‘’EVs, Solar Could Push Oil Down To $10 By 2025’’ | OilPrice.com

The oil industry must brace for five energy “tsunamis” that threaten to drag prices as low as $10/bbl in less than a decade, according to Engie SA’s innovation chief. The falling cost of solar power and battery storage, rising sales of electric vehicles, increasingly “smart” buildings and cheap hydrogen will all weigh on crude, Thierry Lepercq, head of research, technology and innovation at the French energy company, said in an interview.

Energy ‘tsunamis’ threaten to drag oil down to $10, Engie says

Japan will be the shortest stop, and the easiest. As of May this year, the country has more EV charging stations than it does regular gas stations. Nationwide, there are 40,000 places he could charge up. So it won’t likely be over this part of East Asia that the sleigh starts to sputter and the reindeer have to take over. The charge-up in Japan will have to last a while, because for the rest of Asia it will be touch and go, and however you do the math, there’s no avoiding the harnessing of the reindeer over the rest of the continent. Over Africa, it’s reindeer all the way.

Could Santa’s Sleigh Go Electric? | OilPrice.com

With infrastructure in mind, Santa’s first stop state-side might have to be California, where they just unveiled the first EV DC fast-charging station capable of 350 kW output. But the good news is that by next year, Santa might need to rely on reindeer much less, as five major automakers have joined forces to bring into being 400 ultra-fast charging stations for EVs in Europe.

Could Santa’s Sleigh Go Electric? | OilPrice.com

Solar power is now cheaper than coal in some parts of the world. In less than a decade, it’s likely to be the lowest-cost option almost everywhere. In 2016, countries from Chile to the United Arab Emirates broke records with deals to generate electricity from sunshine for less than 3 cents a kilowatt-hour, half the average global cost of coal power. Now, Saudi Arabia, Jordan and Mexico are planning auctions and tenders for this year, aiming to drop prices even further. Taking advantage: Companies such as Italy’s Enel SpA and Dublin’s Mainstream Renewable Power, who gained experienced in Europe and now seek new markets abroad as subsidies dry up at home.

Solar Could Beat Coal to Become the Cheapest Power on Earth - Bloomberg

Canadian oil-sands industry’s expansion wavers with $75/bbl crude

Oil at $75/bbl won’t affect U.S. output from shale much because investments in wells and production have already been made, said Andrew Liveris, chairman and CEO of Dow Chemical Co. Some U.S. shale producers are already hurt by the drop in oil prices, though Dow, based in Midland, Michigan, sells enough different products that it can withstand lower crude, Liveris, the head of the largest U.S. chemical maker, said at a conference in Dubai.

Oil at $75/bbl won’t shut in much U.S. shale, Dow’s Liveris says

New York-traded crude oil will probably drop another $30 in the next two years as long-term cycles in commodities and currencies converge, no matter what happens at this week’s OPEC meeting and Iran nuclear talks, according to brokerage United-ICAP.

Oil seen dropping another $30 by ICAP on commodity, dollar cycle

OPEC's contentious decision to keep its production target, leaving the market with a supply glut, could trigger a wave of debt defaults by U.S. shale oil producers, warn analysts.

Will OPEC bankrupt US shale producers?

A steeper-than-expected rise in US shale oil reserves is about to change the global balance of power between new and existing producers, a report says.

Over the next five years, the US will account for a third of new oil supplies, according to the International Energy Agency (IEA).

The US will change from the world's leading importer of oil to a net exporter.

Demand for oil from Middle-East oil producers is set to slow as a result.

"North America has set off a supply shock that is sending ripples throughout the world," said IEA executive director Maria van der Hoeven.

The surge in US production will reshape the whole industry, according to the IEA, which made the prediction in its closely-watched bi-annual report examining trends in oil supply and demand over the next five years.

The IEA said it expected the US to overtake Russia as the world's biggest gas producer by 2015 and to become "all but self-sufficient" in its energy needs by about 2035.

The rise in US production means the world's reliance on oil from traditional oil producing countries in the Middle East, which make up Opec (the Organization of the Petroleum Exporting Countries), would end soon, according to the report.

Slower growth

US production is set to grow by 3.9 million barrels of oil per day (bpd) from 2012 to 2018, accounting for some two-thirds of the predicted growth in traditional non-Opec production, according to the IEA.

Meanwhile, global oil demand is set to increase by 8% which would be met mainly by non-Opec supplies, the report said

The IEA still expects production capacity among traditional Opec suppliers in the Middle East to continue to grow over the next five years, but at a slower rate.

Opec capacity, which counts for 35% of today's global oil output, is expected to rise by 1.75 million bpd to 36.75 million bpd in 2018, about 750,000 bpd less than predicted in the IEA's 2012 forecast.

The IEA cites the "growing insecurity in North and Sub-Saharan Africa" in the wake of the Arab Spring uprisings as a key reason for the slowdown.

"The regional fallout from the 'Arab Spring' is taking a toll on investment and capacity growth," the IEA said.

Fracking

The sharp rise in US oil production is largely thanks to shale oil, a product many have hailed as the saviour of the US energy market.

Fracking, the process of blasting water at high pressure into shale rock to release oil (or gas) held within it, has become widespread in the US.

But critics of shale oil point to environmental concerns such as high water use and possible water contamination, the release of methane and, to a lesser extent, earth tremors caused by drilling.

