http://www.onlinejournal.com/Commentary/090705Pfeiffer/090705pfeiffer.html

Dale Allen Pfeiffer's "The Story of a Hurricane" is about Katrina, PO, and their interlinked ramifications.

In particular, toward the bottom of the article, he writes:

"In the coming months, gas prices will continue to rise. They may go over $4 per gallon within the next few weeks. And they may pass $5 per gallon nationwide before the year is out. Within a year, we may see shortages, rationing and transportation disruptions. Police patrolling, fire fighting and school busing budgets could be affected. This winter, natural gas heating prices could skyrocket. And by next spring, the price of everything from plastics to food could begin spiraling upward. And once investors realize the true severity of our situation, it will be every man for himself."

Hmm....

"There is a widespread concern about the pipelines due to what Ivan did," said Neil Earnest, vice president at Muse Stancil, a downstream consulting company. "And this was a much more powerful storm than Ivan."

"No news is bad news," wrote Dan Pickering of Houston-based consultancy Pickering Energy Partners Inc., who suspects pipelines have been damaged. "Only 10 to 15 percent of (Gulf of Mexico) shut-in production is associated with permanent damage, so majority appears stuck behind infrastructure."

There are already signs that Ivan's scenario may repeat itself. Chevron Corp. said Tuesday that its massive, deepwater Petronius platform "is ready to produce once it is safe to export production to associated pipeline infrastructure, where the full extent of damage is still unknown."

A big gas pipeline owned by Enbridge Inc. has been damaged. The Mississippi Canyon Corridor line, which starts at Shell's offshore pipeline hub at West Delta-143 and terminates in a processing plant in Venice, La., took a direct hit from Katrina, the company said. Both the gathering point and the processing plant were also damaged.

The pipeline has a capacity of 800 million cubic feet a day, about 8 percent of the Gulf's total gas output. Enbridge's pre-Katrina output level of 2.7 billion cubic feet of gas has been reduced to 0.9 billion cubic feet of gas, according to the company. Current flow is 1.4 billion cubic feet of gas, with 0.5 billion cubic feet being pulled from storage.

Some hints there and elsewhere in this piece:

http://www.newsday.com/business/nationworld/wire/sns-ap-katrina-oil-production-hk3,0,3245001.story?c oll=sns-ap-business-headlines

I was thinking about the CERA report vs the one from ODAC which came out with such different results, and I have an idea of what is the problem. CERA came out with considerably higher projected production levels than ODAC. At first people thought there must be some methodological difference, and it was speculated that CERA was ignoring depletion of existing fields. But now that more data is out, the funny thing is that there doesn't seem to be any big difference. There are some differences on a field by field basis, CERA had some that ODAC didn't, but also some differences in the other direction as well.

Here's how I see it. The problem is that it is very hard to accurately predict production levels for dozens or hundreds of oil fields, many of which are yet to begin production, for years to come! No one could realistically be expected to make an accurate prediction, given the uncertainties that lie ahead. It's no wonder that two different analyses came out with somewhat different answers. If they agree to within five or ten percent, that is all we could reasonably expect. And they do.

The further problem is that we aren't really that interested in future production levels. What matters is the difference between potential production and extrapolated demand (based on current price). Even demand levels have considerable uncertainty. The four years from 1990 had consumption growth rates (from the previous year) of 1.2%, 0.7%, 1.0%, and 1.6%. These growth rates jump around quite a bit as well.

The result is that we have two uncertain figures, and we are in effect subtracting them, to see if production levels can meet extrapolated demand. But as anyone knows who has worked with statistics, if you have two data series with considerable uncertainty levels, and you subtract them, your error bars can go through the roof. If we are already uncertain about production levels by several percent, and the differences with consumption levels are less than several percent, then we really can't extract any meaningful predictions at all. The error bars are greater than the information we are interested in.

As I have argued before, the situation is so uncertain that IMO it is premature to say that the case has been made for a near term Peak Oil scenario. When two careful and thorough studies come to such different conclusions, that is further evidence of this truth.

I recently found an amusing academic paper which further emphasizes this reality. Forecasting the limits to the availability and diversity of global conventional oil supply has this to say: "Our results predict that global production of conventional oil will almost certainly begin an irreversible decline somewhere between 2004 and 2037, at 22 to 42 billion barrels per year, depending upon how much oil is available from the earth's crust and the growth rate in its use." How's that for a prediction? Not exactly red meat for Peak Oil true believers, but I believe that any honest evaluation that admits the tremendous uncertainty in the information available will reach a similarly cautious conclusion.

