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07 November 2015

Press review 07-11-2015 - Autumn Blues

Days are getting shorter and shorter; at some point the clock goes back one hour and suddenly the faint autumn sun sets at five in the afternoon - in the rare days the sun is actually visible between the permanent clouds. For many folk (like me) this seasonal deprivation of natural light can induce depression, in varying degrees each year.

It is also by this time that another depressive story starts emerging: the growing difficulty to adequately supply Europe's energy grids. At the eye of the storm remains the UK, that faces increasing energy deprivation from left and right. The first scare of this season is already there, too soon and at too high temperatures for comfort.

Financial Times
UK’s high-wire act on power supplies laid bare
Kiran Stacey and Christopher Adams, 04-11-2015

[...] National Grid urged a group of heavy users, including businesses, factories and hospitals, to switch to back-up power or to reduce demand to meet the sudden lack of supply. Consumers responded by taking 40 megawatts of demand off the grid — partly by switching to back-up generators.

Traders watched in amazement as prices surged, with the grid paying £2,500 per MWh to one operator, Severn Power, as it bought in emergency supplies; the usual going rate is around £60.

[...] The measures highlighted the tightness of the margin between supply and demand in the UK, where old power plants have in the past decade been taken off the grid but not replaced quickly with alternatives. Coal-fired plants are being closed at a rapid pace, ahead of a 2023 deadline for compliance with new EU rules on air quality.
The UK managed to synchronise the retirement of its Nuclear fleet and Coal based thermal electrical park with the decline of the North Sea Petroleum and Gas resource. It has created the perfect energy storm - in about one decade the UK is set to go from net energy exporter to one of the most import reliant member states. Shy measures hike the renewable energy park but it seems all too little too late, beyond technological challenges with seasonality yet to tackle.

If the UK has so far been able to rely on Norway has a stable supplier of Natural Gas, the outlook on the other side of the North Sea is not very reassuring either.
OilPrice.com
Shrinking Norwegian Natural Gas Production Puts Europe In Dire Situation
Rune Likvern, 03-11-2015

  • NPD revised down their band for future delivery potential by about 10 Gcm/a (Bcm/a) and moved the start of decline one year forward relative to their forecast last year.

  • I now expect the Norwegian delivery potential for natural gas relative to 2014/2015 to decline by more than 40% by 2025.

  • Europe will increasingly have to rely on natural gas imports from more distant sources and should by now have implemented policies for the role natural gas will have in its future energy mix.

In Germany protective policies towards a dying Coal industry multiply. A ministry that one year taxes Solar and in the other hikes subsidies to Coal is certainly not acting in the best interest of its electors. Perhaps the SPD should change its name to Kohle-demokratische Partei?
Reuters
German Cabinet passes coal-fired power reserve law
04-11-2015

Some 2.7 gigawatts (GW) of power generation from brown coal, equivalent to the output of eight power plants, will be placed in reserve and shut down by 2022, a government official said.

[...] Utilities RWE, Vattenfall and Mibrag will reduce coal-fired power output from the start of winter 2016 and receive an average of 230 million euros ($251 million) per year collectively.

Consumers are expected to face higher electricity bills as costs of around 1.6 billion euros for the scheme will not be shouldered by the government.

Opposition lawmaker Oliver Krischer from the Green Party accused Gabriel of yielding to the interests of the utilities and creating a reserve which no-one needed at great cost.
This was an especially active week in the Petroleum market, ad not all news were related with the price rout. Petrobras goes from bad to worse, as its restructuring plan sparks a labour strike. The faith of this major company may be a defining moment for the western Petroleum industry.
Reuters
Brazil oil strike cuts output up to 13 pct - Petrobras
Marta Nogueira and Gustavo Bonato, 04-11-2015

A labor strike that began on Sunday has reduced oil production from Brazil's state-run oil producer Petroleo Brasileiro SA by 273,000 barrels on Monday, or 13 percent of its output, the company said in a Tuesday security filing.

Petrobras said it estimated oil production would show a 8.5 percent drop on Tuesday and natural gas output would fall by 13 percent compared with the production level of the day before the strike began. It said fuel distribution has not been affected by the stoppage and does not expect supply shortages in Brazil.

