Some updates on Europe and a small puzzle

While the debate in the United States about what changes the State of the Union message, and its fallout, might have on future energy supply continues, the debate addresses programs and funding that will not come to fruition for some time yet to come.  In the meanwhile the world goes on and intervening events may change a lot of minds before those programs become cast in dollars and opportunities. Much more under the fold.
The cold weather has returned to Moscow but factories are already preparing to gear down as the country goes through what may be the coldest spell in more than 30 years.  Fortunately there is now a signed agreement between Russia and Ukraine which should stabilize gas supplies not only for Ukraine, but also, one hopes for Western Europe, until 2010.

China has reported that it was able both to reduce oil demand and imports last year, despite its economic growth.  Unfortunately some of the additional energy supply was taken up by the use of coal.  And the price paid there in human life is higher than here. Twenty-three miners died in a gas blast in a mine there yesterday. As here the government is trying to instill a higher regard for safety into those running operations.

Last month, the central government said it would close 5,290 coal mines for safety violations in a campaign to reduce the death toll in the mining industry.

About one-fourth of the 1,200 mines in Shanxi, the country's leading coal-producing province, were targeted to be closed because they lacked proper safety measures, according to a report from the National Development and Reform Commission.

.However the reduction in oil demand in China, and the growth in oil supply reserves in America, given the mild winter, leaves one wondering a little as to the sudden increase in oil production from the Middle East. Schlumberger are reporting an increase in shipping of around 290,000 bd over a four-week period to a level of 25.22 mbd. It is apparently heading both east and west.

Closer to home, and more for the weekend techie crowd, another well has been completed in the Barnett Shale with production planned for the first quarter of this year, after fracking the wells.  It will be interesting to see, given other well performance around the country, how long production holds up.

And further to my post on supplies of LNG to the United States, it will not all come from Qatar. Some will come from Nigeria, but other potential sources have been listed (pdf file). Further there is a suggestion that cargoes could be switched on either side of the Atlantic to reduce shipping time and delivery costs.  

Great work Heading Out, in pulling these articles together. The articles are very interesting, both in what they say and how the contradictions between them may affect future Chinese oil use.

One of your articles says that Chinese oil use dropped by 1.8 million tons from 2004 to 2005. Yet the mine safety program seems to mandate the closing of thousands of unsafe mines -- for the very good reason that thousands of miners died in accidents at these mines.

Your articles also talk about ramping up Chinese oil use in the future. It would seem, on the face of it, that the trend in Chinese oil use is still upward sloping.

Many of those coal mines that are being closed in china are probabaly very small inefficient outfits that don't contribute much to the total production of coal.  I remeber fro ma year or two ago when china had another spate of accidents, they closed alot of small privately owned mines.  Many of these mines are like the old village industries of china.  They are helpful to small isolated areas, but overall, with an intergrated economy, they are a hindrance, producing low quality work slowly, and inefficiently.
I think China will be making huge leaps foward in energy efficiency in the next decade or so.  They need to do so for two reasons.  First, this is the only way they can continue to grow at anywhere near the current rate.  Second, they have enormous environmental problems right now.  Especially in Beijing.  THey are in the midst of have completged planting a "green belt".  A huge stand of trees outside the city to cut down on airborne dust and particualtes in the city.  I think over the next year and half until the Olympics, you are going to see a different Chinese government.  They are going to be much better behaved, especially towards the people.  They can't afford to have discontent and protests in the months and weeks leading up to the Olympics.  The world will be watching, as well as the entire country.
A major part of the Chinese strategy is a massive investment ($42 billion 2001-2005 and higher going forward) in Urban Rail in at least 20 cities (excluding Hong Kong and "rebel" Taiwanese cities).

I find it hard to keep track of all Chinese Urban Rail plans and recent openings. Beijing extended its subway network from 55 kilometres of track in 2002 to 408 kilometres in 2005, while the network in Shanghai increased from 65 to 780 kilometres, that in Tianjin from 26.69 to 72.195 kilometres, and that in Guangzhou from 18.5 to 129.4 kilometres.

Not bad for just three years !

Shanghai will displace New York City and London as the premier subway city. They recently opened their fourth & fifth lines, have firm plans for ten open by 2010 and seventeen by 2015 (2017 ?).  Twenty nuclear plants by 2020 should help assure power supplies. (only a small fraction of those plants can supply 100% of subway requirements).

Beijing has said that the subway and light rail systems there will become the leading means of transport for Beijing residents by 2020, when the length of the city's rail network is expected to exceed 1,000 kilometres.

The two faults common to Chinese subways are a lack of rolling stock & only 2 tracks.  A subway opens, and crush crowds start from Day 1 and all subways (AFAIK) are two track.  No four track subways (a la NYC) to allow express service.

I wonder if the contradiction of 9% GNP growth and flat oil consumption in 2005 is linked to this explosion of electrified transit ?  Can China grow economically with minimal growth in oil demand ?  Why is the US doing so little in this area ?

