Drumbeat: October 17, 2009

Chinese Company Is Near First Deal to Buy Stake in Oil Drilling Leases in Gulf of Mexico

HOUSTON — Trying to acquire a foothold in the American oil patch, a Chinese company is closing in on a deal to buy stakes in a few drilling leases in the Gulf of Mexico from a Norwegian company, an executive close to the talks said.

The prospective purchase would not do much to quench China’s huge and growing thirst for energy, which makes it the second-leading consumer of oil after the United States. But such an oil acquisition would be symbolically important as the first by China in the United States, coming four years after the Chinese company’s $18.5 billion bid for the American oil company Unocal collapsed under pressure from Congress.

#93 - Oil is running out, bring on the new stone age! (podcast)

It seems that the world may hit peak oil production in 2020, which might bring an end to the 'Lalalalala, I can't hear you!' attitude that world governments are currently employing. If only it was in 2120 then no one would care as we'll all be dead by then. Plus we have a cutlery update and some alarming accounting about the war in Afghanistan.

Darkness on the Edge of Monotown

VIEWED from the outside, things have been going quite well for Russia recently. The United States has scrapped, at least for now, the plan to base missile defense sites in Poland and the Czech Republic. Germany and Russia seem to have overcome opposition in Europe to their Nord Stream pipeline, despite fears that it will solidify Russia’s dominance of the European natural gas supplies. Oil prices have recovered from the disastrously low — for Russia — levels of last winter. And, far from buckling under pressure from the United States over sanctions against Iran, Russian leaders felt confident enough to concede almost nothing to Secretary of State Hillary Clinton during her visit to Moscow this week.

Yet on the inside the country remains dangerously close to a serious breakdown of authority. In addition to the Muslim North Caucasus, which is already barely governable, the most vulnerable places are the company towns, which could catalyze a nationwide explosion of political turmoil.

Angola eyes Amazon blocks

Angola's Sonangol Group is interested to investing in oil blocks 28 and 29 in Ecuador's Amazon region, the head of state-owned Petroecuador, Luis Jaramillo, said today.

Angola's oil minister and Opec president, Jose Maria Botelho de Vasconcelos, will travel to Ecuador at the end of October to discuss Sonangol's investment in Ecuador, Jaramillo said during a meeting with foreign journalists.

Eni, Repsol confirm record Venezuela gas discovery

The Italian oil company Eni and Spain's Repsol on Friday said tests have confirmed that their natural gas discovery offshore Venezuela is the largest ever in the country.

Venezuelan President Hugo Chavez said the discovery could help boost Venezuela to fourth place in the world in proven natural gas reserves within four years.

"Venezuela is growing more established as a global energy power," Chavez said on state television Thursday.

Iraq approves oil deal with BP-led consortium

BAGHDAD (AP) -- The Iraqi government has approved a deal with a consortium led by British giant BP PLC to develop a prized oil field in the south in a major step forward for the country's oil industry.

BP, which was booted from the country in 1972 when Saddam Hussein nationalized the oil industry, and its partner CNPC of China were the only winners in Iraq's first international oil auction in over 30 years for development rights for the 17.8 billion barrel Rumaila field.

Book on Marc Rich Details His Iran Oil Deals

Marc Rich, the former fugitive oil trader long criticized for his business ties to nations like Iran, South Africa and Cuba, has acknowledged in a new book that his dealings with those nations were more extensive than previously disclosed.

Trafigura offers deal to 31,000 Africans over dumped waste

A British oil trader has offered to settle a court case brought by 31,000 Africans who say that they were injured by the dumping of waste — the largest personal injuries class action mounted in an English court.

The company, Trafigura, confirmed yesterday that “a global settlement is being considered by the parties”.

PDVSA to Sell $3 Billion of Bonds in Local Market

(Bloomberg) -- Petroleos de Venezuela SA, the state oil company, will sell $3 billion of bonds in the local market next week as the government seeks to shore up the bolivar in unregulated trading.

PDVSA, as the company is known, will sell $1.3 billion of 4.9 percent bonds due 2014, $1.3 billion of 5 percent notes due 2015 and $400 million of 5.125 percent bonds due 2016, according to a statement posted on its Web site. The company said it will sell the securities at 138 percent of face value.

Energy secretary tells CEOs new fuels coming

CARY, N.C. - U.S. Interior Secretary Ken Salazar has told a North Carolina meeting of corporate CEOs the Obama administration is clearing away red tape to speed progress on alternative energy production.

U.S. lobby group defends Alberta's oil sands

The U.S. petroleum industry is touting the development of Canada's oil sands as a boon for the American economy and the source of some 343,000 jobs south of the border, as it battles climate change legislation that could hammer crude imports from Alberta.

Utilities split on climate legislation

NEW YORK (MarketWatch) -- The U.S. Chamber of Commerce has a rebellion on its hands, led by a handful of utilities that have broken with the powerful lobbying group over its stiff opposition to the war on global warming.

Their defection opens a rift between companies that fear billions of dollars in higher operating costs and those moving now to tackle the challenges posed by stricter laws against carbon emissions.

Why climate change denial must be taken seriously

You're living close to the bone, with little security, but you're convinced the American Dream is within your reach.

It's your small, tenuous scrap of the world and you'll fight to keep it – even if that means taking the side of the very industries that pollute the land and keep you at the margin of economic survival while their executives and bankers prosper from your labour.

This is the paradox and potential triumph of Not Evil Just Wrong, a new documentary that attacks the environmental "elites" and "extremists" who campaign for measures to curb climate change. The Irish husband and wife co-directors, Phelim McAleer and Ann McElhinney, are among those who argue policies to combat the build-up of greenhouse gases are not only unnecessary but also potentially calamitous.

Electric bikes are all green (colors vary)

"Ride up steep hills without huffing and puffing!" "Hammer at 20 mph without breaking a sweat!" At the recent Interbike trade show in Las Vegas, an explosion of companies touted the Lance Armstrong-like powers of the electric bike -- a pedal-powered bike with an electric motor for extra speed when you need it. Although E-bikes haven't caught on in the United States as they have in Europe and Japan, makers say high gas prices, the obesity crisis, better lithium-ion rechargeable batteries and a wave of green consciousness make them right for the times.

This review includes two styles of electric bikes: "pedal-assist," in which the rider must keep pedaling to actuate the engine, and "throttle," in which the motor can work independently.

Naval Research Lab Looks to Sea, Sun for Energy

WASHINGTON – The services could more effectively power unmanned vehicles, underwater monitoring sensors, ships and aircraft if Naval Research Laboratory scientists achieve their goals of harnessing solar and sea power to fuel the military for years to come, a top NRL scientist said.

