Sunday, January 31, 2010

The THAI process for bitumen and heavy oil

For a while, when I was a student, I had an attic bedroom that was heated by a small coal fire, with a relatively short chimney up to the roof. I learned, fairly early on, that in starting the fire you needed a fairly high velocity air flow across the coals, and underlying firewood strips. And to get this I would rest a shovel over the front of the fireplace, and try and seal off the sides. I kept a small bellows beside the fire to help when this wasn’t particularly successful. When you are starting a fire underground the provision of air is critical, but when you are trying to burn the residual coke that is left, after the heat has cracked the rest of the oil and caused it to flow away, keeping that air flowing at a high enough rate to sustain the high-temperature burn becomes somewhat critical to most efficient operation, particularly if the air has to get through a sand layer to reach the fire.

This is the post on THAI – Toe to Heel Air Injection for the recovery of heavy oils, which is part of the ongoing technical post series that I write on Sundays. It is a subject that has been described several times in the past at The Oil Drum. I first mentioned it back in 2006 when the first underground test was underway at White Sands. I used this illustration at the time.

It is an artist’s impression of a side view of the site, with the blue dotted horizontal line representing the recovery well and air being fed in from a higher well into the formation. The test at White Sands in Alberta has been followed by a test at Lloydminster in Saskatchewan which got underway in a more conventional heavy oil last October.

The Kerrobert project followed much on the procedures from the earlier test, and the currently planned full scale production at May River (Large pdf file)
Petrobank, which is partnered with Baytex Energy Trust on the 50/50 joint venture, recently sunk two vertical air-injection wells and two horizontal production wells into the extensive Mannville conventional oil reservoir near Kerrobert.

Compressed air was added last week after a temporary steaming of the ground to mobilize the oil around the injector site. With the addition of the air, spontaneous underground combustion has begun.

"I think we will see some oil as early as today," Bloomer said.
Don and Gail described the THAI process in 2007 and have given some history on its use, THAI having been patented by Petrobank who have a 12 minute video on the process and the first trial and preparation for full scale production. It is well worth watching.

Dave Murphy had an update on the EROI costs in March of last year.
While watching the video is the best way to understand the process, it can also be illustrated with a picture from the plan for May River and I will lift some parts of that document to describe what is planned for that site.

Illustration of the key parts of the process.

The horizontal wells are drilled (a suite of eighteen wells, each with a 2,000 ft horizontal section, spaced 410 ft apart) some 7 ft above the bottom of the formation (or the water table if that becomes an issue). Above these the air injection wells are drilled directionally and offset from the toe of the well. (By using directional drilling air injection can be better controlled than with the original vertical wells).

Layout of the air injection (upper) and production wells.

Once the wells are in position steam will be injected and circulated for a period of 3 months to bring the sand and bitumen up to around 100 deg C, then air will be injected to start combustion. The part of the bitumen that burns as the process develops is the residual asphaltene that is left after the lighter fractions are either evaporated, flow away at reduced viscocity or are cracked by the high temperature (> 400 deg C). The residual material, apparently about 10% of the OOIP, provides the fuel, driving some 90% of the fuel into the production well.

To sustain production after ignition and flame front stabilization has occurred, the wells will carry some 4.4 million cf/day into the formation, and about the same amount of a mix of carbon monoxide, carbon dioxide, and hydrocarbon gas will be released. As the video notes that gas will be used on site to generate electricity to run the air compressors, and to provide site power. Based on the earlier tests the site is anticipated to generate some 10,000 bd of cracked bitumen, and about twice that in water production. The flame front will move forward at between 5 and 10 inches a day. The oil is projected to be a significant upgrade of the original bitumen. The water has the potential for being sold to other operators in the area for use in SAGD production.

Comparison of bitumen with THAI produced oil.

The energy efficiency of the site is anticipated to be 85.7%. It should be noted that the document I have taken this information from also contains a conservation and reclamation plan. (But at 653 pages long for the whole document I have only noted key passages for the theme of the post).

In response to my SAGD post both Rockman and RockyMtnGuy commented about using underground combustion to help with getting the bitumen from the oil sand.

One of the things that they were concerned about, as was I, is the control of the flame front which becomes more difficult as the height of the production zone is around 70 ft. However at May River they plan on burning from the outside in, so this may control the extent to which the fire overburns. In addition, as I noted at the beginning of the post, it is rather difficult sometimes to sustain the right temperatures without a high flow of air, and that may provide a further control.

The conditions are somewhat different at Kerrobert where the oil is less viscous and the formation is around 100 ft thick. This has caused some problems since the well flows exceeded what had been anticipated:
the original plan was to use temporary hydraulic pumps on each well to create a drawdown pressure across the horizontal well and, as combustion gas production increased, pumping would cease and wells would flow by produced gas lift.

Initial fluid production volumes were tested at 180 to 300 barrels per day per well, with oil cuts ranging from zero to 40%. However, during the transition phase to gas lift it was learned that liquid inflow to the production wells exceeded the pump's capacity, which limited the ability to draw down the wells and caused frequent pump failures. On Dec. 21, the pump in KP1 was re-configured to improve its pumping capacity. Now KP2 is being re-configured and is expected to be producing at similar rates to KP1 within the next few days.

Since the re-configuration, fluid production rates from KP1 have ranged between 250 and 420 bbls per day with oil cuts averaging 36% and reaching as high as 65%. Also, the air injection rate was increased to 50,000 cubic metres per day and the produced gas rate has increased to 8,000 cubic metres per day.
Looks as though things are going quite well.

Oh, and the disadvantage of having a small coal fire in a garret flat is that during the night it went out, and in the morning I would occasionally wake up with snow in the grate.

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Saturday, January 30, 2010

The IPCC mess - like a smoldering coal fire

The computer models used to project future temperatures also don't include this feature because it remains poorly understood.
The feature is upper atmosphere water vapor, and as an article in the Houston Chronicle from which the quote comes notes, recent work reported in Science shows:
” Water vapor in this narrow region really packs a wallop, and has a much bigger impact on climate than if you were to increase water vapor levels at a level higher up,” said the study's lead author, Susan Solomon, a National Oceanic and Atmospheric Administration scientist.

During the 1980s and 1990s, levels of water vapor in the stratosphere rose quite dramatically, but in 2000 they suddenly dropped.
The effect of this change is reported to be a change of some 25% to 30% on global surface warming. Now the argument is apparently that had the water vapor level not dropped, then the increasing levels of carbon dioxide would have continued to raise global temperatures. What that argument fails to do is read the abstract, let alone the paper, – which says that:
More limited data suggest that stratospheric water vapor probably increased between 1980 and 2000, which would have enhanced the decadal rate of surface warming during the 1990s by about 30% compared to estimates neglecting this change.
In other words the increase in water vapor before 2000 was causing more warming than would have been the case without it. But the quote at the top is the most pertinent – this is just one of the factors that appear to influence climate that are not in the models. Which leaves one wondering, yet again, why the models have been given such credence when they are obviously not predicting what is happening.

On the other side of the Atlantic the Times has caught the IPCC chief in a lie apparently, and sentiment seems to be growing over not only the pecuniary advantage he seems to have taken of his position but also the lack of scrutiny of sources of information for the last report.