With demand and supply tight right now, and with the current depletion rate and the increase in hurricanes and typhoons, and with refining capacity extremely tight and no new builds in sight, where are we headed?

If this is simply a rough patch in terms of delivering finished goods, then there will not be any big economical driver to change behavior, as oil prices will recede, and the human race will revert to business as usual. To deny this is to deny basic economics - the most efficient energy source will be used first - oil. So we continue down the depletion path.

It is obvious that one of two things is happening - either the world economy is very rapidly adapting to higher oil prices or else there is manipulation of the markets occurring on a grand scale.

Consider the aftermath of 9/11 in terms of stock prices and commodities. Both fell and remained down for some time. Yet 9/11 was not nearly as economically destructive as Katrina, did not affect oil production or fuel refining, and did not produce any displaced/unemployed population. Yet in the aftermath of Katrina, with oil prices sky high, refined goods ultra-tight, production disappearing, millions added to the unemployment rolls, etc. - the stock market posts GAINS?

So if we assume the economy is adapting (i.e., what we are told by the PTB), where does this place us in terms of awareness of the HubbleBubble? Wouldn't this indicate that we are or will be headed down the same path we have been on for the last 100 years? There is no imperative to change anything if there are no economic consequences, and I am trying desperately to see where these consequences are today. Oil has more than doubled in price, yet the economies of most developed nations continue to post growth.

What has made the world economy so bulletproof? If it is indeed that robust, doesn't that in and of itself indicate that DEMAND should again surge in the near future? With that, will we not be headed into an even tighter oil supply problem?

What I am thinking is that even if Peak Oil is 20 years away, the end of CHEAP OIL has it's own set of consequences, not the least of which is a very spiky oil price and queasy deliverability. So, assuming we are NOT running into PO for 20 years, what is the current situation telegraphing to us right now?

I do not think the rest of the economy and country responds or reacts this fast.  My experience is that it takes weeks to quarters for major intrinsic changes in the economy to work through the system AND be tracked by most people.  I am struck by the inability for the main stream media, and pundits associated with them, to accept that a major change will result from Katrina and an energy price spike.  

History says change is coming from this kind of shock.  People at TOD are discussing how big a shock and how much change.  The official message from Wall street and the Whitehouse as of today is that no major change will happen.  Some losers some winners but overall everything is looking good.  

This time disconnect is what bothers me, and I think others at TOD.  It is obvious to us that we are forewarned and should be proactive in approach but I see us (the U.S.) only being reactive when the S--- hits the fan this winter.  AND this will be accompanied with statements along the line of "no one could have predicted the fallout from Katrina's long term affect on energy and the economy".  

If you never consider negative consequences you will always be surprised by them.

• Oil climbs ahead of inventory report
  
• Oil slips after inventory report
  
• $3 gas -- is it here to stay?
  
• Gas prices continue decline

Personal observation: after jumping 40 cents a gallon in two days during Katrina, our gas prices have not changed one cent in the last week.  We do not get our gasoline by or through the affected region.

"People who buy SUVs realize that gas prices will come down."

There you have it in a nutshell.  We are in a transition to more efficient cars, but well ... I think there are some "bell curves" at work here.

Antoine Halff joined Eurasia Group in February 2005 as Director, Global Energy. Previously, Halff served as Principal Administrator at the Paris-based International Energy Agency, where his primary responsibilities included price and short-term demand analysis. From 2000 to 2004 Halff was a co-author of the IEA's influential monthly Oil Market Report and frequently spoke at numerous industry conferences and to the media on the demand effect of the 2001-2002 global economic downturn and China's role as a driver of global demand. Earlier, Halff was New York Bureau Chief at Energy Intelligence Group covering global crude and products markets for Petroleum Intelligence Weekly and other industry publications.

While the slowdown of Russia, an oil giant whose production was rapidly recovering from a post-Soviet slump, clearly stands out, it is not unique. Other oil producers whose output is expected to slow, if not decline, in the near term include, among others, Venezuela, Nigeria, Angola and Iran.

Today's MMS report shorts oil/gas 60/40% shut in vs yesterdays 57.37/40.36% vs the day before 58 / 41.6%.

