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Inexpensive oil vanishing at alarming rate
The United States is awash in shale oil. Iran, once OPEC’s second-largest producer, is slowly ramping up output. Oil consumption growth in the Western world has been somewhere between negative and flat since the 2008 financial crisis. The “peak oil” theory has pretty much vanished, along with The Oil Drum, the bible of peak oil believers. Rest in peace.
Or turn in your grave, for the oil price charts tell a different story.
On the New York Mercantile Exchange, crude oil futures are up 13 per cent over one year. Since 2009, they have climbed every year except 2012. In Europe, the Brent crude futures are flat over the year after rising three years on the trot. Brent, the de facto global benchmark, trades at about $108 (U.S.) a barrel; West Texas Intermediate, the North American benchmark, is at $97. For the sake of argument, let’s say the world is valuing oil at $100. You would think the price would be far less as the United States challenges Saudi Arabia for top producer status.
While the oil forecasters were pumping out bearish calls, the market itself has stuck to its triple-digit price outlook. Oil buyers apparently know the Western world’s economic recovery will boost consumption, since growth and oil use are aligned. That’s not all. They also know that the math doesn’t work: Prices can’t go into gradual, long-term decline, or even stay flat, when the world’s conventional oil fields are in fairly rapid decline.
Exotic production – oil sands, biofuels, natural gas liquids – are supposed to fill the gap. But this so-called unconventional production is highly expensive and quite possibly insufficient to cover the drop off in cheap, conventional production. Prices will rise to the point that demand will have to level off or fall. The “peak oil” and “peak demand” theories are really opposite sides of the same coin.
A few days ago, Richard Miller, the former BP geochemist turned independent oil consultant, delivered a sobering lecture at University College London that laid out the case for dwindling future oil supply. His talk was based on published data from the U.S. Energy Information Agency, the International Energy Agency, the International Monetary Fund and other official sources.
The data leave no doubt that the inexpensive oil is vanishing quickly. Conventional oil production peaked in 2008 at about 70 million barrels a day and is declining by about 3.3 million barrels a day, every year. Saudi Arabia pumps about 10 million barrels a day. The math says a new Saudi Arabia has to be found every three years to offset the conventional oil drop off. Good luck. Now you know why Russians, Canadians and Americans are so keen to lock up the Arctic, the alleged keeper of vast new reserves.
About one-quarter of conventional production comes from the 20 biggest fields and most of them are in decline, some precipitously. North Sea oil production peaked at 4.5-million barrels a day in 1999. This year’s production is forecast at between 1.2 million and 1.4 million barrels a day. The so-called Forties field, the North Sea’s biggest, has been losing 9 per cent a year for more than 20 years. Ditto two other North Sea biggies – Brent and Ninian.
Great Britain shed its status as an energy powerhouse about a decade ago, when it became a net energy importer. Its energy import bill is horrendous. Last year, Britain spent almost £22-billion ($38-billion) buying foreign oil, natural gas and coal.
Repeat all over the world, from Mexico to Indonesia. Indonesia’s oil production has been in steady decline since the mid-1990s, and the country has gone from oil exporter to importer, at which point it got kicked out of the Organization of Petroleum Exporting Countries. While new exploration and technologies will extend the life of some of the gasping old fields, the long-term downward trend is intact.
The conventional fields are running out of puff just as world demand is climbing again, which can only put upward pressure on prices. This week, the IEA estimated that oil demand will rise by 1.2 million barrels a day in 2014, or 1.3 per cent, to 92.4 million barrels.
The increase is driven by economic recovery and ever-rising demand in China and elsewhere in the developing world. China is willing to pay almost any price for oil because oil drives growth more than it does in the West, where energy use is less intensive per unit of economic output. China has also developed a love affair with traffic jams. The number of cars and motorbikes in China increased twentyfold between 2000 and 2010. It is forecast to double again in the next 20 years.
The oil shills, the tech geeks and most, but not all, oil companies would have you believe that non-conventional energy will fill the gap as the cheap, easy-to-pump oil heads gently into the night. It might, but at what price and cost to the environment? Or it might not at any price.
Deep-sea production is monstrously expensive and risky, as BP found out when its Macondo well in the Gulf of Mexico blew up. The Alberta oil sands also spew out more carbon dioxide than conventional production. Most biofuels, such as U.S. corn-based ethanol, are taxpayer-subsidized economic horror shows with dubious environmental benefits.
The peak oil crowd has thinned out, to be sure, but it won’t disappear. Gushing U.S. shale oil doesn’t mean oil is about to become cheap and plentiful. The fall off in conventional oil production is real, and scary.
Canadian Natural Resources Ltd said on Thursday it has cut production at its 115,000 barrel per day Horizon oil sands project and its Woodenhouse heavy oil operations after natural gas supplies were cut following a rupture on TransCanada Corp’s Nova regional natural-gas pipeline network.
Canadian Natural said in an email that production has been reduced following the incident on TransCanada’s 1.6 billion cubic foot per day North Central Corridor pipeline, which delivers gas to the Athabasca oil sands region.
- TransCanada says gas pipeline in northern Alberta may have ruptured (business.financialpost.com)
- TransCanada Pipeline Leak Being Investigated (olduvaiblog.wordpress.com)
- TransCanada says two customers still lack gas after pipeline rupture in northern Alberta (business.financialpost.com)
- TransCanada pipeline rupture forces oil firms to scale back production (theglobeandmail.com)
- Some Injured and Many Dead in Delta Gas Pipeline Explosion (etcetera9ja.wordpress.com)
- An unstoppable oil leak is flowing in Alberta (treehugger.com)
- Use Bitumen (kirhammond.wordpress.com)
- Alberta Tar Sands Have Been Leaking for Nine Weeks with No Signs of Stopping (inhabitat.com)
- Uncappable underground blowout spills thousands of barrels of tar sands oil in Cold Lake, Alberta (dailykos.com)
- Less than 1 percent of tar-sands environmental infractions penalised (theecologist.org)
- Canadian minister: technological advancements will make oil sands cleaner (mining.com)
- No one knows how to stop these tar-sands oil spills (grist.org)
- Update: Study finds little environmental enforcement in oilsands infractions (calgaryherald.com)
- Keystone: Obama changes the question. This is big. (macleans.ca)
- Obama buys more wiggle room on Keystone decision (business.financialpost.com)
- Obama: no Keystone XL if significant exacerbation of GHG; Canada: no problem (greencarcongress.com)
- Report: Canada Could See an Indigenous Insurgency (earthfirstnews.wordpress.com)
- Canada’s Shame – Updated (gingerpolitics.wordpress.com)
- Postcard: Just a Glimpse of Canada (thejottersjoint.com)
- Economic Equality and Land Rights: People Power Struggles For The Future (readersupportednews.org)
- The Global Indigenous Uprising Offers a Path That Won’t Destroy Life on Earth (alternet.org)
- Tar Sands Solutions Network launches oil sands news aggregation site (vancouverobserver.com)
- Students, Community Protest Utah Tar Sands Conference (southwestearthfirst.wordpress.com)
- Academics warn Canada against further tar sands production (guardian.co.uk)
- UK signals support for EU import of Canadian tar sands oil (guardian.co.uk)