Taking Dr. Pachauri’s lie first, it appears that he was told in November that the IPCC report on glaciers in the Himalayas – which reported on their likely disappearance by 2035, was wrong, and not, as he claimed, in the last few days. What is equally of concern is that there was an investigation of the melting of the glaciers in 2004, headed by Gwyn Rees, which was then published in Hydrological Processes. He has since, on several occasions, had to rebut Syed Hasnain, who was responsible for the glacier melting claim in the IPCC report, but who had signed off on the conclusions of the report, at the time it was written. Specifically:
In 2004, Rees had assumed the rapid-melt claims would not be repeated, but in May that year Hasnain gave an interview to New Scientist suggesting the UK-funded study had confirmed his claims of rapid glacier melt.

In it he said: “Global warming has already increased glacier melting by up to 30%. After 40 years, most glaciers will be wiped out and we will have severe water problems.”

A furious Rees made the magazine publish a retraction in its letters page, describing Hasnain’s comments as a “gross misrepresentation”.
In fact the report said that suggestions that the glaciers would melt soon would seem unfounded. Yet Syed Hasnain has helped Dr Pachauri’s company now get millions of dollars to study a problem that he knew did not exist, and now works for the company.

Sadly as the blinkers fall off the eyes of a press that has, for too long, assumed the climate change distorters could do no wrong, more evidence is coming to the fore that what the report was based on was drawn much more from involved sources, such as the WWF, rather than the peer-reviewed scientific articles that were the claim.

Donna Laframboise has found eight references in the IPCC text to Greenpeace literature being used, in some cases as the sole reference for the global impacts caused by greenhouse gases. She had earlier shown the influence of the World Wildlife Fund (WWF) on the document.
For example, a WWF report is cited twice on this page as the only supporting proof of IPCC statements about coastal developments in Latin America. A WWF report is referenced twice by the IPCC's Working Group II in its concluding statements. There, the IPCC depends on the WWF to define what the global average per capita "ecological footprint" is compared to the ecological footprint of central and Eastern Europe.
The fact that some of the activities of the CRU are viewed as criminal is now being faced by the University of East Anglia. The spreading impact of this will continue to rebound, and well-meaning comments are non-helpful at best, whether by the Prince of Wales (who is the patron of the School of Environmental Science) or the President of the United States who, in his state-of-the-Union address said about the climate and energy:
We should put more Americans to work building clean energy facilities -- (applause) -- and give rebates to Americans who make their homes more energy-efficient, which supports clean energy jobs. . . . . . They're (Germany and India) making serious investments in clean energy because they want those jobs.
which is non-controversial, and then
Last year, we made the largest investment in basic research funding in history -– (applause) -- an investment that could lead to the world's cheapest solar cells or treatment that kills cancer cells but leaves healthy ones untouched*. And no area is more ripe for such innovation than energy. You can see the results of last year's investments in clean energy -– in the North Carolina company that will create 1,200 jobs nationwide helping to make advanced batteries; or in the California business that will put a thousand people to work making solar panels.

But to create more of these clean energy jobs, we need more production, more efficiency, more incentives. And that means building a new generation of safe, clean nuclear power plants in this country. (Applause.) It means making tough decisions about opening new offshore areas for oil and gas development. (Applause.) It means continued investment in advanced biofuels and clean coal technologies. (Applause.) And, yes, it means passing a comprehensive energy and climate bill with incentives that will finally make clean energy the profitable kind of energy in America. (Applause.)

I am grateful to the House for passing such a bill last year. (Applause.) And this year I'm eager to help advance the bipartisan effort in the Senate. (Applause.)

I know there have been questions about whether we can afford such changes in a tough economy. I know that there are those who disagree with the overwhelming scientific evidence on climate change. But here's the thing -- even if you doubt the evidence, providing incentives for energy-efficiency and clean energy are the right thing to do for our future -– because the nation that leads the clean energy economy will be the nation that leads the global economy. And America must be that nation. (Applause.)
Well perhaps if we relied a bit more on the scientific experts and less on Greenpeace, and let opposing points of view have better access to the journals, and perhaps some funding, rather than trying to suppress and obliterate them, we might be closer to the truth on these issues.

The main press in the UK is slowly swinging around to the position that there is something rotten in the climate science house, it is surprising how little dent the story has made yet in the American press. But that may change.

End note: I sat down to write a book review of “Climategate – the CRUtape letters” (which I recommend highly) but somehow the above captured my fingers. I’ll have the book review later, and one on “The Hockey Stick Illusion”, that I just got today (harder to get in the US since it is only published, to date, in the UK).

* Wow! We have a patent (U.S. Patent 5,037,431, 1990) on that. (but I bet it wasn't our technique he meant).

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Tuesday, January 26, 2010

Conventional Coal Production is rising

Gregor MacDonald had a couple of interesting charts on coal demand that should get greater attention. The first was the relative pace at which coal demand is growing relative to oil.

While the second shows how much of the increased demand is coming from Asia, and Africa, rather than from the OECD. As he puts it, you could almost define the OECD as the oil users, and the non-OECD as the coal users.

Note that the great growth in demand has been since mid-2001.

The difference between the two (OECD and non) is likely to grow greater in the years ahead., since the EIA is projecting virtually stagnant demand in the OECD nations.

(Note that 1 Quad is about 44 million tons of coal, so that 100 quads would be about 4.4 billion tons)

At the moment Peabody, for example – who provide about 250 million tons of coal a year to the market, is seeing an 18% decline in demand y-o-y (Note that the above curves only go through mid-2008. ) but expect to see some recovery and increase in price in the second quarter of this year. The railroads who ship the coal, much of it from the Powder River Basin in Wyoming to power stations around the country, have also seen a 12 – 21% drop in income, but their December figures are showing the signs of recovery (or a colder winter) with movement up 4% in a demand return that is expected to continue. The situation is such that coal stocks are no longer a popular item in the market. Although Powder River Basin coal is currently at $10.40 per ton, up from $8.40 just over a month ago, a rise not seen in other coal prices. Production numbers have yet to reflect this, though the final 2009 points in the graph below are just estimates).

Coal production figures for the United States (source EIA )

This on the day that the BBC announced that the British Recession was over. Not, of course that this helps those currently out of work, since the return to full recovery is still some time away. But it does provide some support for the idea that coal demand in Europe may begin to grow.

One argument against that is the relative availability of natural gas, and the lower environmental footprint that that brings with it. And it is going to be in the relatively longer-term assurance of availability that decisions may be made on whether or not to switch from one boiler to another (although many can handle both). But for countries in Asia coal may be the chosen alternative. And even in the United States natural gas and electricity costs seem to be rising in parallel, as Frank Clemente just pointed out.

Source Energy Facts February 18, 2010.

It is interesting to note how estimates for that increase in demand have changed. Back in 2005 Forbes was predicting that China’s demand would be 2.5 billion tons this year. By mid 2008, the Head of the Chinese Coal Industry Association was predicting demand at 3 billion tons.
Data show that China's coal production rose from 1.415 billion tons in 2002 to 2.536 billion tons in 2007, an average annual increase of 12.38 percent. At present, coal accounts for 76 percent of the country's total production of primary energy sources, and 69 percent of the whole society’s consumption.
Demand is continuing to increase, which is taken as an indication of the growth in the economy. It is antipated to grow by about 5% or more this year, and figures as high as 3.4 billion tons are being bruited. Unfortunately in the immediate short term since imports have to enter the country through harbors, prolonged cold can halt deliveries.

