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The well is running dry for big oil – Jeff Reeves’s Strength in Numbers – MarketWatch

March 3, 2014 10:21 am / Leave a comment

The well is running dry for big oil – Jeff Reeves’s Strength in Numbers – MarketWatch.

JEFF REEVES’S STRENGTH IN NUMBERS Archives | Email alerts

March 3, 2014, 6:00 a.m. EST

The well is running dry for big oil

Opinion: Supply, efficiency and demand concerns weigh

By Jeff Reeves


Bloomberg

Last week, I mused on the death of cars and big-picture factors working against the auto industry, including urbanization and declining driving rates in younger Americans.

Now, I’ll trot out my crystal ball again and offer you another prediction: This is the beginning of the end for Big Oil, too.

Now before you jump down my throat for trolling you again with hyperbole, I will state up front that I don’t expect Exxon Mobil XOM -0.31%  , BP BP -1.82%  and ChevronCVX +0.29%   to disappear tomorrow any more than I expect I-95 to start sprouting daisies.

But as with the decline of automobile ownership — and in part because of it — we may also be witnessing a protracted decline in major energy stocks and fossil fuel demand.

That’s bad for big oil, and bad for investors in these stocks.

Efficiency and alternatives sap demand

The first big reason big oil is in trouble: Oil demand keeps dropping.

Technology continues to help us do more with less and implement cleaner alternatives to crude oil.

Consider that U.S. oil demand fell to a 16-year low in 2012 despite energy-hungrygadgets and the addition of some 40 million people to the total population.


U.S. Energy Information Administration

Also consider that fuel oil demand was the lowest on record in 2013 and has been steadily declining since the 1970s as the energy source has fallen out of favor for cleaner, greener options.

It’s not just the U.S., either. Even with a bullish outlook for the global economy fueling oil demand this year, the IEA has boosted consumption targets a meager 1.3% as efficiencies in the West offset faster-growing demand in emerging markets.

However you slice it, global crude oil appetites simply aren’t what they used to be. Even energy-hungry emerging markets aren’t making up for the weak demand in the developed world.

The easy supply is gone

I don’t pretend to know when supplies in the ground will run out, or whether we are truly living after the era of “peak oil.”

But one thing is clear: Oil production is getting much more costly as easy-to-access fields are drilled dry, and new production is reliant on more difficult and costly extraction for the fossil fuel.

Take the shale oil boom. Margins are lower thanks to the cost of production. The story is the same for oil sands production , same for offshore drilling, same for oil in Africa as opposed to oil in Canada.

The well is running dry for big oil – Jeff Reeves's Strength in Numbers – MarketWatch

March 3, 2014 10:21 am / Leave a comment

The well is running dry for big oil – Jeff Reeves’s Strength in Numbers – MarketWatch.

JEFF REEVES’S STRENGTH IN NUMBERS Archives | Email alerts

March 3, 2014, 6:00 a.m. EST

The well is running dry for big oil

Opinion: Supply, efficiency and demand concerns weigh

By Jeff Reeves


Bloomberg

Last week, I mused on the death of cars and big-picture factors working against the auto industry, including urbanization and declining driving rates in younger Americans.

Now, I’ll trot out my crystal ball again and offer you another prediction: This is the beginning of the end for Big Oil, too.

Now before you jump down my throat for trolling you again with hyperbole, I will state up front that I don’t expect Exxon Mobil XOM -0.31%  , BP BP -1.82%  and ChevronCVX +0.29%   to disappear tomorrow any more than I expect I-95 to start sprouting daisies.

But as with the decline of automobile ownership — and in part because of it — we may also be witnessing a protracted decline in major energy stocks and fossil fuel demand.

That’s bad for big oil, and bad for investors in these stocks.

Efficiency and alternatives sap demand

The first big reason big oil is in trouble: Oil demand keeps dropping.

Technology continues to help us do more with less and implement cleaner alternatives to crude oil.

Consider that U.S. oil demand fell to a 16-year low in 2012 despite energy-hungrygadgets and the addition of some 40 million people to the total population.


U.S. Energy Information Administration

Also consider that fuel oil demand was the lowest on record in 2013 and has been steadily declining since the 1970s as the energy source has fallen out of favor for cleaner, greener options.

It’s not just the U.S., either. Even with a bullish outlook for the global economy fueling oil demand this year, the IEA has boosted consumption targets a meager 1.3% as efficiencies in the West offset faster-growing demand in emerging markets.

However you slice it, global crude oil appetites simply aren’t what they used to be. Even energy-hungry emerging markets aren’t making up for the weak demand in the developed world.

The easy supply is gone

I don’t pretend to know when supplies in the ground will run out, or whether we are truly living after the era of “peak oil.”

But one thing is clear: Oil production is getting much more costly as easy-to-access fields are drilled dry, and new production is reliant on more difficult and costly extraction for the fossil fuel.

Take the shale oil boom. Margins are lower thanks to the cost of production. The story is the same for oil sands production , same for offshore drilling, same for oil in Africa as opposed to oil in Canada.

