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Rune Likvern: "My Experiences after Eight Years with The OilDrum.com"
Posted by Rune Likvern on August 7, 2013 - 3:55am
After my first time seeing The Oil Drum (TOD and Institute for the Study of Energy and Our Future; ISEOF) in 2005 I created an account as nrgyman2000 and later got an invitation to become part of the staff of volunteer writers at what was then TOD Europe. In 2008 I started to post under my real name.
I am a Norwegian male presently living in Norway and holding a masters degree from what is now the Norwegian University of Science and Technology. For more than two decades I was employed in various positions by major international oil companies, primarily Statoil, working with operations, field/area developments (in the Norwegian sector of the North Sea) and implementation (primarily logistics) of Troll Gas Sales Agreement (TGSA) which is about natural gas deliveries to European customers. This was followed by a period as an independent energy (oil/gas fields assessments, cash flow analysis, portfolio analysis etc.) consultant and as VP for an energy hedge fund in New York. In recent years I had a sabbatical to do more in depth research, reading and participating in discussions about energy, biology (what makes human {brains} what they are and why), and not least financial and economic subjects in several global forums as well as some advisory work.
To me the experiences with TOD have been a unique educational, innovative, exciting and interesting process that forced me, after research and interactions with numerous other professional, intelligent, open minded, constructive, cooperative and reflective individuals from a broad international base representing a wide range of disciplines, to rethink and revise (as evidences/arguments were presented) my world views and gradually expand my boundaries for what forces and mechanisms that truly shapes our complex world. I do not think such an expansion of my worldviews could have occurred in any other forum - TOD was a unique place.
As I share a lot of common ground with all the members of the TOD staff and most of the readers/commenter’s, for my last post here I will draw a little attention to an issue I believe continues to be widely underreported.
The financial system facilitates the organization of activities needed to extract, refine and distribute oil/energy (resources in general) to end consumers. Higher prices in turn justify the deployment of increasingly sophisticated, expensive and amazing technologies to extract oil/gas from what a few years ago were considered non-commercial sources like oil sands, tight oil/gas and deepwater developments in increasingly more hostile and vulnerable areas.
A detailed look into the financial statements and balance sheets for several public oil/gas companies over the last 6-7 years reveals some unsettling developments. After the oil price started its growth with its apex of $147/Bbl in 2008, the oil companies started taking on more debt in a bid to develop supplies from more expensive sources. To pay for these (more) expensive prospects out of cash flow became increasingly difficult so companies turned to debt financing. Recently some oil/gas companies have been approaching their maximum capacities to take on more debt. This has likely been fueled by expectations for a continued growth in demand and a tight supply/demand balance that would support structurally higher oil/energy prices.
As companies approach debt saturation this causes erosion of their resilience from modest declines in the oil price. Simulations for oil companies close to debt saturation reveal a disturbing prospect. A decline in the oil price (to say $70-80/Bbl) could require oil/energy companies, and their currently deployed strategies for growing supplies, to drastically reduce their capital expenditures (investments) in pursuit of debt service, cryptic presented in euphemisms like “targeting financial performance”. The outcome from this could for some time create a significant slowdown in additions of capacities that combat natural declines and thus make it difficult to create any growth in oil/energy supplies. Several major oil companies now admit that they are struggling with profitability and growth in production as reported here .
Debt saturation is here meant to describe the phenomenon of declining marginal returns as increasing amounts of debt is needed to create growth, see also figure 1 below.
Figure 1: The chart above show the development in the Norwegian company Statoil’s equity volumes of oil and natural gas from operations in Norway (NCS; Norwegian Continental Shelf) and internationally (INT) from 2008 and as of Q2 2013 expressed in BOE (Barrels of Oil Equivalents), stacked columns plotted against the left y-axis.
Natural gas deliveries (production) from Norway are subject to the gas buyers’ need which may show some swing from one year to another. Norway’s ability to maintain present levels of natural gas deliveries are expected to decline in the near future.