India is often not that readily recognized, but bear in mind the following statistics:
India ranks third in coal production
Coal is one of the primary sources of energy, accounting for about 67% of the total energy consumption in the country.
India has the fourth largest reserves of coal in the world (approx. 197 billion tonnes.).
Coal deposits in India occur mostly in thick seams and at shallow depths. Noncoking coal reserves aggregate 172.1 billion tonnes (85 per cent) while coking coal reserves are 29.8 billion tonnes (the remaining 15 per cent).
Yet even with those supplies not enough coal is being produced to meet the demands. With consumption at 604 million tons there is still a current shortfall estimate of some 70 million tons a year, that is met by imports. Imports also are not adequate and as a result there continue to be power shortages – in this case at 11 generating stations. However part of the problem may be that there is a difference between the cost of imported coal at $4 per million Btu and domestic coal at $1.76 per million Btu and domestic coal supplies cannot keep up.
The panel said that the country’s import requirement was 29 million tonne this fiscal, which would spiral to 50 million tonne in 2011-12 and is likely to be 120 million tonne by 2012-13. What is more, of the 203 captive coal blocks that have so far been allocated with combined reserves of 26 million tonne, only 92 blocks have commenced operations with a projected production of 49 million tonne by 2011-12/

And if you think India has problems, Pakistan’s are even worse, but then that is something that I have written about before.

The brief conclusion is that coal is going to around for a long time into the future, with demand continuing to outstrip supply for the non-OECD countries, and so one can expect the lines in the top charts above to continue rising.

Read more!

Monday, January 25, 2010

Burning coal in place, or Underground Coal Gasification

Last week I wrote about the SAGD process and how it is used to extract the heavy oil/bitumen from the oil sands up in Alberta. What I will write about this week is the more general topic of In Situ Combustion, and I’ll talk about coal this week, and perhaps THAI next week.

This is one in a series of weekly posts that deal with the technologies of conventional fossil fuel recovery. They are relatively short and so the descriptions are not provided in detail, rather they are meant so that you can understand some of the complexity of the process, and that it is not always easy.

The way that we use the majority of the coal, oil and natural gas that comes out of the earth is to burn it so that we can generate heat, which in turn is then used productively, either in the generation of electricity or more directly. But getting the fuel out of the ground can be quite expensive, either in direct cost or in the amount of energy expended. And so the question, why can’t we just burn it where it is to get the energy out more easily?

With most deposits the costs of recovery of the fuel conventionally are still low enough, and the energy recovery at the surface sufficiently high that this would be a losing proposition. But where coal seams are thin, or the oil is thick, using part of the fuel underground to recover a significant portion of what is left can be a winning proposition.

Of course burning coal underground is not always a deliberate act. Coal seams have caught fire for a number of reasons, and in parts of the country have burned for decades with significant environmental problems at the surface. Part of the reason for this is that if the coal seam is relatively close to the surface, then as the coal is burned away the overlying rock collapses all the way to the surface, opening cracks which allow air to get down to the burning zone, in this way providing oxygen that helps keep the fire burning. If the fire is burning uncontrollably then it becomes much more difficult to establish control since the cracks to the surface help keep the fire going and may not all be that large and easy to detect. (Though I have seen some big enough to hold a cow’s carcase).

My own first encounter with underground coal burning was when wandering into a mine that was something like a hundred years old, and being conscious of all the smells in the return air-way. I was told that an old part of the mine had spontaneously caught fire, could not be extinguished, but had been sealed off and left. The fire, in that case, was fed oxygen through the mined out passages around the place now on fire.

Which brings up the first point, which is that coal can, on its own, catch fire. The old pit heaps that dotted the landscape around mines were made up of old coal waste, including a fair amount of un-recovered coal. When they were later reclaimed it was often found that the tips had caught fire and burned the clay into a red-brick-like material. This self-ignition is known as spontaneous combustion and occurs because coal reacts with atmospheric oxygen even at ambient temperatures and this reaction is exothermic. If the heat liberated during the process is allowed to accumulate, the rate of the above reaction increases exponentially and there is a further rise in temperature. When this temperature reaches the ignition temperature of the coal, it starts to burn - hence the term "spontaneous" combustion.

The temperature at which the coal oxidation reaction becomes self sustaining and at which spontaneous combustion occurs varies generally depending on the type (nature and rank) of coal and surrounding conditions of heat dissipation. In poor quality coal and where the heat retention is high the coal and carbonacous material may start burning at temperatures as low as 30-40° C.

Coal oxidation can occur in coal storage – even on a battleship and, as I mentioned, underground

The fires are not always spontaneous, perhaps the most famous is the Centralia fire which Joan Quigley has written about in “The Day the Earth Caved in.” where the coal seam outcropped at the surface, and where it caught fire, and the fire then moved underground and beneath the town of Centralia, PA. Despite vast amounts of effort, money and time, the fires are still burning.

Which brings me to the second point. For a fire to continue to burn it has to have fuel (the coal) and air (oxygen). If the fire is totally cut-off all the air is consumed and the fire goes out. But if there are cracks through which air can reach the fire, then it will continue to burn. Thus, in Centralia, for example, as the coal burned in and under the town, it removed part of the rock holding the town where it was. The ground would then collapse into the burned out cavity, and a crack would run up to the surface along the edge of the opening, allowing air to flow back down to the fire and continue the progression.

Having been once involved in fighting such an event, it is very difficult to tell where the fire front is, and the coal does not burn in a vertical front, but in a very jagged pattern, depending on air flow and relative composition of the different layers of the coal. The air generally flows through the cleat pictured here.

But knowing that coal seams can burn in place, we still have to work out how to make that useful. Short of running water pipes down, and using the steam that comes out for power surely there has to be a better way of getting the energy, and there is.

Before the advent of North Sea gas British towns were dominated by the Gas Works, old gas-from-coal plants that produced town gas from coal. Simply put by heating the coal, and passing air and steam across it, one can generate "producer gas' and
"The final composition of producer gas is about 12% hydrogen, 25% carbon monoxide, 7% carbon dioxide, and 56% nitrogen; the nitrogen comes from the air used in the producer gas reaction." So that if we can get the water and air to the coal fire underground in the right quantities then we can generate a gas that we can extract and it can be used as an energy source.
Sounds easy, right? It turns out that it is not quite that simple. From the BERR report on the Chinese work written in 2004.
Underground coal gasification (UCG) experiments have been carried out in many coal mining countries and industrial scale production has been achieved in the former Soviet Union. More than 15Mt of coal has been gasified by UCG and in excess of 50 billion m3 of gas has been produced from UCG projects around the world. Despite research and many trials in different countries, no truly commercially viable UCG project has yet been demonstrated. However, various technologies are now available which could change this situation. A shallow seam, commercial power generation project is currently under development in Australia.

The first major plant was at the YEROSTIGAZ facility in Angren, in Uzbekhistan which started in 1961, works a brown coal deposit and is now run by Linc Energy. The plant produced 35 million cu ft of synthetic gas a day, which is fed into the local power plant.

Advantages of the process are seen to be:
* Capital investments in construction of underground coal gasification stations are less by 2.5 times as compared with those in construction of pits and quarries.

* The productivity of labour is the same as in open-cut mining and 4 times as high as in pits while the cost of final product being the same as in open-cut mining is 3 to 4 times as low as in extraction from pits.

* Hard and dangerous underground labour becomes unnecessary, working conditions are much better, and the extraction process can be completely mechanized and automatically controlled.

* Coal transportation, loading and unloading are excluded. No fuel is lost in transportation to the user and the atmosphere is not polluted with coal dust.