Peak Oil is Real and the Majors Face Challenging Times « Breaking Energy – Energy industry news, analysis, and commentary

February 19, 2014 4:02 pm / 1 Comment on Peak Oil is Real and the Majors Face Challenging Times « Breaking Energy – Energy industry news, analysis, and commentary

Peak Oil is Real and the Majors Face Challenging Times « Breaking Energy – Energy industry news, analysis, and commentary.

By  on February 18, 2014 at 9:32 AM

Surging Oil Industry Brings Opportunity To Rural California

The idea that global oil production was nearing its peak, only to plateau and then decline was a common view in the energy world for many years. The geophysicist M. King Hubbard predicted in the 1950’s that US oil production would peak in the 1970’s, a forecast that held true until technology allowed companies to economically extract oil and gas from tight geologic formations like shale.

The recent surge in US liquids output – crude plus natural gas liquids (NGLs) – quieted the peak oil community. A well-known, largely peak oil-focused website – The Oil Drum – shut down in 2013, an event some considered the death knell of the peak oil theory.

But not so fast says Steven Kopits from energy business analysis firm Douglas-Westwood. Total global oil supply growth since 2005 – 5.8 million barrels per day – came from unconventional sources, shale oil and NGLs in particular, Kopits recently told the audienceat Columbia University’s Center on Global Energy Policy.

“Not only US, but global, oil supply growth is entirely leveraged to unconventionals right now,” and the legacy, conventional system still peaked in 2005, he said. This gets a bit technical, as shale oil and liquids produced with natural gas are fed into the main crude oil stream and priced as such. But the strong degree to which increasing oil supply growth is dependent on unconventional sources is important to remember and often gets lost in the exuberance over top-line output figures.

And despite prolific incremental oil and gas production made possible by hydraulic fracturing and horizontal drilling advances, maintaining legacy production has been expensive and arguably of limited success.

Total upstream spend since 2005 has been $4 trillion, of which $350 billion was spent on US and Canadian unconventional oil and gas, with an additional $150 billion spent on LNG and GTL, according to Kopits’ presentation. About $2.5 trillion was spent on legacy crude oil production, which still accounts for about 93% of today’s total liquids supply. And despite that hefty investment, legacy oil production has declined by 1 mmb/d since 2005, said Kopits.

By comparison, between 1998 and 2005 the industry spent $1.5 trillion on upstream development and added 8.6 mmb/d to total crude production. The industry “vaporized the GDP of Italy,” with its $2.5 trillion upstream spending for oil since 2005, which barely maintained the legacy oil production system. Kopits argues this level of investment by the major oil companies appears unsustainable, and the major’s current cost structure is troublesome.

Collective oil production of the world’s largest listed oil companies has faltered, while upstream capex soared, Kopits said. Profits have suffered because costs are rising faster than revenues in a range-bound crude oil price environment. “E&P capex per barrel has been rising at 11% per year,” he said, but Brent oil prices have largely been flat. As a result, Chevron, ExxonMobil, Statoil and BP all recently put major projects on hold or cancelled them outright.

“If your costs are rising faster than your revenues, do you sell your assets? The majors have been doing this, but is it sustainable?” asked Kopits. The industry was able to maintain conventional crude oil production levels by throwing $2 trillion dollars at the system – essentially “putting it on steroids” – but now that’s run its course and capex is being curtailed, a trend that looks set to continue, in his view.

Guest blog: A 10-year oil supply retrospective shows unwarranted optimism « The Barrel Blog

February 19, 2014 11:21 am / Leave a comment

Guest blog: A 10-year oil supply retrospective shows unwarranted optimism « The Barrel Blog.

By Steve Andrews | February 19, 2014 12:01 AM 

Our guest blog today comes from Steve Andrews, who is  a retired energy consultant and contributor to the Peak Oil Review, reachable at sbandrews@att.net. We reached out to CERA to determine its interest in providing a response, but did not hear back.

“False optimism leads to very poor investment decisions.”: Jeremy Grantham, co-founder and Chief Investment Strategist, GMO

Ten years ago this month the Oil & Gas Journal published a story from CERAWeek—an annual elite conference for the oil industry put on by Cambridge Energy Research Associates—that bears revisiting.

Why go back? Three reasons. First, CERA arguably has maintained the highest profile of any oil industry analytical shop since at least the turn of the century, thanks in large part to founder Daniel Yergin’s reputation. Every time there is a surprise in world oil supply, he’s the media’s go-to guru. When the National Petroleum Council convenes a world oil study, you can bet the ranch that CERA will play a lead role. When the US Senate or House convenes a committee hearing on oil, CERA often sits on the panel; they also deliver some of their key research papers free of charge to all US lawmakers. Their policy-oriented footprint is large and their strategic media outreach effective.

Second, at the time CERA’s 2004 forecast of seven years of history-breaking sustained growth in world oil production capacity struck many players as being an unreasonably if not outrageously optimistic headline. How does it look 10 years later? Way off base.

Third, if CERA’s oil forecast was that off base a decade ago, should we believe the current abundant-oil storyline that CERA jumpstarted in the fall of 2011 and that has been embraced by the press and policy makers alike? So let’s look back.