[...] FUP's general coordinator José Maria Rangel said in a video published online that in the first 24 hours since the union's members joined the strike, they had prevented around 450,000 barrels of oil from being extracted in the offshore Campos Basin, and nationwide around 500,000 barrels.
The price rout is now showing up in most major companies' accounts books. 2015 is likely to be a record year in job losses in the industry after the already spectacular 100 000 lost last year.
Reuters
Oil industry slipping into the red as outlook dims
Ron Bousso, Karolin Schaps and Anna Driver, 29-10-2015

The oil sector is slipping into the red after years of fat profits as the steep slump in oil prices shows little sign of ending, with this quarter shaping up to be the worst since the downturn started.

[...] With 10 of the top 20 European and North American oil and gas producers having reported third-quarter results, seven have posted losses.

These include Royal Dutch Shell, Italy's Eni and in North America Occidental Petroleum Corp, Anadarko Petroleum Corp, Hess Corp, Suncor and ConocoPhillips.

Shell posted a third-quarter loss of $7.4 billion on Thursday, hit by a massive $8.2 billion charge after halting its exploration in Alaska's Arctic sea and a costly oil sands project in Canada.
If last week there were news of major companies abandoning bituminous sands projects, this week are news of deep-water prospects left at bay. Some of the resources touted last decade as the future of the industry, such as the lower tertiary in the Gulf of Mexico, may never come on line.
Fuel Fix
ConocoPhillips to exit deep-water exploration by 2017
Collin Eaton, 29-10-2015

ConocoPhillips officials say the company will stop searching for oil and gas in deep-water fields by 2017, and it plans to sell the offshore leases it doesn’t intend to drill.

Its exit from deep-water exploration would free up roughly $800 million in capital, the amount it has budgeted for exploration next year. Plus, it will save on costs on that side of the business, Matt Fox, ConocoPhillips’ executive vice president of exploration and production, told investors on Thursday.

“It’s a strategic decision to exit deep-water exploration,” Fox said.

It is part of the company’s plan to sell $1 billion to $2 billion assets a year as it braces for lower oil prices. The Houston company has about 2.2 million acres and three recent discoveries in the Gulf of Mexico.
Over at OilPrice.com, Nick Cunningham asks if this latest announcement by ConocoPhillips is not spelling the end of mega-projects. If prices remain were they are that will certainly be case; but long term flat prices is the last thing I expect.
OilPrice.com
Oil Megaprojects Won’t Stay On The Shelf For Long
Nick Cunningham, 02-11-2015

For years, as conventional oil reserves depleted and became increasingly hard to find, oil companies ventured into far-flung locales to find new sources of production. Extracting oil from these frontier areas required more advanced technology and a lot more capital: Ultra deepwater, Arctic offshore, heavy oil sands, and increasingly, the Lower Tertiary.

Often these megaprojects projects were only the purview of the largest oil companies, as smaller players did not have the resources – financial or technological – to make them work. Meanwhile, smaller drillers, at least in North America, turned to shale, which required less upfront cash and could be turned around on a quick timetable.

[...] The narrower focus on smaller projects, especially shale, could mean the end of the megaproject. The collapse in prices may mean we don’t see more white elephants like the Kashagan project in Kazakhstan, an offshore boondoggle that has required more than a decade of development, tens of billions of dollars, and still won’t come online for a few more years. Or, LNG export facilities like the massive Gorgon LNG, led by Chevron, which saw costs balloon to more than $54 billion, could be the last of its kind.
Beyond the multi-national companies, petro-states also suffer with the present Petroleum market. This review has been reporting the relative success Russia has had copping with this market; however, the mechanisms it used to do so might be reaching exhaustion. Note that Russia's Petroleum extraction is likely peaking now.
Financial Times
Russians tax brains over oil’s contribution to state coffers
Jack Farchy, 01-11-2015

[...] The battles over tax come on top of other challenges. While Russian oil companies have been relatively insulated from the fall in oil prices thanks to the rouble decline, western sanctions in response to Russia’s actions in Ukraine have caused more pain.

As ageing assets in west Siberia are depleted, the Russian oil industry needs to develop new fields to prevent a sharp fall in production. Arctic work is now on hold, due in part to sanctions, and projects to tap Russia’s enormous shale reserves have also been delayed.

Other investments are at risk from a squeeze on financing. Western capital markets have been almost entirely closed to Russia since the annexation of Crimea in March 2014. Faced with $41bn of debt maturing between July 2015 and the end of next year, the sector is reviewing its investment plans.