* There is no necessity for large areas for waste and ash dumps, and this allows conservation of fertile soil. The cost of land recultivation is five times as low as that with the conventional method of coal extraction. The mineless method of underground gasification allows exploitation of coal deposits with unfavourable mining conditions unsuitable for underground or open-cut mining. This allows more complete utilization of coal resources because non-conditioned and over-balance coal reserves can be used.

* Unlike coal combustion, the –underground gasification requires no fuel preparation, and consequently, no ash and slag disposal. No environmental pollution occurs because the gas combustion products are free of solid particles, carbon oxide, sulphur and nitrogen oxides.
The process is illustrated:

Angren UGC process

Linc has since opened the Chinchilla UCG operation with initial tests in August of 2008, running only air into the coal and recovering gas.
During its almost seven months of operation, the generator has operated very stably, producing gas of consistent quantity and quality. Gas has been produced with a typical composition (on a nitrogen-free basis) of H2 32%; CO 17%; and CH4 18%. The H2/CO ratio of 1.81 is ideal for Linc Energy's GTL process. Since commencing operation of the 3rd UCG generator, Linc Energy has gasified approximately 2000 tonnes of coal, producing over 5 million Nm3 of synthesis gas.
China began building an industrial scale pilot plant in Inner Mongolia in May 2007.
Seven ignition and production wells reached the coalbed 200 meters below ground by May 23 in the project's $112 million first phase. The project consists of underground drilling and ignition, aboveground coal-gasification power generation, and chemical production.

The plant is located at the Gonggou Coal Mine in Wulanchabu City and by 2010 will produce 1.5 million cu. m/d of syngas, 100,000 mty of methanol and methane and generate 32.4 million kwh/y of power. The city is developing a coal-chemical industry with its more than 15 billion tons in coal reserves. Methane isolated from the syngas will be used to produce town gas and generate electricity.
In Australia Carbon Energy having run a successful 100 day study has started to install a 5 megawatt generator at Bloodwood Creek.

Let me, briefly, concentrate on two problems.

In the initial concept, it was proposed that two wells could be drilled from the surface to the coal seam. In one early US test of this idea, in Hannah WY, the seam was relatively close to the surface, and for the first test the wells were set 75 ft apart. After reaching the seam, it was intended that the connecting passage between the injection well and the extraction well would be created by starting a small fire at the bottom of the seam, at the first producing well, and then by blowing air down the injection well have the fire work back to that well along the cleats through which the air was passing. By restricting the flow it was intended that the passage would be small, and run along the bottom of the seam. Then, once a passage existed, more air and steam could be fed into the injection well, increasing the size of the fire, and creating the producer gas that could be extracted from the production well.

Unfortunately the fire would not "behave" and over-burned the coal, rather than burning in the lower section, and did not otherwise go as planned. The conclusion was that this passage had to be artificially created first. The need for a long hole in the coal requires a directional drilling tool, and in the 1970's when the earlier trials were made, those were not available, particularly ones that could turn ninety degrees within the 140 ft from the surface to the seam. One had to be invented (and was). Thus in recent experiments the UK planners have looked at directional drilling from the surface to the coal, as a way of creating the initial passage, and providing paths for the air and steam to the fire and for the producer gas to come out.

Source UK Coal)

Two different approaches are being looked at in China, one of which works by creating panels in existing mines from adjacent cross-cuts, while the second uses a pair of directionally drilled holes with the fire to be initiated between them. Although as I mentioned from the work done in the US, getting that initial connection may be rather difficult and long-term control of fire location gets to be rather tricky.

Chinese method of UCG Derived from the BERR report.

The use of the two bounding holes confines (in thinner seams) the burn to the geometry desired and gives a method of control that is more difficult to achieve in larger seams, or without those bounds.

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Saturday, January 23, 2010

Climategate repercussions, the story grows

When the FOIA files that have since become Climategate first appeared on the scene, the forces that were marshaled against the full appreciation of their meaning and implications were, it appeared, overwhelming. The initial response of the media was either to ignore the information, or to follow the lead of folks such as the editors of Nature, and write it off as “much ado about nothing.” It has now acquired a much greater head of steam on both sides of the Atlantic. To the point, perhaps, where it will be no longer possible for the inquiries to be merely “formal whitewashes.”

In the weeks since the files were first released, as the information within the e-mails and the questions about the accuracy of the code have become clearer, the matter has begun to acquire a certain momentum. The initial questions about the release of the data from the Climate Research Unit (CRU) at the University of East Anglia (UEA) were intended by the University to focus on how this might have happened, rather than the content of the file. However that was quickly overcome by the nature of the material.
Thus, as described by the Parliamentary Committee on Science and Technology:
On 1 December 2009 Phil Willis, Chairman of the Science and Technology Committee, wrote to Professor Edward Acton, Vice-Chancellor of UEA following the considerable press coverage of the data, emails and documents relating to the work of the Climatic Research Unit (CRU). The coverage alleged that data may have been manipulated or deleted in order to produce evidence on global warming. On 3 December the UEA announced an Independent Review into the allegations to be headed by Sir Muir Russell.

The Independent Review will:
1. Examine the hacked e-mail exchanges, other relevant e-mail exchanges and any other information held at CRU to determine whether there is any evidence of the manipulation or suppression of data which is at odds with acceptable scientific practice and may therefore call into question any of the research outcomes.
2. Review CRU's policies and practices for acquiring, assembling, subjecting to peer review and disseminating data and research findings, and their compliance or otherwise with best scientific practice.
3. Review CRU's compliance or otherwise with the University's policies and practices regarding requests under the Freedom of Information Act ('the FOIA') and the Environmental Information Regulations ('the EIR') for the release of data.
4. Review and make recommendations as to the appropriate management, governance and security structures for CRU and the security, integrity and release of the data it holds
Now, however, there is sufficient concern that the committee itself is becoming involved in the inquiry. Now the inquiry is not only going to have to perform, but the evidence will also be going to the House Committee which has set up its own inquiry to address three questions.
—What are the implications of the disclosures for the integrity of scientific research?
—Are the terms of reference and scope of the Independent Review announced on 3 December 2009 by UEA adequate (see below)?
—How independent are the other two international data sets?
And suddenly the entire situation rachets up a notch. And, for what it is worth, since there must be a General Election this year and the results of the inquiry could well be available for it, the initial “shove it under the rug” attitude may now be something of the past.

The same can be true in the United States. When the matters first came to hand Penn State set up an inquiry as to whether Professor Mann had been involved in distorting data. Faculty matters of this sort are usually handled behind closed doors (for all sorts of good reasons), but the implications of this particular situation were too large for that to be simply allowed to pass. Thus, on the one hand, Republicans in the Pennsylvania Senate raised questions about ensuring an honest result.
Senate Education Chairman Jeffrey Piccola, R-Dauphin, wrote a letter to Penn State President Graham Spanier asking him to keep Piccola informed about the results of the inquiry.

"Anything short of the pursuit of absolute science cannot be accepted or tolerated," Piccola wrote in the letter.
Aaron Shenck, deputy director of the Senate Education Committee and an aide to Piccola, said Mann's inquiry is very serious and that the university must make every effort to complete the investigation.

"Senator Piccola believes the seriousness of the allegations that have been made against Dr. Mann require thorough examination by Penn State and its fullest investigatory resources," he said.

