Peak Oil Review – Mar 24

1.  Oil and the Global Economy
 
Oil traded in a narrow range around $99 in NY and $106 in London until Friday when fears that the heightened rhetoric over the Ukrainian situation could eventually impact oil supplies sent prices higher.  NY closed at $99.46 and Brent which at one point had been as high as $107.77 closed at $106.92. The US economic news was a little better last week; crude stockpiles climbed by 5.8 million barrels; and domestic production grew to 8.21 million barrels – the highest since 1988.
 
Natural gas prices fell steadily last week and are now around $4.31 per million after having traded around $4.60 earlier in the month. Another blast of arctic cold is expected to engulf the northern sections of the country this week but spring is now here so withdrawals from natural gas stockpiles are expected to end soon.
 
The API said that the cold weather hampered demand for petroleum products in February pushing demand down to 18.5 million b/d, the lowest for the month since 1998.
 
 
2.  The Middle East & North Africa
 
Iran: 
 
Despite the deterioration of relations between Russia and the West, the nuclear talks with Iran seem to be continuing well with both sides expressing optimism. The talks which will continue until July 20^th were described as “intense” and are now getting to the heart of the various issues which divide Iran from the West. In the meantime the UN’s IAEA announced that Tehran is complying with the restrictions applied to its nuclear program under the interim agreement.
 
Iran’s economy remains stagnant despite the best efforts of the new administration; is running out of cash; and inflation is still running at an annual rate of 32 percent. Although there has been some easing of the economic sanctions, most are still in effect forcing the government to institute a new round of painful austerity measures. Energy subsidies will be removed likely doubling the cost of gasoline and utilities. The $12 monthly payments that are being made to nearly 60 million of the poorest Iranians are starting to be phased out.  Iran’s stock market and currency are down and the outlook for the coming year is bleak.
 
This deterioration suggests that there is more pressure on Tehran than is generally realized to settle the nuclear question with the West and get oil exports and investment flowing again. Most observers say that it will take years to improve the situation even after the sanctions are lifted.
 
Iran announced that Beijing could lose its $4.7 billion contract to develop the giant South Pars gas field if it continues delaying work on the project.  The project was awarded to China’s CNPC in 2009 after France SA was forced to pull out under international pressure. Tehran says state-owned CNPC will be given one more warning before the contract is terminated. The South Pars field is shared between Iran and Qatar which is already extracting gas from the field. The longer this situation drags on, the more South Pars’ gas will go to Qatar and not Iran.
 
Iraq: It appears that US mediators have brokered a temporary export deal between Baghdad and the Kurds. Erbil has agreed to let 100,000 b/d of their crude production be sold by Baghdad, while presumably keeping the rest for itself.  This is only a temporary arrangement, and no permanent solution to Iraq’s oil policy is anywhere in sight.
 
Waves of deadly suicide bombings continued across central and northern Iraq last week. Some are saying that the increased bombings are the work of the Islamic State of Iraq (ISIS) which was once affiliated with Al Qaeda. The ISIS, which is much stronger than when in battle with the US Marines in Anbar province seven years ago, seems to be expanding its operations into other provinces.  The US is stepping up shipments of arms and munitions to Baghdad to counter the new push by ISIS. So far there has been remarkably little impact from all this turmoil on oil production in the southern provinces.
 
Libya:  The US Navy returned the rogue tanker, which had made off with a shipload of crude from eastern Libya, to control of the Libyan government. The incident has established a precedent that the US will track down and return any tanker taking on crude without permission from Tripoli and should put an end to such attempts. The UN Security Council also voted for a resolution authorizing force against vessels making off with Libyan oil. The three eastern Libyan ports under separatist control have a combined capacity of about 700,000 b/d.
 
Fighting broke out in Eastern Libya last week when rebels occupying the oil ports attacked a government military installation at Ajdabiya, south of Benghazi, in an effort to forestall a government attempt to regain control of the oil ports by force. After 16 were wounded, local tribal leaders halted the fighting. Most analysts believe the government does not have the military strength to take back the ports from the more numerous and better-armed rebels. Western governments continue to support the government in Tripoli in its stance against the separatists to who want to break up the country and are providing training to what is left of the Libyan army.
 