Next to no progress now since Sept 5.

http://www.mms.gov/ooc/press/2005/press0908.htm

"shorts" may be a freudian slip on my part as I keep buying energy dips and selling broader market moves up. When it stops working, I'll miss the strategy.

The model predicted 85.6% of oil production would be out for less than 10 days, and 50.1% out for 10 to 30 days. Today the MMS shut-in level is 60.12%.

The model predicted 58.7% of natural gas production would be out for less than 10 days and 28.5% out for 10 to 30 days. Today the shut-in level is 40.2%

So the model was pretty accurate, although the use of relatively broad time periods makes it hard to interpret. When it says that 50.1% will be out for 10 to 30 days, I guess that means that we will pass through the 50.1% shut-in level sometime between 10 and 30 days after the storm. We're at 60.1% today, 10 days afterwards. So all the model is telling us is that sometime in the next 20 days we should be down to 50.1%. It might be tomorrow or it might not be for almost three weeks.

The model also predicted 26.1% oil shut-in for 30 to 60 days, so that means we should not be doing better than that before 30 days are up. In effect it is saying that after 30 days, we should have between 50.1% and 26.1% oil still shut-in. We'll have to take a look at that time and see how it is doing.

I attended the Offshore Europe 2005 Conference in Aberdeen on Sept 06, 2005. Subjects were: `Reserves Recovery and Decline: A Global Perspective' and `Delaying the Production Peak'. I took as many `bullet point' notes as I could but in some cases the material being presented moved too fast to capture everything but I think the following notes contain most of the highlights. To date I'm only aware of one of the presentations (John Westwood) being available online; I'll be in touch with the organisers shortly to try to obtain links for the other material. I've been back to the exhibition today (as opposed to the conference) and the whole Offshore Europe 2005 event has a real 'buzz' about it this year. All the hallways and stands were thronged with attendees, very much like when I attended this event in the boom years of 1979 / 1981 - a consequence of renewed urgency to enhance production combined with $65 oil. As a reminder the conference program can be viewed here: http://www.offshore-europe.co.uk/conference-meetings/programme.aspx

My notes follow with any of my own comments added in squared brackets i.e. [ ] :

Andrew Gould - Schlumberger (in his opening address)

• We would do well to remember 1980's oil price collapse.

• Lack of investment has left little spare capacity.

• Reserves large but finite.

• Non conventional oil will become more important.

• New developments would be very challenging - deepwater, harsh environment or involve the national oil companies.

• Assumed demand would add 22m bopd between 2004 and 2020 i.e. robust growth.

• Plenty of supply, no November 2005 peak.

• Proven reserves 1 trillion bbls +; an equivalent amount extra can be made available via new technology

• Huge volume non conventional and heavy oil.

• Big capital investment required would be a challenge, need to start right now.

• Need to drive down cost of development.

• Become more open on sharing ideas and technology.

• Biggest challenge is attracting enough high calibre people.

• SA 260+ Gbbls proven reserves as at end 2004, 85 fields.

• Large promising areas of SA under-explored, 100+ Gbbls undiscovered (a figure which USGS agree with)

• SA output 10m bopd in 1994 rising to 12m bopd in 2010.

• Currently producing a sustainable 11m bopd

• SA always keeps 1.5m bopd in reserve.

• Capacity 97m bopd rising to 124m bopd by 2025 [I don't know how they arrived at the 97m figure]

• Smart systems & intelligent wells revive old fields, raise recovery by up to 8% and decrease costs

• Upbeat re European energy prospects

• Brent still producing more energy in 2002 than entire world renewables (wind & solar) despite 75% decline.

• IEA forecast oil comprised 35% world energy in 2003 and would still provide 34% in 2030

• IEA forecast gas comprised 21% world energy in 2004 rising to 25% in 2030

• UK %ages in 2004 - oil 32%, gas 42%, coal 17%, NP 7%, Renewables 2%

• As above for 2020 - 37, 48, 7, 3, 5 (source for both 2004 and 2020 - DTI)

• UK has produced `something over half recoverable NS reserves'

• Need to increase resource base, maintain infrastructure life, maximise and accelerate recovery

• BP N Sea staff stats - 41% offshore staff > 45 yrs old

• BP staff overall N Sea - 36% > 45, 49% 30 - 45, 15% < 30.

• Big problem with ageing workforce.

• Showed graph showing NS would produce 0.3m BOE in 2020 but had an extra 1.5m BOE potential in 2020.

• Current NS production 3.5m BOE. [Turned graph around to show the 1.5m (above) as growth !!]

