Prices moved higher last week, at one point trading above $84 a barrel, before closing on Friday at $82.66. Analysts attributed the move to a weaker dollar and the French oil port strike that has been going on for the past two weeks. A weak US jobs report on Friday sent prices down to the vicinity of $80 a barrel, but continued weakness in the dollar brought it back. Analysts now believe that the jobs report will force the US Federal Reserve to begin “monetary easing” once again, resulting in a still weaker dollar and higher oil prices.
Fifty-three ships have been stranded by a strike at France’s Fos-Lavera oil terminal. One refinery has started shutting down and three others may follow soon. French labor unions are calling for the strike to be extended to other ports on 12 October. If the strike continues through the coming week, fuel shortages may develop in parts of France.
In recent days, analysts seem generally more optimistic about the prospects for oil prices in the next six months. Despite the larger-than-normal inventories in the US, they note that floating storage seems to be dropping and that distillate supplies in Europe are getting tight. A Bloomberg survey shows that oil analysts expect oil prices will average $85 a barrel in 2011 as compared to the expected average of $77 this year.
A Platts survey shows that OPEC crude production in September averaged 29.03 million b/d, down 80,000 b/d from August. Much of the slowdown is thought to be due to maintenance issues. This estimate has OPEC as a whole overproducing its 24.8 million b/d target by 1.78 million b/d. OPEC members are not expected to make any changes in their target quotas at this week’s meeting in Vienna. It is clear that the 1.7 million barrels of overproduction is keeping the lid on oil prices for the time being in the face of rising demand from Asia.
While the Saudis and one or two other Gulf states are believed to have spare production capacity, OPEC’s output in 2010 has been erratic as terrorist attacks and maintenance problems have caused fluctuations in monthly production.
2. Climate talks
Last week’s climate talks at Tianjin in northeastern China were intended to illuminate and perhaps narrow some of the differences prior to the year-end Cancun conference. About 3,000 delegates from member and observer countries showed up for the talks, giving an indication as to why it is so hard to make any real progress. Last year’s talks in Copenhagen broke down in acrimony. The heart of the disagreement centers on whether the underdeveloped world should be allowed to increase emissions until they reach the levels of the developed nations on a per capita basis. A secondary issue is how much money the developed countries can be expected to transfer to poorer countries to help them control emissions.
During the past year, climate legislation stalled in the US Congress amidst fights over the validity of global warming studies and concerns that expensive emissions controls and regulations will cut into the prospects for economic recovery. China, which is among the more vulnerable nations to pollution and rising temperatures, has moved ahead – spending billions on efforts to control pollution and becoming the world leader in green technologies. At the same time China has been rapidly increasing its emissions of greenhouse gases and remains unwilling to accept any kind of limits that would slow economic growth.
In the wake of the US’s failure to make progress, Beijing has taken the initiative to highlight its concern about the problem and to market the array of green energy devices it is starting to produce. This of course is an effort to divert attention from the fact that it is now the world’s largest consumer of energy and emitter of greenhouse gases.
While the EU is making progress in restricting emissions, the more important fight between the US and China seems destined to continue letting climate problems accumulate to the point that some sort of action is imperative.
3. The global food situation
Last week the USDA released a revised estimate for US grain production this year that shocked observers. The new report cut US harvest projections from corn, soybeans and wheat. The reduction in terms of bushels was the largest in nearly 40 years. Although the harvest is expected to be the third largest ever – 12.7 million bushels – the increasing call on US agriculture to make up for shortfalls around the world should lead to much higher prices as more nations move to restrict exports.
As we saw two years ago, the imposition of food export bans by governments fearful of the domestic unrest that could result from grain shortages led to higher food prices around the world.
The conversion of corn into ethanol for motor fuel is using up US corn reserves which are expected to fall to the lowest level in 15 years. In the past four years, the US has had its four largest corn crops ever and supplies are still tight. Due to the rapid expansion of the corn to biofuels program that began in earnest five years ago, there is little spare farm land that can be brought into production. This suggests that high corn prices could lead to shortages of other crops as farmers react to high corn prices. Given the bad economic conditions, US food companies say they are reluctant to pass on price increases to retail consumers.
Ironically, the price surge comes just as the government is expected to approve the marketing of 15 percent (E15) ethanol blend for use as a motor fuel. This move could, in theory, increase the demand for corn-based ethanol from its current 12-13 billion gallons every year by 50 percent. There is, however, a possibility that the government could restrict its use to vehicles built in the 2007 model year and later. This would greatly complicate the marketing of the product as retailers would have to install new tanks for the E15 and might have to eliminate self-service pumps to ensure that the right blends get into the right vintage cars. All this suggests that it may be some time, if ever, before E15 comes into widespread use.