There is no recent news on Libya’s current oil production which has been fluctuating from 200,000 to 500,000 b/d as the valves from western Libyan oil fields are opened and closed by disgruntled tribesmen. Crude production in February was down to 350,000 b/d from 1.6 million in 2010.
 
Saudi Arabia: With some 10 million b/d of crude production, political developments in Saudi Arabia are always of interest. Recently the IEA called for the Saudis to maintain their production at current levels in order to resupply world stocks that were drawn down during the recent winter and to avoid a price spike.  This will be difficult for the Saudis as they plan to shut-in some 750,000 b/d of crude production next month in order to upgrade facilities at the Shaybah oil field.
 
Saudi Arabia’s political position in the Middle East has shifted radically in the last few years. Relations with Washington have deteriorated due to the US’s failure to intervene in the Syrian situation on behalf of the Sunni insurgents and for negotiating with Tehran on the nuclear issue. Riyadh believes a nuclear treaty would leave Tehran in a much stronger position to incite trouble among the Shiites living in eastern Saudi Arabia and in Bahrain.
 
Recent developments in Egypt, where Riyadh and its Gulf associates are supplying the funds to keep the military government from economic collapse, have brought the Saudis in conflict with Qatar which supports the Muslim Brotherhood. The Saudis are going after the Qatar-based Al Jazeera television network for what it perceives as being its anti-monarchy stance and has begun to prosecute the networks journalists in Saudi Arabia as terrorists.  This Saudis also are nearing a succession crisis in which the 89-year old king and his generation pass from the scene and power devolves on much younger men.  Whether this generation will be able to maintain the monarchy in the face of changes which are engulfing the region much longer will likely determine how much oil will be coming out of the Gulf in the decades ahead.
 
Israel: Tel Aviv launched airstrikes against Syrian army sites last week in retaliation for an attack on an Israeli patrol on the Golan Heights. The attack was the first on Syrian territory that Israel has openly acknowledged since the Syrian uprising began three years ago.  Previous Israeli airstrikes on targets in Syria were aimed at destroying advanced military equipment on its way to Hezbollah in Lebanon. The incident is raising questions about increased Israeli involvement in the Syrian Civil war. The Israelis say than only a third of Israel’s frontier with Syria is controlled by the Syrian Army, with the rest in the hands of radical Sunni groups and even Hezbollah. The dangers of Israel being dragged into Syrian civil war seem to be increasing.  More Israeli involvement would like trigger increased passions in the region.
 
On another subject, Israel seems to be injecting itself into the Iranian nuclear negotiations which it clearly disfavors. Moreover, Tel Aviv does not like US pressure to negotiate a settlement with the Palestinians and dislikes Washington’s hands-off approach to the Syrian uprising. Last week the Israeli establishment began beating the war drums again by reviving threats to unilaterally bomb Iranian nuclear establishments. The Israeli position is that Iran must not have the capability to produce nuclear weapons and the west must not be satisfied with any agreement that leaves even a heavily-inspected Tehran with such a capability.  Needless to say an Israeli attack on Iran would set the world off on an entirely new course with oil shortages and much higher prices virtually certain.
 
3. The  Ukrainian Situation
 
Rhetoric and threats continue to be exchanged in the wake of Russia’s takeover of the Crimean peninsula last week. Western governments have begun warning of a buildup of Russian forces along Ukraine’s eastern border raising fears that Moscow may have designs on the Russian-speaking provinces in Eastern Ukraine. Moscow, however, continues to insist that it has no such designs and insists that its military presence in the area is in accordance with international agreements.
 
The long term impact of the sanctions, which Russia and the West have been laying on each other, is unclear. Travel restrictions on senior officials are meaningless, banking and economic sanctions could have an impact on Russia when imposed by most of the developed countries. The big issue remains Russia’s large exports of oil and natural gas which powers a large share of Europe’s economy and provides Moscow with much of its foreign exchange earnings.
 
4.  Quote of the Week

• “Our current trajectory is unsustainable because our demand for ecological resources and services is increasingly going beyond what the planet is able to provide. This ‘overshoot’ is already responsible for a range of overlapping crises – the financial crash, the food crisis, intensifying civil unrest to name just a few – and is likely to worsen without meaningful action.”