The process has been banned in France, while the UK recently lifted a moratorium on drilling for shale gas.

Wednesday, 10 April 2013
Noel Dyson

THE battle lines are being drawn. In the blue trunks, weighing in at – well it’s probably not polite to say – is the gas industry. In the red trunks and not in its best condition but still looking like it can pack a bit of a punch, is the Australian manufacturing sector. Let’s get ready to rumble.

The bell has gone and the manufacturing industry has come out swinging, pinning the gas industry to the side of the octagon* with its domestic gas press.

It is slipping in some hard and, according to some commentators, low blows pointing out the manufacturing revitalisation in the US on the back of its shale gale.

And here comes the sharp rising knee of justification – they are doing it all thanks to access to cheap energy due to a cheap gas price.

The gas industry has taken the blow amidships. It is still standing but that hurt.

It attempts a counterstrike with a sharp left “yeah but the Yanks don’t have any LNG export facilities to speak of” but it seems to have been a bit mistimed. Maybe that knee of justification hit a bit more centrally than first thought.

What’s this, the choke hold or shattered dreams of a great manufacturing renaissance? The manufacturing industry is playing for keeps.

Is the gas industry going to tap out? Yes, yes, yes. No wait! Here comes the counter. With one deft move the industry has deftly seized an Energy Quest report and twisted out of danger.

And here comes the boom.

According to industry body the Australian Petroleum Production and Exploration Association it is time to ask whether it is a free market or a free lunch the manufacturing sector is calling for.

Ouch! That’s got to hurt. Right in the moral indignation breadbasket.

Time to go for the throat.

It points out that the Enegy Quest report Domestic Gas Market Interventions: International Experience shows domestic gas reservation is uncalled for.

The report looks at major government intervention in the formation of domestic wholesale gas prices in 20 countries that in 2011 produced 74% of the world’s natural gas.

Of the OECD countries’ reviews – Canada, the Netherlands, Norway, the UK and the US – none have government intervention in their gas markets except the US and Canada.

In those latter two cases gas producers have to get government approval to export.

That’s taken the manufacturing industry to the mat. Time for a bit of ground and pound.

The shale gas revolution in the US, facilitated by the free gas market, the report says, is impacting the global energy market and energy prices globally.

“In the US it has reduced both gas and crude oil prices,” the report says.

“The US is now exporting cheap coal to Europe, reducing European prices and driving gas demand down to 2003 levels.

“This in turn is pushing LNG cargoes from the Atlantic into the Pacific.”

The report also looks at 15 non-OECD countries that all intervene in price setting for natural gas and finds that this regulation does not necessarily produce low gas prices in these countries.

This is getting brutal. Surely the ref has to step in and stop this.

APPEA chief executive David Byers said the international experience clearly offered lessons for Australian policy makers – that gas reservation was not the way forward.

“An examination of the real world experience shows energy policies generally reflect whether a country has a market economy or not, whether its industry is state-owned and where it ranks globally in regard to economic development,” he said.

“Introducing gas reservation policy would do nothing to stimulate the exploration and development needed to deliver new gas supplies and put downward pressure on prices.”

That’s almost it folks. Surely manufacturing has nothing left.

Oh, this could be the knockout blow here.

“In an advanced economy underpinned by competitive markets, such as Australia, one industry should not be required to subsidise the activities of another,” he said.

Nice try David but that is the sort of argument some states have been running in the federal sphere for several years. If it doesn’t work for them it probably won’t work for you.

But the pin is almost coming. It’s so close the gas industry can feel it.

Wait. Wait.

DING.

Okay folks, that’s the end of round one.

*Note, this battle could not take place in Western Australia. Not only does it already have a domestic gas policy, it has also banned the use of the octagon for mixed martial arts bouts.

"Peak oil is dead," Rob Wile declared last week. Colin Sullivan says it has "gone the way of the Flat Earth Society", writing

Those behind the theory appear to have been dead wrong, at least in terms of when the peak would hit, having not anticipated the rapid shift in technology that led to exploding oil and natural gas production in new plays and areas long since dismissed as dried up.

These comments inspired me to revisit some of the predictions made in 2005 that received a lot of attention at the time, and take a look at what's actually happened since then.

Here's how Boone Pickens saw the world in a speech given May 3, 2005:

"Let me tell you some facts the way I see it," he began. "Global oil (production) is 84 million barrels (a day). I don't believe you can get it any more than 84 million barrels. I don't care what (Saudi Crown Prince) Abdullah, (Russian Premier Vladimir) Putin or anybody else says about oil reserves or production. I think they are on decline in the biggest oil fields in the world today and I know what's it like once you turn the corner and start declining, it's a tread mill that you just can't keep up with....

"Don't let the day-to-day NYMEX (New York Mercantile Exchange) fool you, because it can turn and go the other direction. I may be wrong. Some of the experts say we'll be down to $35 oil by the end of the year. I think it'll be $60 oil by the end of the year. You're going to see $3 gasoline twelve months from today, or some time during that period."

But others, like Daniel Yergin, chairman of Cambridge Energy Research Associates, were not as concerned. Yergin wrote on July 31, 2005:

Prices around $60 a barrel, driven by high demand growth, are fueling the fear of imminent shortage-- that the world is going to begin running out of oil in five or 10 years. This shortage, it is argued, will be amplified by the substantial and growing demand from two giants: China and India.