On CERA’s lead panel in February 2004, Robert W. Esser, senior consultant and director on global oil resources, predicted global oil production capacity would expand by 20 million barrels/day from 2004 through 2010. (CERA doesn’t forecast production. It forecasts production capacity, which is essentially unverifiable.) That’s nearly 3 million b/d of capacity growth every year for seven straight years from 2004 onward. It didn’t happen.

Per data from BP’s Statistical Review of World Energy, actual production of global petroleum liquids grew by 5.7 million b/d during that period. Then consider the 4 million b/d of spare OPEC capacity that the US EIA shows for 2010. But there were also at least 2 million b/d of spare OPEC capacity in January 2004, at the start of the forecast period. So net, CERA missed their forecast by well over two thirds.

Note that by CERA’s definition production capacity “…eliminates economic or political factors and temporary interruptions such as weather or labor strikes.” Note too that unused productive capacity is never intentionally present among non-OPEC nations, and unused and undamaged production capacity among OPEC nations was primarily limited to Saudi Arabia, Kuwait and United Arab Emirates during 2010.

Why did CERA stumble so badly?

First and foremost, CERA underestimated decline rates from existing oil fields. About the time of its 2004 conference, an oil industry analyst who knew Daniel Yergin asked him, during an elevator discussion, what decline rate for producing fields CERA used when calculating growth in world oil supply in their major studies. Mr. Yergin replied that it would be in the 1% to 2% range.

Chalk that up as a fatal flaw. Over seven years, a decline rate of 1.5% would mean having to replace only 8+ mbd of production capacity. It’s ironic that by late 2007, in what CERA called a groundbreaking study, they calculated the actual decline rate from 811 of the world’s major oil fields at 4.5% per year. Over those same 7 years, using their 4.5% decline rate would require 23 million b/d of capacity just to keep production flat. IEA estimates for decline rates rank even higher than CERA’s.

On the production side, CERA spoke optimistically about projected gains from the Gulf of Mexico, West Africa, Brazil, the Caspian area, Canada, Venezuela, Iraq, Nigeria, Algeria, Ecuador, Sudan and Russia. Indeed, production increased in 11 of those 13 nations for a net gain of 6.7 million b/d. But on the bad news front, the rest of the world lost 1 million b/d of oil production during CERA’s forecast period, hence the 5.7 million b/d net gain. Declines badly undercut forecast gains.

On the demand side, CERA actually worried that “should this spurt in output exceed projections of a very large increase in world oil demand this decade, then persistent downward pressure on oil prices might result.” For the record, when CERA made that comment, oil prices were upward of $30. But while nearly everyone was wrong about oil prices a decade ago, CERA was also wrong about the key demand driver: China. CERA forecast that China’s demand growth for oil would slow to 5% in 2004, compared to what eventually occurred: record-breaking growth of nearly 17%. And while CERA talked about volatility in Chinese demand going forward, China’s record-setting growth rate for oil demand continued throughout CERA’s 2004-10 forecast period.

If this was a personal forecast which I had blown this badly (and I’ve blown a couple), no one would notice. But this enormously flawed vision was widely circulated. CERA gets press coverage, but the press isn’t checking CERA’s track record, and this 2004 prediction is just the tip of the iceberg.

In 2005, CERA dialed back their optimism only slightly. They projected world oil supply capacity still growing 16.4 mbd from 2004 through 2010—a reduction of 3.6 mbd from their original forecast. They projected world demand in 2010 at 94 million b/d, leaving 7.5 million b/d of idle capacity. Note this comment about related impacts on prices: “We generally expect supply to further outpace demand growth in the next few years, which could result in oil price weakness around 2007-08 or thereafter.”

In 2006, CERA projected potential world oil capacity growth of 21.3 million b/d—from 88.7 million b/d in 2006 to 110 million b/d in 2015. We’re less than two years away from year-end 2015, yet total petroleum liquids production will likely run in the 90 million b/d range. Clearly, CERA’s was an exceedingly pollyanish view, rather like a best case in a perfect world.

Now square CERA’s long-standing optimism bias on future world oil supplies with the recent spate of sobering news from Wall Street on the financial travails of the large investor-owned super-majors. Mark Lewis has done a nice job highlighting the near tripling of oil and gas capacity expansion costs since 2000—from $250 vs. $700 billion; three quarters of that was spent on oil, yet oil supply rose only a modest 15% (BP data). Increasingly blunt reports from analyst shops like Sanford Bernstein add to the growing contrarian chatter. Solid coverage in the UK of Richard Miller’s recent paper “The Future of World Oil Production” opened a few eyes about limits. But those voices still have a steep hill to climb.

That’s in part because, starting in September 2011, CERA went on the offensive as chief cheerleader of an overly optimistic, US-led oil abundance storyline. It features the US’s record-breaking shale oil bonanza—an amazingly successful yet term-limited reality. Viewed at the global level, for the last few years the brouhaha about our shale oil bonanza has been the tail wagging the world oil supply dialogue.

CERA’s oil supply predictions should have earned deep skepticism from the press and policy makers. That hasn’t happened yet. It’s overdue.

