Thursday, February 12, 2009

P35. Pick Points

Pickpoints will be a little abbreviated tonight, since the passage of the Stimulus bill has thrown all us academics into a frenzied search to find places and subjects that we can submit research proposals for. I am also committed to a presentation on some of my day jobs work tomorrow, and losing a completed presentation has been, shall we say a little time consuming.

So first what happened at CERAweek. The Marathon CEO saw a change coming in refineries, with there being fewer of them, that they would be more oriented to diesel (with a smaller relative market for gasoline) and that they need to be able to handle heavier crudes. The Tuesday night dinner speaker was the Saudi oil minister and he said that when Khurais comes on stream this year at 1.2 mbd, then Saudi Arabia will have a cushion of about 4.5 mbd that it can put on stream. (Bear in mind they have cut back production dramatically, and I bet they are counting Manifa, which they cannot refine until at least 2012).
“The unprecedented price volatility in conjunction with the complexity, breadth and the pace of the collapse of the financial system crashed over us like an economic tsunami, ripping us from our intellectual and experiential moorings, leaving many confused and uncertain about the way forward,” he said.
But the more telling quote (not looking at anyone, Dr. Chu) was:
“A nightmare scenario would be created if alternative energy supplies fail to meet overly optimistic expectations while traditional energy suppliers scale back investment due to expectations of declining demand for their products,” he said.
Saudi is now at around 8 mbd, and OPEC as a whole cut production 3% in January.

There were more than 2,200 at the meeting at $7,500 a head. That was not the reason many companies have been cutting expenses (and attendance had not dropped). The combination of low prices, tight credit and expensive operations has seen the natural gas rig count drop 30% since September, though horizontal drilling (needed for the gas shales) is up. It is now 37% of production. Part of the problem is that the drop in gas prices means a drop in the value of reserves, which may hurt lines of credit.

Chesapeake think the problem will correct this year; that the long term bet should be the Marcellus shale.; that for the industry to revitalize will take prices rising from $5 to $8 - $9; and that this may only happen after about 2/3 reduction in the rig count, dropping production by 10%.

German Ex-Chancellor Schroder said that Western Europe would need 200 billion cu m more gas in six years from Russia, half from a rise in demand, half from declining reserves. Schlumberger thought that the shale gas types of deposits that are becoming so attractive in America may have a huge potential world-wide for future energy ( he cited 688 shales in 142 basins).

The arrival of LNG into an oversupplied market may influence price by the end of the year was the lunch discussion. A 10 - 20% cut in capital spending in the power industry will have an impact when the economy tries to re-establish itself. The industry will also have to write off 2-3% of debt due to unpaid bills.

There is an interesting graphic to go with the Gazprom announcement that they are not delaying Shtokman, but it also appears that they are going to demand more up from from partners.

Interestingly Rigzone heard Chesapeake say that the Haynesville will be the largest gas field by 2020.

The final reports on damage from last years hurricanes in the Gulf is now in and 9.2% of oil production and 12.8% of gas production remains shut-in. Hopefully it will all be back up by the end of March.

One problem that is not often addressed in the future decline of oil, is that it is a source of plastics, now a German company claims that a form of liquid wood can be used as a substitute.

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