Yet this fear is not borne out by the fundamentals of supply. Our new, field-by-field analysis of production capacity, led by my colleagues Peter Jackson and Robert Esser, is quite at odds with the current view and leads to a strikingly different conclusion: There will be a large, unprecedented buildup of oil supply in the next few years. Between 2004 and 2010, capacity to produce oil (not actual production) could grow by 16 million barrels a day-- from 85 million barrels per day to 101 million barrels a day-- a 20 percent increase. Such growth over the next few years would relieve the current pressure on supply and demand.

Let's start by taking a look at what happened to global oil production in the years since those two very different views were offered. Total world liquids production as reported by the EIA had reached 85.2 million barrels a day at the time Pickens issued his pronouncement. It briefly passed that level again in June 2006 and June 2008, though mostly was flat or down over 2005-2009 before resuming a modest and erratic climb since then. The most recent number (December 2012) was 89.3 million barrels a day, 4 mb/d higher than where it had been in May 2005, and 12 mb/d below the levels that Yergin had expected we'd be capable of by 2010.

Figure 1. Global liquids production, monthly, Jan 2000 - Dec 2012, in millions of barrels per day. Includes field production of crude oil, crude condensate, natural gas plant liquids, refinery process gain, and other liquids such as biofuels. Vertical line marks May 2005. Data source: EIA

But more than half of that 4 mb/d increase has come in the form of natural gas liquids-- which can't be used to make gasoline for your car-- and biofuels-- which require a significant energy input themselves to produce. If you look at just field production and lease condensate, the increase since May 2005 has only been 1.7 mb/d.

Figure 2. Global production of crude oil (including lease condensate), monthly, Jan 2000 - Dec 2012, in millions of barrels per day. Excludes natural gas plant liquids, refinery process gain, and other liquids such as biofuels. Vertical line marks May 2005. Data source: EIA

Gasoline in the United States reached $3.00 a gallon in July 2006, just as Pickens had predicted it would. Today we'd consider that cheap.

Figure 3. Average U.S. retail gasoline price, all grades and formulations, Jan 2000 - Dec 2012, in dollars per gallon. Vertical line marks May 2005. Data source: EIA

Crude oil only took two months after Pickens' prediction to reach $60/barrel. Brent is almost twice that today.

Figure 4. Price of Brent crude oil, Jan 2000 - Dec 2012, in dollars per barrel. Vertical line marks May 2005. Data source: EIA

Knowing all the facts today, of the assessments offered in 2005 by Pickens and Yergin, which one would an objective observer characterize as having been closer to the truth? How could anyone come away with the conclusion that those who saw the world as Pickens did were "dead wrong"?

The rush to judgment seems to be based on the remarkable recent success from using horizontal fracturing to extract oil from tighter rock formations. Here for example is a graph of production from the state of Texas, one of the areas experiencing the most dramatic growth in tight oil production. In 2012, Texas produced almost 2 million barrels each day, up 800,000 barrels a day from 2010.

Figure 5. Top panel: Texas field production of crude oil, annual, 1946-2012, in millions of barrels per day, from Hamilton (2012) and EIA. Bottom panel: Price of West Texas Intermediate crude oil in 2012 dollars, calculated as average nominal price over year (from FRED) divided by ratio of end-of-year seasonally unadjusted CPI to Dec 2012 CPI (from FRED).

But Texas production in 2012 was still 1.4 mb/d below the state's peak production in 1970, and I haven't heard anyone suggest that Texas is ever going to get close again to 1970 levels. Production from any individual tight-formation well in Texas has been observed to fall very rapidly over time, as has also been the experience everywhere else.

Figure 6. Type decline curve for Eagle Ford liquids production. Source: Hughes (2013).

Total U.S. production-- including Texas, offshore, and every other state-- is up 1 mb/d since 2012. But interestingly, that's almost the magnitude by which Saudi production (which accounted for 13% of the 2012 total in Figure 2 above) has recently declined.

Figure 7. Alternative estimates of Saudi daily oil production (mb/d, left scale) and Saudi oil rig count (right scale). Source: Stuart Staniford.

Stuart Staniford speculates that the recent Saudi cutback may have been a deliberate response to U.S. production gains in an effort to prevent oil prices from declining. On the other hand, his graph shows that Saudi effort (as measured by active drilling rigs) has ramped up significantly in the last two years.

Perhaps it's the case that Saudi Arabia isn't willing to maintain its previous production levels, or perhaps it's the case that Saudi Arabia isn't able to maintain its previous production levels. But whatever the explanation, this much I'm sure about: those who assured us that Saudi production was going to continue to increase from its levels in 2005 are the ones who so far have proved to be dead wrong.

Is the end of the oil era nigh?

I attended the American Geophysical Union meeting in San Francisco two weeks ago at which I heard a very interesting presentation by David Hughes of the Post Carbon Institute. He is more pessimistic about future production potential from U.S. shale gas and tight oil formations than some other analysts. Here I report some of the data on tight oil production that led to his conclusion.

A number of analysts have issued optimistic assessments of the future production potential of U.S. shale or tight oil. For example, the International Energy Agency recently predicted that the U.S. would be producing over 10 million barrels per day of oil and natural gas liquids by 2020 before resuming a gradual decline. Citigroup is even more optimistic.