But please keep the larger backdrop in mind: Without a serious revisiting of the questionable optimism that dominates any dialogue related to longer-term world oil supplies, without a harshly realistic scrub of the facts, we face unnecessarily large energy policy risks.

RIGZONE – Oil Firms Seen Cutting Exploration Spending

February 18, 2014 7:20 am / Leave a comment

RIGZONE – Oil Firms Seen Cutting Exploration Spending.

by  Reuters
|Gwladys Fouche & Balazs Koranyi
|Monday, February 17, 2014
Article title
Global oil firms are about to cut exploration spending, pulling back from frontier areas and jeopardizing their future reserves, industry insiders say.

Reuters

OSLO, Feb 17 (Reuters) – Global oil firms, hit by one of the worst years for discovery in two decades, are about to cut exploration spending, pulling back from frontier areas and jeopardising their future reserves, industry insiders say.

Notable exploration failures in high-profile places such as Africa’s west coast, from Angola all the way up to Sierra Leone, have pushed down valuations for exploration-focused firms and are now forcing oil majors to change tack.

“It is becoming increasingly difficult to find new oil and gas, and in particular new oil,” says Tim Dodson, the exploration chief of Statoil, the world’s top conventional explorer last year.

“The discoveries tend to be somewhat smaller, more complex, more remote, so it is very difficult to see a reversal of that trend,” Dodson told Reuters. “The industry at large will probably struggle going forward with reserve replacement.”

Although final numbers are not yet available, Dodson said 2013 may have been the industry’s worst year for oil exploration since 1995.

As a result, exploration will probably be cut, especially in the newest areas, said Lysle Brinker, the director of energy equity research at consultancy firm IHS.

“They’ll be scaling back on some exploration, like the Arctic or the deepest waters with limited infrastructure … So places like the Gulf of Mexico and Brazil will continue to see a lot of activity, but frontier regions will see some scaling back,” he said.

Oil majors, which have a large resource base to maintain, are suffering the most, as the world is running out of very large conventional oil fields, and access to acreage, particularly in the Middle East, is limited.

That is leaving them with an increasing number of gas projects.

“When you look at the mix of oil and gas of the majors, it is definitely moving towards gas – simply because they can’t access conventional oil, which ultimately I believe will have an impact on oil prices,” said Ashley Heppenstall, the CEO of Sweden’s Lundin Petroleum, which co-discovered Johan Sverdrup, the biggest North Sea oil field in decades.

Prices Down Then Up

Before oil prices rise from a lack of exploration, they are first expected to fall, squeezing margins and forcing further investment cutbacks.

The International Energy Agency sees oil prices down at $102 per barrel next year from the current $108 as several producers ramp up output.

“Oil prices need to remain at elevated levels because there is a risk that a fall in oil prices or a cutback in investments by companies will mean that production growth slows,” said Virendra Chauhan, an oil analyst at consultancy Energy Aspects.

Although world oil reserves increased by 1 percent in 2012, they equalled just 52.9 years of global consumption, down from 54.2 in 2011, energy firm BP has said previously. BP sees consumption up by 19 million barrels a day by 2035, which would represent a 21 percent increase on th U.S. Energy Information Administration’s (EIA) estimate for 2011.

Energy firms have already been shifting capital from conventional to shale production, and this trend could continue as the exploration risk is smaller, the lag from investment to cash-flow is shorter, and project sizes are more manageable.

This is weighing negatively on the shares of exploration-focused companies.

“Explorer stocks are trading at discovery value or a discount to it, so from an equity market perspective, there’s no interest in owning exploration stories. People are losing faith in exploration,” said Anish Kapadia, a research analyst at consultancy Tudor, Pickering, Holt & Co. International.

Shares in Europe’s explorers fell 20 percent over the past year, underperforming a 2-percent rise by the European oil index .

Tullow is down 39 percent in a year, while peers Cairn and Cobalt are down 33 percent, and OGX is down 92 percent.

The spending cutback also cut mergers and acquisitions activity by half last year, IHS data showed, and plans to boost shareholder returns could shift focus to cooperation rather than fully fledged takeovers.

“You will probably see more activity at the asset level more than at the corporate level … More joint ventures, swapping assets, buying and selling of assets,’ said Jeremy Bentham, Shell’s vice-president for business environment.

Insiders believe the cuts may not be reversed until capital tied up in projects like Chevron’s $54 billion Gorgon LNG or Conoco’s $25 billion Australia Pacific LNG start producing cash flow and return.

“There will be less investor pressure, then companies can get activity back up, so this may be a pause of a couple of years where companies scale back,” Brinker said.

‘Big oil’ getting smaller as production keeps falling | | Platts

February 17, 2014 12:00 pm / Leave a comment

‘Big oil’ getting smaller as production keeps falling | | Platts.

February 14, 2014 – Richard Swann in London

* Top seven western majors all seeing liquids output fall
* Supermajors’ share of global market dropping every year
* BP reports fastest decline of 30% from 2009-13
* Production becoming more evenly split between oil and gas

The biggest western oil companies are continuing to see their oil output decline, despite record investment in recent years spurred by sustained crude prices in excess of $100/barrel, according to data released by the companies.