— Nafeez Ahmed, Earth Insight Blog, The Guardian
 
5.  The Briefs
 

• Mexican companies are racing to be first in line to invest in the country’s energy industry even before lawmakers pass final legislation that would end a 76-year state monopoly. (3/22)
•  Libya, where hundreds of militias hold sway and the central government is virtually powerless, is awash in millions of weapons with no control over their trafficking. The arms free-for-all fuels not only Libya’s instability but also stokes conflicts around the region as guns are smuggled through the country’s wide-open borders to militants fighting in insurgencies and wars stretching from Syria to West Africa. (3/22) 
• Nigerian oil officials said unchecked theft from pipelines may crimp the African nation’s ability to meet its target of adding 30 percent to crude output by the end of the decade. Stealing and sabotage of export pipelines cost the country 300,000 barrels of oil a day last year. (3/19)
•  he Nigerian Navy says it destroyed 260 illegal oil refineries and burned 100,000 tons of contraband fuel to try to halt oil thefts bedeviling the economy of Africa’s biggest petroleum producer. (3/17)
• Politically-fueled ethnic violence in South Sudan since mid-December has led to the brutal killing and abuse of thousands of civilians and sparked a government campaign to vilify the United Nations and harass UN personnel, the UN peacekeeping chief said. (3/19)
•  Canada’s Finance Minister Joe Oliver told members of a Chinese trade group his country has the reserves available to meet growing energy demands. Oliver said diversification of Canada’s export economy was a win-win situation for both sides. (3/21) 
• China’s Sinopec is in talks with Malaysia’s Petroleum National Bhd. to buy up to 15% of a liquefied-natural-gas project on Canada’s western coast. (3/20)
•  Royal Dutch Shell said Wednesday that it withdrew from negotiations over an offshore exploration deal in the Black Sea, west of Crimea. 
• The UK is pushing EU leaders to back a new energy security plan to wean Europe off Russian energy over the next 25 years by ramping up imports from new sources, including shale gas from the US and natural gas from Iraq. (3/20)
•  Of Washington’s sanctions on Russian businessmen loyal to President Vladimir Putin, the most startling statement may be a single sentence that contains an explosive allegation: that Putin himself profits from the world’s No. 4 oil trading company, Gunvor. (3/22)
•  The US drilling rig count, after several consecutive weeks of gains, lost 6 units to 1,803 rigs during the week ended Mar. 21, Baker Hughes Inc. reported.  Rigs targeting gas took the largest hit, falling 18 units to 326. This overshadowed a 12-unit jump in oil rigs to 1,473. (3/22)
•  All over East Texas, producers such as Anadarko Petroleum Corp. and EOG Resources Inc. are flocking back to areas that helped fuel America’s rise as a superpower after World War II. They’re applying new techniques to layers of rock stacked like playing cards underground that oil companies have drilled for decades. And, as new fields from Louisiana to North Dakota are starting to show signs of fatigue, drillers are targeting areas that have long been overlooked or barely tapped. (3/20)
•  Hydraulic fracking 65 years old? API recently celebrated the 65 anniversary of the first use of hydraulic fracking…on March 17, 1949, on a well in Duncan, Oklahoma. (3/18)
•  US railroads increased the petroleum products delivered for the week ending March 15 by 2.9 percent year-on-year, the Association of American Railroads said. The AAR said 14,365 railcars of petroleum and petroleum products, or about 10 million barrels, were delivered on the U.S. rail system last week. (3/22)
•  The Interior Department’s auction in the Gulf of Mexico shows more US offshore waters should be open for exploration, the American Petroleum Institute said. The Atlantic Outer Continental Shelf could add as much as 1.3 million barrels of oil equivalent per day to domestic production if it were opened up for exploration. (3/21)
•  The US current account deficit tumbled to a 14-year low in the fourth quarter as exports touched a record high.  Economists expect the deficit to narrow further as strong inventories slow imports. A decline in petroleum imports as the United States ramps up domestic production is also seen helping the current account.  The shortfall on the current account has shrunk from a peak of 6.2 percent of GDP in the fourth quarter of 2005 to an average of 2.3 percent of GDP last year, in part because of a significant increase in the volume of oil product exports. (3/20)