“A worldwide peak of fuel production is expected in five to 15 years, and increased demand will likely create large swings in price and availability,” Barry Spargo, head of NRL's chemical dynamics and diagnostics branch, said in an Oct. 14 interview on Pentagon Web Radio’s audio webcast “Armed with Science: Research and Applications for the Modern Military.”

The Next Oil Crisis is Just Ahead

Perhaps the thing that struck me most was how much the outlook on peak oil has changed since the first conference in 2005.

Those who thought conventional oil had probably peaked back then were considered extremely pessimistic, where the consensus view saw the peak another 5-10 years off, and the optimists put it 20 years away or more. Some thought the peak rate of "all liquids" would be around 100 million barrels per day (mbpd), up from 85 mbpd at the time. Most thought non-OPEC production would increase up through 2010. Biofuel boosters were sunny about their future.

Four years later, the view on oil and biofuel has grown considerably worse.

4 Forces Driving Oil Prices Higher

Oil prices pushed near the top of their recent range this week, and the usual suspects trotted out on the TV to tell us why this rally couldn't last. And on the face of it, their argument seems to make sense. It boils down to ...

1. Crude has been trapped in the same range since June.
2. U.S. oil demand is lackluster at best.
3. There is plenty of oil in storage.

That sounds pretty solid to me. So why, then, are oil prices trending higher?

Oil's Up and Down Ride

The question on many stock market participants' minds these days is how much longer the current rally will last. Most of us are sane enough to realize that the good fortunes bestowed upon us by the markets since March will be taken away again at some point in the not too distant future. The question is only, "when will the good times end?"

Paraphrasing a popular Russian saying: "If I would know that, I would live in Monte Carlo." What I can tell you with much certainly is that for most of us the demise will come just as suddenly and unexpectedly as did the reprieve. And when the markets fall this time, so will the oil prices.

Fossil Fuel Production Up Despite Recession

World production of fossil fuels-oil, coal, and natural gas - increased 2.9 percent in 2008 to reach 27.4 million tons of oil equivalent (Mtoe) per day. In the first half of the year, producers strained to meet global demand, but when the recession took hold later in the year the market was swamped by excess supply. Energy prices reflected this shift: oil peaked at $144 per barrel in July, then fell to $34 per barrel in December. Continuing a decade-long trend, most of the growth was in the Asia-Pacific region, where production grew 6.3 percent.

Although the global economic crisis has caused a temporary slump in demand, the longterm trend is clear: fossil fuel consumption in developing countries has surpassed that in industrialized countries. With four times the population and a vast demand for economic development to raise standards of living, developing countries will see energy use rise further.

Russia’s unsustainable energy model

Russia has taken a significant step in its bid to become a dominant international energy supplier, one that has important implications for its relations with the EU and its prospects of returning quickly to the high growth rates that have underpinned its national recovery in recent years. Monday marks the end of the 60 day notification period after which Russia’s provisional application of the energy charter treaty (ECT) will formally come to an end.

Bush-era oil-shale decision under review

Reporting from Washington - The Obama Interior Department is reviewing a decision made by the Bush administration in its final days that attempted to lock in lucrative royalty rates and favorable regulations for oil companies holding leases for oil-shale development on public lands.

The decision, which came in the form of amendments to existing leases, drew little public notice at the end of the Bush administration in January. But since then, congressional watchdogs, environmental groups and state officials in Colorado, where most of the leases are located, have denounced the amendments as a massive giveaway to the oil industry.

Oil May Breach 200-Week Average, Test $85: Technical Analysis

(Bloomberg) -- Crude oil is poised to breach technical resistance at its 200-week moving average and rally to $85 a barrel, according to technical analysis by Citi FX.

Transition Rogers Park Seeks a Sustainable Future for the Neighborhood

You just met Dr. Who and he has given you an opportunity to join him in the TARDIS for a journey to the year 2025. What will Rogers Park be like?

Where will the food we eat come from? Will we still be buying it from chain grocery stores? What will be the state of public transportation? Will cars be as numerous? Will they be mostly gasoline powered or hybrids? Will more people be riding bikes?

Executive Director of the South Carolina Hydrogen and Fuel Cell Alliance

The biggest challenge to using hydrogen is the infrastructure. Currently we have an infrastructure that serves us fairly well—gasoline. It’s hard to compete with it. However, we are not in control of the majority of resources that our present infrastructure is reliant on. The hydrogen infrastructure is challenging but not insurmountable.

Maldives government dives for climate change

GIRIFUSHI, Maldives – Members of the Maldives' Cabinet donned scuba gear and used hand signals Saturday at an underwater meeting staged to highlight the threat of global warming to the lowest-lying nation on earth.

Biggest economies try again to strike climate deal

The world's 17 biggest and most polluting nations meet in London on Sunday in an attempt to break a deadlock on financing efforts to contain climate change and reducing harmful gases causing global warming.

With a deadline looming, pressure was mounting on the United States to finalize its position before a decisive December conference in Denmark meant to cap two years of negotiations on a global climate change treaty.

The Disappearing Deal

In recent months, the prospects that states will actually agree to anything in Copenhagen are starting to look worse and worse. Although the Obama administration initially raised hopes by reengaging in the negotiation process, the U.S. Congress has since emerged as a potential spoiler. While the European Union has resolved to reduce emissions 20 percent (from 1990 levels) by 2020, and Japan's newly elected government has set an even higher target of 25 percent, the Waxman-Markey bill that passed by the U.S. House of Representatives in June fell well short of this goal. And the Kerry-Boxer bill recently introduced in the U.S. Senate seems unlikely to be passed any time soon.

NOAA Scientists Study Historic ‘Dust Bowl’ and Plains Droughts for Triggers

After analyzing historical records and climate model data for two major U.S. droughts in the 1930s and 1950s, NOAA scientists found two very different causes, shedding new light on our understanding of what triggers drought. Studies such as this one that expand our insights into drought are essential for improving forecasts and can aid in the creation of an early warning system to help communities take precautions and prepare.

Interesting article, not sure whether its been posted already, but worth a read:

Central Banks Shift Reserves Away from U.S. Dollar

Let's start with economic fundamentals. The U.S. is hopelessly insolvent. It has over $57 trillion in current public/private debt (see “A Tale of Two Economies: U.S. versus China”). However, since none of the three levels of governments properly accounts for their future obligations, their largest liabilities are not even recorded on their balance sheets – with “unfunded liabilities” for the federal government (alone) somewhere around $70 trillion. With real GDP of roughly $11 trillion per year, this economy is simply much too small to even service those debts and liabilities. Given that there are no assets “backing” the U.S. dollar, then obviously the value of a currency of a totally insolvent economy is near-zero...