Furthermore, with total world oil output continuing to rise every year, the western majors are seeing their share of the global market fall even faster, with new volumes coming largely from their rivals in places like Russia and a host of smaller companies at the heart of the shale oil boom in the US.

Analysis continues below…
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Combined output of crude and other liquids by the seven biggest western majors — ExxonMobil, Shell, BP, Chevron, Total, ConocoPhillips and Eni — amounted to 9.517 million b/d last year, down 2.2% from 2012 and marking the fourth consecutive year of decline.

Liquids output from the same group has been falling every year of late, having been as high as 10.865 million b/d in 2009.

As a group, the seven have seen their combined liquids output fall by 1.348 million b/d, or 12.4% over the period from 2009 to 2013.

The most notable contribution to the overall decline comes from BP, whose production of oil and other liquids has fallen by more than 30% from 1.695 million b/d in 2009 to 1.176 million b/d in 2013.

These figures do not include production associated with BP’s current 19.75% stake in Russia’s Rosneft or its previous 50% stake in Russian oil producer TNK-BP.

This is a much sharper fall than other majors have experienced, and is evidence of the scale of the asset divestment program the company has been going through to cover its actual and potential liabilities in the wake of the disastrous Gulf of Mexico oil spill in 2010.

While its peers have not seen production fall by the same degree, they have nonetheless all experienced declining oil production since 2009.

Even ExxonMobil, the biggest of the group in terms of production and profitability, saw its oil output fall by 4.5% in 2011 and 5.5% in 2012, the two years with the highest average international oil prices of all time.

In 2013 ExxonMobil’s oil output rose by 0.8% to 2.202 million b/d, but it still remained more than 200,000 b/d below where it was in 2010.

Shell, Chevron, Total, ConocoPhillips and Eni also all saw their liquids production fall in 2013.

Total’s output declined by 15.5% between 2009-13, Eni’s by 17.3% and ConocoPhillips’ by 12.4%. Shell has seen the smallest fall of 2.5% over thesame period.

Dwindling share of global output

According to the International Energy Agency, total world oil supply has risen in recent years from 85.66 million b/d in 2009 to an average of 91.53 million b/d in 2013.

As a result, the seven leading western majors have seen their share of this total supply fall from 12.7% to 10.4% over the same period.

While this group is seeing its production fall, others have clearly been heading in the opposite direction.

The most obvious is Russia’s Rosneft, which has grown at breakneck pace in recent years on the back of a debt-funded acquisition spree, including the purchase of former rival TNK-BP.

Rosneft is now the world’s biggest publicly listed oil producer with total crude and liquids output of close to 4.2 million b/d.

In other words, Rosneft alone now produces almost as much oil as ExxonMobil, BP and ConocoPhillips combined.

The western majors are not short of either the expertise to produce more oil or the money to fund developments after 2013 marked the third consecutive year of Dated Brent prices above $108/barrel.

The recurring challenge for the western companies in recent years has been to find attractive investment opportunities, with several of the world’s leading oil reserves holders offering limited, or even no access to international operators.

“It’s an access question,” said an official from one of the western majors, who asked not be identified. “Who will let us in? They’ll only let us into the difficult bits like the deepwater projects, or tight gas, that kind of thing,” he said.

Gas growth

With their liquids output falling, the so-called “oil majors” are gradually becoming less oily and more reliant on gas production.

Oil accounted for more than 60% of ExxonMobil’s total hydrocarbons output in 2009, but by last year this figure had fallen to less than 53%.

It is a similar story for Total, where oil’s share of total production has fallen from 60.5% in 2009 to 50.8% in 2013.

Shell produced more gas than liquids last year, the third time in the last four years this has happened, and BP is not far away from a 50:50 split.

Of the seven majors who embody the image of “Big Oil” the only one bucking the trend towards greater gas exposure is Chevron, where oil continues to account for two thirds of all production — a full 10 percentage points more than any of the rest of the peer group.

Table: Production of oil and other liquids by leading western companies

Production of oil and other liquids by leading western companies

– 2013 2009 Change –
ExxonMobil 2.202 2.387 -0.185 -7.8%
Chevron 1.731 1.846 -0.115 -6.2%
Shell 1.541 1.581 -0.040 -2.5%
BP 1.176 1.695 -0.519 -30.6%
Total 1.167 1.381 -0.214 -15.5%
ConocoPhillips 0.867 0.968 -0.101 -10.4%
Eni 0.833 1.007 -0.174 -17.3%
Total 9.517 10.865 -1.348 -12.4%

(all units in million b/d)

Source: company statements

U.S. Crude Oil Exports, Really? – A Look at the UK

February 4, 2014 8:26 am / Leave a comment

U.S. Crude Oil Exports, Really? – A Look at the UK.

by Steve Andrews, originally published by ASPO-USA  | TODAY

Last week the U.S. Senate’s Energy Committee held the first hearing in decades on the question of whether exporting US crude oil, prohibited by law since the 1970s, should be allowed again.  Attendees heard proponents say that allowing crude exports would hold prices down with opponents claiming the opposite case.

