The Oil Drum - Discussions about Energy and Our Future

Predicting the Weather, Corn, Ethanol and Oil Production

Heading Out — Sun, 19 May 2013 08:10:28 +0000

News of the future was, in my youth, something that one found by crossing the palm of a lady in a dark tent with a piece or two of silver (or the modern equivalent) at one of the fairs that came to town. Such opportunities still exist, with all the caveats that existed back then likely still being in force. However, projecting the future, whether of the weather, the likely corn crop this year in the United States, or the production of crude oil by the nations of the world has become a much bigger business with copious tables, graphs and theories replacing the rather worn pack of cards or crystal ball of my youthful experience.

Our part of the world underwent a drought last year severe enough to kill several trees in our yard, for example, as well as hurting the corn crop. This year, corn plantings have been severely impacted by the heavy rains and cold weather, so that decisions on crop plantings have become more complicated and delayed, with follow-on impacts on the ultimate yield in a number of Midwestern states. Corn yield apparently falls at an average rate of 2.3 bushels per acre per day of delay in northern Wisconsin. These changing conditions make it difficult to assess how much ethanol, for example, will be available to meet demand, although the latest EIA TWIP holds out some optimism for this year.

The impact of the drought on corn prices, and the consequent fall in ethanol production, as production costs rose, are directly visible from their plot of the two over the last year.

Figure 1. A comparison of corn prices and ethanol production in the USA (EIA TWIP )

However, with the weather impacts still being assessed, it is already being concluded that the US corn crop is unlikely to reach the record level of close to 14.6 billion bushels that were earlier projected. It still, however, has the potential to reach around 12.3 billion bushels, which would satisfy the just under 5 billion bushel need for ethanol, as well as other demands of the market. By May 12 only 28% of this year's expected crop had been planted, in contrast with a normal year where 65% would be in the ground. Thus, even the relatively short-term projections of the EIA could yet be in trouble for this year.

Moving to the slightly longer-term, the nations that form OPEC must try to estimate global demand for their products and the amount that other non-OPEC nations will produce, so that they can balance supply and demand at such a level that will sustain prices they are comfortable with. Their estimates come out as Monthly Oil Market Reports and in the latest (May) version they continue to expect global demand to increase by 0.8 mbd over 2013, but are beginning to hedge that bet as the global economy continues to appear anemic, with Russian and Asian economies slowing. Yet by the fourth quarter of the year, they anticipate that global demand will reach 90.9 mbd.

Figure 2. Global oil demand by region (OPEC MOMR)

OPEC anticipates that with the major increase coming from the Americas, that non-OPEC oil production will increase by just under 1 mbd to reach an a level of 54.41 mbd in the fourth quarter of the year. The majority of that growth (some 0.59 mbd) will come from the United States, with the Permian, Bakken and Eagle Ford being cited as the anticipated source of these gains. OPEC, having looked at current rig counts, project that these numbers may be revised upwards over the course of the year. And yet it is worth noting this:

On a quarterly basis, US oil supply is seen to average 10.62 mb/d, 10.67 mb/d, 10.62 mb/d and 10.61 mb/d respectively.

The sustained gain in North American production comes about because:

On a quarterly basis, Canada’s production is anticipated to average 4.02mb/d, 3.97 mb/d, 4.02 mb/d and 4.12 mb/d respectively.

Russia is expected to continue to lead in oil production over the course of the year, although it is not longer expected to increase production above current levels.

On a quarterly basis, Russian oil supply is seen to average 10.45 mb/d, 10.43 mb/d, 10.43 mb/d and 10.43 mb/d respectively.

And this brings us back around to OPEC as they try and balance their production against the gap between global demand and non-OPEC supply. As has been the case for a while, OPEC produced two separate tables showing production, as reported by secondary sources as well as those directly reported by the countries themselves.

Figure 3. OPEC member production as reported by secondary sources (OPEC MOMR)

Figure 4. OPEC member production as reported directly (OPEC MOMR)

It would appear with Manifa coming on line, that Saudi Arabia is increasing production again, while Venezuela and Iran would have you believe they are producing more than they are, and Iraq, which is now producing above 3 mbd, is directly reporting less (though that could be because some of that production is coming from the north, and there are some communication problems between there and Baghdad).

As long as OPEC has available reserves, it can continue this balance to keep enough oil available at an acceptable price to allow the world economy to continue at its present pace. And with that ongoing adjustment available, their projections for this year of a relatively stable price would seem fairly founded, absent some major change in one of the larger producing states.

Iraq overtook Iran as the second largest producer in OPEC last year (according to secondary sources) and expects that with production from Majnoon, it will increase production capability by upwards of 200 kbd by the end of the year. Ultimately the goal is to achieve a target production of 1.8 mbd. However, as overall production levels increase, Iraq may join with the Kingdom in controlling production to maintain price.

Yet even with those abilities, OPEC is becoming cautious about predicting that their estimate of the demand:supply balance numbers for this year will be accurate over that time interval.

With these uncertainties in even short-term projections of future production, whether it be corn, ethanol or crude, it is perhaps wise to continue a somewhat cynical view of projections over a longer time period. Although the bounding bar of a decline in existing field production continues to exist, and will continue to require an offset in increased production from new wells to offset. Perhaps that lady in the tent of my youth may prove as prescient as some of the more optimistic forecasts that we continue to see.

Drumbeat: May 18, 2013

Leanan — Sat, 18 May 2013 15:33:47 +0000

Energy Department approves expanded LNG exports

The Energy Department gave a terminal near Freeport, Tex., permission Friday to ship liquefied natural gas to Japan, providing a new outlet for rising U.S. production of shale gas despite qualms of environmentalists and many domestic manufacturers.
The permit marks another step in the sudden reversal of fortune in the natural gas business. Less than five years ago, anticipating a worsening shortfall in domestic supplies of natural gas, the Freeport terminal on Quintana Island began operations as an import facility.
But advances in hydraulic fracturing techniques have unlocked new supplies of natural gas from shale rock. Freeport, like other import terminals, now wants to spend $10 billion to retool the terminal so it can send gas abroad in liquefied form.

US DOE Approves Second US LNG Export Project to Non-FTA Countries

The US Department of Energy has authorized Freeport LNG Expansion, L.P. and FLNG Liquefaction, LLC (Freeport) to export LNG to so called non-Free Trade Agreement (non-FTA) countries. Subject to environmental review and final regulatory approval, Freeport is conditionally authorized to export up to 1.4 (Bcf/d) for a period of 20 years.

Despite lacking FTA, Japan to get U.S. LNG

NEW YORK – The United States said Friday it will allow exports of domestically produced liquefied natural gas to Japan and other countries to which it is not bound by free-trade agreements, authorizing a plan to deliver shale and other gases from Texas.

WTI Crude Rises on Speculation Growth Will Boost Demand

West Texas Intermediate crude advanced to a one-week high on signals that global economic growth will accelerate, bolstering fuel consumption.
Futures increased 0.9 percent as the Thomson Reuters/University of Michigan preliminary index of consumer sentiment rose to 83.7 in May, higher than any projection in a Bloomberg survey. A government report yesterday showed Japanese gross domestic product grew 3.5 percent at an annualized pace, the most in a year.

Soaring gasoline prices hurt Oklahoma City area retailers

Ballard owns the Varsity Valero and Guzzlers convenience stores in Purcell.
Two years ago, he spent $500 to upgrade his signs so they can display prices above $4. He said he hopes he doesn't have to use them. But with wholesale prices soaring as much as 70 cents a gallon in the past five weeks, there seems to be no end in sight.
Convenience store owners throughout the state are facing the same challenge.

Pemex Makes Third Ultra-Deep Find at Mexico Gulf Maximino Field

Petroleos Mexicanos, the world’s fourth-largest oil producer, made its third ultra-deepwater discovery on the Mexican side of the Perdido basin in the Gulf of Mexico.
Tests at the Maximino field where the crude was found are still being made and volumes are being assessed, Luis Ramos, a strategic planning manager at the Mexican state-owned oil producer’s exploration unit, told reporters in Rio de Janeiro today, declining to give any estimate.

Afghanistan to begin first commercial oil production

Afghanistan expects to begin the first commercial oil production in its history in a little under two months.
The country's mining minister, Wahidullah Shahrani, has told the ABC processing will start at the Amu Darya basin in Afghanistan's north in July.
The project is operated by the China National Petroleum Corporation and is expected to eventually supply Afghanistan with its domestic energy needs so it can stop importing oil.

Afghanistan turns to Australia for mining expertise

Australia could help Afghanistan develop its fledgling mining industry and tap into mineral and energy reserves estimated to be worth trillions of dollars.
The country is eager to find a new source of revenue when international aid starts to decline and foreign forces withdraw next year.

Liberia's Johnson-Sirleaf defends governance record

Sirleaf, a Nobel Peace Prize winner and Africa's first freely elected female president in 2006, has won international acclaim for her "zero tolerance" stance against corruption and for turning around a country devastated by 14 years of sporadic civil war that ended in 2003.
Since then, Liberia's enormous resource wealth has attracted a flood of interest from foreign investors. The government has signed major mining and oil contracts including a $1.5 billion deal with Anglo-Australian miner BHP. It has also signed offshore deals with Chevron Petroleum and Exxon Mobil.

Ten Years After Invasion, Iraq Continues to Import Oil Products

Former Iraqi oil minister Issam al-Jalabi says that although Iraq is an oil-rich country, it still imports petroleum products from abroad to meet its needs 10 years after the US-led invasion of the country.
Jalabi, an international energy expert, told Azzaman that annual imports of oil derivatives reached $6 billion a few years after the occupation.

