turn of the 19th century as the dawn of the industrial revolution, I hope they will see the turn of the 21st century as the dawn of the energy revolution." - Rob Routs, Executive Director Downstream, Shell

Revolution it surely will be, but not the one like we are reading in the papers. It'll be something completely different - something probably none of us can yet imagine.

Ray Leonard of Kuwait Oil on Peaking

No, not that Ray Leonard. Mr Leonard is the VP of Kuwait Energy and an industry veteran who's worked in Africa, Europe, Soviet Union, Asia and Middle-East in the oil industry.

He gave a presentation to a closed group of energy insiders in late June 2008. ASPO-USA has a summary, Energy Bulletin has the same. Some quotes:

“It’s not the size of the tank but the size of the tap.”

"Russia has simply decided that they will control production growth at 10 million b/day; they may well both be able to and decide to produce close to that level for a decade."

"The limitation on production from the Arabian Gulf is mostly due to politics, lack of motivation, investment level, and type of crude, not shortages of reserves. A rapid increase in production is not physically possible at this time. "

"Likely results during the next decade from unconventional sources: combined production is only likely to grow from today’s 2.3 million b/day to 4 or 4.5 million b/day; 6 million b/day is the most optimistic. Oil prices will need to consistently stay above $80/barrel for the investment needed. The environmental impact will be negative."

"Rise in OPEC production will be partially offset by decreasing production in the Rest of World, with FSU production steady. A production peak of ultradeep water fields will allow the “peak” to be a “plateau during the coming decade, followed by a sharp fall."

By 2010, the production of the fuel that has driven the world’s economy will start to rapidly decline. This will conflict with the steadily increasing demand for oil. The collision of these two trends will lead to shortages and increased prices, providing a strong incentive to shift to alternative fuel resources…Due to unequal distribution through the world of oil and gas supply and consumption, [the upcoming] transition will result in significant shifts in global power and wealth.”

We are nearing World Peak Oil, with resulting high prices and associated political and economic disruptions."
So, there's the optimistic assessment. Peak in 1,5 years, with a plateau at best, most likely a sharp reduction.

Less than two years to plan and mitigate. In the words of Samsam Bakhtiari:

"Preparation should be carried out on individual, familial, societal and national levels as soon as possible. Every preparative step taken today will prove far cheaper than any step taken tomorrow." - Samsam Bakhtiari

Sunday 6 July 2008

Design in the World of Climate Change and Peak Oil

Philippe Starck, the European design icon guilty of pushing useless consumer drivel down our throats for the past few decades, has apparently seen the light:
"I was a producer of materiality and I am ashamed of this fact.
I will definitely give up in two years' time. I want to do something else, but I don't know what yet. I want to find a new way of expressing myself is a dreadful form of expression."
Points for admittance of guilt, but no points for the cop out.

What do you do when you notice, you've screwed up?

You acknowledge the reality, apologize if needed and then proceed to clean up the mess.

That's what Mr Starck should concentrate spending his time and millions on. I'm sure there are plenty of avenues for 'self-expression' in saving the world.

Now we only have the rest of the 99.99999% useless surface contouring and colour-picking designers to go...

[FIN] Ruotsi ja Norja taas edellä Suomea

Suomalainen media on pahasti jäljessä öljymarkkinoiden muutosten ymmärtämisessä. Öljyn tuotantohuippu, öljylaadun heikentyminen ja tuotantokustannusten kasvu loistavat kaikki poissaolollaan suomalaisen median öljyanalyyseissä. Tilalla ovat spekulaatio, pelkopreemiot ja muut koomisuutta hipovat selitykset väitetystä öljyn hintakuplasta.

Tälläkin alueella suomalainen media on auttamattomasti naapurimaiden uutisointia jäljessä. Eikä nyt tarvitse mennä Britteihin, jossa öljyhuippua on raportoitu aktiivisesti kuukausittain jo yli kahden vuoden ajan. Tai Saksaan. Tai Yhdysvaltoihin. Tai Australiaan. Parempaa uutisointia löytyy nimittän lähempää, Ruotsista ja Norjasta.