Shenck also said that although it is not within the senator's "jurisdiction or desire" to decide whether Mann is guilty or innocent, it is within the Senate Education Committee's jurisdiction to monitor the investigations.
On the other the Governor recognizes that there are also other issues.
"The governor believes that climate change is real, that it is caused by man," said Gary Tuma, the governor's press secretary. "We have proposals here on the state level to address climate change and we have no reaction to the letters, publicly or privately."
And thus the issue of money, and who stands to gain from the decisions as to whether sins have been committed may play a significant part in the results of the inquiry.

However the political ramifications on a national scale now are beginning to reach the point where the Administration’s support for global warming legislation and rules, is being increasingly challenged, with Senator Murkowski having now stepped in to use a “disapproval resolution” to restrict the ability of the EPA to regulate carbon dioxide emissions. What is interesting is that she has drawn support from at least 3 Democratic Senators as well as most Republicans.

Well as the momentum continues to grow on this issue, the first books and more comprehensive reports on what the release of the files have started to come out. I am currently reading both the “Climategate – the Crutape letters” book and the (pdf) analysis of the files by John Costella. Both of these are very readable, and I will try and have a comment/review on both next Saturday. And we will see what further developments the next week brings.

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Thursday, January 21, 2010

The fields and development of Sakhalin 1

Browsing Drumbeat, my eye was caught by a comment by Darwinian about Sakhalin Island production. In essence the article notes that production from the Sakhalin I project has dropped by 14.5% as a result of natural field depletion. That drop needs to be put in context.

For those of you unfamiliar with Russian oil production, and I would recommend Grace’s Russian Oil Supply in that case, Sakhalin Island is the most Easterly of the Russian oil fields.

Location of Sakhalin Island just north of Japan (Google Earth)

It has been just over a year since a new export facility at the island (see map below) transformed oil exports from being a seasonal affair, closing with the ice of winter, into an all-year effort. This was due to completion of an offshore loading facility and thus by July it was possible to report:
“Our 200th oil cargo is clear evidence of Sakhalin’s emerging role as a key energy hub for the Asia-Pacific region,” said Sakhalin Energy Chief Executive Officer Ian Craig. “The increasing frequency of oil cargo shipments will also be matched and then exceeded by the frequency of LNG shipments as we build up to plateau in the second half of this year”.
The oil is from platforms on the north-east end of the island, and the oil is brought onshore, and then piped 500 miles to the southern tip of the island where it is loaded onto tankers at a single point mooring facility at De Kastri. The main markets have been in South Korea and Japan. And, as an aside, the use of tankers does not mean that there is much warming up there (temperatures can reach -40C), there are two ice breakers available to help and guide the tankers.

Sakhalin Island was originally a penal colony and is relatively inhospitable but yet has been seen as promising as an area for further development.
An estimated 45 billion barrels of oil equivalent lie beneath the icy seas off its shores, a figure rivaling what remains in the U.S. or Europe. But developing those resources is proving lengthy, difficult, and expensive. Cost overruns have been huge, and no one knows if the Russians will end up controlling the assets now being built. "This is a frontier project like the North Sea or Alaska [was]," says Ian Craig, CEO of Sakhalin Energy Investment Co. "The industry doesn't know how to do everything" here yet.
It is not that easy to reach.
The island is located seven time zones, and a nine-hour flight, from Moscow. That's the first part of the journey. Expatriate oil workers and visitors then board the train that runs north from Yuzhno-Sakhalinsk to Nogliki, the snowy gateway to the offshore oil fields. Sakhalin Energy maintains its own sleeping car with wood paneling, rugs, and burly, tattooed guards to fend off bandits. Passengers board in the evening and toss and turn on narrow bunks in steamy cabins while the train bumps and clatters for 15 hours through the snowy wastes. Sakhalin Energy's operations in the north are so remote that it had to build a 43-mile road to get there. Bears roam the woods, and the weather is so bad that construction manager John Burn hires 70 people to keep the area clear of snow and ice six months a year.
The development of the fuel fields has been divided into a number of parts. The largest is Sakhalin II which began with the first oil platform Molikpak located at the Piltun-Astokhskoye field in 1999. That set of fields lies north of the Sakhalin I set of fields.

The Molpak rig ( air1Okuzya at Google Earth 52 37’31.77” N 143 26’02.91E)

Sakhalin I - the subject of the Reuters piece I quoted at the top of the post - is located on the north-east side of the island.
The Sakhalin-1 Project is an oil and gas development on the northeast shelf of Sakhalin Island. It was declared commercial in October, 2001. The Project area is comprised of the Chayvo, Odoptu and Arkutun-Dagi fields. Total recoverable reserves are estimated to be 2.3 billion barrels of oil (307 million tons) and 17.1 trillion cubic feet of natural gas (485 billion cubic meters).
The project is being run by a subsidiary of ExxonMobil, with current plans to start production from the Odoptu field in the second half of this year. Production to date having come from the Chayvo field.

ExxonMobil “Hawk: drilling platform at Chayvo (Superparty at Google Earth 52 29’20.08”N 143 14’13.17”E)

ExxonMobil has written a short book on the project of some 9 pdf files. It notes that Phase I of the project reached its peak production of 250,000 bd in 2007. The drilling rig shown above is 22 stories high and is being used to drill extended reach wells that reach out up to 7 miles offshore. The two other fields that are now to be developed are further offshore.

The oilfields and pipeline for Sakhalin I (ExxonMobil )

The Orlan (or Sea Eagle) platform, which is offshore, has a target of production from 18 extended reach wells that extend out to 5.6 miles from the platform. It is expected that the overall production from the three fields will continue in production for some 40 years.

The Hawk rig has just completed the first two extended reach wells reaching out some 5.6 miles with horizontal wells to the Odoptu field, and will drill another five to bring that field into production by the end of the year.

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Tuesday, January 19, 2010

A new Massachusetts Senator and energy policy changes

The fate of coal fired power plants is one of those questions that continues to have answers hidden in the fog of their political future. And the election tonight of a Republican Senator from Massachusetts raises some interesting questions about that future. Not the least of these will be the fate of cap and trade legislation, which was already in some trouble in the Senate. And one wonders if it will have any impact in the ongoing debate about the Cape Wind project. This project, to raise a wind farm in the area off the coast of Massachusetts that the late Senator Kennedy and his family apparently sailed in, has been stalled for some nine years since it was first conceived. The process recently ran into another bump with the National Park Service agreeing that the area is eligible for listing as a historic site.
The 560-square-mile area is the first swath of ocean to be determined eligible for listing on the National Register of Historic Places. That decision Monday, based on the sound’s cultural and spiritual significance for two Wampanoag tribes, means the 130-turbine Cape Wind project and all future activities in the Sound that require a federal permit will now have to consult with the Native Americans and try to minimize the impact of projects on the protected area. That consultation will be required even if the sound is never actually formally listed on the register.
The Secretary of the Interior has now met with the Indian tribes, and the proponents of the plan and has promised that there will be a decision before the end of April. The eligibility ruling is apparently somewhat unusual, and has additional consequences relating to fishing and the use of ferries that go well beyond the wind farm issue, and no doubt tonight’s result may also have some impact. But we should find out before the end of April what that might be.