Iran Wants More Money From You

Americans spent more money on gasoline in 2012 than in any other year... ever. Meanwhile, here in 2013, retail gasoline prices spiked to $3.60 a gallon on average -- $3.94 on the West Coast -- the sharpest rise in prices seen in the past three months. And Iran is happy to hear it.
In fact, if the Islamic Republic has anything to say about it, Americans could wind up paying even more for gas than we already do. Right now, a barrel of benchmark crude costs about $95. But over the weekend, Iranian Oil Minister Rostam Ghasemi was quoted arguing that "the price of crude oil [should] remain at about $100." Ghasemi thinks that price "is fair, and Iran supports it."

Turkey not halting Iran oil imports

Turkish Prime Minister Recep Tayyip Erdogan says Ankara has not yet made any decision on cutting oil imports from Iran, despite US pressure to hinder the Tehran-Ankara energy cooperation.
Speaking at the Brookings Institution in Washington on Friday, the Turkish premier said the level of oil imports from Iran depends on his country’s energy demand.

South Korea reduces crude imports from Iran by half in April

Baku. Real Jafarli – South Korea, the world’s fifth-largest oil importer, cut crude shipments from Iran by 51 percent in April from a year earlier, customs data show, APA reports quoting Bloomberg.

Pakistan wheat for Iran to pay electricity bill

ISLAMABAD: Islamabad has authorised the export of 100,000 tonnes of wheat to Iran in trade not jeopardised by Western sanctions, to settle dues for electricity supplied to Pakistan’s energy-starved border areas, the Commerce Ministry said yesterday.

Van Rompuy voices concern at Europe's 'energy dilemma'

European council president Herman Van Rompuy has voiced concern about Europe's "energy dilemma".
Opening the European business summit in Brussels on Wednesday, he said, "It's now becoming clear; eventually Europe may well be the only continent in the world to depend on imported energy.
"Already by 2035 our dependence on oil and gas imports will reach more than 80 per cent.
"This will have an impact on the competitiveness of our companies, and of our economy as a whole."

Iranian President Could Attend Russia’s Gas Forum in July

MOSCOW (RIA Novosti) – Iranian President Mahmud Ahmadinejad is expected to visit Russia in July to attend the Gas Exporting Countries Forum (GECF), a spokesman for Iran’s Embassy in Moscow said on Saturday.
The Iranian leader has accepted Russia’s invitation to attend the event. “Now we are working on this visit, but the final decision has yet to be made,” the spokesman told RIA Novosti.

Why Venezuela is running out of toilet paper

Right now, the scarcity index in Venezuela is at 21 percent — meaning that out of 100 basic goods, 21 of them aren't available on store shelves. Lines for commodities like milk, sugar, cooking oil, corn flour used to make arepas, and, yes, toilet paper, can often stretch down the block.
The flip-side of state-controlled prices, writes the BBC's Irene Caselli, is that poor Venezuelans can afford foods that they couldn't before. A kilogram of pasta costs 30 cents at government-run supermarkets. At private markets, it costs 10 times as much.
That has led to a drop in the number of Venezuelans who are undernourished, to less than 5 percent today, from 15 percent in 1999, according to the BBC.

Oil-price manipulation: the next Libor?

NEW YORK (CNNMoney) - Some of the world's biggest oil companies may have a new mess on their hands.
The European Commission raided the offices of Shell, BP and Norway's Statoil this week as part of an investigation into suspected attempts to manipulate global oil prices spanning more than a decade.
None of the companies have been accused of wrongdoing, but the controversy has brought back memories of the Libor rate-rigging scandal that rocked the financial world last year.

Wall Street Wins Rollback in Dodd-Frank Swap-Trade Rules

JPMorgan Chase & Co., Goldman Sachs Group Inc. and the world’s largest banks won rollbacks in final Dodd-Frank Act rules that promise to transform the private swaps market by increasing competition.
The Commodity Futures Trading Commission voted 4-1 in Washington today on rules determining how buyers and sellers must trade credit-default, interest-rate and commodity swaps in a $633 trillion global market. The rule weakened a proposal by reducing the number of price quotes buyers must seek on swap-execution facilities after banks and asset managers said a five-quote requirement was onerous and would impair trading.

South Stream to be Realized

The Chief Executive of the South Stream Transport has brushed aside concerns over economic viability and technological challenges, stating that project to transport natural gas from Russia to the European Union is on schedule to be built by the end of 2015.
“It’s a reality,” Marcel Kramer told Reuters, adding that the company was close to concluding financing for the $39 billion project by early 2014.

These 3 Stocks Will Continue to Surge During the Shale Revolution

Shale gas is a game changer. We are in the very early innings of this process and investors still have ample opportunity to position their portfolio to capitalize on the phenomenon. Stocks poised to benefit have already made strong moves, but substantial upside remains if one takes a patient, long-term approach. This is a secular story that will play out over the next decade. Thus certain stocks stand poised to reap outsized gains in the next decade, but they will still be at the whim of market psychology and prone to substantial volatility over short-term periods. Gains certainly won’t be realized in a steady pattern and most likely via large upside moves followed by sharp pullbacks. But at the end of the day, the equities listed below will likely make the list of ten-year outperformers.

BP, Transocean Are Sued by Texas Over 2010 Gulf Oil Spill

Texas sued BP Plc, Transocean Ltd. and others involved in the 2010 oil spill, calling it the “worst environmental disaster” in U.S. history and becoming the fifth Gulf of Mexico state to file claims.
The state accused the companies of violating Texas environmental laws, and is seeking damages for economic loss, including lost tax revenue, as well as for harm to natural resources. Texas asked for civil penalties for every day of oil discharge and every barrel that was dumped into the gulf.

A Black Mound of Canadian Oil Waste Is Rising Over Detroit

WINDSOR, Ontario — Assumption Park gives residents of this city lovely views of the Ambassador Bridge and the Detroit skyline. Lately they’ve been treated to another sight: a three-story pile of petroleum coke covering an entire city block on the other side of the Detroit River.
Detroit’s ever-growing black mountain is the unloved, unwanted and long overlooked byproduct of Canada’s oil sands boom.

Scaled-Back U.S. Fracking Rule Draws Qualified Praise

Oil and gas industry representatives offered qualified support for a U.S. proposal to govern hydraulic fracturing on public lands that establishes federal oversight while deferring to state standards in some cases.

Shell Reported Power Outage, Issues at Anacortes Refinery

Royal Dutch Shell reported a power outage earlier this week at its Puget Sound refinery in Anacortes, Wash., and subsequent issues while restarting units, according to a filing with the Northwest Clean Air Agency released Friday.

Enron's Jeff Skilling doesn't deserve a break

The man behind the firm's massive collapse is seeking to shave as much as 10 years from his prison term. That would perpetuate a culture of fraud in the boardroom.

Commuter Train Wreck Injures Dozens, Curbs Amtrak Service

Two Metro-North Railroad commuter trains collided in Bridgeport, Connecticut, injuring dozens of people and limiting Amtrak service between New York and Boston in one of the worst U.S. passenger rail accidents since 2008.

Is There Room on the Road for These Alternative Cars?

Most of the world’s roads are dominated by only a few auto brands. However, there is a multitude of automakers on the fringe that are trying daring new things with their vehicles. The question is whether they can ever share the road with the leading manufacturers’ cars.

2012 record-breaking year for wind power

100 countries worldwide now produce electricity with wind power. So far, it's a boom that has mainly occurred in Asia, North America and Western Europe. Now, Eastern Europe and Latin America are getting involved.
Last year, more wind turbines were erected than ever before worldwide, according to statistics released today (16 May 2013) by the World Wind Energy Association (WWEA) in Bonn, Germany.

Solar power a ray of hope for planet as carbon emissions rise

Wind and solar are on the way to becoming so cheap that Lovins says: "It doesn't matter if we never run out of oil: we won't want to burn it anymore."
It's a comforting thought, but renewable power still has to fight the battle against determined big oil paymasters of powerful politicians.

Planet Earth: A corporate world

Which are the biggest companies in the world? Which corporations control them? How does their power compare with states?

It’s the End of the World but We’ll Be Fine

It’s the end of the world as we know it, but the futurists feel fine. A new book explores the history of mass extinctions and how the human species can survive the next one. But will we survive?

Who does the Mississippi really belong to?

New Orleans — Consider this: It’s spring 2025 and Louisiana officials are preparing to open three diversions on the lower Mississippi River so fresh water and sediment can reach wetlands struggling to stay ahead of sea-level rise.
But the river has dropped to a record low, and the Port of New Orleans warns taking so much water from the river will ground ships downstream of Venice.
At the same time, salty Gulf water moving upstream against the low river threatens municipal water supplies, as well as cooling intakes at oil refineries, chemical plants and power stations. They want the diversions to stay shut.
Meanwhile, all three uses of the river could be disrupted if Arkansas is allowed to open a structure on the river to send millions of gallons of water to Western states willing to pay top dollar to relieve a drought devastating farms and cities.

Zombie climate sceptic theories survive only in newspapers and on TV

Like a cardiac monitor warning of a soon-to-be lifeless patient, for more than 20 years the red line hovers around zero showing barely a flicker of life. Cook says they expected to see a rising number of papers which had "no position" and didn't feel the need to state the obvious "just as geographers find no reason to remind readers that the earth is round".
In other words, the alternative arguments about the causes of global warming were already dead or dying 20 years ago.
Yet since then, climate science contrarians/deniers/sceptics have continually applied the defibrillator paddles to these failing theories in an attempt to bring them back to life.

Busting the carbon budget: Kemp

(Reuters) - Budgets are made to be broken - especially when they are written by politicians.
Unfortunately it seems the world is on course to break the carbon budget that scientists and policymakers agree is necessary to limit the rise in global temperatures to less than 2 degrees Celsius.

UK's climate change adaptation team cut from 38 officials to just six

The number of people employed by the government to work on the UK's response to the effects of climate change has been cut from 38 officials to just six, triggering accusations that David Cameron's promise to be the greenest government has been abandoned.