Source: David Hughes, AGU presentation, December 2012.

Source: David Hughes, AGU presentation, December 2012.

David Hughes has been studying detailed data on each individual well in shale gas and tight oil formations in the United States as part of a study that will be released by the Post Carbon Institute in February. The most successful new oil-producing region is the Bakken in North Dakota and Montana, which currently accounts for 42% of the U.S. tight oil total and accounts for about 1/5 of the tight oil production that is projected by Citigroup for 2022. Hughes finds that once output from a typical Bakken well begins to decline, within 24 months its production flow is down to 1/5 the level achieved at its peak. This is in line with estimated decline rates separately published by the North Dakota Department of Mineral Resources.

Source: David Hughes, AGU presentation, December 2012.

Given the observed decline rates on existing wells, it is then a straightforward mechanical exercise to ask the following question. Suppose that no new wells were drilled after 2010. What would the path of Bakken oil production then look like?

Source: David Hughes, AGU presentation, December 2012.

Increasing the annual production thus requires not just new wells but an increasing number of new wells each year; Hughes estimates that 820 new wells are needed just to offset Bakken field decline. But a second feature in the data posing challenges for that plan is that while a few wells in the Bakken have proven to be very productive, the average well productivity is much lower. A limited number of lucrative sweet spots account for much of the success so far.

Source: David Hughes, AGU presentation, December 2012.

Source: David Hughes, AGU presentation, December 2012.

Hughes argues that there are limits to the number of new wells that will plausibly be drilled each year and the number of available well locations. These factors make achieving the IEA or Citigroup objectives difficult and mean a much more rapid decline in the production rate after the peak is reached. For example, here are Hughes' calculations if the current drilling rate were maintained-- 1500 new wells per year leading to a tripling in the number of operating wells-- and if the EIA's estimate of remaining productive locations is accepted. By contrast, the Citigroup projection of a continuous plateau after reaching peak production would require tens of thousands more well locations than estimated to be available by the EIA.

Source: David Hughes, AGU presentation, December 2012.

Oil produced from shale or tight formations is going to be very helpful to the U.S. economy. But this is an expensive way to try to get oil, and there may have been some overselling of how much these fields are actually going to deliver.

Posted by James Hamilton at December 18, 2012 05:56 PM

Posted by: jonathan at December 18, 2012 06:10 PM

Posted by: Bruce Carman at December 18, 2012 06:26 PM

Shale Gas Will be the Next Bubble to Pop - An Interview with Arthur Berman

The “shale revolution” has been grabbing a great deal of headlines for some time now. A favourite topic of investors, sector commentators and analysts – many of whom claim we are about to enter a new energy era with cheap and abundant shale gas leading the charge. But on closer examination the incredible claims and figures behind many of the plays just don’t add up. To help us to look past the hype and take a critical look at whether shale really is the golden goose many believe it to be or just another over-hyped bubble that is about to pop, we were fortunate to speak with energy expert Arthur Berman.

Arthur is a geological consultant with thirty-four years of experience in petroleum exploration and production. He is currently consulting for several E&P companies and capital groups in the energy sector. He frequently gives keynote addresses for investment conferences and is interviewed about energy topics on television, radio, and national print and web publications including CNBC, CNN, Platt’s Energy Week, BNN, Bloomberg, Platt’s, Financial Times, and New York Times. You can find out more about Arthur by visiting his website: http://petroleumtruthreport.blogspot.com

In the interview Arthur talks about:

•         Why shale gas will be the next bubble to pop
•         Why Japan can’t afford to abandon nuclear power
•         Why the United States shouldn’t turn its back on Canada’s tar sands
•         Why renewables won’t make a meaningful impact for many years
•         Why the shale boom will not have a big impact on foreign policy
•         Why Romney and Obama know next to nothing about fossil fuel energy

Interview conducted by James Stafford of Oilprice.com

Oilprice.com: How do you see the shale boom impacting U.S. foreign policy?

Arthur Berman: Well, not very much is my simple answer.

A lot of investors from other parts of the world, particularly the oil-rich parts have been making somewhat high-risk investments in the United States for many years and, for a long time, those investments were in real estate.

Now these people have shifted their focus and are putting cash into shale. There are two important things going on here, one is that the capital isn't going to last forever, especially since shale gas is a commercial failure. Shale gas has lost hundreds of billions of dollars and investors will not keep on pumping money into something that doesn’t generate a return.

The second thing that nobody thinks very much about is the decline rates shale reservoirs experience. Well, I've looked at this. The decline rates are incredibly high. In the Eagleford shale, which is supposed to be the mother of all shale oil plays, the annual decline rate is higher than 42%.

They're going to have to drill hundreds, almost 1000 wells in the Eagleford shale, every year, to keep production flat. Just for one play, we're talking about $10 or $12 billion a year just to replace supply. I add all these things up and it starts to approach the amount of money needed to bail out the banking industry. Where is that money going to come from? Do you see what I'm saying?

Oilprice.com: You've been noted suggesting that shale gas will be the next bubble to collapse. How do you think this will occur and what will the effects be?

Arthur Berman: Well, it depends, as with all collapses, on how quickly the collapse occurs. I guess the worst-case scenario would be that several large companies find themselves in financial distress.