Statoil has also divested (sold) for 40 - 50 GNOK of assets, primarily in Norway, since 2011 in a bid to grow international production and improve returns.
In the chart is also shown the development in non-current financial liabilities in GNOK (GNOK = Billion NOK, 1 $US approximates now 6 NOK), black dots connected with black line and plotted against the right hand y-axis.
Entitlement volumes of oil and natural gas may generally be smaller (than equity volumes) under Production-Sharing Agreements (PSAs) and similar contracts.
The recent years massive capital expenditures (cash flow available from operations {post dividends} and debts) resulted in only modest gains (if any) in overall production. If there were any growth in total production (as expressed by Barrels of Oil Equivalents; BOE) it came from natural gas while liquids production posted modest declines and NGL’s (Natural Gas Liquids) generally posted gains.
Figure 1 show ONLY one big company, one example and an ongoing theme is to look at oil companies’ aggregate debt and production developments. In many ways it appears oil/gas companies have turned to the same model as sovereign governments - going to debt/credit model while keeping gross energy growing mildly.
The present general deceleration of growth in debt, start of deleveraging and prospects from future expanded austerity measures, will continue to affect consumers’ affordability for expensive energy. As the oil companies are in the business to make profits (which are legitimate) and grow their wealth, they are simultaneously very dependent on the well being of consumers’ purchasing power to pay for expensive energy. If the consumers “fail” (due to affordability issues) the oil companies will hesitate to go after the remaining and more expensive oil/gas.
The above may serve as a simplistic illustration of how complex and intertwined our (social) systems have become. The more insights and understandings I obtained through the years about these relations, the more I have come to realize how difficult it is to make predictions as non linear events are widely and poorly understood and humans are what they are.
Presently and for the near term I do believe we are not primarily facing an energy crisis, but a continued growth in costs to extract resources and Energy is the master resource. This extraction is from increasingly marginal prospects that will make it demanding to replicate the recent decades unprecedented economic growth which also was facilitated by accelerating amounts of debt (borrowing from the future). This happens while society’s ability to pay for costlier resources rapidly diminishes. In this context I also believe that our institutions, governments and individual expectations (e.g. pensions, retirement plans, and ideas of future consumption, etc.) are not likely to come to fruition. These expectations and promises are therefore likely to become subject for revisions to the downside, as the reality of poorer and costlier resources slowly (or possibly suddenly) becomes more apparent and understood.
In closing, my motivation for being part of The Oil Drum (TOD) staff is that I have believed it is possible through quality presentations of scientific facts, transparent analysis and informed discussions to get more people interested and educated (even if it is a tiny portion) about the issues faced by our societies and in turn, these people will hopefully through their own research obtain confirmation (which makes knowledge stick!) and eventually the entire discussion will move forward and achievements are made.
These days and despite all technological developments with rapid changes in information generation and distribution, it simultaneously appears increasingly harder to discern the important signals from a faster growing pollution of noise. For me, while it existed, TOD was a place where the signal to noise ratio remained high.
Fossil fuels will far into the future maintain their position as the dominant human external energy source (until they don’t!) despite the recent strong growth in renewables. This is why, in my honest opinion, understanding the true mechanisms that drive the real prospects for future flows of fossil fuels and the effects from the byproducts of burning them, increasingly important issues.
So while we continue our journey into the future I found the quote below to be appropriate.
“It is not good enough for things to be planned - they still have to be done; for the intention to become a reality, energy has to be launched into operation.”
- Walt Kelly (Pogo) (my bolding)
I also post on my Norwegian blog Fractional Flow.
It has been a great, unique and interesting ride!
Thanks to all of you!
Rune Likvern
Contact
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There is also another important point. Most of the oil and gas today come from resources developed to be profitable then prices where a lot lower. Then these relatively cheap resources start to decline profits will start to decline.
Any chance of an English language version of the articles on your site?