Ignoring the cost of climate change is bad business

In the financial markets, volatility is rising and all manner of derivatives are employed to hedge against potentially catastrophic losses. In the real world, the climate is becoming more volatile, yet cities and businesses – make that entire industries – are doing little to protect themselves from extreme weather.

China opposes EU's aviation emissions levy

Beijing (IANS) China has opposed the European Union's (EU) unilateral decision to incorporate international flights originating from countries outside of the EU into its carbon trading scheme, reported Xinhua.

Forget pipelines – Canada must prepare for a post-carbon world

Although many in Canada, both in the oil industry and government, may prefer to pretend that there are no climate-related limits, the rest of the world (and many Canadians) are waking up to the fact that projected global warming – due overwhelming to our emissions of CO2 from the burning of fossil fuels – poses a real and serious threat to the future well-being of the entire human race and of all life on this planet.

Rebuilding the Coastline, but at What Cost?

When a handful of retired homeowners from Osborn Island in New Jersey gathered last month to discuss post-Hurricane Sandy rebuilding and environmental protection, L. Stanton Hales Jr., a conservationist, could not have been clearer about the risks they faced.
“I said, look people, you built on a marsh island, it’s oxidizing under your feet — it’s shrinking — and that exacerbates the sea level rise,” said Dr. Hales, director of the Barnegat Bay Partnership, an estuary program financed by the Environmental Protection Agency. “Do you really want to throw good money after bad?”
Their answer? Yes.

Tech Talk - The Dangers of Complacency

Heading Out — Sun, 12 May 2013 17:20:56 +0000

Perceptions based on perhaps too small a collection of information can lead into opinions that, on investigation, turn out to be incorrect. Just recently a couple of friends had mentioned that charities that they are associated with were seeing a decline in donations. I built this into a picture of the general public being less able to afford earlier levels of giving, perhaps because of the continued impact of higher costs of fuel. However, the perception is as a general statement, wrong, and (via the National Park Service from The Giving Institute) I learned that:

Americans gave more than $298.42 billion in 2011 to their favorite causes despite the economic conditions. Total giving was up 4 percent from $286.91 in 2010. This slight increase is reflective of recovering economic confidence.

The greatest portion of charitable giving, $217.79 billion, was given by individuals or household donors. Gifts from individuals represented 73 percent of all contributed dollars, similar to figures for 2010.

In the perception that is becoming increasingly prevalent on the future of energy supplies, and particularly on crude oil, the current adequacy of supply is projected forward to anticipate no problems with supply in the future. Peak oil is now suggested to occur not because the supply is limited, but because with the increasing use of renewable energy, demand will peak, and then decline. Bloomberg New Energy Finance founder Michael Liebreich is quoted as projecting that the growth in fossil fuel use will almost stop by 2030, while Citi Commodity Researchers are suggesting that the increases in prices will drive increases in efficiency that will bring a peak in oil demand “much sooner than the market expects.”

Figure 1. Projected changes in global oil demand (Citi Commodity Researchers)

This anticipation of future gains in efficiency of use is a common thread to pictures of the future from the three major oil companies that I recently reviewed. All three, ExxonMobil, Shell and BP expect that energy efficiency gains will have a major impact on demand. BP, for example, anticipates that through 2030 energy demand will increase 36 percent, but that without this improvement in efficiency global energy would have to double by 2030.

One of the problems in assessing the changes in efficiency over time is that when looking at the past decade, one has to recognize the significant impact of the recession. For example, the Odyssee project looked at energy use in Europe and clearly showed the impact of the recession on demand.

Figure 2. Changes in electricity use in the countries of Europe following the start of the recession (Odyssee)

What also caught my attention in looking where most of the energy savings were occurring was that it was in countries catching up to Western Europe, rather than in the more established West, and that when the overall savings are totaled these appear to have slowed significantly.

Figure 3. Overall energy savings in the EU relative to a 2000 baseline (Odyssee)

The second problem with the curve that Citi projects lies in the rate at which vehicles are switched from diesel and gasoline to natural gas power. There is currently an economic incentive in parts of the world to make this change. It currently sells at around the equivalent of $2.10/gallon in the USA. Yet it requires both infrastructure and an investment of capital to make the change at any level of significance. Nevertheless it remains a key ingredient of the Pickens Plan that Boone Pickens has been selling around the country for a number of years now.

The fact that Clean Energy Fuels can list all 22 stations that added natural gas pumps along the “Natural Gas Highway” in the November-January period, this does not indicate a great rush to build that infrastructure. It is easier to change the local distributor networks, with companies such as Waste Management indicating that they will use CNG in 80 percent of their new trucks, than it is to see the rapid change of the longer distance haulers, and for passenger vehicles. A recent article in the Washington Post noted that only 20,381 vehicles ran on natural gas of the 14.5 million new cars and trucks sold last year. Further not only does a CNG vehicle cost more to purchase, it also has a lower range, although for some applications that may not be much of a handicap.

Figure 4. Average Annual Vehicle miles travelled by category (Alternate Fuels Data Center)

Yet, at the moment, it is the use of ethanol that is having the most impact on alternate fuel use. Other than that, there has been little indication of much change in the market.

Figure 5. Alternate Fuel Vehicles in use from 1995 to 2010 (Alternate Fuels Data Center )

And in this regard, Europe has also seen little movement toward the use of natural gas in contrast with the use of biofuels, and neither has made large gains.

Figure 6. Comparative penetration of liquid fuels market in Europe by biofuels and natural gas (Odyssee)

The problem, of course, is that if these improvements in efficiency and switches to alternate fuels do not occur, then the demand will continue along the Business-As-Usual line, and, as BP forecasts, demand will double by 2030.

The question as to what will be available to meet that enhanced demand remains one of the great imponderables that folk seem, again, unwilling to face. Certainly with a steadily increasing demand, and the constraints on supply that these pages have continued to document over the years, it becomes very difficult to see how price stability can be maintained where demand exceeds supply at a given price. The problems that this will bring, particularly to those nations that now subsidize fuel, a policy that is unlikely to change in Asia, are likely to be major. Yet for countries such as India, which last year spent the allocated fuel subsidy budget for the year by the end of July, the political costs of change remain very high and could well remain in place until the financial burden becomes intolerable.

Unfortunately, with the current complacency, at that point it will then be too late to start searching for alternate answers.

The Politics of Oil In Scotland

Euan Mearns — Wed, 01 May 2013 15:20:58 +0000

On 18th September 2014 the Scottish People will have a referendum on their future within the United Kingdom where they will be asked the simple question: Should Scotland be an Independent Country? Yes or No.

Should the people say yes then this will not only have far reaching political and socio-economic consequences for Scotland and the rest of the UK but it will also leave the rest of the UK’s energy security in a parlous state since the bulk of the remaining oil and gas reserves of the North Sea and Atlantic margin lie in Scottish waters. Or is it that simple?

UK crude oil + condensate + natural gas liquid production. Accelerated declines in recent years are the result of inept changes to the taxation regime, increased scheduled maintenance in the wake of Macondo and increasing numbers of unscheduled platform shutdowns attributed to ageing infrastructure. Data from the US Energy Information Agency (EIA).

The University of Aberdeen will host a two day conference / debate on The Politics of Oil and Gas in a Changing UK on the 8th and 9th of May 2013. Entrance is free for all those who wish to attend.

In order to understand the events leading up to the current situation it is necessary to go back to 1707 when the current Union between Scotland and England was established. This came in the wake of a disastrous investment enterprise undertaken in the new world of Panama called the Darien Scheme where many Scottish nobles lost significant portions of their wealth leaving Scotland impoverished.

However, not all were in agreement and come 1745 the second Jacobite rebellion against The Union culminated in the battle of Culloden where the Jacobites were slaughtered and a period of military occupation followed accompanied by clearing farmers from the land to make way for Nobles from the South. Many fled to the colonies of Canada, America, Australia and New Zealand.

Since 1745 Scotland has been part of one of the most successful political and monetary unions in history and was part of the global super power that conquered the world. Despite this there has always been discontentment and those who saw a brighter future as an independent Scotland. In 1934 The Scottish National Party (SNP) was born with sole purpose of lobbying for independence via the ballot box.

The success of the SNP has fluctuated with time but on an ever upward trajectory. In 1999, a large number of executive powers were transferred from Westminster to the new Scottish Parliament, a move that had very broad cross party support. However significant powers remained with the UK, mainly fiscal powers, foreign policy and energy policy. The proportional voting system for the Scottish Parliament was designed specifically to not enable any single party to gain an overall majority.

The SNP were naturally in favour of devolution of power from Westminster to Edinburgh even though this did not go far enough for their cause. Under the leadership of Alex Salmond, one of the UK's most astute politicians, the SNP fared well in Scottish parliamentary elections.

The last election took place in May 2011. In March of that year, in an act of political ineptitude, UK Finance Minister George Osborne launched a £2billion tax raid on North Sea oil and gas profits which in some measure determined the outcome of the election. Come May, the SNP won a resounding landslide victory winning an overall majority in the Scottish Parliament, an event that was never supposed to happen. Whilst there was no constitutional case for doing so, the UK government could quite clearly not deny the SNP and the Scottish people a referendum vote on their political destiny. Osborne has since learned the error of his ways with sweeping reforms to the North Sea taxation system in order to encourage investment in marginal fields.

The SNP face an uphill struggle to convince the Scottish electorate to vote yes. Looking towards Europe, we can all see how difficult it is to form a successful political and monetary union. I do not want to go into the many facets of the political debate, but energy security will form a central plank. With control over North Sea oil and gas, Scotland would be an exporting nation. Not on the scale of Norway, but not far behind. England and Wales would be left in a situation similar to France, with very little indigenous oil and gas production and heavily dependent upon imports. This is the ace up the sleeve of the SNP.