Chesapeake Energy recently had a very close call. They had to sell, I don't know how many, billions of dollars worth of assets just to maintain paying their obligations, and that's the kind of scenario I'm talking about. You may have a couple of big bankruptcies or takeovers and everybody pulls back, all the money evaporates, all the capital goes away. That's the worst-case scenario.

Oilprice.com: Energy became a big part of the election race, but what did you make of the energy policies and promises that were being made by both candidates?

Arthur Berman: Mitt Romney, particularly, talked about how the United States would be able to achieve energy independence in five years. Well, that's garbage.

Relevant Article: High Risk Investing - The New Trend in Energy: Interview with Andrew McCarthy

Anybody who knows anything about oil, gas and coal, knows that that's absurd. We were producing a little over 6 million barrels a day thanks to an all-out effort in the shale oil play. We consume 15 million barrels of oil a day and that leaves the gap of 9 million barrels per day. At the peak of U.S. production, in 1970, the U.S. produced 10.6 million barrels per day. Like I said, either the guy doesn't know what he's talking about, or is making a big joke of it.

Obama didn’t talk so much . . . He's a hugely green agenda kind of president and I'm not opposed to that, but he's certainly not for the oil and gas business. It wasn't until he got serious about thinking about his re-election that he decided to take credit for what really happened.

Oilprice.com: Japan recently announced that they are going to be phasing out nuclear power. What are your views on nuclear? Are we in a position to abandon this energy source?

Arthur Berman: No. Japan is a special case. The disaster at Fukushima, the nuclear reactor, was right on top of a major fault. So, that was a dumb place to put it.

To wholesale abandon nuclear power because one reactor was incredibly stupidly planned, to me seems like a bit of a . . . well, I can't tell people how they should react, but if I were a Japanese citizen, and the truth was that we have no oil, we have no coal, we have no natural gas, the next question is, "Well, if we get rid of nuclear, what are we going to do?"

It's a really good question to ask. If you don't have anything of your own, how are you going to get what you need? The answer is that they have to import LNG and that's very expensive.

Right now, natural gas is selling in Japan for $17 per million BTUs. You can buy the same BTUs in Europe for $9 today, or in the US for $3.25

Relevant Article: The Myth of Affordable Energy - Interview with Ed Dolan

Oilprice.com: What about Germany’s decision to also phase out nuclear power?

Arthur Berman: For Germany to abandon nuclear… that decision is truly delusional because they haven't had any problems over there. Nor is Germany particularly earthquake prone or tsunami prone. They have forced themselves into a love relationship with Russia.

Oilprice.com: What are your views on Canada's tar sands? Are they a rich source of oil that the U.S. needs to exploit? Or do you think they're a carbon bomb, which could do irreparable damage to the climate?

Arthur Berman: Well, that's a very good question. I suppose they're both, as are virtually all things that burn. Right? They're a very rich source of oil. And they're dirty. It requires a lot of natural gas heating to convert them into some usable form, a lot of processing, but here's the thing, if the United States doesn't buy that oil from Canada, do you think Canada's just going to say, "Oh. Okay. Nevermind. We'll forget about all this."

No. They're going to sell it somewhere else. They'll probably sell it to Asia. So, the issue of the carbon bomb doesn't get resolved by the United States not taking the oil.

So, to me, that's off the table. Yes. I think it's an incredibly sensible play to get your oil from a neighbour, and a neighbour who you trust, and it doesn't require overseas transport and probably getting involved in periodic revolutions and civil uprisings.

Oilprice.com: Is there any technology, any development you see coming in the future that can help us get where we need to be? Is conservation really the only answer or do you have any hopes for some of the alternative energy technologies, such as solar or, even, some of these more advanced technologies such as Andrea Rossi’s E-cat machine?

Arthur Berman: Oh. I have all the enthusiasm for technology that you could ask for. I'm a scientist and I love technology but I heard a very good presentation several years ago on your exact question and the man who gave a talk said, "I'm going to give you a rule to live by. If it's not on the shelf today, then a solution is no sooner than ten years in the future." So, when you talk about E-cat and you talk about algae and all this kind of stuff, it's not on the shelf today. So, that means it's in some sort of pilot stage of testing.

Work harder guys. Work harder and faster because you've got a lot of work to do. So, yes, I'm enthusiastic. I think there are some great ideas out there but I don't see any of them helping us in the coming five to ten-year period.

Oilprice.com: Environmentalists talk about the evil of fossil fuels, but have they really done their research to see how vital it is to pretty much everything that we base our modern lives upon?

Arthur Berman: Well, that's exactly right. My oldest son and his family until recently lived in California, and in California people think electricity comes from the wall. They don't have any idea that most of their electricity comes from horrible coal-fired power plants in New Mexico and Arizona. As long as they don't have to see it, they don't have a problem.

But, in this world, and in this life, we're all connected and if you see something you don't like, there's a good possibility that whatever they're doing there has something to do with something you're using. So, this is an issue.

Oilprice.com: Arthur, thank you for taking the time to speak with us. For those readers who may be interested in contacting Arthur please take a moment to visit his website: http://petroleumtruthreport.blogspot.com/

3 Questions: World energy outlook

Fatih Birol, chief economist of the Paris-based International Energy Agency, is the lead author of an eye-catching new report projecting that the United States will become the world’s leading oil producer within a few decades. Birol, who also chairs the World Economic Forum’s Energy Advisory Board, has been named by Forbes magazine as one of the most influential people on the global energy scene. He is often called on to brief high-level political figures on energy issues — including briefings last year for President Barack Obama, among other leaders, on the implications of America’s boom in natural gas.