To be clear, these would not be net crude oil exports.  Of the 19+ million barrels a day that we consume at present, we import roughly 7.5 million barrels of crude per day and export roughly 2.5 million b/day of petroleum products (diesel and propane, for example).  And even the US EIA admits we’ll be importing millions of barrels of crude oil for decades, in fact indefinitely.

So this is really an intramural fight: US oil producers want to be able to export while refiners and most users want to keep the crude at home.  As Senator Ron Wyden, Chairman of the Energy Committee, said in his remarks, don’t expect this argument to be resolved quickly.

Here’s a related thought experiment.  It involves the UK crude oil situation between 1980 and today, shown in Figure 1 below.  After joining the exclusive club of Top 20 world oil producers in 1978, two years later the UK’s oil producers joined the ranks of oil exporters.  Over the next 25 years they exported roughly ¼ of their total oil production, earning around $20+ per barrel most of those years.  But after production peaked in 1999, within six years the UK was back to importing oil, at an average price approaching $100 a barrel.  Imports have grown back to ½ million b/d, which is 1/3 of total consumption.

My question to the Brits: if you could turn the clock back, would you allow all your oil to be produced at the maximum possible rate, earning the amount of export dollars you did, if it meant that within a generation you would be back to being an oil importer paying roughly five times as much per barrel?  In other words, how did the buy-high sell-low plan work for you?  And were those exports in your best long-term national interests?  Didn’t think so…

There are almost as many differences as there are parallels between the UK and US circumstances.  But they share a bottom-line question: is it in the USA’s best long-term national interests to produce unconventional shale oil sufficiently fast that we end up exporting some of it overseas? Didn’t think so…

Fig. 1: The UK exported oil for 25 years from 1980 through 2005, shown above as the amount produced above the consumption line.  Exports peaked at 1.2 million barrels a day in 1999, the same year that production peaked at 2.93 million b/d.   imported roughly a half-million b/d in Data is from BP (2013).

Steve Andrews is a former energy consultant and a contributing editor for Peak Oil Review.

Why turning a buck isn’t easy anymore for oil’s biggest players | Jeff Rubin

February 1, 2014 1:44 pm / Leave a comment

Why turning a buck isn’t easy anymore for oil’s biggest players | Jeff Rubin.

Posted by Jeff Rubin on January 27th, 2014

Judging by pump prices, Canadian drivers might think oil companies were rolling in profits that only move higher. Lately, though, the big boys in the global oil industry are finding that earning a buck isn’t as easy as it used to be.

Royal Dutch Shell, for instance, just announced that fourth quarter earnings would fall woefully short of expectations. The Anglo-Dutch energy giant warned its quarterly profits will be down 70 percent from a year earlier. Full year earnings, meanwhile, are expected to be a little more than half of what they were the previous year.

The news hasn’t been much cheerier for Shell’s fellow Big Oil stalwarts. Exxon, the world’s largest publicly traded oil company, saw profits fall by more than 50 percent in the second quarter to their lowest level in more than three years. Chevron and Total, likewise, are warning the market to expect lower earnings when fourth quarter results are released.

What makes such poor performance especially disconcerting to investors is that it’s taking place within the context of historically high oil prices. The price of Brent crude has been trading in the triple digit range for three years running, while WTI hasn’t been far off. But even with the aid of high oil prices, the supermajors haven’t offered investors any returns to write home about. Since 2009, the share prices of the world’s top five publicly traded oil and gas companies have posted less than a fifth of the gains of the Dow Jones Industrial Average.

The reason for such stagnant market performance comes down to the cost of both discovering new oil reserves and getting it out of the ground. According to the International Energy Agency’s 2013 World Energy Outlook, global exploration spending has increased by 180 percent since 2000, while global oil supplies have risen by only 14 percent. That’s a pretty low batting average.

Shell’s quest for new reserves has seen it pump billions into money-devouring plays such as its Athabasca Oil Sands Project in northern Alberta and the Kashagan oilfield, a deeply troubled project in Kazakhstan. It’s even tried deep water drilling in the high Arctic. That attempt ended when the stormy waters of the Chukchi Sea crippled its Kulluk drilling platform, forcing the company to pull up stakes.

Investors can’t simply count on ever rising oil prices to justify Shell’s lavish spending on quixotic drilling adventures around the world. Prices are no longer soaring ahead like they were prior to the last recession, when heady global economic growth was pushing energy prices to record highs.

Costs, however, are another matter. As exploration spending spirals higher, investors are seeing more reasons to lighten up on oil stocks. Wherever oil producers go in the world these days, they’re running into costs that are reaching all-time highs. Shell’s costs to find and develop oil fields, for instance, have tripled since 2003. What’s worse, when the company does notch a significant discovery, such as Kashagan, production seems to be delayed, whether due to the tricky nature of the geology, politics, or both.

Shell ramped up capital spending last year by 50 percent to a staggering $44 billion. Oil analysts are basically unanimous now in saying the company needs to rein in spending if it hopes to provide better returns to shareholders.

Big Oil is discovering that blindly chasing production growth through developing ever more costly reserves isn’t contributing to the bottom line. Maybe that’s a message Canada’s oil sands producers need to be listening to as well.

