Back to the Drawing Board in the UK

The news that oil production from the North Sea had dropped by 17% could not have come as a pleasant distraction to the current British Government. They were well aware that production was declining, and had anticipated getting all their additional needs for gas from Norway as their own domestic production declined. But where to get the additional crude oil needed for transportation?

The recent Energy White Paper from the Department of Trade and Industry (DTI), (pdf here) although focused on a low carbon economy, also points to the anticipated source of increased energy supplies to the UK.
"We will also need to look for supplies from elsewhere, eg from Russia, the Middle East, North Africa and Latin America."
Well let us go through those options in somewhat brief review.

Russia, as we have recently learned, has apparently peaked for a second time, and now, despite an upbeat note from their Government, by the time the UK needs the oil, Russian growth in production would appear likely to be over, with a return to a declining future.

Latin America is similarly entangled. Mexico has announced that it cannot increase production (and in fact is anticipating that with the decline at Cantarell it will go into significant decline this year). The growing production from Brazil (where a number of current major projects are being carried out) has yet to bring production there up to meeting domestic demand. Perhaps we should be kind and limit our remarks on Venezuela for now to the reminder that they also are in a mode of declining production. And in that vein we should also quietly tiptoe away from places such as Bolivia. In fact, being realistic, let us forget about Latin America.

North Africa can be easily winnowed down to Libya, and Algeria. Algeria is currently producing around 1.25 mbd of crude oil and anticipates raising this to 1.5 mbd by the end of this year, with a target of 2 mbd by the end of the decade. However most of that goes to Italy, France and Germany, and with relations with the EU being what they are this week, I can't see any of them being keen to slip the UK the odd additional 100 kbd. (On the other hand the largest producer is Anadarko at 530 kbd so maybe if they had a word . . . .) However BHP Billiton has a field that should bring in 80,000 bd by the end of the year. Let's call that the most likely and move on.

Libya was producing around 1.6 mbd in 2004, but again almost all of that was going into Italy, Germany, France and Spain. (Not to mention that interloper from across the Atlantic with 66,000 bd now being shipped to the US). Short term, they would like to get production back up to 2 mbd by 2008, with an anticipated rise in output this year of 300,000 bd. But as Ianqui pointed out it may be hard for the UK to make any inroads here.

Which leaves the Middle East. And perhaps you are getting tired of hearing this, but Saudi Arabia has listed their projects, and declines aside, they are only looking to increase production some 300,000 bd, and then by 500,000 bd a year in the immediate future. Unfortunately, unless they get their act together, this will be just about all offset by the declines in Saudi Arabia, Iraq and Iran. (not a misprint).

This means that the situation is getting a little more urgent than the more relaxed tone of the British document would convey. Certainly they have been willing to commit to larger investments in alternate energy more easily in the last weeks, with a new wind farm announced today, and a second planned to come on line in 2010. And it would explain the recent headline in the Energy Bulletin on a certain lack of scruples that is beginning to be apparent.

Europe in general is now waking up to the concern, and reports have recently come from France, Germany and Holland beginning to bring the subject to the attention of the general public.

In the United States, of course, things are still somewhat different. From today's New York Times , for example.
The Senate also rejected, by 53-to-47 vote, a proposal to set a goal in the bill of cutting oil imports by 40 percent within 20 years. . . . . .

The Republicans were also dismissive of the amendment to curb oil imports, calling it a pie-in-the-sky plan that would upend the nation's transportation system. "I envisioned everybody this summer or next year traveling with their little Segways - two or three piled on each one - going out to the Nationals' games," the Senate majority leader, Bill Frist, Republican of Tennessee, said on Wednesday.
But then, were we still credulous of economists, we would realize that we are worrying about the wrong thing. From Morgan Stanley , for example:
The oil market may be quickly headed for a massive crash as global economic growth slackens, alternative energy gains ground and financial traders sense a price peak, an economist with Morgan Stanley said on Thursday.

But Morgan's Xie said increased efficiency and conservation measures and the viability of alternatives like oil sands and liquefied gas and coal was already undercutting demand for oil.