I am considering publishing some of my posts in English on my blog. (My English is admittedly a little “ropey”.)
Rune, your English is very far indeed from 'ropey', I can assure you :). It was an article of yours on Norwegian oil that got me reading TOD - takk skal du ha.
Rune,
Like you, I valued the unique community here at TOD most of all. I learned - and evolved - quite a bit from the interactions and learning here.
Unlike you, my focus was on finding a way out. Efforts that TOD chose not to publish.
I have come to the conclusion that it requires less capital to reduce oil consumption than to bring a marginal barrel of oil into production.
Last March, Paris announced plans to double their Metro (+208 km) for 22 billion euros and attract 2 million new daily riders. Compare that to Kashagan.
Best Hopes for a new TOD,
Alan
More details at http://theoildrums.com/t/a-revolution-in-paris-towards-an-oil-optional-m...
As we come to understand and assemble evidence for what we are facing it is highly commendable to look for good solutions and I will encourage that and believe TOD (discussions about energy and our future) has also been about that.
I have seen episodes where people believed (or rather was totally convinced) that they had understood what the problem was and in a knee jerk reaction started to do things (as they had to demonstrate being proactive) that soon proved counterproductive.
There will be solutions.
Question is; will we leave to reality dragging us kicking and screaming to adoption, or will we do adjustments anchored in the best information available?
I looked upon my mission to provide quality information for this process.
Best hopes for all of us!
AlanfromBigEasy!
So good to hear a last word from you.
Like you I totally believe the way to ameliorate Peak Oil, Climate Change and Environmental issues is to REDUCE consumption which has a huge potential. I love your articles on
Green Transit plans and how shifting away from Auto Addiction is the most important strategy to deal with both Peak Oil and Climate Change. In Europe car sales are in freefall, apparently 27% as Europe already has Green Transit options to Auto Addiction in place.
Here in New Jersey, the US most densely populated state and more densely populated than China there seems to be some inkling of the situation as Corporate offices move from huge empty
Corporate campuses in sprawl suburbia to places like Summit, a Rail hub for North Jersey.
And recently Sanofi HQ in Bridgewater, NJ which is on the Raritan Valley Line, after being closed by Sanofi has been bought by developers for mixed use redevelopment:
http://www.nj.com/somerset/index.ssf/2013/08/developer_looks_to_reinvent...
Unfortunately what is left out of this story and this vision is any way to get to this
new more walkable center other than driving and then requiring huge amounts of parking.
When in fact this is just about 2 miles from a train station which gets pitiful service.
It appears actually running or reopening our 1,000 miles of Rail lines in New Jersey is still beyond their vision.
By the way, Alan , will you be posting regular updates to any other site?
Kudos to Rune, a rarity of a professional in the oil business who actually cares about informing the public of what he knows and what he can find out. He is one of just a few that also seem to hang out on TOD.
Question, name all the oil professionals that have written books or reviews on the subject of oil depletion. I can only name a handful. Then do the same with any other engineering or scientific topic.
Leverage is another Red Queen indicator.
Thanks so much to you and the other great posters here. Special thanks to Leanan for the always-pertinent links.
I really don't know what I'm going to do when this place closes. There is so much BS out there around energy.
Is Fractional Flow available in English?
"...as the reality of poorer and costlier resources slowly (or possibly suddenly) becomes more apparent and understood."
This, really, seems to be the key question. As the costs of bringing resources to markets begin to affect the rates of production and demand for said resources, will economies have a protracted period of adjustment, or suddenly find that resource availability doesn't meet their MOL (minimum operating levels)? I applaud Rune, the rest of the staff, and many contributors for keeping this question front and center.
Weather or not this reality will be broadly understood in realtime, I expect, dispite warnings from TOD and many other forums, a majority of folks will be left wondering what happened to the bright futures they've been promised; what happened to "American energy independence" and all that. That there is a time limit on the usefullness of their investments is self-evident, and investing in new paradigms certainly seems to be lagging the need for such. History provides few examples of societies handling contraction well, and the process often involves shooting the messengers, as we've seen recently. Perhaps the closing of TOD is well-timed, as much as I hate to see it go.