Ruotsin johtava talouslehti, Dagens Industri, kirjoitti kesäkuun lopulla Jeffrey Brownin kehittämästä Export Land -mallista ja varmisti sen paikkansapitävyyden energiajärjestöjen tilastoista. Lopulta tulos on hyvin yksinkertainen:

"Resultatet blir att den inhemska konsumtionen av olja ökar medan nettoexporten minskar." - Dagens Industri
Öljynviejämaiden sisäinen kulutuksen kasvu syö siis maiden vientipotentiaalia. Vaikka ELM ei olisikaan täydellinen selitys koko Lähi-Idän OPEC -maiden nettoviennin laskulle viime vuosina, on sen osuus lähivuosina vääjäämätön: Lähi-idän öljymaissa on nuorin ja nopeiden kasvava väestö, jonka öljynkulutus nousee elintason kasvaessa kohisten. Optimistisinkaan öljyntuotannon kasvuennuste ei riitä näissä maissa kattamaan kotimaan kysynnän kasvua. Ja kun päälle laskee vielä esim. Saudi Arabian ja Kuwaitin kohdalla maiden johdon toteamukset, että öljyä jätetään kotimaahan tulevia sukupolvia varten, niin yhtälö on valmis.

Norjalaisten Hegnar analysoi myös öljyn hinnannousua ja kuvaa ELM-mallin hyvin.
"Flere land som tidligere var nettoeksportører av olje, har gradvis utviklet seg til å bli nettoimportører, noe som er med på å bevise at ELM-teorien kan ha noe for seg." - Hegnar

Suomalaisten lukemat Kauppalehti, Tekniikka & Talous ja Taloussanomat loistavat öljymarkkinoiden analyysissä joko hiljaisuudellaan tai - ikävä kyllä - osaamattomuudellaan. Ne harvat analyysit ja kolumnit, joita aiheesta on yleensä kirjoitettu kritiikittömien päiväuutisten lisäksi ovat joko ilmiselviöitä, kuten "öljyn hinta syö kuluttajan kukkaron sisältöä" tai vaihtoehtoisesti analyysiltään pahasti ontuvia, kuten "ihmiset vaihtavat öljy biopolttoaineisiin ja tuulivoimaan". Kirjoittelu joka väärinymmärtää energiamarkkinoiden ja primäärienergialähteiden hiearkian noin väärin pahasti pitäisi jättää julkaisematta. Oikeastaan vain Talouselämä on hitaamman julkaisusyklinsä ansiosta pystynyt valottamaan hieman myös taustoja.

Vaihtoehtoinen tulkinta suomalaisten talouslehtien öljyanalyysin olemattomuudelle on, että suomalainen media vain "raportoi" sen mitä muut heille syöttävät - sen enempää analysoimatta, tutkimatta tai faktoja varmistamatta.

Oli selitys mikä tahansa, jälki on toisinaan koomista ja välillä suorastaan surullista. Eikä yksikään selitys poista vastuuta toimittajilta: he ovat tähän asti tehneet työnsä asian suhteen huonosti ja jättäneet keskeisimmät öljymarkkinoita ajavat seikat analysoimatta.

Olisikohan siis nyt syytä, että suomalaiset taloustoimittajat ottaisivat IEA:n, EIA:n, BP:n ja muutaman muut historialliset taulukkodata käyttöönsä ja tekisivät oman analyysinsä? Markkinoilla olevien puolueellisten analyytikkojen letkautuksia on kuultu jo tarpeeksi.

Ohessa joitain kuvia, joilla varmasti pääsee alkuun öljytuotannon ja -hinnan nykytilanteen analysoinnissa. Toimittajien tulisi aloittaa siitä, että ymmärtävät mitä tietoa kuvissa kerrotaan ja mikä on tämän tiedon merkitys öljymarkkinoille.

Friday 4 July 2008

Biofuels did it!

Guardian has a leak from a confidential World Bank report that tells what people in the industry have known for some time:

Biofuels have forced global food prices up by 75% - far more than previously estimated - according to a confidential World Bank report obtained by the Guardian.

The damning unpublished assessment is based on the most detailed analysis of the crisis so far, carried out by an internationally-respected economist at global financial body.

Figure emphatically contradicts the US government's claims that plant-derived fuels contribute less than 3% to food-price rises.

"It is clear that some biofuels have huge impacts on food prices," said Dr David King, the government's former chief scientific adviser, last night. "All we are doing by supporting these is subsidising higher food prices, while doing nothing to tackle climate change."

When one puts that fact into perspective by looking at the following projections for biofuel (food grain ethanol) growth from Goldman Sachs:

Then it can only mean, that food will get more expensive. A lot more.

Further, the just released IEA Mid-term Oil Market Report estimates that biofuels will at most account for 2.0 - 3.5 Mb/d of liquids supply. That is less than 4% of our daily consumption. A Drop in the bucket. Not even enough to cover one year's worth of natural decline from mature fields (4.3 Mb/d).