...in previous currency cycles, the U.S. wasn't sitting with $57 trillion in existing debts, and an additional $70 trillion in unfunded liabilities.

The fundamental problem is that we cannot afford our current level of government spending. The reality is hitting home first on the local and state levels, but of course even there the prevailing approach is to patch budgets together with sleight of hand and hope that the economy improves next year. And no one wants to even think about the pension problems.

When the stuff hits the fan on the federal level, I suspect that the feds will to some degree implement all three of the plausible responses: Some budget cuts, some attempts (largely futile) to raise taxes and some monetization of the debt. I suppose the level of monetization will ultimately decide whether we will just have high inflation or "Wheelbarrow Scenes."

Compared to other econ texts, Common Sense Economics: What everyone should know about wealth and prosperity (JD Gwartney, RL Stroup, DR Lee, 2005) is an interesting, inexpensive ($20) and short (190 pgs) text for a regional university's intro econ class (when afforded the chance, I cruise university bookstores for new reading material).

The authors, all conservative economists, posit 10 key elements of economics, 7 major sources of economic progress, 10 elements of clear thinking about economic progress and the role of government and 12 elements of practical personal finance.

With regard to the comment of not being able to afford the current level of government spending, some of their relevant posits:

#2. Government is not a corrective device

#4. Unless constrained by constitutional rules, special-interest groups will use the democratic political process to fleece taxpayers and consumers

#5. Unless constrained by constitutional rules, legislators will run budget deficits and spend excessively

#6. Government slows economic progress when it becomes heavily involved in trying to help some people at the expense of others

#7. The costs of government income transfers are far greater than the net gain to the intended beneficiaries

Along with extensive other materials, these posits are contained in instructor slide sets and student handouts on the text website.

FWIW, the blog post "Review of Common Sense Economics" contains a bunch of quotes from the book. Note the quotes starting with "This set of paragraphs on investments that are too good to be true was the best part of the book".

What the book is missing is that government is influenced by culture. To throw the same label of "incompetent,corrupt" government on Zimbabwe and Sweden doesn't make any sense at all but that is exactly what these authors do when they generalize about "government". Just because France or Sweden can have e.g. reasonably run health care doesn't mean the same thing can be achieved in Zimbabwe or the USA. Some countries have a culture that supports and sustains government services run with integrity, some don't. To broadly label government as a problem misses this reality. IMO those countries that cannot sustain governments of reasonable integrity will struggle with addressing oil depletion.

What you have there is not science, but anti-science. Science is about forming testable propositions about the ways of the world (in this case economics), and continually using data and theory and modeling to accept/refine/reject them. The antitheis of this way of thinking is ideological thinking: Take a bunch of things that are true in some context, or sometimes just have a feel of truthiness to them, and elevate them to the status of absolute truths. Well, there are no absolute truths. The set of memes we use to determine how to go through life are always going to be imperfect and incomplete. If we do not continually test and retest them, we will be led severely astray. And many will be found useful, but for some limited domain, not for all situations for all time. So we have to keep asking, "Does the domain of validity for this simplified meme I'm using contain the problem I am interested in?".

Now we humans would like is to be parsimonious with our limited brainpower. So, we would rather be given some small set of memes, with the instructions "just follow these principles, and you'll never be wrong". But, that is not the way to seek truth (or a greater approximation to the truth). It is really just an attempt to freeze thinking, and create a bunch of mental automatons whose votes will be reliable. That is the opposite of raising a population which can adapt to unexpected change.


Given the limited time that most are willing to spend on the subject, what are better meme sets that are applicable to current economic circumstances, better inform the holder's decision making with respect to current issues, and are packaged in a convenient, inexpensive, easily transmissible form (e.g., short, readable book)?

Given the limited time that most are willing to spend on the subject, what are better meme sets that are applicable to current economic circumstances,...

I think there probably aren't any easy ones. I could make one up, but it includes a lot of hard work, study, analysis, building and testing of models etc. That clearly isn't practical for someone (I include myself in this catagory) who has other more pressing things to spend his time and energy on. So then you are left to relying upon experts who seem to credibly apply the best truthfinding processes.

Fortunately for most of us, a good understanding of say macroeconomics isn't needed to go about our lives. Personal finance issues, such as understanding the cost of a loan, and basic investment sense, plus some discretion in the spending of money are not rocket science. Understanding enough macroeconomics, to understand which political candidate is spouting voodoo economics, and which one is being more realistic, is more difficult.

However, since none of the three levels of governments properly accounts for their future obligations, their largest liabilities are not even recorded on their balance sheets – with “unfunded liabilities” for the federal government (alone) somewhere around $70 trillion.

Having taken an accounting course or two at the University of Minnesota, one of the few things I remember was that Owner's Equity equals Assets minus Liabilities or OE=A-L. And that accounting is a snapshot of a moment in time looking backwards and must have accurate records. It is not a picture of the future. Applying accounting to the future is dubious at best.

In any case, if the author insists on applying Generally Accepted Accounting Principles to non profit organizations like the Federal Government, I insist that we follow the whole smear and add up the Assets from which the Liabilities are to be deducted.

This is the only way to do accounting that I know of. Tallying up only liabilities makes no sense and will get you an "F" in any accounting course I have ever taken. It is a meaningless number unless assets are also added up so that we know which is greater.

So what are the assets of government? Is it not the total wealth of the U.S. since government represents the country? I do not know the number, but I suspect it is very large. And included in those assets is some of the very debt that are liabilities to the government but assets to its citizens which own that debt.

This complicates the problem.

But the quote above is further off mark in that it implies that there will be inadequate cash flow to cover the obligations which supposedly are not accounted for properly. How does he know? We are talking future here. Does he know future tax rates? Or future inflation? Inflation is a friend of debt and has partially enabled the government to pay off its debt with funny money in the past without going bankrupt.

In any case it is impossible for a country to go bankrupt when the debt is denominated in its own currency. It will simply pay the debt with inflated dollars and life goes on.

So what are the assets of government? Is it not the total wealth of the U.S. since government represents the country?

So its just a case of liquidating the Country's assets to create enough cashflow to cover liabilities then. I guess US citizens wouldn't mind handing everything over to the government... but isn't that communism?

No problem there then... move along please, nothing to see here, move along... :)

No, it's not communism. It's just the doctrine of sovereign power.

Re: The Disappearing Deal

In the article, R. K. Pachauri concluded:

Whatever the real explanation, the key to changing things lies in making the public aware of the alarming scientific realities of climate change, for that's the only way to create the sort of pressure that can compel leaders in democratic societies to act. Whether such a swing in public opinion can be managed in time for Copenhagen remains to be seen. What is clear is that if a strong agreement is not reached this year, the world will have lost a key opportunity to protect future generations and to ensure the well-being of all species on the planet before it's too late.