But it is not that simple. Much of the remaining oil and gas reserves lie to the east and west of the Orkney and Shetland islands that are both strongly opposed to severing links with The Union. Should the Scottish people vote yes, and the Islands vote no, Salmond may be deprived of The Prize he has fought so long and hard to win.

Editor's note added 14:25 British Summer time. I received via email a fairly assertive comment pointing out that status of the Orkney and Shetland Islands may be rather different to that described above. The A to Z of Independence - Sorting myth from fact

If Scotland becomes independent Westminster won't be able to hang on to Shetland, Orkney, Rockall or any other part of Scotland (see: Shetland and Orkney).

However, even under the hypothetical circumstance that this occurred, Westminster wouldn't be able to retain control of the oil fields anyway, so ya boo sux. These matters are regulated by the UN Convention on the Law of the Sea, to which the UK is a signatory. International law specifies that a state controls the continental shelf and associated mineral and fishing rights up to 200 nautical miles (230 miles or 370 km) off its shores. When another state possesses an island within the continental shelf of this state, special rules apply.

The continental shelf off the Atlantic coast is Scotland's to exploit and develop, even if Westminster clung on to Rockall like a plook on the face of an adolescent sociopath. According to the Law of the Sea: "rocks which could not sustain human habitation or economic life of their own would have no economic zone or continental shelf." Westminster could pauchle its way to keeping Rockall, but as far as oil and fishing exploitation rights are concerned, they'd be entitled to rockall.

Neither would Westminster gain much by holding onto Shetland and Orkney. When an island belonging to one state sits on the continental shelf of another state, the islands are treated as enclaves. This matter was discussed in detail in a legal paper published by the European Journal of International Law: Prospective Anglo-Scottish Maritime Boundary Revisited

Most of the rights to the continental shelf would remain Scottish, Map 2 on page 29 of the legal paper shows the most likely sea boundaries. Westminster would be entitled only to a small zone around the islands, and the waters between Orkney and Shetland. This area contains no oil fields. If Shetland and Orkney were to remain under Westminster's control, Shetland would no longer have an oil fund. The map is reproduced here, so you can do a reverse Jeremy Paxman and sneer derisively at Westminster's pretensions.

Westminster's Shetland threat is a bluff. Westminster knows it's a bluff. They just don't want us to know too.

Is the Typical NDIC Bakken Tight Oil Well a Sales Pitch?

Rune Likvern — Mon, 29 Apr 2013 07:40:50 +0000

In this post I present the results from dynamic simulations using the typical tight oil well for the Bakken as recently presented by the North Dakota Industrial Commission (NDIC), together with the “2011 average” well as defined from actual production data from around 240 wells that were reported to have started producing from June through December 2011.

This post is an update and extension to my earlier post “Is Shale Oil Production from Bakken Headed for a Run with “The Red Queen”?” which was reposted here.

The use of the phrase “Typical Bakken Well” by NDIC as shown in Figure 01 is here believed to depict what is to be expected from the average tight oil well.

The results from the dynamic simulations show:

If the “Typical Bakken Well” is what NDIC recently has presented, total production from Bakken (the portion that lies in North Dakota) should have been around 1.1 Mb/d in February 2013, refer also to Figure 03.
Reported production from Bakken by NDIC as of February 2013 was 0.7 Mb/d.
Actual production data shows that the first year’s production for the average well in Bakken (North Dakota) presently is around 55% of the “Typical Bakken Well” presented by NDIC.
The results from the simulations anticipate a slowdown for the annual growth in oil production from Bakken (ND) through 2013 and 2014.

Figure 01: The chart above is taken from the NDIC/DMR presentation Recent presentations “Tribal Leader Summit” 09-05-12 slide no 5 (pdf; 8.7 MB). The chart shows NDIC’s expected average daily oil production by year. The first number (on the y-axis) is the IP (Initial Production) number, and this is followed by the average daily production by year.

The well shown above has a first year total oil production of 156 kb (427 Bbl/d).

Similar well profiles may be found in other NDIC presentations.

In this post the term well productivity is used to describe total tight oil production from a well during the first 12 months of reported production.

In this case, the Bakken refers to tight oil production from Bakken (Sanish, Three Forks) as this is reported by the authorities of North Dakota.

As of February 2013, around 84% of North Dakota’s oil production came from 4 counties; Dunn, McKenzie, Mountrail and Williams. These 4 counties cover an area of around 8 700 square miles of North Dakota’s total area of 70 700 square miles.

Figure 02: The chart above shows monthly net additions of producing wells (green columns plotted against the right hand scale) and development in oil production from Bakken (ND) (thick dark blue line plotted against the left scale) as from January 2000 and through February 2013.

Approximately 1,770 producing wells were added during 2012, in Bakken (ND), but the timing was not distributed evenly throughout the year. The big ramp up began in the summer of 2011. There was an increase in general from 63 to 144 producing wells (more than 120%) on average each month from July 2011 and through 2012. From January 2010 and through June 2011 63 producing wells were added on average each month. During the winter months of 2010/2011 oil production growth slowed as a response to fewer well additions.

The acceleration of producing well additions from the second half of 2011 resulted in a steeper build up of oil production as shown in Figure 02.

With time, and as more actual data is published, more precise estimates of the decline rates will become feasible. In the current analysis the decline rates used beyond 2-3 years after the start of production are the ones derived from the typical NDIC well shown in Figure 01.

Presently there are lively discussions about future decline for tight oil wells that span from moderate declines (beyond year 3) to those who expect tight oil wells in general to become stripper wells 6 to 8 years after they began to produce.

A well producing 10 - 15 Bbls/d is commonly referred to as a stripper well.

Presently the number of actual data for a significant amount of tight oil wells and their later time decline rates (beyond year 2 of the well life) is very limited, and for this reason it was decided to use the decline rates beyond year 2 for the “2011 average” well as these were derived from the typical NDIC well shown in Figure 01.

Decline rates later in well life (beyond year 2) that deviate from what has been used in this study may affect developments in late life total production (decline). The wells’ first year production and net added producing wells were found to be the dominant parameters for development in near term total production.

THE TYPICAL NDIC WELL

Figure 03: The colored bands show total production (production profile for the typical NDIC well multiplied by net added producing wells during the month) added by month and its projected development (left hand scale). The yellow circles show net added producing wells by month (right hand scale). The thick black line shows actual reported production from Bakken (North Dakota) by NDIC (left hand scale).

The model was calibrated to start simulations as of January 2010.

The results from the simulation show that if the wells added as from January 2010 were like the typical well used in recent presentations by NDIC, total production from Bakken (ND) by February 2013 would have been around 1.1 Mb/d.

The thick black line shows actual production from Bakken (ND) reported by NDIC which was 0.7 Mb/d in February 2013.

If the NDIC typical well represented the “average”, the production build up would have been steeper as shown in Figure 03.

This supports earlier findings that the “average” well yields less than what has been reported, and actual well data from NDIC shows that the first year’s production from the average well presently yields around 55% of the typical NDIC well production used in several public presentations.

THE ”2011 AVERAGE” WELL

Figure 04: The chart above shows development in the sequential moving average of reported total production for the first 12 months for wells studied and that started to produce as of January 2010 and through January 2012 (yellow circles connected by black line). The dark red line shows the sequential moving average of the most recent 50 wells (50 WMA; 50 Wells Moving Average.The blue line shows the sequential moving average of the most recent 200 wells (200 WMA; 200 Wells Moving Average).

Figure 04 illustrates that the well productivity (as expressed by total oil production for the first 12 months) has been in general decline since the summer of 2010. Presently it appears that the well productivity stabilized around 85 kb during 2011. Simulations with the “2011 average” well suggest now that the level of around 85 kb has been maintained through 2012, refer also to Figure 06.

Through 2012 it was observed from NDIC data that a high number of wells continued to be added in the “sweet spots” (like Alger, Heart Butte, Reunion Bay, Sanish, Van Hook to name a few). In areas/pools with wells that had a lower well productivity than the “2011 average” well, it was found that few or no wells were added during the second half of 2012.

Around 30 pools that show promising/good well productivity were also identified.

Future developments of well productivity

Presently it appears that companies give priority to drilling wells that have the potential to meet targeted returns within the boundaries of (oil) price, (well) costs and (well) productivity. This may cause the average well productivity (as expressed by first year total productivity) to improve for the near term.

More than 870 producing wells were added between June 2011 through December 2011 and the study included more than 230 (more than 26%) of these wells to develop the composite well which in this post is referred to as the “2011 average” well and which is shown in Figure 05.

Of the studied wells that started during 2010 around 14% were equal to or better than the typical NDIC well shown in Figure 01.

Of the studied wells that started during 2011 around 3% were equal to or better than the typical NDIC well shown in Figure 01.

Figure 05: The chart above shows the well profile and cumulative for oil from the “2011 average” well that was derived from 230 wells that started to produce as from June 2011 and through December 2011.

This “2011 average” well was used for the simulations shown in Figures 06 and 07.

Dry wells and wells with tiny and erratic production were not included for the development of the “2011 average” well. These wells were found to be 1 - 2% of the total number of wells studied.

NOTE: The decline from year 1 to year 2 has been derived from actual data (refer to Figure SD2). Decline rates later in the wells’ life according to those derived from the typical NDIC well shown in Figure 01.

Figure 06: The colored bands show total production (production profile for the “2011 average” well multiplied by net number of wells added during the month) added by month and its projected development (left hand scale). The white circles show net added producing wells by month (right hand scale). The thick black line reported production from Bakken (North Dakota) by NDIC (left hand scale).

The chart also shows forecast developments for total oil production with, respectively, 1 300 (dark blue dotted line) and 1 500 (red dotted line) added through 2013 and 2014.

The model was calibrated to start simulations as of January 2010.