Mr Sechin of Rosneft has told prime minister Dmitry Medvedev that Russia’s oil champion would shift its focus to existing fields — a tacit admission that it would struggle to fulfil ambitious plans for new projects.
Arthur Berman was also back this week with a detailed and very interesting analysis on the geographical break-even of source rock resources in the Bakken play in the US. I am always glad to see GIS techniques involved in useful energy analysis.
The Petroleum Truth Report
Only 1% of the Bakken Play Breaks Even at Current Oil Prices
Arthur Berman, 03-11-2015

Only 1% of the Bakken Play area is commercial at current oil prices. 4% of horizontal wells drilled since 2000 meet the EUR (estimated ultimate recovery) threshold needed to break even at current oil prices, drilling and completion, and operating costs.

The leading producing companies evaluated in this study are losing $11 to $38 on each barrel of oil that they produce, the very definition of waste.

Although NYMEX prices are about $46 per barrel, realized wellhead prices in the Bakken are only $30 per barrel according to the North Dakota Department of Mineral Resources. At that price, approximately 125,000 acres of the drilled play area of 10,500,000 acres is commercial (green areas in Figure 1).

In the energy relevant geo-political chessboard this week marks the freeing of the key Syrian city of Aleppo from Daesh. The Russia lead coalition bears fruit and the Shiite regime slowly retakes control of the country. In the meantime, news emerge of US soldiers sent in to help the Sunni. The US is not yet willing to admit defeat and goes on with its "proxy war".
International Business Times
Russia Warns Of ‘Proxy War’ In Middle East As US Set To Deploy Troops In Syria
Kukil Bora, 31-10-2015

After the U.S. government announced Friday that it would deploy ground troops to Syria to help allied forces fight the Islamic State group, Russia has warned that the latest move by the administration of U.S. President Barack Obama could trigger a “proxy war” in the Middle East. According to Russian Foreign Minister Sergei Lavrov, the current situation has amplified the need for co-operation between Washington and Moscow.

Russia’s remark came after White House press secretary Josh Earnest announced at a Friday afternoon news conference that fewer than 50 troops would go to Syria to “train, advise and assist” vetted opposition forces in fighting ISIS militants in the country. Many consider the decision to deploy American troops to Syria a major turnaround of previous positions, in which Obama vowed of “no boots on the ground” in the region.

The U.S. made the decision “unilaterally and without any reference to the Syrian leadership,” BBC quoted Lavrov as saying. “I am convinced that neither the United States nor Russia of course wants any kind of slide into a so-called proxy war. But to me it is obvious that this situation makes the task of co-operation between the militaries even more relevant.”
A major American newspaper admits the so called "moderate rebels" do not actually exist has a proper organisation. Much less as an Army. Daesh and Al Qaeda remain the only organised Sunni armed forces in the region.
New Tork Times
New U.S.-Backed Alliance to Counter ISIS in Syria Falters
Ben Hubbard, 02-11-2015

Weeks after the Obama administration canceled a failed Pentagon program to train and arm Syrian rebels to combat the Islamic State, American officials announced a new effort to equip ground forces in Syria to fight the jihadists.

But 10 days of interviews and front-line visits across northern Syria with many of the forces in the alliance, called the Syrian Democratic Forces, made clear that so far it exists in name only, and that the political and logistical challenges it faces are daunting.
A different spin on the wars raging in the Middle East. Sadly, War is an important business for the West.
Common Dreams
Flood of Western Weapons Fueling Unrest, Extremism Across Middle East
Sarah Lazare, 29-10-2015

Western nations—led by the United States—are selling large quantities of weapons to governments in the Middle East and North Africa, providing little oversight for how these arms are used, and thereby fueling corruption and conflict in countries from Saudi Arabia to Egypt, a new report (pdf) from the watchdog organization Transparency International finds.

The investigation examines government defense corruption in Tunisia, Iran, Jordan, Lebanon, UAE, Saudi Arabia, Algeria, Bahrain, Egypt, Iraq, Kuwait, Libya, Morocco, Oman, Qatar, Syria, and Yemen. These countries together account for $135 billion in military spending in 2014 alone, making their expenditures as a percentage of GDP the "highest in the world," the report finds.