The problem will be doubly difficult if the recent pattern of cooler than normal temperatures in the U.S. continue into Winter. Recall that this past Summer, the northern U.S. experienced a couple of outbreaks of cold air from Canada, which resulted in a batch of record low temperatures. Lately, more cold air has headed southwards, resulting in very early snow falls. While these events may be part of some natural variation in forcing, there is the distinct possibility that the cause is AGW, but the impression left in the public won't be that Global Warming is to blame, even if the global data points to overall warming. The melting of the Arctic sea-ice could produce another Great Salinity Anomaly, which was associated with a weakening of the THC and colder weather in the late 1970's. Are we heading into a similar event again?

E. Swanson

Thanks to the media every twit thinks that they are a climate expert. Deciding what the global temperatures are based on regional data is closely related to trying to infer a curve from a point. It is the media that should stop shilling to the denialists and their corporate backers.

Friday night failures:

FDIC announces 99th bank failure

Regulators close San Joaquin Bank, raising the national tally to 99 for the year. The closure will cost the FDIC $103 million.

Maybe I have a different approach to the limitation of the carbon-containing fuels of the world, independent from reported reserve numbers. The carbon amount of the earth crust will be surely fixed in its oxidzed form, i. e. carbon dioxide or carbonates for the main part. Even KSA has certainly more carbon in carbonates than in crude oil or gas. From the laws of thermodynamics you would expect that the higher the energy content stored in carbon gets (i. e. lesser oxidized), the rarer these compounds get (coal is more abundant than hydrocarbons, and bitumen is more abundant than heavy oil and this again is more abundant than light oil). For the same reasons gaseous hydrocarbons are more frequent than liquid ones, because for gases the entropy is higher and all hydrocarbons and coal contain compounds like H2O, H2S, CO2 and N2. And again for these reasons methane hydrates are not stable, but dissolved and the methane is released to the atmosphere. And also thermodynamics favor the reaction of hydrocarbons with gypsum in reservoirs to hydrogen sulfide and carbonates (check http://www.cseg.ca/publications/recorder/2007/04apr/apr2007-ghawar-oil-f... [I posted this already before]) , so contaminating crude and natural gas. This means sweet hydrocarbons are rarer than sour hydrocarbons. I think, these considerations explain all trends in the energy supply in the last years, from switching to coal with lesser heating value are more humidity and ash to using more heavy and sour crude oil. And not to forget higher production costs.

oilwatcher -

While the so-called 'laws' of thermodynamics certainly come into play in an important way, I question whether they are sufficient to explain the relative distribution of fossil fuels.

For example, how does your statement, " From the laws of thermodynamics you would expect that the higher the energy content stored in carbon gets (i. e. lesser oxidized), the rarer these compounds get ...." square with the fact that the most prevalent single hydrocarbon compound, methane, has a heating value that on a weight basis is significantly higher than that of petroleum (23,800 vs approx. 20,000 BTU/lb)? If indeed methane has a higher entropy than oil, my question is: so what? It is still more energetic on a weight basis than petroleum.

Another point regarding the limits of thermodynamics is the fact that some abiotic oil theorists cite favorable thermodynamics as one of their arguments (evidently based on a little empirical data and a lot of theoretical thermodynamics) as to why they believe hydrocarbons are continually being formed deep with the bowels of the earth. While I am not qualified to judge the soundness of these calculations, my point is that thermo is also being used as a rationale for sort of the opposite of what you are saying.

Also, while methane hydrates become unstable under ambient temperature and pressure, they appear to have been stable for millions of years under the high-pressure conditions of the deep ocean sea beds. Obviously, whether something is stable or unstable depends on the conditions to which it is subjected.

Thermodynamics predict the state of any physical system it ought to have when reached maximum entropy. It doesn't say, how long it takes to reach this state. It's the difference between thermodynamics and kinetics. And methane hydrates are instable respectively metastable. One evidence is the Storegga seafloorslide. And when methane is formed in the earth mantle, the seafloor or anywhere else, some compounds are also formed with higher entropy to offset and exceed the lesser entropy of methane.
Surely there is abiotic formation of methane, but as well surely not in the amounts needed for today's consumption. One other point controlled by thermodynamics is the concentration of any compound. So diluted water-solved methane is quite abundant, but recoverable concentrations are quite rare.
And concerning calculations, as far as I know, there is no complete and verified set of thermodynamical data of the formation or decomposition of either methane or methane hydrate over that wide range of temperature and pressure found in the ocean or in the earth crust. All phase diagrams I found were calculated, not measured, and even so, with idealistic assumptions. For example one time I founded a calculation with methane and nitrogen replaced by argon. Reason: Both gases are considered inert! (http://www.saudiaramco.com/irj/go/km/docs/SaudiAramcoPublic/Publications...). Even a petroleum company with 'best-in-class'(http://www.saudiaramco.com/irj/go/km/docs//SaudiAramcoPublic/Publication...) practices relies on assumptions.

oilwatcher -

I can't argue with any of your statements in the above post, but I think the limitations of looking at phenomena from a purely thermodynamic standpoint has its limitations. The wooden chair that I'm sitting on while typing this is thermodynamically unstable in our oxidizing environment. But as a practical matter, that piece of information is totally useless to me in predicting how long my chair is likely to last before I need to replace it. I need to know a lot of other things in making that determination. In the same vein, knowing that every molecule of reduced carbon on the earth's surface will eventually become an oxide of one form or another is also not terribly useful.

Regarding the abiotic question, I've only briefly skimmed the subject a few years ago, and concluded that both my chemistry and thermo were too rusty for me to make an informed critique of some of the claims and theoretical calculations I ran across. I never looked into it further. As I recall, one of the claims made by some researcher was that under the extreme conditions of temperature and pressure deep within the earth's crust (way down below the depth were oil is usually encountered) it was thermodynamically favorable for hydrocarbons to form from inorganic carbon. One investigator squeezed some inorganic compounds in one of those ultra-high pressure lab devices and claims to have found traces of hydrocarbons in the sample.

Your discussion on the lack of real data in devising phase diagrams for methane and methane hydrates is consistent with my purely gut feel that some of these abiotic claims are very highly conjectural, based on a tiny bit of real data and a lot of theoretical calculations based on numerous assumptions.