Not all political futures are as quickly resolved. One of those that has been dragging on is the one I started with, that of cap and trade, and Foreign Policy in a major review of the accomplishments of the Obama Administration in the energy field have not been overly kind in their review. And while the election may move cap and trade even further from a Senate vote, the article goes into considerable more depth in considering some of the other perceived failures of the past year.
Here is the back story of how the Obama administration dramatically raised and then dashed America's -- and the world's -- hopes that 2009 would be a pivotal year for remaking our collective energy future.
It has a much more realistic view of the consequences of actions to date, and while it considers that Secretary Chu is a voice of reason in the debate on the energy future, considers that he is a lone voice, and a largely unsuccessful one against the “partisans of the past.”
Virtually every other key policy role was filled by environmental regulators -- former Environmental Protection Agency (EPA) head Carol Browner as climate czar, former Browner aide Lisa Jackson as EPA administrator, and Nancy Sutley as chair of the White House Council on Environmental Quality.
The authors feel that the emphasis on energy conservation – a major plank in the immediate future – is part of “magical thinking” of the future where desired outcomes will occur almost at the cost of merely wishing them so.
In this view, energy efficiency pays for itself, solar and wind power are already nearly cost competitive with fossil fuels, and both can quickly and cheaply reduce emissions. This Pollyanna view of fossil fuel alternatives and efficiency, which makes going green seem cheap and easy -- little more than the cost of "a postage stamp a day" -- has provided the justification for green-policy advocacy that has overwhelmingly focused on pollution regulations and carbon pricing while ignoring serious investment in energy research and development.
Some of the roadblocks to the anticipated “magical change” in the energy supply of the country are already evident. The resistance to a wind farm in Massachusetts from the Democratic Establishment there; the blocking of sites in the Mohave Desert that would contain solar and wind farms by Senator Feinstein - to give examples on both coasts – illustrate some of the problems that the reality of renewable energy provision must get through in order to continue to increase the percentage power that it provides to the nation. (And it is still not nearly as much as the public perception of its impact has been, I suspect).

Unfortunately that is not the sum of the national woes. For in reading the Foreign Policy piece, what struck me was the lack of understanding on the part of the authors of the potential future problems of overall energy supply.

The grip of the “greens” on short-term energy policy will likely make it increasingly difficult to build new coal-fired power stations. Secretary Chu, driven in part I suspect by his own view of Climate Change, is focusing on finding long-term solutions to the provision of electric power, with the benefit that dealing funds to that aim helps his constituency in the National Labs. But in the process neither side pays much attention to the possibility of nearer term problems of energy supply.

But there are some warning signs (apart from the ones that I write about in most posts relating to the coming difficulty in producing enough oil to meet global demand – which Goldman Sachs now expects to happen next year). And these concerns are illustrated by example. For in the United Kingdom the power companies are requesting that some of the coal-fired and nuclear power stations be kept around after the European Union regulations require that they be closed.
"Given that the issue we are trying to grapple with is climate change, there is a question mark over keeping one or two of these oil or coal fired plants mothballed to secure supplies for a few days per year when we get these conditions," Golby (chief executive for E.ON UK) said.

"It might be a small economic and carbon premium worth paying for security of supply and getting us through this transition to a low-carbon energy system. It's something we have talked to the government about."

Golby's view is privately supported by many UK power station operators who fear a looming energy gap in a few years when old coal and nuclear plants have been closed but new reactors, clean coal plants and wind farms have not been built.

So the new Senator enters an arena where the debates, actions, and inactions of the next year or so may have a very significant impact on whether or not there is sufficient power in this country after 2015. Let us hope that he understands that.

Read more!

Monday, January 18, 2010

SAGD - and well production of oil from the oil sands.

This is a technical post relating to the production of oil from heavy sand deposits, such as those in Alberta. It is a part of an ongoing series, listed to the right of the page, and should probably be read after the post last week on surface mining of those deposits. It is simplified, and relatively short, and so there are some details that are abbreviated, but longer answers can be provided through comments.

Surface mining of oil sand can only progress so far before the gradually deepening seams of the sand become too deep to continue to economically mine them. At the same time the viscosity of the oil is such that it does not flow easily to a conventional type of a well. This is not a new problem for the oil industry, which has had to address issues with the quality of the oil that it finds coming out of a well more than once over the past decades. One of the more easily applicable methods for improving the flow characteristics of the oil is through heating it. (And a quick caveat, the quantities of heat that I am talking about at the moment are significantly different from those that are needed in treating oil shale, and I will come to that topic in a couple or three weeks).

The example of the effect that temperature makes on the ease with which a fluid flows that always first comes to my mind is of a visit to the Nurse’s cabin north of Montreal one winter, a long time ago, when after struggling through waist-high snow, we sat and poured whisky from a bottle left there, as we waited for the wood stove to heat the cabin. When we started the Scotch poured as though it was a heavy syrup.

Viscocity of an oil is something that we usually only think about when we buy the engine oil that we put into the car on odd occasion. Buying the right oil means either looking for the little label that has the right description or reading the manual to get the number. But the oil that we buy for the engine is rated in part on how it behaves at different temperatures. We want the oil in the engine to easily circulate around the parts, and lubricate them from the time that we switch the engine on. But if the engine starts cold, and the oil is too thick, then it may not move easily around the parts, which may run dry for a while and wear more rapidly – which is not good. However if the oil becomes too thin once the engine reaches operating temperature then it doesn’t act as a good lubricant, and again engine wear is increased. And so manufacturers of the oil will adjust the contents, depending where in the country they plan on selling the oil, and what the temperature variations the oil can expect to operate under there. (And this is why oil is sometimes bought with two numbers – as in 10W-30 – the first number relates to the cold start, and the latter the performance at the engine operating temperature. And the higher the number the more viscose the oil is under those conditions.)

A typical oil found up in the oil sands of Alberta is much thicker, and more difficult to flow under normal operating conditions than that used in a car. For the areas of the province that are too deep for surface mining the temperature is not affected much by the changes in surface temperature, but the ground temperature is still low enough that the oil is very viscose, and production from a normal vertical well is usually too slow to justify the expense of putting in a well.

So how can the viscocity be reduced? For a simple example, take an apple, which has fallen in the butter, and you want to clean it off. If you take the apple and put it under a cold stream of water the butter sticks to the apple, but if you raise the water temperature, suddenly the butter melts and runs off the apple. This happens best at about 185 degF, and if you were to turn a pressure washer onto a greasy surface you would find that it works better if the water is also heated above that temperature. (Some pressure washers are sold that way).

Think now, if you will, of little Johnnie (helped of course by Jessica) having raided the orchard and spread butter onto all the apples, gluing them together and filling the kitchen full, right to the ceiling. How do we clean the butter off and get it back without taking all the apples out and cleaning them one by one (which is sort of what they do with the surface mined oil sand up in Canada).

We could just stand in the hall and stick heaters up against the wall of apples, hoping that the heat would melt the butter and work its way back to the ones further into the kitchen. That sort of works, but burns the local apples and doesn't reach all that far. (They have tried setting fires inside oil wells, and we’ll get to that maybe next week). You could fill the kitchen with hot water, but while that washes out some of the butter, a lot of the heat goes into the apples and the water is cold before it reaches the back of the room. And the water doesn't have that much pressure to push the remaining butter off the apples.

What we need is something that will get through the gaps between the apples and keep its heat. So how about steam? So you go and get a steam cleaner (such as you use for carpet cleaning) and blow the steam into the apples. That works but as the butter starts to flow out it clogs the gaps and starts to re-harden except when the steam is right there. So you start to run the steam for a bit, stop and collect the butter that comes out, run the steam for a bit, etc. You can do this in an oil well and it has the exciting technical name of "Huff and Puff" (would I kid you?). To make the steam more effective it is heated to between 150 and 300 deg C. Where the rock is very permeable and the steam can, in time, work its way back through the particles (apples) this can recover a lot of our butter. But you still lose a lot of heat, which is expensive to generate, just in heating the apples.