Simulations with the “2011 average” well result in an almost perfect fit with total reported production by NDIC as from early 2011. The model comes in lower than actual production during 2010 and the explanation for this is believed to be due to higher well productivity for wells started during 2010, refer also to Figure 04.

If the model over time develops a growing deficit against actual reported production, this would suggest that newer wells have an improved well productivity relative to the “2011 average” well and vice versa.

SOME FORECASTS WITH THE ”2011 AVERAGE” WELL

Table 1; Actual annual production and forecasts for tight oil production from Bakken (ND) with 1 300 and 1 500 “average 2011” wells added annually through 2013 and 2014.

NOTE: Forecasts should be viewed in the context of developments in well productivity, (well) costs, (oil) price, decline rates from the “older” population of wells and the strategies the companies deploy as they come to hold acreage by production.

PLATEAU OF 700 kb/d THROUGH 2013

Figure 07: The colored bands show total production (production profile for the “2011 average” well multiplied by net number of wells added during the month) added by month and its projected development (left hand scale). The white circles show net added producing wells by month (right hand scale). The thick black line reported production from Bakken (North Dakota) by NDIC (left hand scale).

The transparent colored bands shows a plateau of 700 kb/d through 2013 and the white (smaller circles) estimated number of “2011 average” wells added each month to sustain the plateau of 700 kb/d.

The model was calibrated to start simulations as of January 2010.

Simulations with the “2011 average” well found that around 1 200 wells were needed through 2013 to maintain a plateau of 700 kb/d. As shown in Figure 07, the number of wells added monthly will decline as a result of a “thickening” production base from a growing population of wells.

TIGHT OIL IN A GLOBAL SUPPLY PERSPECTIVE

Figure 08: The chart above shows development in crude oil and condensates (C + C) production for OECD split on Canada (red columns), North Sea (green columns), USA (blue columns) and the rest of OECD (yellow columns). (Data from EIA.)

Between December 2011 and as of December 2012 OECD had an annualized growth in (C+C) supplies of 0.71 Mb/d. This growth was facilitated through the rapid production growth from tight oil in USA and from oil sands in Canada that more than offset the decline in oil production from the North Sea and other OECD countries.

As shown in Table 1 a slowdown in the growth in tight oil production from Bakken (and other tight oil formations) should be expected through 2013. This needs to be seen in conjunction with production developments from conventional oil reservoirs in Alaska, Gulf of Mexico and the Lower 48 to get a complete understanding of what to expect through 2013 and beyond for developments in total (C+C) production for USA.

For 2013 it is expected that (C+C) production from the North Sea will continue to decline at an annual rate of 10%. Thus total OECD (C+C) production for 2013 may experience less growth than in 2012.

Figure 09: The chart above (based upon data from EIA International Energy Statistics) shows developments in (C+C) production for the world split on economic zones (plotted towards the right hand scale).

The economic zones are OECD (green), Russia (white), Rest Of World (ROW, which includes Brazil and China) (blue) [OECD, Russia and ROW is also referred to as Non OPEC] and OPEC (yellow).

Development in the oil price (Brent spot) is shown as white dots connected by the black line (plotted towards the left hand scale).

Figure 08 shows that annualized Non OPEC (C+C) production has been flat for recent years. The growth from tight oil (USA) and oil sands (Canada) has offset declines from the rest of the OECD and provided growth in OECD (C+C) supplies. Annualized growth in Russian (C+C) production has slowed to around 0.14 Mb/d during 2012. ROW (C+C) has seen an annualized decline of roughly 0.54 Mb/d since 2011.

Chances are that (C+C) production for Non OPEC may decline in 2013 (and beyond) despite the expected growth from tight oil.
Growth in global (C+C) supplies during the last 2 years has primarily come from OPEC.

If Non OPEC experiences a decline in (C+C) supplies in the near future, this leaves OPEC to offset this decline and also provide for any growth in global (C+C) supplies. This combination may put OPEC’s (C+C) capacity to a stress test during 2013 or later.

SUPPLEMENTARY DOCUMENTATION FOR THE “2011 AVERAGE” WELL

All the wells included in this study have verified full time production series.

Figure SD1: The chart above shows the first 12 months’ production for the wells studied against their reported start of production and the study included the production history of more than 440 wells that started to produce as from January 2010 and through January 2012. This represents around 22% of the wells meeting these criteria.

Around 2 060 wells were reported to have started to produce as from January 2010 and through January 2012 and thus had 12 months or more of reported production in January 2013.

443 of these 2060 wells were subject to in depth studies of the full time series of production.

The wells studied were from 30 companies and 89 pools in Bakken North Dakota.

The density of wells with a production above 200 kb during the first 12 months was found to decrease with time.

Figure SD2: The scatter chart shows decline rates for oil from year 1 to year 2 for 156 wells that started as from January 2010 and through February 2011 and thus had a history of 24 months of production or more as of January 2013.A total of 860 wells started to produce during the studied period that met the criteria.

Figure SD2 illustrates that the decline rate is all over the place. A linear fit suggests that decline rates from year 1 to year 2 should be expected to be a function of first year (first 12 months) production. It appears that the higher the first year’s production the higher the decline rate from year 1 to year 2 becomes.

Figure SD3: The scatter chart above is a variant of the one shown in Figure SD2, and here first year (first 12 months) production has been plotted against the production of year 2 (months 13 through 24) of the wells’ life.

The production developments in Bakken and other tight oil plays are very much a function of monthly additions of producing wells, developments in well productivity, decline rates (for the growing population of “older” producing wells), development in costs, strategies deployed by the companies for development of their acreage, adequate infrastructure and not least the developments/expectations for the oil price.

Tech Talk - OPEC and EIA Short-term Projections

Heading Out — Sun, 28 Apr 2013 09:13:54 +0000

Just this month, Saudi Aramco announced that production had begun at their Manifa oilfield, and by July would be supplying up to 500 kbd to the new refinery that is being built at Jamail with the collaboration of Total. The first oil from the refinery is expected to ship in August, and both projects are currently ahead of schedule. Manifa will further increase in production next year, to 900 kbd, with the additional flow going to the Yanbu refinery being built with the collaboration of Sinopec. Both these refineries are designed to take heavy crude, and can also accept oil from the ongoing projects to expand production at Safaniya. Collectively this is said to ensure that the company will be able to achieve a maximum sustainable production of 12 mbd.

The gains in available reserves are required as the current production from Ghawar and the other major fields in the Kingdom continue to decline in production, as was discussed last year. I remain relatively convinced that Saudi Aramco will not increase their crude oil production above 10 mbd, despite the wishes and projections of others that they will end up doing so. By the time that their domestic consumption reaches the point that it lowers exports to a level that would hurt the KSA economy at current prices, the shortages globally will have raised the price sufficiently that the available production at that time will continue to suffice to meet their needs. (This is, however, a projection only for this decade).

This month’s OPEC Monthly Oil Market Report continues to anticipate a significant increase in available crude over the next three years, although this is indirectly recognized through the growth in crude distillation unit (CDU) capacity around the globe in that interval.

Figure 1. Increase in crude distillation capacity by regions in the near term. (OPEC April MOMR.)

Given that the world must increasingly deal with a heavier crude supply, the need for new refineries, as exemplified by the new Saudi construction, is evident. Increased demand to absorb this supply will come, in part, by an increase in the growth rate of the GDP of the BRIC nations, although the poor growth in the developed nations continues to hamper their export markets.

Overall demand is still anticipated to increase by around 0.8 mbd, with half of that coming from China and the rest of the non-OECD nations contributing an additional 0.7 mbd, offset by a decline in demand from the OECD nations of around 0.3 mbd, taking global demand, by the end of the year to nearly 91 mbd. Internal demand in the Middle East will continue to sap a fraction of this relative to exports. Overall the Middle East demand is anticipated to increase by 280 kbd, though the impact of the turbulence in various nations is hard to estimate.

Figure 2. OPEC estimate of global demand for 2013. (OPEC April MOMR.)

Virtually all the growth in supply is anticipated to come from North America, with a slight increase in production from South America coming from Colombia and Brazil. There is some concern, however, over the impact of attacks on the energy structure in Colombia.

Figure 3. Anticipated regional change in supply in 2013. (OPEC April MOMR.)

For the US the OPEC report has the following projection:

The expected growth in 2013 is supported by the anticipated supply increase from shale oil plays in North Dakota and Texas, as well as by minor growth from other areas in Oklahoma, Kansas, Colorado and Wyoming. The infrastructure situation is improving in North Dakota, with reports suggesting that the railroad loading capacity will reach 1 mb/d. Eagle Ford oil production in January continued to increase from the same period a year earlier. On a quarterly basis, US supply is expected to average 10.57 mb/d, 10.62 mb/d, 10.56 mb/d and 10.55 mb/d respectively.

Canada is expected to reach a production total of 4 mbd by the end of the year, with the largest impact coming from the Kearl Oil Sands production anticipated to bring 110 kbd to market in the third quarter. (This is not dependent on the Keystone pipeline.) Mexico will see a slight decline in production though the Kambesah field (at 13.7 kbd) and increased production from Tsimin will offset most of that.

OPEC is anticipating that Norwegian production will fall 110 kbd this year, with a small decline of 40 kbd in UK production. OPEC expects that Russian production will increase to average 10.43 mbd in 2013, slightly down from first quarter numbers, while, in anticipation of Kashagan production, OPEC expects Kazakhstan to increase production to 1.67 mbd. The decline in production from the Azeri-Chirag-Guneshli field is expected to cause a slight ( 50 kbd) reduction in Azerbaijan production.

There is, as previously, some difference between the production that the individual nations of OPEC report each month and that reported by secondary sources.

Figure 4. OPEC crude production from secondary sources.(OPEC April MOMR.)

Figure 5. OPEC crude production based on national direct reporting.(OPEC April MOMR.)