Davos: peeling back the veneer

January 22, 2014 2:35 pm / Leave a comment

Davos: peeling back the veneer.

(c) World Economic ForumScrolling through the website of the World Economic Forum – convening this week in Davos, Switzerland – one might confuse the premier platform for global capital with a savvy and hip think tank, or perhaps a philanthropic aid and development charity. The content is carefully curated to sedate and comfort. The right buzzwords are there: “impact investing”, “embracing democracy”, “our oceans”, and “sustainability.” In the Issues section, one finds Environmental Sustainability, Health for All, and Social Development. An article by Nobel laureate economist Joseph Stiglitz (a critic of globalization) is featured front and center, as if to proclaim, ‘challenging the stodgy status quo through edgy, unorthodox economic thinking – that’s what we do here.’

There’s nothing to indicate that this is, in fact, a platform for multinational corporations, among them human rights abusers, political racketeers, property thieves and international environmental criminals. But then, that wouldn’t exactly make for a very inviting homepage.

Here, for example, is the WEF mission statement:

The World Economic Forum encourages businesses, governments and civil society to commit together to improving the state of the world. Our Strategic and Industry Partners are instrumental in helping stakeholders meet key challenges such as building sustained economic growth, mitigating global risks, promoting health for all, improving social welfare and fostering environmental sustainability.

Rather than getting bogged down in a detailed evaluation of WEF’s high-minded claims and eco-populist rhetoric, it may be more efficient to consider the behavior of those corporations and banks that comprise the Forum’s list of Industry Partners – described as “select Member companies of the World Economic Forum that are actively involved in the Forum’s mission.”

Among them are Shell, Nike, Syngenta, Nestlé, and SNC Lavalin – companies you’ll also find on Global Exchange’s list of the Top 10 Corporate Criminals of 2013, based on offenses like unlivable working conditions, corporate seizures of indigenous lands, contaminating the environment, and similar transgressions. At least seven other companies “actively involved in the Forum’s mission” are recentalumni of the Corporate Criminal list.

Or consider Corporate Accountability International’s Corporate Hall of Shame, comprised of “corporations that corrupt the political process and abuse human rights, the environment and our public health.” Seven of the ten ­– Walmart, ExxonMobil, Bank of America, Coca-Cola, DuPont, Monsanto, and Nestlé (which has the dubious distinction of making both lists) are WEF Industry Partners.

How about climate change? This is now an issue that regularly features ominously in the WEF’s “Global Risks” annual report. Curious, then, that in addition to Shell and ExxonMobil, the Forum’s Industry Partners include most of the largest oil and gas companies in the world, from BP and Chevron to Gazprom and Saudi Aramco.“Carbon Majors” a peer-reviewed study in the scientific journal Climatic Change, lists the 90 entities most responsible for extracting the fossil fuels burned over the past 150 years. The top six are WEF Industry Partners.

Despite the carefully crafted words of concern for the poor and hungry, the WEF’s many food corporations – from Unilever and Pepsico to Cargill and General Mills – have actually parleyed the misery of the food crisis into further control over the food system, as well as spectacular profits. During the 2008 food crisis, the organization GRAIN released a report revealing that “nearly every corporate player in the global food chain is making a killing from the food crisis …. Such record profits … are a reflection of the extreme power that these middlemen have accrued through the globalisation of the food system. Intimately involved with the shaping of the trade rules that govern today’s food system and tightly in control of markets and the ever more complex financial systems through which global trade operates, these companies are in perfect position to turn food scarcity into immense profits.” (1)

Global banks also played a pivotal role in precipitating – and making a killing off – this food crisis. According to an investigative report by Frederick Kaufman, Goldman Sachs instigated a “global speculative frenzy” on food which “sparked riots in more than thirty countries and drove the number of the world’s “food insecure” to more than a billion …. The ranks of the hungry had increased by 250 million in a single year, the most abysmal increase in all of human history.” (2) Needless to say, scroll down to “G” in the Industry Partners list, and Goldman Sachs is there.

The fact is, digging into any of the crises we face will reveal the complicity of the very corporations that the World Economic Forum represents. A study conducted for the UN, for example, estimated the combined environmental externalities of the world’s 3,000 biggest companies to be $2.2 trillion in 2008, “a figure bigger than the national economies of all but seven countries in the world that year.” (3)

Impression of the World Economic ForumThese are just a few of innumerable possible examples. The corporations represented by the World Economic Forum are the agents principally responsible for destroying the planet, ravaging livelihoods, and literally starving people, all while aggrandizing unprecedented profits into the hands of an ever-tinier super elite. Seen in this light, all the burnished social and environmental concern-speak of the WEF is so much vacuous corporate swagger, the crudest sort of greenwash. Even though these companies actually spend huge amounts of capital and energy fighting environmental regulation and the citizen’s groups who are suffering their abuses, they simultaneously pursue a strategic embrace of environmental discourse and narratives; they accept the existence of the problems while promoting privatized, technocratic strategies for addressing them. These strategies pivot between those that assign responsibility for causing and fixing the problems to individual consumers, and those that position the corporations themselves as crucial players in the common cause of “improving”/”cleaning” the environment – the same one, incidentally, that they destroyed.