A correction.  Beijing had 55 km of subway in 2002, 153 km in 2005 and plans to have 400 km by 2010 (and 1,000 km subway + light rail feeders by 2020).

This leads me to doubt the 2005 stats for the other cities mentioned in that paragraph (Shanghai, Tianjin, Guangzhou).

780 km quoted for Shanghai is close to the plans published for 2015 in subways.

Still, DRAMATIC growth in non-oil, energy efficient transportation !

A correction.  Beijing had 55 km of subway in 2002, 153 km in 2005 and plans to have 400 km by 2010 (and 1,000 km subway + light rail feeders by 2020).

This leads me to doubt the 2005 stats for the other cities mentioned in that paragraph (Shanghai, Tianjin, Guangzhou).

780 km quoted for Shanghai is close to the plans published for 2015 in subways.

Still, DRAMATIC growth in non-oil, energy efficient transportation !

A minor point. Apparently the agreed upon price for NG to be shipped to Ukraine is at the tipping point for Ukraine steel and heavy industries, which are older ineffecient factories left over from the Soviet era. If the price was any higher, those old factories would be shutting down. It is still about 1/2 what the rest of the industrial world in the West pays.

Either Ukraine takes this pause (I think the agreement was for five years) and startes retooling or there will be a lot of unemployment in six.

The Machiavellians at Stratfor had the following to say about Bush's new interest in Energy

(sorry for the long quote, couldn't find a link for this since it was emailed to me)

Stratfor: Public Policy Intelligence Report - February 2, 2006

State of the Union: Exploiting Fissures in the Energy Security

By Bart Mongoven

After years of focusing on national security, democratization and the jihadist war, U.S. President George W. Bush gave emphasis to domestic issues in his State of the Union address Jan. 31. Of particular interest is his new focus on energy sources -- an issue that had threatened to upend many of his energy and environmental goals. On the floor of the Congress, Bush said the country has "a serious problem: America is addicted to oil, which is often imported from unstable parts of the world."

The sentiment certainly is not new. The basic argument is decades old, and since 2004, a growing coalition of foreign policy experts,
environmentalists and technology entrepreneurs have been warning specifically about the geopolitical effects of U.S. reliance on foreign oil. They advocate "energy independence" as a critical strategy for the United States. What is interesting about the State of
the Union speech is not so much that Bush would touch on this issue, but the way in which it was done: By adopting the goal of reducing reliance on foreign energy supplies, the president acknowledged the central argument of a growing coalition of interest groups that are
working against his energy programs -- yet without embracing their slate of proposed remedies. In this way, Bush appears poised to neutralize the potency of some opposition arguments and isolate certain components of the energy security coalition.

During the past three years, the idea of "energy security" has moved -- with relative swiftness -- from the outskirts of public policy debates to the center of U.S. energy discussions. Bush for some time turned a deaf ear to the issue; Vice President Dick Cheney in 2003 famously mocked the idea that federal advocacy of conservation was a
sound public policy. But by 2005, geopolitical concerns -- namely, continued political unrest in the Middle East and the leftward drift of South American governments -- record oil prices and, to a lesser extent, the emergence of concerns about climate change brought increasing attention to energy security from the mainstream media and from influential policymakers. With a few carefully worded paragraphs in a high-profile address, the Bush administration appears poised to enter the debate by at least taking up the challenge that has been
presented: reduced reliance on foreign energy.

The energy security movement is well-financed and has high-profile leadership. Former CIA Director R. James Woolsey leads at least two groups that are active on the issue: One of them, Securing America's Future Energy, was founded by the multibillion-dollar Hewlett Foundation. Another, Set America Free, has a board of directors that
includes conservative activist Gary Bauer and former National Security Adviser Robert C. McFarlane. Yet despite the participation of such political figures, most insiders tend to think of the energy security coalition as environmental at its core.

It actually has worked to the administration's advantage that the energy security issue was viewed as an environmental campaign relying on foreign policy arguments. The key vulnerability of the coalition
advocating energy security is that "being green" is not the antithesis of "continued use of imported oil." In other words, the more accustomed that voters got to seeing the concept of "conservation" wrapped up with energy "security," the easier it was in the end for
Bush to co-opt the movement by embracing security -- which closely ties in with his own foreign policy agenda. Now, it is up to the environmentalists to point out that energy security does not necessarily involve conservation.

In his national address, Bush said the answer to energy security concerns lies in technology. He neither called for increased domestic oil exploration -- a potentially touchy subject -- nor conservation. What he did say was largely unobjectionable to those who are naturally
predisposed to stand in his way on energy matters. It was a "Nixon going to China" moment, and the immediate reaction from Bush's most likely critics -- liberal activist groups, environmentalists -- has
been either silence or expressions of suspicion as to whether he is serious.