"As energy producers step up production from alternative energy sources...oil prices could stay depressed for many years when the current economic cycle turns down," he said.
If only this were an academic exercise, some of these quotes would be humorous, as it is it just tends to obfusticate the issue from a public not yet educated to learn who they should trust, and who they should not.

On a small personal note, this is where my blogging will get light for a couple of weeks, as I head out to pastures new on vacation. There may be the odd photo blog, but other than that I confidently leave you in the hands of my colleagues, and raise my celebratory glass of wine (A Peter Franus Zinfandel) in thanks to them and to J and his contributions. (And it also celebrates that the Engineer passed his orals today - hola, indeed!)
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Isn't speculating on where England gets it's oil overlooking the global nature of the market? England will get oil from the world market. Crude is produced in the many countries you mentioned and is then put on tankers and sold to the highest bidder. Unless I am wrong, very little is sold on dedicated long-term contracts.

The 64 billion dollar question is where will the world get its oil.

Yes, England will face a serious problem in the years ahed...and they are in the worse situation of all of the European nations.
They beter hope they are good buddies with the Russians and Iranians in the years ahead...I see only a portion of the North Sea "heavy decline" or Russia for Nat Gas also. And the gas line stop at the Baltic and dont go towards England...
Island of 60 million. I think if I lived in England I would sell my overpriced home while the getting is good and look elsewhere "ie anouther Nation" for a new home :-)

Ah.... Does anyone see Blair's motive for throwing in with Bush on Iraq?

Energy Bulletin has this linked item that has a component similar to this thread.

HO -

If you're drinking a glass for me, better make it a cabernet or shiraz....*grin*

It's nice of you to do the math and lay the pieces of the puzzle out, but I am still of the opinion that it will have to hit the beltway bunch square between the eyes before they will deal with it. That Morgan Stanley stuffed shirt will be wearing a hair shirt very soon while wandering down the halls.

Oil sands are undercutting crude demand NOW? I guess that "light crude" pried out of those icky Canadian sands is probably just hammering the price of WTI, don't you think? hmmm...let's, not seeing it... Well, I guess maybe that big slug of Tar Sand Light will hit the pipes next week or so, and just relieve all the strain on the markets.

If this wasn't so comic, I might get all worked up. The public will never know who to trust, because the public arena is mostly liars and cheats. There just aren't enough Joe SixPacks on the internet (excluding porn sites, ok?) to get them stirred up. The sheeple will know they have been lied to when the prices jump yet again, and not before. Then the blame game will start.

The Morgan Stanley shill is targeted to keep investors on-track in the market. Shills like him plus the plunge protection accounts keep the profit mongers jumping all over the market. They don't care where, just so long as they don't pull out of the market. Which is even funnier to me - who is still IN the market, when most of the private "smart money" is already out?

I'm also wondering what those enigmatic "increased eficiency and conservation" measures are... Oh yea - I forgot about the new, smaller H3 Hummer! And the conservation? Well, with gas higher, people are driving less or switching to MT, so I bet he stuck some double digit number in there based on more widespread use of Mass Transit. I mean, that's close enough, because everybody has a subway system, right?

HO, you better just throw away the glasses and open another bottle....


I am not anonymous! I just cannot remember to logon. Probably my Sumteimers flaring up again...

Si -

I guess you haven't looked at home sales and prices in the UK lately.

Their bubble is apoppin...

And our housing market has tracked 6 months or so behind theirs since WWII...

Well European trading has caused oil to shoot up to $57.43/b as of 9am est

The old rule of thumb, for anyone who makes public investment advice, is that they are doing opposite. They mention a stock as a "buy" when they want to sell, and:

"The oil market may be quickly headed for a massive crash as global economic growth slackens, alternative energy gains ground and financial traders sense a price peak, an economist with Morgan Stanley said on Thursday."

The cynic in me would say that they want to accumlate futures ... but don't do it yourself!

As a UK resident, I am pleased by your pointer to the UK energy paper,
which was a good read. But there are some things behind it which
havent been picked up..