• Presented IEA forecast chart v `the growing gap' chart which showed source as Colin Campbell.

• IEA chart assumed 3T bbls conventional v 1.9T on Colin's chart.

• Even to get to 2.4T would require significant improvement (in recovery)

• We are taking out 28 Gbbls pa and putting back 6 Gbbls pa (by discoveries)

• Showed chart of multiple conventional EUR's, IEA's 3T was much higher than the rest!

• Forecast [presumably IEA's] had 7.5m bopd coming from fields not yet even booked.

• To increase production requires more activity, people, rigs etc and to avoid fiscal changes which discourage exploration.

• IEA projections are a very major challenge, strive to achieve same will add to costs.

• Showed graph of independent's NS involvement v other mature basins - move from majors to independents in NS still has way to go.

• Need to replace reserves otherwise industry dies

• $60/bbl not enough to push consumers into reducing demand

• Scarcity of big new projects

• International oil co's had shown no reserve growth in 2004 v 2003.

• N Sea drilling costs had doubled in a year.

• Skill shortages, need pool of talented geoscientists.

• 7 Majors control just 4% of reserves.

• Gas reserves 190 T cu m = 70 years' supply at current consumption rates

• Oil reserves (1188 Gbbls conventional) = 40 years' supply at current consumption rates

• Gas reserves 1074 G BOE.

• 1138 Gbbls oil (247 Gbbls non OPEC, 801 Gbbls OPEC)

• 6349 TCF gas (3216 TCF non OPEC, 3133 TCF OPEC)

• Cheap oil gone, new price floor $35 - 40 / bbl

• Demand growth by region 2010 v 2004 (bopd) - US 2.4, Asia 4.3, EU 0.9, Latin Am 0.9, FSU 0.7, ME 1.0, Africa 0.4; Total 10.6.

• Rig shortage - 2k rigs now v 6k rigs in 1980's.

• OPEC spare capacity 15m bopd in 1980's v <2m bopd now.

• Spare refining capacity down from 8m bopd to 4m bopd since 2002.

• No new refineries built in past 25 years.

• By 2010 refining `deficit' will be 6.8m bopd of which US will be 1.4m bopd, EU 0.3m bopd and Asia 2.1m bopd

• SA, Iran, Venezuela and Kuwait will peak c2020.

• Venezuela has largest reserves of light oil as of now.

• Venezuela could produce 7.5m bopd in 2020 [did not capture whether heavy or light] and still be producing in 2100.

• Presented population and temperature chart v fossil fuel consumption since c1860.

• Are we looking to keep planet safe or just consume energy?

• H2 will have to come from either water or hydrocarbons

• Industry can no longer `walk into areas' to exploit oil & gas without local consent.

• Need to eradicate lack of access to efficient energy sources in poor countries.

In response to questions from floor Andrew Gould responded:

• No one knows when PO is.

• Today's crisis would have occurred 3 to 4 years earlier without improved recovery.

• Referred to DOE PO Mitigation Report [that's Hirsch et al], message is to `fix energy problem early'.

• PO 2010, peak gas 2030+

• No viable alternative to oil for transport in reasonable timescale

• OPEC cannot satisfy demand

• 52 oil producers > 5 years past peak

• 1.5% growth indicates 2013 supply crunch BUT 3.6% growth in 2004

• If we get a panic the switch to dirty fuels will wipe out a decade's environmental gain.

• Gov'ts must stop subsidising oil consumption.

• Message is CONSERVE.

Thomas Andersen - Maersk

- Enhanced recovery is way forward

Wim Schinkel - Shell

- No `silver bullet' i.e. no single solution to energy problem

Q+A Session

• In response to Q re SERA report John Westwood referred to quality of info and Matt Simmons' concerns.

• Q re DTI assumption of $35/bbl in real terms `are we heading for price bubble?' Panel's view - `cheap energy over'.

• Reserve replacement getting tougher.

• `People' constraint

• Marathon built last US refinery at Garyville in 1976.

• Natural oil decline 4 - 6% pa

• By 2030 world needs to bring on new oil production > today's world consumption.

• Double digit growth in renewable energy but will still only provide 1% of demand in 2030 (BP say 2%)

• IEA estimate oil industry spending needs to be $200 bn pa for 25 years.

• Estimate 3.2T bbls conventional oil, 1T produced to date (this leaves 2.2T)!