I made just a few fundamental assumptions. You are right with your wooden chair. Everyone knows for sure, that the day will come, when you have to replace any thing you are using and that a new wooden chair will not materialize out of thin air. That is predicted by thermodynamics. My thought was, that all fossil fuels have some source of origin, some primordial matter, from which they had evolved. And thermodynamics predict very well, that this transformation is in some cases very unlikely or even prohibited. They make a clear statement, what is not possible and only the little rest is left for nature to work with. Almost every day some company is claiming they found a new deposit of coal, natural gas, oil, uranium, tar sand and so on. Alone from the sheer amounts of such substances I doubt these claimings.
And another point is, that the same conditions, which favor the composition of fossil fuels, favor also the degradation of them, especially high temperatures in the earth crust. Almost every chemical reaction is sped up by a factor of 2 to 4, when temperatures rises by 10 °C (Arrhenius Law). So substances stable at ambient temperature become very unstable or aggressive at 100 °C or 200°C.

Interesting read: Held over a barrel: The greed of oil producers and traders could tip the rest of the world back into recession.

Hall is an "oil-peakist". Supplies, he believes, have passed their peak and the world is running out. The major oil producers – like Saudi Arabia, Russia, Venezuela and the US – know the opposite. Unlike the oil-peakists' estimate that the world's total oil reserves were about 2 trillion barrels and we have consumed over half, the producers estimate that up to 11 trillion barrels remain under the earth's surface. New technologies to extract oil from beneath the sea and to suck more oil from old wells repeatedly smash the oil-peakists' doomladen message. The original oil-peakists could never have imagined drilling wells 6 miles beneath the sea bed or of squeezing oil out of rocks using a horizontal drill in a 10 mile circumference from a single well.

(Bold mine.) We peakest are obviously a bunch of delusional nitwits who are about to get our doomladen messaged smashed by technology that will suck more oil from old wells. We have 11 trillion barrels yet to be recovered. Well hell, how could anyone argue with logic like that?

Ron P.

11 trillion barrels?? That's about 10 times the volume we peakster believe have been proven. If 11 trillion barrels truly exist, there should be around one hundred Ghawars laying around just waiting for the first drill bit, and we should be able to easily produce 500 mmbpd. Why aren't we doing that?

How is the number 11 chosen ? Well, the world is warming up for the next World Championship football. Brazil has 500 billion barrels of oil AND plays fantastic football. With 11 players.
So 11 is the magic number to pick.

If 11 trillion barrels truly exist, there should be around one hundred Ghawars laying around just waiting for the first drill bit.

Noooo, most of it is stranded oil from long producing fields. New technology, like CO2-EOR, recovers it. Forget about flow rates.

What's interesting to me about the article is that the only direct quotes in the article are from Hall, and he's the only named individual. To me, that suggests that he's maybe done a ten minute phone interview with Hall (or else the quotes are taken from other articles about Hall) and then done some background reading on some oil company website to figure out the opposite view. I'd have more respect for his point of view if it looked like he'd actually done enough research to have genuinely investigated the issues and come to an informed view. As it is, I'm not too interested in someone's view who appears to have just spent a morning "researching" and writing the piece.

Short inadequate research is a pre-requisite for a piece debunking peak oil.

[Persian] Gulf Train

A $20 to $25 billion train line on the southern side of the Persian Gulf linking the six nations of the Gulf Co-operation Council (Kuwait, Saudi Arabia, Qatar, Bahrain, United Arab Emirates and Oman I think).

An article on the UAE section link below. This section will be 1,100+ km from KSA to Oman and should have the first section open by 2014 and completed by 2017 for a minimum of $8.2 billion. Abu Dhabi wants some spur lines that would add to the length and cost.

Estimates are 30 million tonnes of freight/year, passenger estimates still being worked on (but they will build it regardless of estimates it appears). Option of speeding up construction is under discussion.


Later, connections through Iraq (and/or possibly Syria) will add Iran (rail links to Baghdad and Basra are under construction), the EU and China with direct standard gauge rail links, some of it electrified.

Best Hopes for Energy Efficient Transportation and Reduced ELM,


From foreclosed to first-rate

A home in your neighborhood goes into foreclosure.

The occupants move out, the lawn grows too long and the leaves are left where they lie. Before too long, the home falls into disrepair and becomes an eyesore.


Three Rivers Community Action, Inc., a Zumbrota-based nonprofit group that primarily serves low-income families, hopes to head destabilization off at the pass. The group is rehabilitating 20 vacant homes in southeastern Minnesota — including five in Northfield — with up to $50,000 of energy-efficient, environmentally friendly features as part of their Home Matters project. Once the renovations are done, the nonprofit will resell them at their appraised value to low-income buyers, using zero-interest deferred loans, downpayment assistance and gap financing to make the homes more accessible to qualifying buyers.

See: http://www.northfieldnews.com/news.php?viewStory=50167


Whither oil prices?

Lots of discussion about oil prices after spot and futures prices hit the year's highs this week. Some see 4 Forces Driving Oil Prices Higher and think Oil May Breach 200-Week Average, Test $85 while others are leery of Oil's Up and Down Ride and "would rather bet on oil taking a tumble".

I do find the futures markets fascinating as a gauge of sentiment if nothing else. I always want to know "When was the last time traders were so bullish about oil?" A look at the Energy Futures Databrowser says that August 6th was similarly optimistic.

August 06 October 17

The message here is that the markets go up and the markets go down and current excitement is only that.

I would like to argue again that there are too many unknowns out there for anyone to be able to predict prices in the near term. Longer term (2015 or later) I am confident that increased consumption in the developing world will combine with dwindling production and a weakened dollar to cause prices to jump. But what about the next months and years? Market participants seem to think demand is returning and are bidding up futures prices. Of course, they are sewing the seeds of future economic instability in doing so. Higher fuel prices can only hurt the economy and will cause further reductions in demand in the developed world.

Welcome to the Undulating Plateau. And whatever the undulations in global petroleum production capacity, the fluctuations in price will be significantly larger -- the Great Volatility is here to stay with many opportunities to make or lose great heaps of money.

Happy Gambling in the Futures Markets!

(For a guaranteed return you should try adding insulation to your house -- an investment you can enjoy!)

-- Jon

Some lessons from the Indonesia, UK, Egypt (IUKE) model. When their combined production peaked in 1996, they had already shipped more than 90% of their total cumulative net oil exports (CNOE). Regarding their post-peak CNOE, by the end of 1999, three years after they had peaked, their post-peak CNOE were 53% depleted, even though their net export rate in 1999 was only down by 9% from their 1996 rate.

This is all consistent with what the ELM predicts, to-wit: (1) The net export rate tends to exceed the production decline rate; (2) The net export decline rate tends to accelerate with time and (3) Net export declines are front-end loaded, with the bulk of post-peak net exports being shipped early in the decline phase.

Worldwide, we are still in the shadow of the peak, much like the early IUKE decline phase, but IMO relatively high net export rates are quite deceiving, much as they were in the early stages of the IUKE decline.