The prospect for increased oil production from Iraq depends to a large extent on the political stability of the country. Two weeks ago it was announced that interim Prime Minister al-Maliki had put together a coalition of Shiite parties that gave him almost enough votes to form a new government. He is currently negotiating with the Kurds for the additional votes necessary to govern without Sunni support. In return for their support, the Kurds will demand a list of concessions including some form of semi-autonomy and more control over the development of their oil fields and the revenues derived from these fields. Should al-Maliki succeed in forming this coalition it is almost certain to anger the Sunnis and lead to further instability. The US is worried about this possibility and is urging a more inclusive government.
While the announcement of a more united Shiite coalition was a step forward, there is still a ways to go. In the meantime quality of life in Iraq continues to deteriorate as electric and most other public services deteriorate.
Last week Baghdad announced that it was increasing the official size of its petroleum reserves to 143 billion barrels, a 24 percent increase. Iraq’s oil minister announced that more exploration will be carried out so that further increases in the country reserves, perhaps substantial ones, are to be expected. The announcement puts Iraq ahead of Iran and closer to the official and likely inflated Saudi reserve figures. Fifty years of wars and political turmoil have kept Iraqi production so low that the country is now left with one of, or possibly the largest deposits of conventional cheap-to-exploit oil left in the world.
No serious observer, however, believes that Iraq will be able to increase its production to 12.5 million b/d in the next seven years, even with the help of the world’s leading oil companies. To accomplish this task will require a complete makeover of Iraq’s oil production infrastructure, a difficult enough task in a stable country much less in Iraq. Last week a senior Japanese diplomat said that Tokyo is discouraging Japanese companies from investing in the Iraqi oil industry until the security situation improves and the political situation becomes clearer.
It seems certain that we are several years away from knowing whether Iraqi oil will have any impact on the timing or the rate of decline of global oil production over the next decade.
The Briefs (clips from recent Peak Oil News dailies are indicated by date and item #)
- Worldwide oil and gas reserves rose 3 percent in 2009, IHS Herold reports. Both grew for the first time since 2005. (10/5, #7)
- Despite the capacity to carry 2 million b/d, the trans-Alaska Pipeline flow is less than 700,000 b/d and is falling 6 percent a year. It is commonly estimated that crude will freeze in transit if the throughput falls below 500,000 barrels, which may be reached by 2015 or earlier.
- US drilling activity increased to 1,671 rotary rigs working last week, up from 1,041 in the comparable period a year ago. Canada’s weekly count jumped by 90 to 403 rotary rigs working, up from 239 last year. (10/9, #16)
- Natural gas futures fell to the lowest level in more than five weeks. Gas inventories were 6.3 percent above the five-year average in the week ended Sept. 24. The current market price of $3.75 won’t sustain US production, while $11 gas is “kind of like a Saturday night drunk,” said Devon Executive Nichols. (10/5, #4; 10/8, #7)
- Output at Bunduq field, shared between Abu Dhabi and Qatar, is now 70 percent water – 95 percent at some wells. Output last year was ~16,000 b/d; peak was 50,000 b/d, in 1989.
- Parts of Uganda will suffer a 14-hour power blackout this month following persistent fuel shortages. The load will be shed in most of the country for at least five days. (10/5, #12)
- Ghana’s main environmental agency may finish regulations for the country’s nascent energy industry by 2012, as a government report showed the body is unprepared to manage the risks associated with oil production.
- In southwestern Pakistan, gun-toting rocketeers torched 29 NATO oil tankers on the supply line for international troops in Afghanistan.
- Russia’s decision to restrict access to the first major oil and gas field tender in five years has caused outrage among the country’s industry titans. Senior government officials had recently argued more private money was needed to keep up production. (10/8, #13)
- Russia pumped a post-Soviet record amount of crude last month. Output advanced 1 percent from the same month last year to 10.16 million b/d. (10/4, #17; 10/5, #21)
- Russia’s Rosatom leads international nuclear-reactor suppliers with 15 under construction worldwide. Emerging-market countries are ordering most of the new reactors. (10/5, #23)
- TNK-BP will look to acquire BP’s Algerian fields to accelerate overseas expansion. It aims for at least half of the company’s production to come from outside of Russia. (10/6, #11)
- In Azerbaijan, BP has signed a deal to develop Shafaq-Asiman, a major natural gas field in the Caspian Sea. (10/7, #18)
- Lawyers for BP helped prepare the internal investigation into its Gulf drilling disaster, according to the report’s lead author, raising questions about impartiality. (10/8, #10)
- Aligning with OSPAR, the European Parliament excluded a moratorium on offshore drilling from recommendations it has made in response to Macondo. (10/9, #20)
- Cairn said in its first season of drilling offshore Greenland it has “found two types of oil, two types of gas,” although neither was in commercial quantities. It will announce the result of its third well off Greenland at the end of this month. (10/6, #10)
- In southeastern Peru Petrobras has confirmed finding 1.7 trillion cu. ft. of natural gas. Peru President Garcia said the gas should suffice to supply southern Peru for 20 years.