The NETL shows how the process works, in three steps:


Puff - The 3 stages of the process as illustrated by NETL.

The problem is that this is still limited by the length of the borehole through the deposit, and because it is an intermittent process, it doesn’t give a continuous flow of oil.

However, with the advent of directional and horizontal well drilling, the first part of that problem can be solved, and a longer hole can be drilled into the sand to give a higher exposure to the steam being fed in.

Then, to allow a continuous supply of steam into the sand, a second well can be drilled so that the steam is constantly flowing out of the one (upper ) well into the oil sand, and as the steam reduces the viscocity of the oil, so it flows easily into the lower well which can then capture it and carry it to the surface. Because the steam is cooled to water during the process, this is also recovered with the heavy oil, and is then separated from it. In some cases, as I mentioned last time, there is also some natural gas in the formation and this is also recovered and separated. It is often used to heat the water (as much of which as possible will be that reclaimed from the steam) to feed it back into the process.

Artist's illustration of the SAGD process (Devon Canada Corp)

The entire process is called Steam Assisted Gravity Drainage (SAGD – pronounced Sag-D) and over a 30-year period has become the popular method for getting the deeper oil from the oil sand. Just this week, for example, Alberta Oilsands Inc. has filed an application to install a set of 6 paired wells at a site that is a mile from Fort McMurray Airport. The six sets of wells will produce some 4,500 bd. The lower well runs along the base of the formation, while the steam injection well is located above it, and about half way down the formation depth. (It should be noted that the application is also considering a later use of electro-magnetic heating).

Typically several sets of wells are laid out beside each other to provide an interaction between the wells and heat the intervening oil so that it can be recovered. For example, this layout is taken from the application of Devon Canada Corporation for an expansion of their Jackfish project to produce an additional 35,000 bd. Notice, in the layout below, the close pattern of the parallel well sites.

Schematic of a surface layout over the SAGD wells.

There have been a number of different posts at The Oil Drum about SAG-D over the years. Dave Cohen wrote about some of problems as seen in 2006, particularly as they related to the problem of natural gas supply for, among other uses, heating the water to steam.

But I’ll return to the issue of adding heat to oil sands, and then get on to oil shales in the weeks ahead.

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Saturday, January 16, 2010

The Met Office, NASA GISS and is there a Thermometergate?

Because there are very obvious current differences between the weather in the United Kingdom and the forecasts of the Met Office, the BBC are reporting that the some at the Office are considering stopping the practice of making long-term forecasts. One of the problems has been identified:
The Met Office has now admitted to BBC News that its annual global mean forecast predicted temperatures higher than actual temperatures for nine years out of the last 10.
The bias is very small overall, about 0.05 degrees C, but the fact that it is a persistent warming bias should, perhaps, be of concern, relative to the accuracy of the models using it. Of course there are those, such as Professor Mobbs at Leeds, who would argue differently:
"All models have biases and these are very small. It may be, as the Met Office suggests, that the observations are wrong, not the model."
Must be all that illusion of snow that must be confusing folk in the UK after the model promised a greater chance of a warm winter.

Thermometergate, the concern over the quiet, and at the time un-noticed switch whereby the NASA Goddard Institute for Space Studies (GISS) changed number of stations used in assessing global temperature, is slowly getting more visibility. There was an hour long special (visible in five parts) on KUSI in which (during part 4) John Coleman introduced and talked with E. Michael Smith, who runs the site that has reported on this, and which has reviewed the GISS code and discovered that they now rely on a much smaller number of data acquisition sites than they have previously.
One final note: There has been A Great Dying lately for thermometers. Since about 1990, there has been a reduction in thermometer counts globally. In the USA, the number has dropped from 1850 at peak (in the year 1968) to 136 now (in the year 2009). As you might guess, this has presented some “issues” for our thermal quilt. But do not fear, GIStemp will fill in what it needs, guessing as needed, stretching and fabricating until it has a result.

Going through the list of stations that survive and looking for those in Missouri, there are apparently three:
(the first and second sets of numbers after the station name give the latitude and longitude of the stations)

42572434000 ST.LOUIS/LAMB 38.75 -90.37

42572445000 COLUMBIA/REGI 38.82 -92.22

42572440000 SPRINGFIELD/M 37.23 -93.38 .

Going to the actual GISS site to see how the values check out, GISS does recognize the drop in the number of station records that are used:

Number of stations used to generate the GISS temperature record

The full list of Missouri stations (there are 35 of them) are also given. The relevant plots given are:

Lambert St Louis temperatures

Columbia MO temperatures

Springfield Mo temperatures

The consistent part of which plots seem to be the lack of current evidence of warming and the higher temperatures during the dust bowl era. I also looked at the University site in about the middle of the state (at Rolla) and got this:

Temperatures at Missouri University of Science & Technology (until recently UMR)

One thing that did strike me about that record was that it did not look the same as the plot that I got from the USHCN data base, and which I had used once before. So I went and got that plot for Rolla:

Plot of the Mean Rolla Temperatures from the United States Historical Climate Network (USHCN) data base.

The impression of a rising trend evident in the GISS plot is not as evident in this one, and the highest temperature is barely, rather than clearly, 2006.

What is, however, odd, is that the USHCN data base for Missouri does not carry the station data for the three sites chosen by GISS.

I am going to continue to monitor the Rolla site, since (apropos Anthony Watts project on the validity of station data there has been an new technical addition near the measuring station and it will be interesting to see what, if any, effect the wind turbine has on the data generated from the weather station.

Current status of the station at Missouri University of Science and Technology (note the wind turbine on the right, and the weather station on the left).

The debate over the impact of the reduction in the number of sites that are being used to generate global temperature averages will no doubt continue, though it is interesting to note the specifics of what Dr. Hansen has said in his response to the KUSI report.
“NASA has not been involved in any manipulation of climate data used in the annual GISS global temperature analysis. The analysis utilizes three independent data sources provided by other agencies. Quality control checks are regularly performed on that data. The analysis methodology as well as updates to the analysis are publicly available on our website. The agency is confident of the quality of this data and stands by previous scientifically based conclusions regarding global temperatures.”
Now NASA (GISS) recognized that there has been a reduction in the number of monitoring stations (it is after all their graph that I used above) what it does not do is comment on the impact that changing the data base has on the overall result.

We will see how long it takes to getting around to addressing that issue.

Read more!

Wednesday, January 13, 2010

The Russia:Belarus oil dispute and Western Oil supplies

I hadn’t actually been paying much attention to the Russian:Belarus dispute over oil supplies. After the annual debacles that we are used to over natural gas supplies that flow from Russia to Western Europe through Ukraine, and which seem somewhat quiescent at the moment, I had failed to grasp how much Western supplies of oil from Russia flow through Belarus. But as is pointed out in Foreign Policy the flow is significant, and this is a more far-reaching conflict than I grasped. As a brief review:
In 2001, Belarus unilaterally canceled a contract that mandated the sharing of these revenues, leading to substantial losses for Russian pipeline monopoly Transneft and the Russian state budget. Now, Transneft is demanding that Belarus pay full import duties for the portion of Russian oil that it resells on the European market, a demand that could cost Belarus as much as $5 billion per year. The Belarusian government argues that the Russia-Belarus customs union obviates the need for Minsk to pay duty on imports from Russia. Although deliveries through the Druzhba pipeline have not, as of mid-January, been cut off, the prospect that Transneft (whose chairman is Russian Deputy Prime Minister Igor Sechin, a close confidant of Prime Minister Vladimir Putin) will turn off the taps to force compliance from Minsk is clearly one that has European leaders worried because the European Union imports about a third of its oil from Russia, mostly via Belarus. Already, the prospect of supply disruptions has driven U.S. crude oil prices to a 15-month high, presumably to Moscow's delight.
Well, as my post yesterday showed, I am not convinced that this conflict had a lot to do with the rise in oil prices (which actually dropped a little today, on their overall march upwards). But that does not lessen the longer-term impact of what is going on. It is, as it was with the Ukraine dispute, to with control, with Russia seeking to control fuel distribution in these countries, and through supply controls also influence the directions in which the country moves.