I'll make use of my time continuing to focus on personal, local responses and sharing my progress with whomever seems interested. While I began these changes years before TOD came to my attention, the discussion here dotted a lot of 'I's and crossed a lot of 'T's, cementing my conviction that the most affective and reasonable rejoinder to whatever lies ahead will be local as our global, hyper-complex, energy-mad systems begin their process of simplification. Jeffery Brown's "getting to the non-discressionary side", Greer's "pre-collapse", and Kunstler's "world made [mostly] by hand" all seem quite prescient at this turning.
"...as the reality of poorer and costlier resources slowly (or possibly suddenly) becomes more apparent and understood."
The price of oil have risen a lot for the buyers but the oil companies are still mostly living of cheap oil developed before the prices increased.
Tusen Takk! Heia Norge!
Og takk for det!
The future of fracking and the role of Nat Gas will be interesting to watch unfold. Until the market is developed stateside or the US decides to export at a rate that will bring on world prices we wont know for sure just how big a game changer the new tech will bring. At the moment it seems the flooded market is hampering coal, nuclear and many renewable technologies.
*sigh* Another "too big to fail" failure looming. How many more can we afford?
Thanks for the insightful articles and comments over the years, Rune. It's always good to hear from a professional, even if it's not what one would like to hear.
another thankyou I guess
It's odd that TOD is going in one way. Recently I have detected a growing level of respect the place has finally achieved from the likes of ARUP and other project management entities. even with all the fracking hype there is an underlying unease in the air because a more sober and deeper understanding has started to "sink in" in some circles formerly free of such thinking.
anyways starting out bookmarker all the various blogs and Rune's will be up there along with the rest of the guys and girls.
Rune,
Thank you for your contributions!
Michel
New oil companies will form buying assets from the bankrupt ones. They will be debt-free and under the same management. Investors will flood them with cash. ( non linear systems defy prediction, yea, I have learned that, too!!! Good luck, rune)
Rune,
Thank you for your excellent contributions to TOD. The "Red Queen" is is a metaphor I shall never forget thanks to you.
aws.
As your post points out, the financial system is critical to understanding how energy limits will play out in practice. Financial limits will be reached long before hard physical or geological ones. Finance is the global operating system, and we are watching a slow-motion operating system crash that is picking up momentum. Without functioning credit markets an economic seizure ensues. Demand will be sharply down and price will fall far faster than the cost of production, squeezing margins. It's a recipe for no investment for years and years. When the economy tries to recover, it will hit a hard ceiling at a much lower level of energy supply.
All these low energy profit ratio energy sources are nothing more than an extension of the current conventional fossil fuel system. They cannot sustain a level of socioeconomic complexity sufficient to produce them. Once our complex society can no longer be sustained by its current high energy profit ratio energy sources, it will simplify (involuntarily), and simpler societies do not frack or drill horizontally or mine rare earth metals etc. We won't even be able to maintain the infrastructure we have built.
Nicole
I do see a way out - although a narrow one.
Divert some consumption into wise investments (mostly with minimal credit)#. Wise as in energy efficient and energy producing.
I see both Denmark and France as being on that path. Likely Sweden, Norway and others besides.
Danish carbon emissions per capita are down -26.5% in five years (2007-2012) and French (from a lower level) -14.8% in the same time period.
Looking at plans (doubling Paris Metro, increasing diesel taxes, etc.) the rate may even increase in the future.
The Danes plan to go to zero carbon emissions. 2050 from memory/
Many other natiosn could follow the same path by diverting a small % of GDP (say 2%) from consumption.