- Petrobras will start production at Tupi in late November-early December. In Campos Basin it has christened the P-57, the first of a generation of vessel platforms that streamline projects and standardize equipment. The company produced 2.59 million b/d equivalent, including gas, in August, up 2.7 percent from a year earlier and 0.7 percent higher than in July. It will end the year 2 to 3 percent below its target oil output of 2.1 million b/d. (10/5, #14; 10/7, #10, 11, 12)
- Compared to the $8.50 a barrel Petrobras recently paid for assets in Brazil, Sinopec is paying $15 a barrel, a 76 percent premium, for a stake in Repsol’s Brazilian unit. (10/4, #12)
- In Colombia Ecopetrol expects to produce 615,000 to 620,000 b/d by year’s end and plans to reach as high as 750,000 b/d in 2011. Assets acquired from BP are expected to increase in production from the current 27,000 b/d to 50,000 b/d over five years. (10/5, #19)
- Pemex said its crude output in September rose to 2.583 million b/d versus August production of 2.559 million b/d. Ku-Maloob-Zaap neared peak at 853,000 b/d versus August’s 833,000 b/d. Cantarell continued to decline while Chicontepec rose. (10/5, #13)
- Jamaica will seriously have to turn to renewable energy as its main source of electricity by 2015, said PCJ consultant Dr. Wright.
- Premier Wen denied that China had used its near monopoly on supplies of 17 rare-earth metals as a diplomatic “bargaining chip,” saying that Beijing had not ordered traders to hold back shipments to Japan. (10/9, #13)
- Arrow Energy, co-owned since August by PetroChina and Shell, proposed a new plant on Curtis Island, Australia, to liquefy natural gas taken from coal mines in the area. (10/9, #27)
- In Queensland, Australia, Origin and ConocoPhillips are considering halving the size of the foundation stage of their liquefied natural gas project due to regional oversupply. (10/5, #15)
- A deal between Repsol and Qatargas to ship liquified natural gas to the Canaport LNG terminal in St. John, New Brunswick, may soften the province’s opposition to tankers passing through en route to proposed terminals in Maine. (10/9, #15)
- Shell has applied to US BOE for a permit to drill an exploration well in 2011 in the shallow waters of Camden Bay in the Beaufort Sea. Shell has canceled plans to build a second upgrader near Edmonton, Alberta, which was designed to process 400,000 b/d of bitumen. Expansion of Alberta’s oilsands must be avoided if the world is going to avoid disastrous effects of climate change, James Hansen said at a hearing. (10/7, #16; 10/8, #8; 10/9, #17)
- In Quebec Utica shale gas exploration could generate C$278 million per year for the government and create 5,000 jobs yearly by 2015, according to a SECOR study. (10/9, #18)
- Canada has shut down four coal-fired units. Since 2003 when coal-fired electricity use peaked, Ontario Power Generation’s emissions of sulfur dioxide and nitrogen oxides are down 81 and 77 percent. Carbon dioxide emissions are down 71 percent. (10/4, #16)
- A surprise inspection turned up serious safety violations that could have caused an explosion at another Massey coal mine in West Virginia.
- The US military is pushing aggressively to develop, test and deploy renewable energy to decrease its need to transport fossil fuels over the next decade. (10/5, #10)
- At Calvert Cliffs, Constellation withdrew from an EPR project, stunning partner EDF.
- The White House will have solar panels for electricity and hot water installed on its roof in spring. “It’s been a long time since we’ve had them,” Energy Secretary Chu said. (10/6, #9)
- The Energy Department finds the US may be well-positioned to build massive wind farms off coasts and in the Great Lakes to produce 54 GW of power, potentially creating 43,000 permanent jobs and generating $200 billion in economic activity. (10/9, #28)
Picture of the Week:
Every now and again at the annual ASPO conference, an unknown person (allegedly a Texas, some say a Denver oilman) hires a pair of local demonstrators, dresses them in “Chicken Little -the sky is falling” costumes, and sends them out to picket and hand out flyers at the conference.