In short, over the course of this year OPEC remains relatively complacent that North American production gains will continue to meet the global demand, and that OPEC (i.e. largely the KSA) can back away from full production in order to balance supply and demand at a price level that keeps the OPEC bankers happy.

Back in March the EIA TWIP noted the change over the years, not only in amounts, but also in the sources of US imports, which remain significant. There has been quite a bit of change since 2005, when imports were at their highest level (10.1 mbd).

Figure 6. Change in the countries and volumes for the ten largest suppliers of crude to the USA. (EIA)

The EIA anticipates that US liquid fuels consumption will remain sensibly stable through the end of 2014, ending that year at 18.61 mbd. At this time production is expected to rise to 11.75 mbd.

Figure 7. EIA estimates of US liquid fuels production through 2014. ( EIA)

In that interval they anticipate that the price of gasoline in the United States will slowly decline. In contrast with the reports by the major oil companies that were discussed recently, these forecasts are short enough that it will be fairly quickly evident how accurate they are.

Tech Talk - The BP View of the Future

Heading Out — Sun, 21 Apr 2013 17:10:21 +0000

I suspect I should apologize. Here I am talking about the future projections for energy production made by companies such as ExxonMobil and Shell, as though they were still the key and only players in the world. Yet in reality, Saudi Aramco (12.5 mbdoe), Gazprom (9.7 mbdoe) and National Iranian Oil (6.4 mbdoe) appear in the list before ExxonMobil arrives (at 5.3 mbdoe), and then there is PetroChina (at 4.4 mbdoe) before BP arrives (at 4.1 mbdoe), and it is only then that we find Shell, which lies 7th at 3.9 mbdoe.

So the projections of the ExxonMobil’s of the world are of somewhat lesser value than they might have been at one time. (For those curious, the list continues with Pemex (at 3.6 mbdoe), Chevron (at 3.5 mbdoe) and Kuwait Petroleum Co (3.2 mbdoe). This not only rounds out the top ten, it also closes out the list of those producing more than 3 mbdoe. (Abu Dhabi comes next at 2.9 mbdoe).

Yet with those caveats, and recognizing that Saudi Arabia now produces only slightly less than ExxonMobil, Shell and BP combined, let me review the BP forecast, having already completed that for ExxonMobil and Shell. While the latter two looked sufficiently far into the future as to obfuscate a little their shorter-term projections, BP is still focusing on the relatively short-term that runs to 2030.

Within that time frame, BP expects overall energy demand to grow by 36%, though like the ExxonMobil projection, BP expects that a “tremendous increase” in energy efficiency will continue to develop, thereby slowing the need for future resources. They point out that without this improvement in efficiency, global energy supply will need to double by 2030 in order to sustain economic growth.

This is particularly true for the United States, which BP sees approaching self-sufficiency in Energy, while it is the continued growth in demand from countries such as China, India and the Asian Pacific countries that provide most of additional need. Comparing their view from 2 years ago with the present there does not appear to be much change in the overall forecast. (Note that after the first two figures all the remainder come from the 2030 BP Energy Outlook).

Figure 1. Comparison of BP data and projections for population growth between their 2011 report (left) and that for 2013. (right)

Figure 2. Comparison of current and anticipated energy demand through 2030, from 2011 (left) and 2013 (right) BP reports.

There is a small increase in the overall demand from non-OECD countries in the more recent projection, but not a great difference. But this increase in demand reduces from a growth averaging 2.1% in the 2010-2020 time frame, to a growth of 1.3% in the following decade.

Within the period to 2030, BP anticipates that all major energy sources will continue to see an increase in overall energy production.

The fastest growing fuels are renewables (including biofuels) with growth averaging 7.6% p.a. 2011-30. Nuclear (2.6% p.a.) and hydro (2.0% p.a.) both grow faster than total energy. Among fossil fuels, gas grows the fastest (2.0% p.a.), followed by coal (1.2% p.a.), and oil (0.8% p.a.).

Figure 3. Growth in different energy sources through 2030

However, there is a change in the ranking of the different fossil fuels from the earlier projection. While BP were projecting two years ago that coal, oil and natural gas would virtually tie in terms of market share by 2030, coal is now given a more dominant role, with natural gas falling below oil.

Figure 4. Change in market share for the different energy sources.

Within this time frame, coal is not really bounded by available supply, though BP anticipate that more will be produced indigenously in the Asian Pacific than at present. One assumes that this is partly necessary for financial reasons, although it will also be a need-based growth as the countries increasingly need electric power.

In terms of natural gas and oil supply, questions are more urgent and BP provide the following answer:

Figure 5. BP anticipated sources for the anticipated growth in demand for energy.

By far the largest production from the tight oil and gas shales will come from North America, where the current growth in production is anticipated to continue.

Figure 6. Anticipated production of tight oil and shale gas by region in 2030.

One of the drivers that BP see in the fall in oil demand comes from its continued high price. This has already significantly lowered the use of oil as a power generating fuel, and the continued high price will drive the move to vehicles of increasingly greater efficiency. Thus, although global liquid fuel demand will continue to grow, it will only be at the rate of 0.8% pa, reaching 104 mbd by 2030. The sources to meet this are various:

Figure 7. Liquid fuel supplies through 2030.

With the conventional supply of crude from non-OPEC countries diminishing, OPEC crude levels can be seen to increase over the next seventeen years while the major increase in production from tight oils is anticipated to come from North America. In 2030 it will provide 9% of overall demand, providing almost half of the 16.1 mbd of overall increase in production. The increase will, however, slow post 2020, as the costs of production and the limits of the resource base.

BP make the following prediction:

The US will likely surpass Russia and Saudi Arabia in 2013 as the largest liquids producer in the world (crude and biofuels) due to tight oil and biofuels growth, but also due to expected OPEC production cuts. Russia will likely pass Saudi Arabia for the second slot in 2013 and hold that until 2023. Saudi Arabia regains the top oil producer slot by 2027.

Other than tight oil, BP anticipates some increase in biofuel production, and from the oil sands, with significant increase in Iraqi production, and some gain from the remaining OPEC countries (one suspects Venezuela is included here) and from NGL production.

The largest increments of non-OPEC supply will come from the US (4.5 Mb/d), Canada (2.9 Mb/d), and Brazil (2.7 Mb/d), which offset declines in mature provinces such as Mexico and the North Sea. The largest increments of new OPEC supply will come from NGLs (2.5 Mb/d) and crude oil in Iraq (2.8 Mb/d).

In this regard, BP believe that currently OPEC has a spare capacity of around 6 mbd, but will continue to cut production to sustain prices over the decade.

BP see roughly a 7% p.a. increase in shale gas production with most coming from the United States, Mexico and Canada. This will bring total natural gas production to 459 bcf/day by 2030. Of this, North America will see a growth in production of 5.3% pa and by 2030 will be exporting roughly 8 bcf/d. In other countries the biggest growth will be in more conventional natural gas production, coming from the Middle East (31 bcf/d), Africa (15 bcf/d) and Russia (11 bcf/d).

This increase in supply, and the greater use of LNG tankers is likely to keep natural gas prices relatively stable.

Total Production by the Top Five Oil Majors Has Fallen by a Quarter Since 2004

Luis de Sousa — Fri, 19 Apr 2013 07:09:24 +0000

This is a guest post by Matthieu Auzanneau, a freelance journalist in France, author of the Oil Man blog at Le Monde, where this post first appeared.

The combined crude oil production of the five main international oil companies (Exxon, BP, Shell, Chevron and Total) hit an historic high in 2004. Since then, it has fallen by 25.8%, despite large increases in investments.

Click to enlarge

Total crude oil produced by the majors was 10.760 million barrels per day (MB/D) in 2004. In 2012, it reached only 7.981 MB/D. It has decreased by 2.779 MB/D in 8 years (-1/4), as I have been able to calculate from figures that appear in the twelve latest annual reports of those five companies.

Is this a clear early indication of an imminent decline in the worldwide production of black gold, a phenomenon predicted since 1998 by former oil company scientific executives, from the French Total group in particular?

The majors are all facing a decline in their crude oil production, which began in each case before 2007. This comes despite extremely large growth in their investments, allowed by the significant increase in crude oil prices experienced since the late 2000s. Total, for example, has seen its production fall by almost 20% since 2007, although the French giant now has at least 40% more extraction wells.

Since 2004, the total oil production by the majors has only increased once, between 2008 and 2009, and by just 0.13 MB/D, despite the unprecedented level of sales and purchases of oil assets experienced in recent years. So-called production sharing contracts, which allocate a larger share of production to the host country when the price per barrel rises, do not appear to explain the lowering of production by the majors, far from it. The production share of the five majors in worldwide production dropped from 13.39% in 2004 to 9.98% in 2011. It diminished further in 2012.

Worldwide crude oil production rose by 4% between 2004 and 2011. It has hardly increased at all since 2006, however: since then it has been on an undulating plateau, within a small margin of less than 1.25%.

The significant decline in extractions by the majors has been compensated for by the OPEC countries (+ 2.189 MB/D), primarily Iraq and Saudi Arabia, and also by the countries of the former Soviet Union (+ 2.131 MB/D). In the rest of the world, where the majors often occupy the key positions, oil production (excluding agrofuels) has fallen by 1.104 MB/D, once again between 2004 and 2011.

In 2012, worldwide production appears to have increased significantly, firstly thanks to the boom in shale oil in the United States; full detailed information is not yet available (to follow).

Click to enlarge

The case of BP

Since 2011, the decline in the total production of the majors has been significantly amplified by the sale to the Russian national company Rosneft of parts of the BP group with TNK-BP, an important joint venture established in Russia in 2003. The sale of TNK-BP alone has eliminated around 40% of BP's previous production. This production reached its record level in 2005. If this sale had not taken place, total production by the five majors would have still declined by 17.7% in 8 years, reaching 8.86 MB/D in 2012. And BP's production would still have been in sharp decline.