•  Saying no to the Keystone XL pipeline presents a big obstacle to President Obama: election-year politics. If the President rejects the pipeline, it might sink Democratic candidates in states with big energy industries, such as Louisiana and Alaska. (3/20)
•  US ethanol prices soared to $3.24/gal on Friday, up $1.185/gal from a month ago as supply concerns dominate the market. Delayed return times on railcar deliveries, caused primarily by severe freezing weather and a higher demand for railcar space, was the root of the price surge throughout February. Now, most Midwest ethanol plants have reached their on-site storage capacity and have been forced to run at reduced rates or shut down entirely. Overall stocks were 3.2 million barrels, 19% lower than a year ago. (3/22)
•  In China, a joint venture of China National Petroleum Corp (CNPC) and domestic companies has started drilling its first shale gas well in the southwest Sichuan province, CNPC said on Wednesday. The group is expected to finish drilling in 70 days. CNPC, parent of PetroChina , plans to drill some 50 shale gas wells in Changning block this year. (3/20) 
• Beijing, in a bid to conserve energy, will raise natural gas prices by the end of 2015 for the 20% of residential consumers who consume the most energy. The heaviest consumers will pay around 1.5 times a base rate for household use gas while a second tier will pay 1.2 times the base rate—and these two groups make up about 20% of the market. (3/21)
•  The Alaska State Senate passed Bill 138 and sent it to the House of Representatives for approval. Governor Sean Parnell said the bill creates a framework for the state to become a co-owner of an LNG project planned by BP, Exxon Mobil, ConocoPhillips and pipeline company TransCanada Corp. (3/20) 
• In North Dakota, the Hess Corp will begin selling natural gas from its Tioga plant this month, firing up the station weeks after severe weather delayed its expansion. The plant’s start-up may help boost oil production from the Bakken shale after about 100 producing wells had to be shut earlier this year to minimize flaring.  North Dakota flares nearly 36 percent of the natural gas it produces in the absence of adequate processing capacity and infrastructure to move the gas to market.Oil production there rose by about 6,500 b/d to about 935,000 in January.  (3/17)
•  BYD’s second-generation Dual-Mode, plug-in hybrid electric sedan is now China’s best-selling electric vehicle according to China’s National Passenger Car Association. In the first weeks of 2014, more than 6,000 Qin vehicles were sold, accounting for more than one-half of the Chinese new-energy vehicle market. (3/21) 
• Ford, in conjunction with GE, will supply electric vehicle charging stations at Ford facilities nationwide, beginning with facilities in and around its headquarters. (3/20)
•  America is selling coal to the world. This year the US is on course to be the third straight year of record exports. Europe is the biggest target market, where demand is strong and, thanks to Russia’s annexation of Crimea, likely to grow further. (3/21) 
• Environmental regulators in North Carolina have cited the country’s largest energy company for dumping millions of gallons of wastewater from coal ash ponds into a public waterway. The company could face $2.75 million in fines. (3/21)
•  Paris is taking drastic measures to combat its worst air pollution in years, banning around half of the city’s cars and trucks from its streets in an attempt to reduce the toxic smog that’s shrouded the City for more than a week. Cars with even-numbered license plates were prohibited from driving in Paris and its suburbs last Monday. (3/17) 
• Exxon Mobil has agreed to disclose later this month how the regulation of carbon emissions could affect the value of its oil and gas holdings, a sign that America’s biggest energy company is stepping up efforts to address shareholders’ environmental concerns. (3/21)
•  Japan is on a path to increase its carbon-dioxide emissions because, with its nuclear power plants still shut down, it is shifting to coal imports from more expensive liquefied natural gas. (3/19) 
• Japanese scientists studying the impacts of radioactive fallout in the aftermath of the Fukushima nuclear disaster acknowledge feeling political pressure when it comes to reporting their findings. One researcher sees no evidence of an organized conspiracy in the lack of openness about official radiation levels—just official timidity.(3/17)