So, burn food we will. Higher inflation shall we get. Poor people will we starve. Destroy the climate we shall.

But it won't matter a damn thing, because biofuels will not be enough to save us from the oil declines coming.

Thursday 3 July 2008

Oil Megaprojects update indicates schedule slipping

As a confirmation to what IEA is reporting now in their Mid-Term Oil Market Report, Khebab of TOD has posted a new Megaproject update (July 2008).

The main finding is distilled in this image:

So, peak at 2010, very slightly declining plateau (from megaprojects) until 2012 or so and then a rapid decline. NB! The additions in the graph only accounts for big oil projects - smaller additions, non-conventionals and biofuels are not included.

A more telling graph is this animation whipped quickly together:

It shows how projects have been pushed forward in time in just six months. Completion of off-shore projects and other mega projects in difficult areas is apparently showing to be more complicated than expected.

Do note that the additions for later years are mostly project reductions from earlier years being pushed forward in time.

If one substracts reductions from additions, the overall real additions beyond 2012 that are visible now is basically abysmal.

This goes to show with how short horizon oil world is operating. Beyond 5 years, we are flying on a combination assumptions, hunches, extrapolation and wishful thinking.

Fuel shortages are now

In case you haven't been paying attention to the weak signals for the past two years or so... the fuel crunch is now gearing into full swing:
  • Argentina: "The shortage of diesel reaches half the service stations across the country"
  • China:
  • India: "It is a scene reminiscent of war times. Vehicles queuing up at petrol bunks and people lugging all kinds of containers, from plastic water pots to jerry-cans and even empty mineral water bottles, to buy that precious litre of diesel or petrol."
  • Iraq: "Residents in Baghdad endured a second day of petrol shortages on Wednesday"
  • Mexico: "Gas stations in Otay and the south of the city temporarily closed their diesel pumps because they ran out of the fuel."
  • Thailand: "Thailand's supply of liquefied petroleum gas (LPG) is in shortage at present mainly because greater numbers of personal vehicles have been converted to use the alternative fuel."
  • Scotland: "Petrol stations in the Capital are beginning to feel the strain of the fuel tanker drivers' strike, with some pumps already completely dry. "
  • Bangladesh: "Due to gas supply shortfall, eight power plants yesterday generated more than 700 megawatt (MW) of power less than their capacity yesterday"
  • Pakistan: "The overall shortfall of power supply in the city shot up to 370 Megawatts (MW) on Monday"
  • Spain: "In Gibraltar, Lucie Goss, said the British territory was "utter chaos, with Spanish and local drivers queuing at the fuel stations, panic-buying"."
  • Australia: "Australia's most prominent diesel suppliers, has diverted its tanker routes towards Fremantle to address the area's fuel shortage"
  • United States: "U.S. drivers crossing into Mexico in search of cheaper gasoline and diesel fuel are straining fuel supplies in Baja California."
  • Congo: "Congolese capital, Brazzaville, is facing an acu te shortage of fuel"
  • Malaysia: "River and land transportation in many parts of rural Sarawak came to a halt when petrol and diesel supply ran out following massive panic buying"
  • Gaza: "Tension and desperation are mounting in Gaza, four days after Israel restricted the amount of fuel allowed into the region."
  • Nepal: "Petrol pumps across the country downed their shutters from Monday in protest against the inadequate supplies"
  • ... the list is growing daily
The reasons are many: price being too high for people to pay, actual supply delivery disruptions, refinery problems, tanker problems, blockades, transportation strikes and just plain old "sorry, we ran out of fuel."

It can only get slowly worse before it gets any better. The supply for both crude oil and distillates is looking to deteriorate. There's no way out of this, except to use less. Hoarding will not help, it'll just drive us to break point faster. At which stage the government will have to step in and start rationing.

Wednesday 2 July 2008

IEA Mid-Market Oil Outlook 2008 [updated]

A quick summary of the Mid-Market Crude Oil Outlook from IEA.
  • No obvious sign speculators behind high oil prices
  • Global oil demand growth still 1.3% in 2007
  • Producers operating close to flat out
  • Global net decline 5% p.a. (2008-2013 avg?)
  • OPEC mature field decline >10% p.a.
  • More spare capacity by 2009, but then dip again, recovery by 2013?
  • Non-OPEC supply slows to 2012, then picks up in 2013 [???]
  • 48% of gobal demand growth in distillate
  • Biofuels 2.8 Mb/d by 2013 (max capacity potential 3.3Mbpd), big downside risks remain
  • OPEC condensates to grow from c. 3Mbpd to c. 5Mbpd by 2013
  • OPEC NGL growth to be used by petrochemical industry
  • Remaining GTL insignificant
  • Increasing fuel oil demand from Middle East for power generation
  • Non-OECD demand to oustrip OECD by 2015

And finally:
Net [non-OPEC] increase of 1.2 mb/d expected for 2008-2013

…and the fact that gas liquids, non-conventionals and
biofuels are drivers of growth, not crude

That if any, is a tacit admission from them for peak light crude at the very least for non-Opec.