Since 2011, BP has had to sell other major production assets in order to settle the account for the oil spill in the Gulf of Mexico in 2010. In this case, as in that of TNK-BP, it is the need to go in search of intact sources of oil in increasingly extreme conditions that has hindered BP's development: the drill site responsible for the catastrophe in the Gulf of Mexico holds a drilling depth record; the conflict between the TNK-BP shareholders at the root of the sale of parts of BP was about the opportunity of a huge drilling campaign in the Arctic Ocean, where the oil majors, notably BP, have recently met with a number of failures.

The "seven sisters" have aged

Exxon, Shell, Chevron, BP and Total are still forces to be reckoned within the oil industry, as much for their still considerable outputs, for their investment capacities and technical expertise, as for their strategic role as the preferred providers of consumers in the old Western industrial powers. These Western majors, starting with the most powerful, Exxon, remain, now more than ever, at the top of the ranks of the largest private companies on the planet.

The majors came into existence between the late 19th century and the early 20th century. Long dubbed the "seven sisters", they are now only five in number as a result of the mega-mergers that have taken place over the last two decades.

Until the 1960s, the Anglo-Saxon majors, as well as the forerunners of the French company Total, largely dominated worldwide production. The OPEC cartel of oil producing countries was created in 1960 to stand up to the restricted and secretive cartel of the "seven sisters", which reigned supreme outside the United States for half a century.

Throughout the 1960s, and especially in the 1970s, as the OPEC member countries nationalised their oil fields in the wake of Algeria, Libya and Iraq, the control wielded over production by the Western majors was reduced.

The response at the end of the 1970s broadly stabilised the balance of the market share, thanks in particular to the launch of the North Sea and Alaska, two extraction areas that have been in significant decline for more than a decade because of the exhaustion of their crude oil reserves.

OPEC is now content with a little over 40% of worldwide production. But it controls more than 70% of the planet's proven reserves.

Consequently, as the known oil fields are getting depleted, production should become more and more concentrated in the major OPEC countries, starting (or finishing) with Saudi Arabia, as well as, to a lesser extent, in the former Soviet Union.

It seems unlikely for the moment that the development of non-conventional and extreme sources of oil, in particular shale hydrocarbons, will be able to change that fact. We will come back to this again.

For this translation, a very big thank to Laura Bennett: culturetranslation.com

How Oil Exporters Reach Financial Collapse

Gail the Actuary — Mon, 15 Apr 2013 10:02:29 +0000

Recently, I explained how high oil prices can bring on financial collapse for oil importers. In this post, I’ll discuss the flip side of the situation: how oil exporters reach financial collapse.

Unfortunately, we have many examples of countries that were oil exporters, but are dealing with collapse situations. Egypt, Syria, and Yemen all have had political disruptions since 2011. These may not be called financial collapse, but they all took place as the country’s oil exports decreased and as the price of imported food rose. Another example is the Former Soviet Union (FSU). It collapsed in 1991, after a period of low oil prices, in what looks very much like a financial collapse.

There are several dynamics at work in the financial collapse of oil exporters:

Oil exporters are often dependent on oil export revenue to fund government programs.
The need for government programs grows as population grows and as the price of food rises.
The amount of oil that can be extracted in a given year often declines over time, as initial stores are depleted.
Exports often decline even more rapidly than oil supply, because of rising oil consumption as population grows.

In general, high oil prices are good for oil exporters (except the effect on food prices). At the same time, oil importers strongly prefer low oil prices. As a result, we end up with a price tug of war between oil importers and oil exporters.

One additional issue is declining Energy Return on Energy Invested. Countries often have the option of reducing their rate of decline by adding production in areas which are more expensive to drill (say deeper, smaller locations offshore Norway) or by using enhanced oil recovery methods. Such approaches add costs (and energy use), and further add to the price that oil exporters need for their product.

Egypt, Syria, and Yemen

Egypt, Syria, and Yemen are three countries that the press would say are suffering from the continuing impact of the Arab Spring revolutions, which began in 2011, or of civil war. The similarity of the oil production and consumption charts for the three countries (shown below) suggests that declining oil exports likely played a major role as well.

In all three countries, oil production rose and then began to fall (Figures 1, 2, and 3). At the same time, oil consumption rose. The two lines–production and consumption–come very close to meeting in 2011, indicating that oil exports are at that point dropping to 0.

Figure 1. Oil production and consumption for Syria, based on EIA data. (Both are on an “all liquids” basis.)

Figure 2. Oil production and consumption for Egypt, based on BP’s 2012 Statistical Review of World Energy.

Figure 3. Oil production and consumption for Yemen, based on EIA data. (Both are on an “all liquids” basis.)

To make matters worse, the three countries are in an arid part of the world, where a large share of food must be imported. Oil prices and food prices tend to rise at the same time (Figure 4, below). By 2011, both food and oil prices were high. In fact, both prices have tended to stay high. Now, these countries find themselves with the unpleasant problem of paying for the higher cost of imported food (grown and transported with oil), so indirectly they are becoming an oil importer instead of an oil exporter.

Figure 4. Food and oil prices tend to rise at the same time. Based on data of the FAO and the EIA.

Faced with less revenue from oil exports, and higher prices of food imports, these countries find themselves with a permanent mismatch between revenue and expenses. Part of the revenue mismatch relates to subsidies offered to poor residents. With higher food and oil prices, the funding needed for subsidies rises rapidly, even as oil exports drop to close to zero.

One issue that makes the situation worse is the huge rise in population that came with increased prosperity. Population has nearly doubled since 1980 in Egypt, and has more than doubled in both Syria and Yemen (Figure 5, below).

Figure 5. Ratio of population in later years to population in 1980, based on EIA data.

All in all, the situation is very bad. These countries admittedly do have other resources, such as grazing land for animals, food crop production, and in some cases natural gas exports, but the loss of oil exports puts a hole in their budgets. If oil production continues to drop in the future, both jobs and local oil consumption are likely to be affected as well. (This is a link to a post I wrote about the Egyptian situation two years ago.)

I tried to put together an index of the relative dependence of various countries on oil exports, by comparing the value of oil exports to Gross National Income. Based on exports before the recent drop-off, Yemen’s index is around 30%; Syria and Egypt are a little under 10%. The index no doubt understates the role of oil, because it does not include the oil the country uses itself, or the impact of any natural gas industry. It also excludes indirect jobs, like that of grocery store owner or taxi driver.

If Egypt and Syria are indeed collapsing with what seems like low dependence on oil exports, it makes one wonder about the impact if Saudi Arabia’s (index over 70%) or Libya’s (index about 60%) oil extraction would drop.

The Collapse of the Former Soviet Union

The Soviet Union was an oil exporter and a major world power, prior to its collapse in 1991. While there are many views as to what led to this collapse, one issue seems to be a drop in oil price in the early 1980s.

Figure 6. Former Soviet Union oil production and price in 2011$, based on data from BP’s 2012 Statistical Review of World Energy.

The drop in oil prices did not lead to an immediate decline in oil production (Figure 6), most likely because the cost of maintaining production on a field that has recently developed, is low for a few years. What is expensive is the up-front cost of bringing new fields on line. These were not added, causing a decline in production, after a few years.

Russia’s energy data shows the marks of the financial collapse building, prior to 1991. Revenue from oil exports dropped in the mid 1980s, because of the lower oil price. Oil production started declining in 1987, four years before the collapse. Other types of energy production started declining as well, as if a recession were underway, pulling the economy down in all areas.

Figure 7. Former Soviet Union Energy production by type (hydroelectric omitted), based on BP’s 2012 Statistical Review of World Energy.

Every type of energy production (except hydropower, not shown) dropped back during this period, even coal and nuclear, with decreases beginning prior to 1991. Population growth started slowing prior to 1991 as well. Eventually, the government collapsed, after continuing recession.

Figure 8. Former Soviet Union energy production and consumption, based on BP’s 2012 Statistical Review of World Energy.

The FSU never regained its former stature as a manufacturing country, even when oil production rose, after oil prices rebounded. With little manufacturing, energy consumption has remained far below its pre-1991 levels (Figure 8).

I visited Russia in 2012, and saw for myself a little of the current situation. One problem is that its cost structure (based primarily on oil and gas which is now high-priced, and workers who need wages to pay for these fuels) is not competitive with the low-cost structure of the Chinese and Indians. Another issue is the poor condition of Russia’s infrastructure (roads, bridges, water pipelines, etc.) due to neglect during the time of its collapse. With the high cost of oil, it is expensive to make repairs and add new infrastructure.

In terms of my index, Russia’s oil exports now amount to a little less than 20% of Gross National Income.

Collapse in Countries with Declining Exports

Egypt, Syria, and Yemen are examples of countries whose exports have pretty much disappeared, causing great crisis. But how about countries with earlier declines in production? To some extent, there were not many problems in the 2003 to 2008 period, because declines in oil exports could often be offset by increases in oil prices.

One country that stands out, though, is Argentina, with problems both before and after the 2003-2008 period.

Figure 9. Oil and Gas Production of Argentina, based on EIA data (total liquids).

Argentina’s oil production hit a peak in 1998, and began dropping in 1999. Oil prices were at an unusually low level in the 1998 to 2002 period. This timing coincided precisely with it first economic crisis, which came in 1999 to 2002. Oil prices rose in the 2003 to 2008 period, and Argentina’s problems seemed to disappear.

Now Argentina’s oil exports are very low, and in 2012 and 2013, the country is again having financial problems. Argentina’s economy is well diversified, so a person wouldn’t think that oil would play a big role. (My index of the role of oil exports was only about 2%, as of 2008.) But oil problems overlay any other problems a country may have. If a country has a tendency to overspend its income, or over-promise subsidies, any reduction in oil income will tend to magnify this effect. When making plans, it is easy to overlook the fact that the benefit from oil income is temporary.