Birol will speak at MIT about the new report on Wednesday, Nov. 28 . MIT News spoke with him in advance of this appearance to ask about the world’s energy outlook.

Q. The new report has attracted great press attention for its projection that the United States may soon become the world’s leading oil producer. Can you discuss what you see as the greatest implications of this change, in terms of energy security, geopolitics and carbon emissions?

A. The most striking implications concern U.S. oil imports and international oil-trade patterns. The upward trend in production is partly responsible for a sharp fall in U.S. oil imports. By 2035, we project oil imports into the United States of only 3.4 million barrels a day, which implies a substantial (60 percent) reduction in oil-import bills. North America as a whole actually becomes a net oil exporter. In international oil markets, this accelerates the shift in trade patterns toward Asia, raising the geostrategic importance of trade routes between Middle East producers and Asian consumers.

But what should attract equal attention … is the essential role played by energy efficiency. I believe that energy efficiency has been an epic failure by policymakers in almost all countries. Its potential is huge but much of it remains untapped. Compared with today, savings from more rigorous vehicle fuel-economy standards could prompt a 30 percent fall in U.S. oil demand by 2035.

Q. The report highlights the importance of water supply as a potential limiting factor in producing some sources of energy. What do you see as the key policy issues or technology needs to help alleviate water constraints?

A. We expect water to become an increasingly important criterion for assessing the physical, economic and environmental viability of energy projects. This applies not only to locations where water is scarce under normal conditions, but even to relatively water-rich ones that might suffer droughts or heat waves. To most effectively manage constraints, policymakers should first encourage more efficient water use — for example, by valuing freshwater resources economically. This could encourage implementation of many technical options that already exist to reduce freshwater use: more advanced cooling systems for powerplants and, broadly, technologies that involve reuse and recycling, or can use non-freshwater sources.

Policymakers should also develop evidence-based rules and regulations that adequately protect water in circumstances where risks from energy production are present. This applies to the development of shale gas, which may be stifled in some areas without public confidence that risks to water resources can be safely managed.

Q. The report seems to support the idea that Asia will become the leading energy user, and emissions source, in the coming years. What do you see as the realistic prospects for limiting carbon emissions as that trend continues?

A. With CO₂ emissions at a record high in 2011, meeting the 2-degrees-Celsius goal [for maximum average global temperature increase] will now be even harder and more expensive than last year. The target is not out of reach, but our analysis clearly demonstrates the need for urgent action. Energy-efficiency policies are essential to reduce emissions quickly. These policies not only reduce energy demand, but also increase economic growth by reducing energy expenditures and local air pollution, with significant benefits for public health — in particular in China and India.

Moreover, fossil-fuel subsidies, which remain intact in several Asian countries, are a major enemy in the fight against climate change. These totaled $523 billion globally in 2011, resulting in wasteful energy consumption and additional CO₂ emissions.

In terms of carbon pricing, we already see several positive signals: New Zealand has an emissions-trading scheme in place; Australia started with a fixed-price transition phase in July 2012 in order to introduce a full cap-and-trade scheme in 2015; Korea will start with an emissions-trading scheme in 2015; and in Japan there exist local emissions-trading schemes. Most importantly, China will introduce carbon-trading in seven pilot regions and cities in 2014, which is eventually intended to lead to a national carbon emission-trading scheme in 2016.

A contrarian illustrates what drilling history says about the future.

AOL Energy, Jon Hurdle: December 4, 2012

A forthcoming book argues that the country's shale gas plays contain only about a quarter of the fuel that has been estimated by the U.S. Energy Information Administration, and other widely used industry and academic assessments.

Cold, Hungry and In the Dark: Exploding the Natural Gas Supply Myth by Bill Powers asserts that the quantity of unproved but technically recoverable natural gas in U.S. shale plays is approximately 127 trillion cubic feet, or about a quarter of the 482 tcf estimated by the EIA in its Annual Energy Outlook for 2012.

Powers, who publishes a newsletter for energy investors, argues that existing natural gas plays have not been nearly as productive as their backers predicted, and so cannot be expected to live up to expectations for future output.

"Recent drilling success has been extrapolated into the future," said Powers, who also sits on the board of the Calgary oil and gas company Arsenal Energy. "That's not supported by drilling history."

In Arkansas' Fayetteville Shale, 4,400 wells have produced 3.3 tcf since 2005, according to the Arkansas Oil & Gas Commission, or around a tenth of the 32 tcf that the EIA says is technically recoverable. In reality, Powers says, the Fayetteville Shale contains a total recoverable resource (TRR) of just 10 tcf.

In Louisiana, Arkansas and east Texas, the Haynesville Shale has produced around 5 tcf so far, Powers said. He predicted it has a total recoverable resource of 10 to 20 tcf, far short of the EIA's estimate of 75 tcf, a number Powers called "ridiculous."

Swimming Against the Current

He applies the same argument to Michigan's Antrim Shale, a play that has not been subject to the new wave of hydraulic fracturing and horizontal drilling that has made many shale beds economic, but whose long history since the mid-1980s shows production that he says has fallen short of expectations.