[...] The role of the United States in driving this arms flow was well-established long before Transparency International's report. The Stockholm International Peace Research Institute found earlier this year that, between 2010 and 2014, the United States was the world's top supplier of arms, accounting for 31 percent of global exports. This compared with 27 percent for Russia.

The IHS Jane's 360 report, released in March, found that Saudi Arabia was the "number one" military trading partner with the United States in 2014. Earlier this month, the U.S. Department of Defense announced its approval of an $11.25 billion deal to sell combat ships to Saudi Arabia, which has been waging a military assault against Yemen for more than six months.
Moving back closer to Europe, here is the odd analysis on the recent elections held in Ukraine, that were largely ignored by the mainstream press. With the cease fire helding on, it becomes ever more evident the lack of popular support for the revolution engendered last year.
Indian Punchline
Obama’s Ukraine legacy is no less shameful
M K Bhadrakumar, 29-10-2015

The local elections across Ukraine on October 25 (except in the separatist regions of Donbass) provide a reality check on the state of health of democracy in the country. The expected has happened – namely, the deeply unpopular ruling alliance of President Petro Poroshenko suffered humiliating defeat. Prime Minister Arseniy Yatsenyuk, whose rating is below 20 percent did a smart thing by bluntly refusing to participate in the local elections. Clearly, the set-up in Kiev that was catapulted to power by the West is not able to gain traction and remains deeply unpopular.

[...] The surprising part of Sunday’s poll in Ukraine is that the alliance of the former president Viktor Yanukovich (who was overthrown in the western-backed coup last year in February) has retained its support base in the south and east. A particularly embarrassing rebuff to the ruling set-up in Kiev, especially Poroshenko’s ‘co-brother’ Mikheil Saakashvili (another progeny of another color revolution) happens to be that it lost the election in the historic southern port city of Odessa. In the strategic southern port city of Mariupol, the poll was abandoned in a trail of controversy over malpractices. In the Donetsk and Luhansk regions of Donbass, elections could not be help pending the passing of amnesty law.

All in all, Ukraine remains politically divided almost equally between two halves — between the western and central ‘pro-West’ regions and the eastern and partly southern ‘pro-Russian’ regions. Twenty months into the color revolution, nothing much has changed — except that the West has a ruling set-up in Kiev that is ‘anti-Russian’. It is a dubious achievement. And it calls into the question the very need of the US-backed coup in February last year. Put differently, Ukraine could have been spared all this destruction and chaos if there was a constitutional transfer of power, as agreed by Yanukovich, through fresh elections instead of the US and its allies pushing a coup.
Midweek there as a note with a few graphs from Jean Laherrère acknowledging a peak in Coal extraction in China. The country is cutting deeply its reliance on this fossil fuel and even with this relentless decline in extraction, imports are shrinking even faster.
Institute for Energy Economics and Financial Analysis
A Blizzard of New Data From China Points to Less Reliance on Coal Imports
Tim Buckley, 26-10-2015

The government has published revealing new details on China’s electricity-market activity, including six points that stand out in particular:
  • China electricity consumption year to date (YTD) appears to be up +0.9 percent year over year (yoy) at 4,126 Bn TWh.

  • China’s thermal plant utilization rates fell 265 hours, or 7.5 percent yoy and have a current utilization rate of 49.5 percent utilization rate this year from January through September.

  • China’s total raw coal production so far this year is down 4.3 percent yoy, while coal imports are down 29.8 percent yoy, and China overall coal use is down 5.7 percent this year.
The Coal market in the Indian Ocean is up for a major shake up. Internal consumption in other Coal-nations is far from making up for the decline in China.
Reuters
Indonesia 2016 coal exports to slump as low prices hurt miners -industry
Michael Taylor, 30-10-2015

Coal shipments from Indonesia will plunge as much as 17 percent next year, with most miners in the world's No.1 exporter of thermal coal losing money and slashing output, a senior industry official said on Friday.

Indonesia will export less than 300 million tonnes in 2016 from 330-360 million tonnes this year, the chairman of the country's top coal industry association told Reuters.

[...] "About 60-70 percent of domestic producers are underwater -meaning that their cash flow is not enough to sustain their business," said Pandu Sjahrir from the Indonesian Coal Mining Association. He added that domestic coal demand would be 90-110 million tonnes in 2016 compared to 90 million this year.
And that is more than enough for a week. Enjoy your weekend.