Target Break-Even Brent Oil Prices

Many large oil exporters include revenue from oil exports in a country’s annual budget. This is quite different from the cost of pulling the oil out of the ground. It is the money governments collect, as taxes or revenue sharing agreements or leases, to support their programs. With rising population, and often with declining exports, oil exporters find that they need higher prices each year, just to make their budgets balance.

Figure 10 provides some Deutche Bank estimates of budget break-even oil prices.

Figure 10. Budget breakeven oil prices, based on a Deutche Bank analysis provided in a presentation by Mark Lewis.

Note that the indicated break-even prices for Nigeria and Russia are above current Brent price levels. (The current Brent Crude oil price is $106.) An estimate from Energy Policy Information Center (EPIC) shows Venezuela’s break-even price to be a little higher than Russia’s, and Iran’s between that of Nigeria and Russia. According to EPIC, Iraq’s break-even is in the $80 to $100 barrel range. The Saudi Arabian oil minister was quoted on January 16, 2013 as saying that the country needs oil prices averaging $100 barrel.

One concern is that these break-even prices will keep rising. Another concern is that countries “at the margin” will find it difficult to reach their price targets.

One country of concern is Venezuela. It has a very high break-even price, and recently underwent a leadership change. It also has a tendency to spend oil revenue, even before the oil is pulled from the ground, through loan programs from the Chinese.

Figure 11. Oil production and consumption of Venezuela, based on data of the EIA.

Venezuela’s exports are lower than in some previous years (Figure 11, above), but with the rise in the price per barrel, the dollar value has perhaps risen–this really depends on the price negotiated by China. With funds spent before the oil is produced, Venezuela can easily get itself into a trap, if “regular” oil production drops, or if it is difficult to ramp up new planned production.

Venezuela’s oil export index is about 20%, which is similar to Russia’s and Norway’s.

In general, oil exporters with declining oil production face worrisome situations. Reduced oil exports present a drag on the economy unless oil prices are rising rapidly. If oil prices do not keep rising rapidly, oil exporters will need to cut back on social programs–something that will not be well-accepted by citizens. Furthermore, adding new industries to take the place of missing oil supply may be difficult. There may even be a reduction in oil supply available to world market, if civil disorder causes a loss of production which would otherwise reach the export market.

This post originally appeared on Our Finite World.

Tech Talk - Shell Looks to the Future

Heading Out — Mon, 08 Apr 2013 15:18:19 +0000

Each year the larger oil production companies provide their views of the future, and I recently reviewed that for ExxonMobil. Shell has now produced their projections, though in a somewhat different format as the document “New Lens Scenarios”, which deals with future projections as a set of differing options. That does not make these views less informative.

In reviewing where the world will go, Shell looks more to political impact as the future unrolls. They see the European Union stuck in a Trapped Transition” where:

...the ‘can’ keeps being ‘kicked down the road’ while leaders struggle to create some political and social breathing space. So there is continuing drift, punctuated by a series of mini-crises, which will eventually culminate in either a reset a reset involving the writing off of significant financial and political capital (through pooling sovereignty, for example) or the euro unravelling.

On the other hand, countries such as China and Brazil are resilient:

in their different ways, they had the financial, social, political, or resource ‘capital’ to respond and reform, following a room to Manoeuvre pathway.

Within the next thirty years, as the population grows, so a greater percentage - up to 75% - will live in cities. And these will consume a greater fraction of the global energy supply, perhaps as high as 80%, up from the current 66%.

The document is very much slanted as a socio-political forecast, with considerable polemic in regard to the weaknesses that the company perceives to exist in the West.

Shell postulates two different scenarios for the future. There is the Mountain scenario, where business continues very much as usual, and then there is an Oceans scenario where the ”powers that are” work toward a more accommodative approach to those in the developing world, and to the less fortunate layers of society.

The document begins with the impact if the Mountain scenario is to prevail, driven through a top down control, largely through existing institutions. Shell is not enamoured of this:

In the US, for example, income and wealth inequality continue to increase, with stagnating middle-class earnings, reduced social mobility, and an allegedly meritocratic higher education system, generously supported by tax exemptions, whose main beneficiaries are the children of the successful. Superimposed on this class divide is an increasingly serious intergenerational divide, as commitments to the elderly via entitlement programmes crowd out discretionary expenditures that could rebuild economic and social infrastructure. Similarly, in Europe an ageing population and commitments to high levels of entitlement, which are frequently underfunded, create a mixture of social and political strains that deflect attention from the core structural economic issues facing the region.

Driven by this gloomy picture of the future, Shell anticipates that global GDP growth through the 2030’s will average under 2%. This will, in turn, moderate the growth in energy demand. Through increasing urbanization, the growth of the service sector and the greater use of electricity in developing countries, Shell anticipates that the strong correlation between economic and energy demand growth will be broken.

Figure 1. Shell projection of future energy supply, through 2060 under the Mountain scenario. (Shell)

N.B. All the illustrations come from the Shell New Lens Scenarios document.

Shell anticipates that hydrogen, an up and comer just a few years ago, and now largely neglected, will undergo a “phoenix-like” resurrection and find a market both in industrial and transportation as an alliance of government and private industry push a hydrogen infrastructure post-2020. They anticipate that the use of liquid fuels for passenger road transport will peak in 2035, and that by 2070 the global passenger transportation network using roads could be nearly oil-free, as hydrogen and electric powered vehicles take over.

Figure 2. Shell future projection of vehicular fuel sources.

The energy burden will transfer from crude oil to natural gas, which will increasingly underpin the global economies as China joins the top tier of natural gas producers.

Figure 3. Sources of liquid fuels through 2060 (Shell)

The increase in the volumes of natural gas that become available from tight shales and coalbed sources are sufficient enough that by 2035, Shell anticipates that natural gas will not only displace crude oil as the primary transportation fuel, but that it will also encourage a robust petrochemical industry based on methane. Shell sees the possibility of US energy self-sufficiency in the 2030’s as peak oil theories are abandoned.

The availability and broad use of natural gas will also allow time for credible carbon capture and sequestration technology to be developed and demonstrated, so that by the time that coal is needed as a fuel (around 2075) it will be usable while sustaining the zero-carbon dioxide levels for electricity generation that become widespread by 2060.

In the alternative Oceans scenario, the more accommodative approach, Shell looks to a willingness to share technology and compromise on issues of ownership and profit as a way of encouraging globalization and developing productivity. Societal interconnectivity is encouraged by greater use of the Web, and this leads to significant changes, with existing leaderships yielding to allow a broadening of governance and significant reform. The greater spread of information and connectivity makes for the more fluid nature of geopolitics that name the scenario, as increasing populism is both a source of innovation and a challenge to stability. Populism is seen as a challenge to US dominance, and is considered likely to cause “destructive and violent reaction #8221; as globalization progresses.

This progress is seen as most likely through technological interconnection between entities that creates a new class of Mandarin who is less accountable to traditional masters. In this scenario, Shell seea the world increasingly run by more flexible and decentralized governments “that have embraced radical pathways  to economic sustainability”. And this includes both the United States and China. In this regard they quote the work of Anne-Marie Slaughter of Princeton on a New World Order.

This change from the current business-as-usual (BAU) model has an impact on fuel availability and use. The encouragement of entrepreneurship is seen to significantly increase the penetration of solar power into the energy mix, while sustaining the era in which crude oil contributes beyond that of the Mountains scenario.

Figure 4. Energy Sources under the Oceans scenario projected by Shell.

In comparison with the projections under BAU, natural gas is less of a player, though Shell don’t explain either where the additional oil will come from or why the rush to invest in natural gas is turned off. They anticipate that the reliance on hydrocarbons will cause a rise in price that will open the door to new resources and technologies, particularly with solar power.

In this future Shell sees the developing world taking more of the energy pie, yet transitioning rapidly into a lighter industrial society with a large service component. (One wonders where the necessary heavy industry goes, as it also transitions to become 80% more efficient?) Heat pumps become a widespread domestic unit, with their benefits in energy efficiency. And in order to sustain their market share, internal combustion engines become increasingly efficient and technically advanced. While crude oil use will increase until the 2040’s, beyond that time the increased use of biofuels will allow liquid fuel dominance to continue in vehicular use. There are two main sources for these biofuels, first generation fuels, mainly sugar based ethanol, which will contribute some 4 mbd by 2050, and second generation biofuels from non-food crops which come to dominate beyond that time. As this transition occurs, so traditional biomass use will disappear by the end of the century.

The different consequences of the two scenarios as they impact fuel sources, and the unconventional nature of the Shell, answers to “where will the resource come from” is shown in two plots that summarize the two energy futures.

Figure 5. Energy sources of the future, as seen by Shell under two different scenarios – Mountains and Oceans.

Under the BAU Mountain view, the additional required energy will come in the natural gas side of the house, with Methane Hydrates being the major new source of fuel. With the competing Oceans scenario, the energy comes from the development of kerogen from the oil shales of Colorado, Wyoming and Utah.

By the end of the century, renewable energy will supply more than half the electricity demand around the world, with solar carrying the greatest share of this. However, they do not see the electricity generating industry becoming carbon neutral until the 2090’s, as CCS penetrates the industry.

Figure 6. Shell’s view of electricity power sources by 2100.

Shell foresees that the problems of energy storage (80% of the solar power in many OECD countries is generated in the summer) will be overcome through the use of electrolysis and the storage of the resulting hydrogen.

There is much to debate over the basis on which Shell has derived the scenarios that form this report. It remains more optimistic about the oil and gas futures than I can find a basis for accepting, but nevertheless, it is well worth reading as it provides two views of what might come about. The impact of societal pressures and drivers produce two different energy futures, and while I suspect that reality will be quite different with “unknown unknowns” having great influence, the effort is worthwhile.