• EHO (extra heavy oil) / oil sands - 4T bbls in place, up to 1T recoverable

• Shale oil - 3T bbls in place, up to 700 Gbbls recoverable (eventually)

• N Sea prod'n to date 34 Gbbls, could be another 28 G BOE recoverable

• Only the one window in N Sea - while existing infrastructure is still in place

• State of the art seismic has raised expl well success rate from 1 in 10 to 5 in 10 over past 30 years

• Shakalin Island - now drilling 10km extended reach wells

• Deepwater - now wells drilling in 1000m+ water depth

• LNG will be supplying 25% of world's energy needs by 2030

• New LNG plants in Qatar, capacity 7.8m tonnes pa (1 TCF/d)

• LNG terminal in Milford Haven (UK) can receive 15.8m tonnes pa from Qatar

• Technology is key to the future

• Q - Is there a crisis? A (Olsen) Reserves are there, we must develop them. A (Westwood) Everyone has to play a part incl consumers.

• Q - Is there an industry wide risk assessment as could be `tail spin' if major disruption occurs. A No, risk assessment only on indiv Co basis.

• Additional comment from panel - big barrier to new projects was `politics', in some cases projects were approved + funded by Co. but stalled due to politics.

• Comment made during discussion [did not capture by whom] that world demand would exceed refinery capacity by 2008 and refineries took 4 years + to build and none were in planning stage right now.

The morning session (up to and including Malcolm Wicks' presentation) was very well attended; estimate 400. The afternoon session was much less attended, estimate around 100. As might have been expected presenters from the oil majors did not really go into peak oil but more focussed on the steps their company thought was necessary to extend field life and enhance recovery. One even showed a qualifying slide before speaking (as required by his co's lawyers) which stated `the views were his own and not the company's'. With the exception of the presentation by Nigel Hares (Talisman) and John Westwood (independent consultant) and, to some extent, the presentations by Benezit and Vierma, I formed the impression that the other presentations really focussed on how each individual speaker's company would address the more difficult exploration and production era (and thus maintain shareholder value as opposed to gradually liquidating the company). Providing enough oil at the wellhead or refinery for the world is not really their remit and, to be fair, the Total speaker clearly stated that the `7 largest oil majors only controlled 4% of world reserves'. I also felt, deep down' that (with the exception of Saudi Aramco speaker) they all knew `the writing is on the wall' especially for conventional oil.

The Saudi Aramco speaker delivered an extremely upbeat message with regard to ongoing SA ability to supply; Ghawar was never mentioned. He did, however, make the specific point of `no Nov'05 peak' so it sounds like Ken Deffeyes' prediction had struck a chord. Despite his upbeat statements I captured the key point that SA output was only going to increase by 1m bopd by 2010 based on Saudi Aramco's own estimates (and that assumes they really are producing 11m bopd now). Running my own calculations this SA output increase would only cover about 8 months' world `type 3 depletion' which will equal at least 1.4m bopd pa from 2006 onwards; it would do nothing to address future demand growth. Furthermore I didn't hear any claim that the (promised) new SA output would be LSC (therefore I'd conclude much of it will be heavy sour crude).

The theme of some of the speakers, especially those from 'big oil' was both greater and accelerated recovery. No one appeared to address the issue of what happens 'on the other side of the mountain' i.e. the downslope of Hubbert's curve following techniques such as rapid ramping up of new developments and accelerated recovery. In the absence of their comments I'll 'fill in the blanks for them' - much faster decline rates as we have seen, for example in North Sea and Yemen's Yibal field. US lower 48 was mainly developed using traditional oilfield technology and decline rates of between 1.6% and 3% have been noted. New oilfield technology was heavily applied in UK NS more or less since inception hence c10% decline rates and whole province's output is down 40% from peak in just 5 years. To quote Matt Simmons - 'does use of NT lead to a 'monster ball' of depletion?' Judging by NS the answer is yes!

At the end of the meeting I had an opportunity to talk to one of the participants who had expressed serious concerns re future supply / demand balance. I explained that I'd had a 30 year career in E+P and he told me that `lots of people with similar background in the industry were also telling him of their concerns'. In other words given the profile of many of those who were worried about PO Gov'ts should be listening (but as of yet they don't appear to be doing so).

Chris

I realize this is just a 10 day span, but some are saying $4 gasoline in future months, and we're seeing a 25 to 35 cent drop. but I assume this is short term erraticness or ?