In any case, I expect to see the average annual 2010 oil price higher than the 2009 annual price as we transition from voluntary + involuntary reductions in net oil exports this year to mostly involuntary reductions in net oil exports next year.

BTW, I e-mailed you our ASPO presentation. Check out the slide showing the consumption, production & net export rates of change for 20 current net oil exporters and three former net oil exporters, sorted by net export decline rate.

When oil prices impact food production and delivery, all hell will break loose. Supermarkets and other food grocers will be looted. It will be chaos.

And there is only silence from the mainstream media about this impending disaster.

Depends on the circumstances - the devil is in the details. The real issue is availability. Last year's price spike had some impact, but for the most part government refrained from causing lengthy physical shortages in the manner of the 1970s, so while a bit of heck broke loose, all hell did not.

Now, depending on what might happen with respect to political demagogues inciting Joe & Jane Sixpack to cut off their own noses to spite their own faces, all hell might conceivably break loose next time. But it doesn't have to happen. The food system is a relatively small consumer which, if need be, could run for a very long time yet on just a fraction of the domestic oil-stained brine. There are certainly ways short of starvation to cut oil demand considerably in a sudden sharp emergency; if it really comes down to survival, for example, the airline and convention/tourism "industries" are by comparison expendable frivolities.

You are right, it depends on circumstances, and everything at this point is just speculation. However let me speculate a bit. My guess is that there will be a shortage of people with money before there is a shortage of food. That is the problem today in most of the world. It will only get worse. Poverty and desperation will be the problem.

But it could all happen together. The supermarkets could empty out and be abandoned as starving hoards smash windows and loot stores in a desperate search for food.

Again, everything at this point is just pure conjecture.

Ron P.

"And there is only silence from the mainstream media about this impending disaster."

It is my opinion that mainstream media is basically entertainment. Sensationalist items: car chases, robberies, abductions, murders, disasters and such are covered. The basic idea is to get people to watch, then make money on advertising.

Real news tends to be factual information, like here on TOD, and almost never gets into mainstream media.

Only when there is something sensational in progress, like Katrina, will things end up on mainstream media.

My other opinion is to certainly share some thoughts with like minds, or those you care about _and_ feel might be receptive. I think that any other audience will just resent your attempts. That has been my experience so far.

I agree most mainstream media is just entertainment passing for information, but even publications like the New York Times, the Wall Street Journal, etc are ignoring Peak Oil. When the top publications ignore something of this magnitude, something is dreadfully wrong.

What items of consequence are they NOT ignoring? Peak Oil is just one of a long list.


It will be very interesting to see if and for how long any further economic decline will depress demand for oil. You may be right in your estimation that declining production along with increased consumption in developing nations will completely overwhelm any reduced demand in OECD nations. Only time will tell.

-- Jon

Every time a see a oil price chart with numbers rising smoothly above $80, I think about this article:

"The US has experienced six recessions since 1972. At least five of these were associated with oil prices. In every case, when oil consumption in the US reached 4% percent of GDP, the U.S. went into recession. Right now, 4% of GDP is US$80 a barrel oil.

Financial Post

In the electronics world we call that hitting the rails.

From todays Drumbeat:

Chinese Company Is Near First Deal to Buy Stake in Oil Drilling Leases in Gulf of Mexico

This will be a good test - will the USA permit the Chinese to take their oil? If not, maybe we will start to see the start of 'tit for tat' resource nationalism as other nations won't permit the USA to take their oil in return?

xeroid - I don't think you've intended to do so but you're putting forward a strawman argument. First, only the royalty oil from the OCS belongs to the gov't. The rest belongs to the operator...whether a US corp or not. More importantly, even if China were producing 500,000 bopd from our OCS they'll sell it to US refiners. Why pay for transport back to China when such reserves exist closer. It's a simple process that's been in pace for many decades. It's called a swap. We had done this years ago with North Slope oil going to Japan. China swaps, on paper, that 500,000 bopd to the KSA, for instance. Thus 500,000 bopd that the KSA would have shipped to the US. is now shipped to China. China replaces the KSA contract to US refiners with the oil from our OCS. Thus not one bbl of our oil is shipped out of the country. But in reality we just lost access to 500,000 bopd fom the KSA. Trade agreements won't allow the US to exclude China from the OCS anymore then any other country.

If you won't more to worry about consider that China is in the process of buying the second largest refinery in the western hemisphere (Valero in Aruba). I don't have the numbers but the bulk of those products are shipped to the US. Screw with China and they might decide to shut down that plant for "repairs" for 6 months. As one might say:"It's a global game"


Your clarifying comments are quite apropos to the discussion here the other day regarding the prospects of global resource wars, particularly between the US and China. I commented that the when it comes to foreign policy the Chinese are subtle and nowhere nearly as ham-fisted as the US. As such, I felt that a direct all-out military confrontation was unlikely, and that if things started getting dicey regarding competition for oil, we might see proxy wars starting up, with the US backing one side and the Chinese the other, sort of like Vietnam. This is something the US can ill afford, as it is already tied down in Iraq and Afghanistan (and maybe within the next year or so, Pakistan).

I would agree that China can put a big hurting on the US without firing a single shot, as you alluded to in your example of a deliberate refinery shutdown.

As I've said before, while the US is busy making war, the Chinese are busy making deals. If they eventually get the best of the US, it won't be as the result of an outright military victory, but rather death by a thousand cuts. Or if you prefer an different analogy: termites slowly undermining the structure of your house.

I see it as you do joule. In fact I made a somewhat teasing but serious reference to a new potental policy: MADOR. As opposed to the nuclear MAD policy this refers to Mutual Assured Distribution of Resources. I really see more potential for China to be our allie and not a foe...at least for an extended period. Without US consumers spending China suffers. Granted other countries import Chinese goods. But add our imports to the huge investment China has in US debt and I believe they would be severely crippled if our economy slides into a continual decline. It easy for me to imagine China one day usurping oil that might have gone to the EU and, by just plain old horse trading, redirecting it to the US. In a world of diminishng resources why should the two most powerful kids on the blck fight each other when there's enough to share...at least between the two of them. I don't really think our politician are that clever but it would be nice to think of our gov't supporting, covertly, such Chinese actions. In essence, they are our proxy resource horder using our money to carry on business. Symbiotic relationship?

Canada's military peers into future, and it's scary
In the worst-case scenarios, oil prices quadruple, drones patrol the skies, global wars spill into cities

While the country's politicians debate what Canada's engagement in Afghanistan will look like after the current mission ends in 2011, the military has already peered far past that date to determine its training and equipment needs and the worst-case scenarios it must prepare to face.

While the Armed Forces constantly project scenarios for which to train, these hypothetical situations are rarely publicized. Although they appear far-fetched, the military is obliged to prepare for the worst, or risk being unready in the event of a catastrophe.