The Antrim has so far produced 3 tcf from some 10,000 wells, and its output has been declining since 1998, according to the Michigan Public Service Commission. Powers predicted the shale contains a TRR of 2 tcf, sharply lower than the 20 tcf predicted by the EIA.

Powers is the latest analyst to argue that the widely heralded shale gas "revolution" may be overblown. Other skeptics include Houston-based petroleum consultant Arthur Berman, who has long claimed that resource estimates are being overstated by energy companies seeking to defend their stock prices.

Berman, who writes the foreword to Powers' book, said the national gas resource, including proven reserves, is likely to equal about twenty-two years of consumption at the current rate, or less than a quarter of the 100 years' worth that is often cited by analysts and policymakers, including President Obama.

Berman's forecast is based on an estimate of probable reserves published by the Potential Gas Committee at the Colorado School of Mines, a 100-strong panel of company representatives that Berman called the "gold standard" of natural gas resource estimation.

"There is a great deal more uncertainty in this whole shale revolution than most people want to believe," Berman told AOL Energy. "There is definitely less gas than the propaganda says."

This is the first in a two-part AOL Energy series on the topic of U.S. shale gas reserves; check back soon for the conclusion.

Government numbers reveal a steep increase in monthly production over the past year.

The United States produced an average of 6.5 million barrels of crude oil per day in September—the largest monthly average since January 1998, according to the Energy Information Administration. As shown in the chart below, the monthly average has risen by about a million barrels per day since July of of last year. The EIA reports that “most of that increase is due to production from oil bearing-rocks with very low permeability.” The development of hydraulic fracturing and horizontal drilling technologies has made the extraction of oil from such resources much more economical in recent years. These technologies are the main reasons the International Energy Agency expects oil production by U.S. to surpass that of Saudi Arabia within a decade. (See Shale Oil Will Boost U.S. Production, But It Won’t Bring Energy Independence)

BY ROSS KELLY

SYDNEY -- Australia has approved construction of a multi billion dollar gas export plant that will float out at sea planned by a joint venture between GDF Suez and Santos.

Approval for the Bonaparte floating LNG project, to be located about 250 km west of Darwin, was approved by Environment Minister Tony Burke subject to 15 strict environmental management conditions.

The conditions relate to managing the impact on migratory and threatened species, and the marine environment, Mr. Burke said in a statement.

The venture 60% owned by the French company and 40% by the Australian company is aiming to make a final investment decision in 2014 and ship its first LNG cargos in 2018.

It aims to be one of the first ventures in the world to use revolutionary floating LNG technology that can chill natural gas for export out at sea where it lies, rather than having to pipe it back to an onshore processing plant.

Royal Dutch Shell has already made a final investment decision on its Prelude floating LNG project offshore Western Australia, expected to be the world's first active floating LNG project when it ships its first cargos in 2016.

Dow Jones Newswires

BY MICHAEL HADDON

LONDON -- Shell said that major construction had begun on the world's first floating vessel that will use new technology to produce LNG aboard. The oil multinational said it had begun the cutting of the first steel for the Prelude FLNG, facility that will develop gas fields 200 km off the coast of Australia. We are cutting 7.6 mt of steel for the Prelude floating LNG facility today, but in total more than 260,000 tons of steel will be fabricated and assembled for the facility, said Shell's Projects and Technology Director Matthias Bichsel.

The completed Prelude FLNG facility will be 488 meters long and 74 meters wide, making it the largest offshore floating facility ever built, Shell said. It will produce gas at sea, turn it into LNG and then transfer it directly to ships that will transport it to customers.At peak levels, around 5,000 people will be working on the construction of the FLNG facility in South Korea and another 1,000 will build the turret mooring system, subsea and wells equipment in other locations across the globe, Shell said.

A pioneer of FLNG technology, Shell is targeting first production in 2016.

Dow Jones Newswires

Europe left behind as shale shock drives America’s industrial resurgence

The wonders of US shale gas continue to amaze. We receive fresh evidence by the day that swathes of American industry have acquired a massive and lasting advantage in energy costs over global rivals, demolishing assumptions about US economic decline.

By Ambrose Evans-Pritchard

7:08PM GMT 28 Oct 2012

Comments

(Reuters) - Canada has blocked Malaysian state oil firm Petronas' C$5.17 billion ($5.2 billion) bid for gas producer Progress Energy Resources in a surprise move that could signal problems for a much larger Chinese deal in the country's energy sector.

Canada's announcement late on Friday, minutes before a deadline, was a blow to Petronas, whose domestic oil supplies are shrinking and which has been seeking to boost its resources beyond Malaysia and volatile areas such as Sudan.

It also raises doubts over Chinese oil group CNOOC's C$15.1 billion offer for oil producer Nexen and could weigh on other Canadian firms hoping for foreign investment to tap their vast energy reserves.

A rejection of the CNOOC bid would likely damage trade ties Canada has been trying to build with China, underlining political sensitivity to Chinese corporate expansion in North America.

"I have sent a notice letter to Petronas indicating that I am not satisfied that the proposed investment is likely to be of net benefit to Canada," Industry Minister Christian Paradis said in a statement.

The government, which has said C$630 billion investment is needed in Canada's energy sector over the next decade, has been trying to balance concerns over the deals with that requirement for capital.

The companies have 30 days to make the offer more palatable.