They must have really balanced on what to graph and what words to use: they had to make an impact and show things are serious, but at the same time not let the cat out of the bag completely.

It seem that they are saying they do not know (or necessarily believe) that non-OPEC supply can re-gain growth again after 2013.

In total, the often optimistic IEA scenario now reads like this in regards to the supply/demand situation to year 2013:

Incremental supply additions from 2008 to 2013:

Non-OPEC crude capacity +1.2 Mb/d
OPEC crude capacity +2.5 Mb/d
OPEC gas liquids output +2.1 Mb/d - output
World biofuels output +0.6 Mb/d (capacity 2.0 Mb/d)
Total supply additions: +6.4 Mb/d (w/ biofuel cap. 7.8 Mb/d)

Total demand subtracted: -7.x Mb/d (+1.4% p.a.)
Spare capacity: -0.6 - -1.x (w/ biofuel max +0.8)

Incremental means on top of the existing production level (that is, already taking into mature field declines)

NB! The supply for 2012 is 2.6 Mb/d lower than the estimate a year ago for year 2012 (MTOMR 2007 in 6/2007). The drop is remarkable c. -28%. That should tell you something about the accuracy and visibility at which IEA now operates. Clearly they don't know.

Summary: if biofuels (read: ethanol) don't come through in spades and/or Iraq doesn't miraculously recover - we are screwed.

Either way, it's going to be really tough, prices are going to be high, unless we hit Asian/worldwide depression, in which case people have other things to worry about.

And do remember, that is just the conservative/optimistic report from IEA. The reality is likely to be far worse.

It'll be interesting to see how the market reacts to the final report later this year, if ever get that far before the market freaks totally.

Future is very f*cking expensive

These distractions are starting to become too frequent, but hey - it's summertime and this has a ring of truth to it:

Shock: Scientist Warn of Celebrity Depletion by 2013!

The Onion always says it the best:


Tuesday 1 July 2008

The New Scientist on Peak Oil

The New Scientist has an article in its June 28 issue with much of the same analysis and warnings that were considered crackpot lunatic thinking just three years ago. My, how times have changed!

Here are some key clippings with comments.

Spare capacity has now all but vanished, oil producers cash in on soaring prices by extracting as much of the stuff as they can.
"There is absolutely no slack in the system any more," says Gal Luft, executive director of the institute for the Analysis of Global Security, a Washington-DC based think tank.
This has left the oil market so fragile that a few well-placed explosives, an energy-sapping cold winter or an unusually intense hurricane season could send shock waves across the globe.
Situation most experts fear is what they call a "psychological avalanche."

[Describes what happens when people find out there's no more oil: hoarding and fighting]

So, the article finally explains to people it's not just about cars driving around. It's about the whole globalized economy, our food and manufacturing systems.

The article continues:
It's not just about fuels. A giant chemical industry relies on oil as its fedstock, and without it many of the products we now take for granted would vanish.
Much of the economic expansion and growth of the human population in the 20th century is directly tied to the availability of large amounts of cheap oil," says Cutler Cleveland.
There isn't a single good service consumed on the planet, except in rural economies, that doesn't have oil embedded in it. Oil is the lifeblood of the global economy.
So, we are all vulnerable, regardless of whether we drive a car or not.
Ras Tanure on the Persian Gulf handles 1/10th of world's oil. This makes it a prime target for attack.
"If you have a facility like this and a plane crashed into it, or terrorists get int and somehow succeed in blowing it up, then you have a very, very significant disruption on your hands. That is what analysts see as a doomsday scenario.
As discussed here and elsewhere, the supply is so tight and choke points so obvious that it doesn't even require a Shadow Opec to bring down several percentage points of world oil production capacity.

A mere accident or a freak of weather can do that.

And finally, a blow to the CERA cornucopians:
Most industry experts, including geoscientists and economists, who were poolledy by Samid in 2007 said that peak production will occur by 2010. "Now a real concensus is emerging"
The article is a good read.

It's recommended that people buy copies of the magazine and give to those who need to know, but have been so far unconvinced.