A 10-year forecast completed for the air force lays out likely trends in areas such as oil prices and aviation technologies, but also a series of "strategic shocks" – unpredictable events that could throw the best-laid plans off course.

The report predicts that oil prices will have doubled, tripled or quadrupled by 2019, unmanned attack aircraft will police the skies, and the Arctic will have become the zone of interest for the world's great powers.

See: http://www.thestar.com/news/canada/article/711772--canada-s-military-pee...


Hello OilDrummers,

I've released a new version of my software Sokath. It contains the following new features:

- Oil Prices prediction
- Koppelaar data
- Overview of more predictions and demand.

You can download it here: http://sokath.sourceforge.net/

Video: Energy since 70s endorses peak oil as the current reality, without using the term.

Clean Skies News talks to Llewellyn King, Host of "White House Chronicles" on PBS and Founder of "Energy Daily" about his coverage of energy starting from the Nixon Administration up until now. King also discusses what can be accomplished at the climate negotiations in Copenhagen in December, and his thoughts on pending energy legislation in the United States. He discusses natural gas, renewable energy and more. He also offers his perspective of how the past Presidents have treated energy.

From our friends at TAE:

Sweden Turning Stray Rabbits Into Biofuel

Stray rabbits are getting a raw deal in Sweden. Thousands of them living in the center of Stockholm are being culled, deep frozen and converted into biofuel for heating homes. Wildlife campaigners have criticized the practice. Thousands of rabbits, some of them pets abandoned by their owners, are being shot, deep-frozen and burned in a heating plant in Sweden, a professional hunter who works for the city of Stockholm said on Tuesday.

I was wondering what the EROEI on these rabbits was if they have to be frozen before they get burned.

It reminded me of the 'Cow mountain is safe to burn in power stations' story from 1997.


Waste not want not,


Interesting article on climate change, apologies if its already been posted:

Apocalypse or extinction?

About two years ago, the Intergovernmental Panel on Climate Change (IPCC) announced we were committed to warming the planet by about 1 C by the end of this century. Never mind that we were almost there when they reached this profound conclusion...

...About a year ago, the Hadley Centre for Meteorological Research provided an update, indicating that, in the absence of complete economic collapse, we’re committed to a global average temperature increase of 2 C. Considering the associated feedbacks, such an increase likely spells extinction of the “wise” ape.

Last month, the United Nations Environment Programme concluded we’re committed to an increase of 3.5 C by 2100, thus leaving little doubt about human extinction by then.

Last week, Chris West of the University of Oxford's UK Climate Impacts Programme indicated we can kiss goodbye 2 C as a target: four is the new two, and it’s coming by mid-century.

A 3.5 degree rise in temperature destroying mankind is not a credible statement, but is a scare tactic.

The highest temperature in the world was 136 F recorded in Algeria during 1922. The lowest temperature ever recorded was -128.6 F in Antarctica during 1983.

Numerous African species were threatened by poaching and encroachment of human settlements. A two degree rise in temperature will not extinct them.

But it will likely make both you and I extinct based on 10% yield drops per deg C. Unless of course you are a hunter-gatherer with internet access?

Species survival I think is not so important as personal survival for the 6 billions of us around at the moment.

Shhhh.... you're raining on rainsong's denialism.

As you point out, it is not the survival of H. sapiens that is at stake, but our own descendants' personal and social welfare.

you and I extinct based on 10% yield drops per deg C.

No, I'm rather sure that a 10% yield drop won't extinct me. Prob. be good for my weight in fact.

Now, the reaction of others to that drop and the knock-off effects - now that would be the extinction event.

(For fun on diet and health look into the research on the research about the ruling class of the middle ages in Europe *OR* the reports out of North Korea. Those outcomes are the basis that decisions for feeding poor kids in the US of A.)

personal survival for the 6 billions of us around at the moment.

I've met a number of that 6 billion. And frankly, their removal from the biosphere would not be a bad thing.

Of course, I'm sure plenty would say the same about me. Upside for them is one day it'll happen.

It's been a long time since the world was 3.5C warmer than now, but when it was, and even earlier when it was perhaps 8C warmer, there was abundant and various life, thus an abundance of habitable niches. H. Sapiens seems to be especially adaptable, occupying a greater variety of niches than just about anything else that's macroscopic. So while I can see 3.5C requiring to adaptation and perhaps causing big problems, H. Sapiens extinction seems like sheer fantasy. It gets a person to wondering whether the good professor emeritus may have spent too much time occupying the perhaps habitable but certainly less-than-ideal niche that is Arizona under its mercilessly broiling summer sun...

It's been a long time since the world was 3.5C warmer than now, but when it was, and even earlier when it was perhaps 8C warmer, there was abundant and various life, thus an abundance of habitable niches. H. Sapiens seems to be especially adaptable, occupying a greater variety of niches than just about anything else that's macroscopic.

Really? Link I'm not sure we share the same notion as to the meaning of abundant or habitable. Is life capable of surviving under such conditions? certainly.
Are such conditions conducive to the survival of ecosystems that might support our species? I wish I were as sanguine as people like yourself but if the past is any guide, then probably not.

Scientists led by Peter Mayhew from the University of York found that higher temperatures associated with four of the mass extinctions were at about the same level forecast by climatologists for the next 100 to 200 years.

Of the five mass extinctions, the most recent was the Cretaceous-Tertiary, 65 million years ago, when temperatures were about 4C higher than today, while the most devastating one was at the end of the Permian period, 251 million years ago.

An estimated 95 per cent of marine species and 70 per cent of land species were killed off. Scientists estimate the temperatures were about 6C higher than today.

"An estimated 95 per cent of marine species and 70 per cent of land species were killed off."

Sorry, but I'm disinclined to get terribly agitated about this. Correlation is not causation no matter how many professors might write panicky papers for the eyes of grant referees. The world has been tremendously warmer than now for very long periods without being in a state of constant mass extinction. Extinctions are associated with warm temperatures, but that proves nothing whatever because the world has been warm nearly all the time during the Phanerozoic. The current Ice Age cycling, not warmth, seems to be the real anomaly. (Perhaps the Ice Ages even pushed H. Sapiens along by making its survival as mere beasts untenable, but whether that's how it happened or not, the bell will not so easily be unrung.)

Something else, whatever it was, something that was actually important - rather than just unsettling to humans who seem to get upset by any change occurring after they lock in at about age 17 - must have been happening at those extinctions. Besides, vast numbers of species, most especially marine ones, seem to be hyperspecialized into absurdly narrow transitory niches such that, say, even a small fraction of a degree can be fatal. That sort of Darwinian rubbish can come and go like late-spring snowflakes and it makes absolutely no nevermind.