Based on the president's record, the path forward seems clear. The mention in the State of the Union address reflects a strategic decision by the administration to take on the issue of energy security -- it was not a one-time thing. The administration will continue to
talk about the strategic imperative of moving away from foreign oil and, at the end of the day, likely will call for some increased conservation. But the emphasis will be on expanded oil exploration in the United States, the implementation of clean coal technology, the encouragement of nuclear power and significant subsidies, and research grants for new energy technologies.

We do not expect that the administration will emphasize the environmental aspects of the issue, however, even when making moves that have been advocated by environmental groups. The remedies that environmentalists offer are generally ideas that the administration has rejected many times, such as increased fuel efficiency standards
for automobiles and mandatory renewable energy portfolio standards. The administration has rejected these ideas as bad for the economy, short-sighted and overly restrictive.

It would seem difficult to split the coalition of environmentalists and foreign policy activists in such a way, but there is a natural fissure between the groups that Bush likely will seize upon. The two major wings of the movement have different objectives. The
environmentalists in the coalition have embraced "energy security" as a tactic in the political battle for reduced oil consumption in the United States. Energy security is a means to an end for environmentalists. Set America Free, by all appearances, is dedicated to energy security as an end goal. This is a crucial difference.

Set America Free could be satisfied by an array of initiatives as long as they move the country toward security, but environmentalists have very specific goals within the security issue. This split points to a
significant pitfall that activists face when they endorse a strategic objective that does not reflect their actual goal. As much as advocates have tried to bridge the difference, it remains a non sequitur -- energy security does not necessarily require environmental
progress. The two camps are merely complementary, not joined. And this difference likely will not be lost on key Bush administration advisers.

The first step for the administration will be to embrace the language of Woolsey and Set America Free and essentially admit that the energy security coalition has won. The White House will have to embrace the
foreign policy arguments while paying lip service to conservation. The goal for the administration would be to make energy security a foreign policy imperative. This would strengthen the Set America Free side of the energy security coalition and widen the gulf between it and the environmentalists.

One example of how this strategy might work can be seen in last year's debates over oil exploration in the Arctic National Wildlife Refuge (ANWR) and Outer Continental Shelf (OCS). Throughout 2005, Set America Free was a forceful contributor to the debate over both the energy
bill and the McCain-Lieberman climate change bill. It worked closely with environmental organizations and took the lead at coordinated press events. Once those debates were over, however, the Senate began to discuss new exploration in the OCS and ANWR. Environmentalists fought strenuously but Set America Free was nowhere to be found.

Expanded drilling in ANWR and in the OCS would increase domestic U.S. energy supplies. While it is debatable how much such a move would decrease oil imports, expanded domestic exploration would work toward Set America Free's objectives. Yet these issues, especially ANWR drilling, are anathema to environmentalists.

If, at this point, the president makes serious offers to address the foreign policy hawks' arguments on energy independence, they likely will be drawn to support the solutions Bush offers. The key for the administration is to craft a message that appeals to the interests of Set America Free and pays lip service to environmentalist goals. It is clear from the State of the Union speech that the president saw a great opportunity to gain support of foreign policy hawks, while still promoting the interests of the oil and gas industries.

The real key to understanding the president's true intent is within his own wording: He wants independence from  foreign  oil, not oil in itself.

The neoconservative/environmentalist partnership was always a fragile affair, and pulling it apart would be perhaps no great feat. Bush's new energy policy, however, will widen another, more significant split that is emerging: that between moderate and radical environmentalists over the issues of clean coal and nuclear energy. Bush's recent pronouncements have created a moment of crisis for the environmentalist movement -- but as every strategist knows, crisis is as much a moment of opportunity as it is a potential tipping point
toward defeat. It is unclear at this time whether the environmental movement will manage to maintain its alliances and its internal coherence in a way that will allow it to capitalize on the spotlight Bush has placed on oil and oil independence.

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Those Stratfor people seem clueless when it comes to geological limits.  If the public urgency comes from high oil prices, then the SOTU energy plan will not diffuse any of the public concern, neither in the short term nor in the long term.  The same holds for China: the idea that they can reduce oil consumption while buying millions of cars and rapidly expanding industry.  Of course, both countries can increase efficiency of oil use, but Jevon's paradox will probably redirect those savings, as long as the religion of "growth" is paramount.

It is true that, in the short term, "energy security does not necessarily require environmental progress."  Moreover, energy can be gained (for a while) by allowing more environmental damage.  That's the tragedy of short-term thinking, and of the mindset that "the environment" is some sidekick to the Real Economy that can be supported when we feel affluent enough.  Unfortunately these attitudes are common, especially among economists.

Stratfor's analysis is true of course, but they don't draw any geoeconomic conclusions. And there is one conclusion of this kind, a very significant one. While Americans stick to oil, Europeans and Japanese prepare the energy technologies of the 21st century. And with 2$ per gallon, your policies will lead nowhere. You can't reduce or substitute oil use with such low prices.
"the sudden increase in oil production from the Middle East."

Link should be?????:

I think they changed their top story.

Thanks! I changed it.