Best Hopes for those that Prepare,
Alan
# Sidebar story - Copenhagen inherited a closed military base. They built a "Y" Metro (their first) with one leg of the "Y" through that former military base. They sold off the land. now much enhanced in value due to the Metro line, to help pay for the Metro. In the end, land sales covered 91% of the cost of the Metro line. The balance came from current revenues and some limited long term borrowing.
There are American examples, too. San Francisco's greenhouse gas emissions fell 14.5% between 1990 and 2011, while its population increased by 12% over the same period. San Francisco's per capita CO2 emissions, while not as low as Paris or the Scandinavian capitals, is the lowest of any major city in the US and is getting into the range of many European cities.
CO2 emissions/capita
World average 4.8
US average 17.3
San Francisco 6.1
Chicago 12.6
Seattle 11.2
Portland 13.9
Los Angeles 8.3
New York 6.4
Washington DC 16.9
Austin 18.7
Paris 3.3
Copenhagen 3.9
Oslo 3.8
Stockholm 3.7
Moscow 4.2
London 5.7
Warsaw 7.7
Amsterdam 6.8
Berlin 5.9
Tokyo 4.7
Yokohama 5.2
Seoul 4.7
Toronto 7.9
Vancouver 4.5
(Source: C40Cities Climate Leadership Group)
Could you give a link to just where on their website that data is ? I went a looked and found data for each city individually.
Thanks,
Alan
I took the CO2 emissions data for each city and divided by the city population listed on the same page to get the per capita emissions for that city. The result for San Francisco corresponds to other estimates I've seen. Sadly, the emissions data isn't available for every city listed. (Too bad.) The world and US averages I got from BP's statistical review of world energy, 2013.
How like so many commentors on TOD :-) Put in some work to extract useful data,
Check our my blogs OilFreeTransport and OilFreeDC
Best Hopes,
Alan
we are watching a slow-motion operating system crash that is picking up momentum.
I agree that our financial system is built with duct tape, and that some crashes are pretty much inevitable, but when? 1 year or 100? Four years ago you predicted The Big Crash with some certainty as happening "right now"...
All these low energy profit ratio energy sources are nothing more than an extension of the current conventional fossil fuel system.
That's unrealistic. Wind has an EROEI of 50:1, and solar's is rising quickly.
Why doesn't that word get out??
Thanks for shining the light in on some of the darkers corners here Rune. Good you should bring up Walt
he tells us the above product was distilled a bit over time
“In the time of Joseph McCarthyism, celebrated in the Pogo strip by a character named Simple J. Malarkey, I attempted to explain each individual is wholly involved in the democratic process, work at it or no. The results of the process fall on the head of the public and he who is recalcitrant or procrastinates in raising his voice can blame no one but himself. An introduction to Pogo Papers, published by Simon and Schuster in 1952-53, said in part:
‘...Specializations and markings of individuals everywhere abound in such profusion that major idiosyncrasies can be properly ascribed to the mass. Traces of nobility, gentleness and courage persist in all people, do what we will to stamp out the trend. So, too, do those characteristics which are ugly. It is just unfortunate that in the clumsy hands of the cartoonist all traits become ridiculous, leading to a certain amount of self conscious expostulation and the desire to join battle.’
‘There is no need to sally forth, for it remains true that those things which make us human are, curiously enough, always close at hand. Resolve, then, that on this very ground, with small flags waving and tiny blasts of tiny trumpets, we shall meet the enemy, and not only may he be ours, he may be us.’
As years passed, the final paragraph was reduced to “We have met the enemy and he is us,” in a few strips having to do with pollution. The nine words form the title and theme of a Pogo motion picture currently in work, believing as I do that we are all of us responsible for our myriad pollutions, public, private and political.”
Walt Kelly
Takk til deg, Rune, og de andre bidragsytere her på TOD. Selv om det noen ganger har vært faglig vanskelig for meg, har det likevel vært interessant og lærerikt å prøve og følge med diskusjonene. Lykke til med dine andre aktiviteter.