No, I'm inclined to think that even during one of those rare periods when something besides warmth was happening, H. Sapiens might well be more than adaptable enough to survive as one of those 30% of land species. That would, of course, be by living with ecosystems not exactly the same as what exists now - or more precisely, what existed some millennia ago. I'm not contending it would necessarily be pleasant (although OTOH I can well imagine the Safety Nazis of a future warm world going off their gourds with horror at the mere thought that once upon a time people went outside in snow and ice on their own two feet) but the original overwrought subject was not pleasantness or nostalgia or even doomerish dieoff, it was extinction.

Warming is only one small component of the rich tapestry of disaster that is the Permian extinction. This figure isn't mine (and places a particular emphasis on methane that I do not subscribe to) but gives a pretty good idea.


...higher temperatures associated with four of the mass extinctions were at about the same level forecast by climatologists for the next 100 to 200 years.

The dinosaurs were highly adapted to warm temperatures. When they ruled the Earth, it was as much as 25 C warmer than today. The Arctic Ocean was as warm as the water off California is today, there were trees growing on the Arctic Islands, and Antarctic was a green place populated by dinosaurs with huge eyes that could see in the 6 months of winter darkness.

Then, WHAM! the giant meteor hit and it was all over for the dinosaurs. Six months to a year without seeing the sun or any growing plants, and far below normal temperatures on a planet that had no permanent ice. Only the frightened little mammals and birds who could live on scraps and keep warm by shivering survived. And also the crocodiles, who can go for six months or more between meals and survive cold by digging burrows in the riverbanks.

The temperature data for the last 30 years does not support such alarmism.


Roy Spencer and John Christy have repeatedly denied the science of Global Warming, based on their analysis of the microwave emissions from oxygen. Their claim that these emissions are truly useful as a measure of climate is weak and their work has been shown to be flawed several times over the years. They have not documented the method which they used to produce their algorithm and others (that includes me) have found that their results are flawed over the Antarctic. The other group which analyzes the MSU data has excluded data over the Antarctic and other areas with high mountains, a problem that S & C admitted existed years ago, yet, they still include that data in their overall global time series.

You might as well rely on the advice from the talking heads on CNBC or Wall Street for your investment decisions. You know by now what sort of mess those promoters of the stock market got us into, don't you? Hey, gold prices are up and I've got some stock in a gold mining company I'll sell you. You might make a killing with gold over $1000 an ounce. Trouble is, they've already gone bankrupt...

E. Swanson

So there we have it then, because we aren't all going to go extinct everything is just hunky-dory. Hmmm...

The world has never been 4°c higher with 9 billion humans on it. Just population pressure alone will create huge problems and any shift away from the optimum climate conditions (which have allowed the population growth) will be disastrous for humanity.

To many, there will be little distinction between whether humanity is going extinct or not, it will feel as if we are. The science seems to be zeroing in on a much faster shift in climatic change than has been hitherto thought, meaning impacts are going to be felt much sooner. The governments are going to do nothing, the plebs are going to do nothing and many on TOD are going to do nothing. Doesn't bode well.

Simply put, climate change of the magnitude blamed on humans is a non-issue against the other pressures of 9 billion humans.

No, its not a non-issue. Climate Change is eroding our base ecosystems which are essential to our survival, population is eroding our resource base and energy depletion is removing our capability of doing anything about it. Population growth is going to accentuate the whole situation and expand the problems we face many fold. Climate Change is the crisis with the real potential to be a civilisation killer.

As I see it, in a high entropy environment, each individual is going to require more of everything to survive. For example, draught conditions may require farmers to increase plant spacings causing yields to fall. The result being more land being required to feed a person. The problem being there is no more land and with population growth there will only be less available for each individual.

The world has never been 4°c higher with 9 billion humans on it.

Last I knew, the world never had 9 billion on it either.

Warmer temps are the least of the concerns for man. 9 billion of mankind all vying for what someone else has will be the concern.

(And I'll note that no where in your cautionary posts have you suggested that a rise of 3 billion humans (6 bil to 9 bil) is an issue.)

I found this video on Youtube regarding Peak Oil. Even if you are already familiar with the subject it's very well put together, covering the topic in a well rounded way. In the latter portion are interviews with Robert Hirsch, a consultant hired by the U.S. Energy Dept. to report on ways to mitigate peak oil. He became alarmed the more he looked into it. He suggests the leaders of the world have been asleep at the wheel.


[Note: not available in the UK because of copyright restrictions]

Iraq approves oil deal with BP-led consortium

The Iraqi government said Saturday it has approved a contract with a British-Chinese consortium to develop a prized oil field in southern Iraq


Has the Iraqi Parliament approved ANY deal with a US IOC ?

I think they have not. i.e. We did not win the Iraqi War.


The Story Behind Falling Oil And Gas Reserves

Reserves fell because as the press release stated, "Oil reserves declined nearly 3 percent, primarily due to a 5.2 billion barrel decline in revisions due to the steep drop in commodity prices."

Current rules on proved reserves use the closing price at the end of the year to categorize reserves into the proved category. When reserves are no longer economical to produce using that price, they are removed from the proved category. If you add these reserves back in, then reserves grew, just barely, but they grew.


Is this how proven reserves are figured ??

jmy -- First, it's important to distinguish between reserve volumes and reserve value. As you see in the article you have to have a price assumption. You also see that those rules for setting that price are changing. Often headlines are misleading when they report a decrease in reserves when they are actually referring to a decrease in calculated value. The volume of proven oil/NG hasn't necessarily changed by that magnitude. But even with the new rules those numbers don't truly mean much. It certainly doesn't mean the company will earn that money. How much income those reserves generate will be determined by future prices...not by some arbitrary number picked on one day. Nor does that number indicate what those reserves would sell for on that given day. That calculation is much more complicated.

But future price assumptions can have an effect on the reserve volume. A simple example: Company A has made a major Deep Water discovery. At $100/bbl they have 200 million bbls of proved (but yet undrilled) reserves. But at $60/bbl half of those reserves are not profitable to develop today. Their proven reserves are now 100 million bbl and they will not drill all the wells planned when oil was $100/bb. Of course if oil jumps back up in several years those "lost proven reserves" reappear.

The whole process starts with a geologic/engineering interpretation of how much oil/NG is in the rock initially. Highly interpretive process to say the least. But then its qualified as to how much can be recovered..another debatable process. And then the economic justification based upon assumed developments costs, timing and future product prices are applied. Two different groups doing righteous work but with valid variations in assumptions can generate two answer that could easily vary by 20% or 30%...or more.

Perhaps not all the answer you might have been looking for. Ask away if so