The absurdity of this schizophrenia reaches extreme limits: the WEF is solemnly concerned about global warming because – get ready for it – it represents one of the biggest threats ever to global trade and corporate capitalism! The primary perpetrator of global warming is now portraying itself as a victim. In WEF-land, global warming is like a mysterious, autonomous, alien force invading from afar, without cause or explanation. It “affects us all”, so we must all roll up our sleeves and unite – fossil fuel corporations included – in the battle against a common external foe.

There is, however, one part of the WEF’s mission that is being genuinely fulfilled: “building sustained economic growth”, code for increasing the power and wealth of its corporate partners. That this is the first of the “challenges” described in the WEF mission statement is no accident. Economic growth might seem an odd mismatch to the other issues, like social welfare and environmental sustainability, but the WEF has clearly embraced the notion that endless growth is not only compatible with environmental sustainability, it is actually necessary for it. That this myth has been thoroughly debunked seems to have conveniently escaped the WEF’s notice. (4)

This farce would be laughable but for the immense power and enormous control commanded by the corporations and banks the World Economic Forum represents. When the WEF promises to address agriculture, food security, environmental sustainability, and the like, we should be very worried for exactly those things. Peel away the eco-charity veneer and the WEF’s actual mission stands naked: advance the power, growth, and wealth of the corporate rulers of the world.

In no way should The World Economic Forum be allowed to insert itself as a legitimate voice on the resolution of the very issues that its agenda – the perpetual growth of its partners – precipitates. On the contrary, it should be fiercely resisted – precisely what the alternative World Social Forum, Occupy WEF, and other anti-globalization groups were created to do. (5)

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Alex Jensen is Project Coordinator at the International Society for Ecology and Culture (ISEC). Alex has worked in the US and India, where he coordinated ISEC’s Ladakh Project from 2004 to 2009. He has collaborated on the content of ISEC’s Roots of Change curriculum and the Economics of Happiness discussion guide. He holds an MA in Globalization and International Development from University of East Anglia. He has worked with cultural affirmation and agro-biodiversity projects in campesino communities in a number of countries and is active in environmental health/anti-toxics work.

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(1) GRAIN (2008) ‘Making a Killing from Hunger’, 28 April,http://www.grain.org/article/entries/178-making-a-killing-from-hunger, and

http://www.grain.org/article/entries/716-corporations-are-still-making-a-killing-from-hunger

(2) Kaufman, F. (2010) ‘The Food Bubble: How Wall Street Starved Millions and Got Away With It’, Harper’s Magazine, July,http://frederickkaufman.typepad.com/files/the-food-bubble-pdf.pdf

(3) Jowit, J. (2010) “World”s top firms cause $2.2tn of environmental damage, report estimates”, The Guardian, 18 February, 2010.

(4) see, e.g.: Jorgenson, A. and Clark, B. (2012) ‘Are the Economy and the Environment Decoupling?: A Comparative International Study, 1960–2005,’ American Journal of Sociology 118(1),1–44; Jorgenson, A. and Clark, B. (2011) ‘Societies Consuming Nature: A Panel Study of the Ecological Footprints of Nations, 1960-2003’, Social Science Research 40:226-244; Stern, D. (2004) ‘The Rise and Fall of the Environmental Kuznets Curve’, World Development, 32(8):1419–1439; Hornborg, A. (2003) ‘Cornucopia or Zero-Sum Game? The Epistemology of Sustainability’, Journal of World-Systems Research IX(2): 205-216.

(5) see http://www.fsm2013.org/en andhttp://www.reuters.com/article/2012/01/23/us-davos-idUSTRE80M13X20120123

Looking Back at 2013: Photos of Climate Chaos, Natural Disasters, Heartache and Hope | DeSmogBlog

January 4, 2014 8:07 am / Leave a comment

Looking Back at 2013: Photos of Climate Chaos, Natural Disasters, Heartache and Hope | DeSmogBlog.

Looking Back at 2013: Photos of Climate Chaos, Natural Disasters, Heartache and Hope

Today, we wrap up 2013 with a slideshow of photographs taken this past year by DeSmog contributor Julie Dermansky. We’re grateful to have Julie on our team, and as you can see from her photographs, she witnessed some awe-inspiring and awful scenes in 2013.

A self-described Accidental Chronicler of Climate Change, Julie lives in New Orleans and has traveled the globe reporting on some of the most important stories of our times through her photojournalism and writing — Hurricanes Katrina and Ivan, Superstorm Sandy, earthquake-ravaged Haiti, the BP Gulf oil disaster, war-torn Iraq, genocide in Rwanda and lots more.

She joined DeSmogBlog in August, and quickly became an invaluable member of our team with her in-depth multimedia coverage of the Louisiana sinkhole, the battle over the southern half of Keystone XL, the fracking bonanza in Texas, the ongoing fallout of the BP disaster in the Gulf of Mexico and more.

Sit back and take a journey through Julie’s lens as we remember some of the biggest disasters and climate stories of 2013.

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