Progress Chief Executive Michael Culbert said he was disappointed with the ruling and his company would take the next month to try to determine what concerns led to the rejection and what potential remedies might assuage them. Petronas had no comment on Saturday.

The bid had not been expected to run into hurdles in a review process that asks whether a deal is of "net benefit" to Canada. But in a sign that it was attracting greater scrutiny, Canada earlier this month lengthened its review period by two weeks.

Investment industry sources said Progress officials had initially told them that Investment Canada wanted the unusual two-week extension because it was experiencing staffing and workload issues due to numerous files it was juggling, and that no serious issues had arisen or new information requests made.

Then at the last minute, Ottawa came back to Petronas to ask for another extension, a request the Malaysian company, already irked by the delays, refused, forcing Paradis' hand, the Canadian and U.S. sources said.

The sources suggested Prime Minister Stephen Harper wanted the extra time to allow his government to draw up a set of rules for takeovers by foreign state-owned enterprises, something he has said he would deliver with the Nexen decision.

Some investors heaped criticism on Ottawa, saying the move and other recent deal rejections smacked of protectionism. But the Conservative government insisted it was still open for business.

"Canada has a broad framework in place to promote trade and investment, while at the same time protecting Canadian interests. Our government welcomes foreign investment that benefits Canada," said Margaux Stastny, spokeswoman for Paradis.

The Petronas deal attracted scrutiny after CNOOC made its bid for Nexen. Some Conservative Party members are wary of the CNOOC offer, in part because of what they say are unfair Chinese business practices.

Earlier this month, Harper said China's "very different" political and economic systems were a concern.

A CNOOC spokeswoman in Beijing said she had no comment on the ruling against Petronas or whether it could mean the Chinese company's bid for Nexen was in trouble.

WARNING

Last month, China's ambassador to Canada said the government should not allow domestic politics to affect its decision on whether to approve CNOOC's bid.

However, some sources said the CNOOC deal need not necessarily be threatened.

"I don't think that kills the CNOOC-Nexen (deal) but we do hear there is still a lot of local opposition to overcome," one Hong Kong-based energy sector banker said.

"It allows Canada to send a signal without upsetting a large trading partner. Better to upset Malaysia than China in a way."

Chinese firms have more usually had difficulty doing business south of Canada's border, and this has come to the fore in recent weeks. The United States House of Representatives' Intelligence Committee issued a report earlier this month saying companies should stop doing business with Chinese groups Huawei and ZTE over security concerns.

On Thursday, the chief executive of U.S. aircraft maker Hawker Beechcraft, whose $1.79 billion sale to a Chinese firm fell through, said China-bashing by U.S. presidential candidates may have contributed to failure of the talks.

The United States has long been the largest market for Canadian energy exports. But with growing U.S. oil output from unconventional sources and the rejection this year of an initial application on the controversial Keystone XL pipeline project, Canada has been forced to try to build bridges with Asian markets that would welcome its energy supplies.

"The long-term health of the natural gas industry in Canada and the development of a new LNG export business are dependent on international investments such as Petronas," Progress' Culbert said in a statement.

CNOOC, which has won approval from Nexen shareholders, has said it will retain all Nexen employees and make Calgary the headquarters for its Americas operations.

Petronas had also attempted to highlight the benefit its deal offered to Canada, saying it would combine its Canadian business with that of Progress and retain all staff.

"Maybe Canada is using this to attach more conditions to the Nexen deal," said Gordon Kwan, head of energy research at Mirae Asset Securities in Hong Kong. He thinks CNOOC will get the go-ahead.

Progress' share price has doubled since talk of the possible Petronas bid emerged in April, closing at C$21.65 on Friday. Nexen stock has also surged since CNOOC announced its bid in July, rising 48 percent to C$25.15.

Canada last blocked a foreign takeover in 2010, when it stunned markets by rejecting BHP Billiton's $39 billion bid for Potash Corp, the world's largest fertilizer maker.

BHP also had a 30-day period to come back with additional undertakings but withdrew its offer, sensing the bid was unlikely to be approved in the face of political opposition.

BIG DEALS?

Canada is grappling with concerns that approval of the deals could spark a flurry of takeovers of energy companies - the country is home to the world's third-largest proven oil reserves, most of them in the western province of Alberta.

Petronas, Malaysia's only Fortune 500 company, made a big push into Canada's shale gas sector last year when it bought a $1.1 billion stake in a field from Progress.

Petronas first bid for Progress in June to gain control of its 800,000 acres holdings in the Montney shale-gas region of northeastern British Columbia, reserves that could feed a planned liquefied natural gas facility on the Pacific coast.

It raised its initial offer of C$20.45 per share to C$22 in July after a rival bid from an unnamed suitor.

Petronas had seen the Progress deal as a crucial step to increase its presence in a more stable country after clashes on the border between South Sudan and Sudan this year all but shut its pipelines there.

On Thursday, Canada's broadcast regulator blocked BCE's C$3 billion bid for Astral Media, saying the deal would give too much power to BCE, Canada's biggest telecoms company and the owner of numerous TV and radio assets.

(Additional reporting by David Ljunggren in Ottawa, Jeffrey Jones in Calgary and Charlie Zhu in Hong Kong; Editing by Dan Lalor, Raju Gopalakrishnan and Xavier Briand)