1. The sole reason that the UK is coming in ahead of the kyoto
agreements was the rapid migration from coal to natural gas in
(private) power stations, the "dash for gas". This is clearly not
sustainable, once that gas runs out. Given that we can directly use
gas for heating and cooking at home, its actually pretty wasteful to
be burning it for electricity, sending it out over the country in
wires and then reconverting back into power.

2. There is no mention of air travel. It is the single largest growth
area in CO2 emissions in the country, yet it isnt under kyoto, and so
it doesnt get coverage.

3. It is unclear whether or not this is just an atttempt to soften us
up for more nuclear power plants. Anything that talks about "hydrogen
powered vehicles" is an implicit pointer to that; because
realistically, a post-oil transport system will consist of mass
transport, foot and bicycles for the many, cars for the few. India or
China of a few years back, as a reference point.

4. A separate proposal for road charging plans to reduce the road tax
(currently based on CO2 emissions) and fuel duty (implicit v. large
tax on inefficient vehicles, we at $6/US gallon in retail
petrol/diesel), replacing it with a congestion charge. Which will be
the same if you drive a 15mpg SUV or a 60+mpg hybrid Smart car.

5. Plans to make living near london more affordable by making london
sprawl more (search for "john prescott housing development"). If you
are going to design cities for the future, you should
- not build them near sea level or on flood plains, assuming global
warming is true, which everyone but the white house/exxon believes
- let people live near their work
- build public transport in from the beginning

Yet the housing plans seem doomed to repeat the US design - a sprawl
so isolated that public transport cant effectively serve it.

I am wondering what folks might know regarding the obvious geopolitical intrigue that must be coming from this? The Brits, no doubt, can not be happy to be on the losing end of the latest Great Game...That is if they are aware that they are. (are they?)

How long will fixing their lips to Bush's hind end pay off? When will it be too late to change course and forge an alternative alliance (like to countries better suited to receiving Russian crude through land routes....)

I'd like to know what these "alternatives" are.  Ethanol requires large amounts of oil and gas to plant, fertilize, reap and distill, and the dozen or so GO-HEV Prius conversions aren't going to do spit.

"As evidence of weakening demand and ample supply accumulates, the market may panic," Andy Xie, Greater China economist in Hong Kong, said in a report. "I believe it could correct in the most speculative fashion -- it could collapse."

The real irony here is that this analyst may very well be right - for the short term (a few months at most), which is where most commodity traders focus all of their attention. The sad part is that if prices do collapse for a few months or (maybe) a year, the public will be even less inclined to deal with the reality of Peak Oil as its consequences become more intense. Every downward spike (and volatility in general) more firmly entrenches the view that oil prices are mostly about economics and politics and that geological facts have little, if anything to do with it.

The public view of Peak Oil theory may well be that Peak Oil theorists are predicting a steady, sustained rise in prices, not higher volatility with a rising trend line, which is probably closer to what will actually happen. When the fundamentals of a market change and the market gets out of balance (or just plain unhinged, which could be happening in crude oil now), the consequences do not usually play out in a smooth and logical fashion - things almost always become volatile and chaotic.

Has anyone ever realized that Morgan Stanley may be indicating that the stock market in toto may be falling?

If the market dumps, the economy shuts down and oil demand as well... Why not parse this guys words in view of the debt bubble, housing bubble, market intervention, etc. that is going on today?

What could possibly derail demand in this fashion, is the logical question his prediction led me to. The reason I say demand is that supplies are not yet critically impacting delivery, and never have.

So what event would curtail demand?

We saw curtailment of demand in the Asian financial crisis; if the Chinese financial house of cards fell down, we'd see a large fraction of a Japan's-worth of demand destroyed.

Another way to destroy demand is to find substitutes.  Electricity is the most attractive (average transport power at the wheels is about 180 GW, average US generation is 440 GW, total US nameplate generation capacity is nearly 1 TW) but storage and production/conversion are issues.  China could collapse in a couple of months, re-engineering to move demand from petroleum to coal, wind and nuclear would take years.