Russia is now warning that it will reduce oil flows to Belarus even further and wants the duty on the roughly 290,000 bd that is refined in Belarus and then exported to the West. At the moment the refineries in Belarus have a relatively short reserve (between a few days and a week, reportedly - depending on source) and the current contracts have expired.
Germany and Poland are believed to be hit hardest once Russia halts shipments through the Druzhba pipeline. Germany depends on Russian crude for about 15 percent of its total consumption, and Poland buys from Russia to meet 75 percent of its market demands.

Minsk has threatened to raise the transit fee for its European customers more than tenfold, from 3.9 dollars to 45 dollars per metric ton, should Moscow not agree to its conditions, RIA Novostinews agency quoted an unidentified expert close to the talks as saying.
At the moment the talks appear to be stalled. However they are not limited to the transit of oil. There is also a dispute over the transmission of electric power. Belarus acts as a transit country for power both to Kalingrad and to the countries of the Baltic. It has assumed somewhat greater urgency with the closure of the Ignalina nuclear power plant in Lithuania. The plant closed on December 31, and there are fears of greater dependence on Russia for future power. Russian complacency about the situation is not, I suspect, exactly helpful.
“It is inevitable that Russia is going to become a bigger supplier of energy to Europe and particularly to the Baltic countries. Ultimately there comes a point where you have to let the old days go,” Chris Weafer, chief strategist on Moscow’s Uralsib bank, told New Europe on 5 January, adding that the Baltics, which sorely need energy supplies, should adopt a pragmatic approach and rely on their eastern neighbor and forget the legacy of the Soviet Union. As long as Russia continues to try and build a modern and diversified economy with greater global integration, then it needs the goodwill of the West just as much as the West needs Russia’s energy.
Bids for construction of a new plant are due to be submitted by the end of this month, with the hope of getting the new plant on line by 2018. (Kalingrad is hoping to have its own reactor in about the same time frame).

In the interim the Baltic states are going to be dependent, not only on Russia for their electricity and oil, but also on satisfactory conditions to allow the transit of both through Belarus on their way.

Meanwhile, over in Ukraine, there is an election underway, with initial voting to take place on Sunday. It is perhaps for that reason that there have been no major gas disruptions so far this year. Anger with the current administration is giving a bit of a boost to a third candidate, so perhaps it is in Russia’s best interests to retain a low profile at this point. In fact Russia is claiming credit for keeping the UK supplied with gas as supplies from Norway dropped due to bad weather at some of the production sites. However Russia is also being nice to Turkey as insurance just in case it will still need to do some bypassing around Ukraine to supply Western Europe after the election is over.

Not that conditions in Ukraine itself have been unaffected. There are some 175 towns and villages that are reported to be still without power, due to the bad weather. This is a decided improvement from the 1,598 who lost power in the Dec 29th storm. At least they are more used to the cold.

Those in Florida who aren’t, and plugged in too many heaters, are also causing power outages down there.

Read more!

Monday, January 11, 2010

October's oil production numbers show an increase

The recent increase in Chinese imports of oil, (they imported 20 million tonnes of crude (the equivalent of 4.7 mbd) in December, is being blamed for the increase in crude prices to over $84 a barrel today, early as it is in the New Year. China has also increased its purchases from Africa, up from 1.58 mbd in December to 1.9 mbd in January. Given that it is now a significantly larger market for cars and trucks, with some 13.6 million units (the USA had 10.4 million) having changed hands last year, the roiling of the international trade in oil products may just be seriously starting. And in the process I may be proved to be a little in error over my view of future production and prices.

The increase in Chinese purchases has been clear for some time, as has their agreement with Saudi Arabia to increase purchase levels. As a result the world is rapidly returning to the production levels that were achieved before the financial recession. Going to the EIA web page, for example, the figures released today (which are only compiled through this past October), show that peak world production was in July 2008 (note that this counts all liquids, including ethanol, and NGLs). At that time total production was 86.620 mbd, of which OPEC produced 36.412 mbd and the USA some 8.83 mbd. This time last year production was at its lowest over the last couple of year at some 83,145 mbd, OPEC was at 33.402, and the USA at 8.731 mbd.

By October, however, world production had returned to 85,302 mbd. This is sensibly the average value for 2008, and some 1.3 mbd above the average, to date, for 2009. OPEC production was running at 34.381 mbd. Non-OPEC production, which has been bouncing around 50 mbd since December 2003, and which has been predicted to be in terminal decline, did reach a new peak (according to the EIA) of 50.921 mbd in October. However, the general prediction for non-OPEC production relates to crude oil production, rather than all liquids, which is the EIA figure.

It would thus appear that we are within 1.3 mbd of reaching a new record for production (and this was for last October, and as I noted above sales in December were significantly up in China).
UPDATE Stuart has a post on the growth of Chinese car ownership and more, today.

The numbers for crude oil alone are obviously lower. In July 2008 world production was 74.746 mbd, with 33.138 mbd of production from OPEC; after a nadir of 71.43 mbd last May, when OPEC was at 30.399 mbd, by October production was back up to 73.121 mbd, with OPEC at 31.012 mbd. The difference between peak and October is 1.6 mbd.

Until now I have anticipated that we would not revisit the levels of production that we were at when oil reached $147 a barrel (which was in July 2008) for at least another year. Depending on how you view these levels of production, that pessimism about the growth or regeneration of the world economy for which this might be considered to act as a proxy appears that it might be too conservative a view. We may well exceed the current maximum values by sometime this summer, when we usually see peak annual demand.

The question will then become one of the availability of the market to meet the higher levels of demand, and can this be done without returning to the high prices that were encountered the last time around. And with those questions comes the slightly longer term one as to how much higher world oil production can be raised, before we bump into a physical production limit. I tend to believe the generalized view that non-OPEC production is at a peak if not, over a sustained period, just about past it. But even if non-OPEC overall production level is sustained or slightly increased, this will still throw the burden of meeting significant increases in global demand on OPEC, and this re-opens the debate over how much additional oil that they can bring to the market, given the slow release of the production quotas under which they have been operating for the past year. (Saudi Arabia, for example, which peaked at 9.7 mbd in July 2008 and dropped to 8.062 mbd in February of 2009, crept back up to 8.54 mbd in July and was at 8.34 mbd in October. (Over this period Russian production has steadily increased, with October levels reaching 9.629 mbd, and this is the non-OPEC factor).

Well those are the numbers, they are moving up faster than I had expected, and I’m afraid it will likely mean that higher gas prices will come faster than I had expected to be the case. That is because you don't get these levels of production unless someone is buying and using the product. It will at least also, as demand rises, show whether the claims that have been heard about the current global reserve are true, and whether – if gas prices do rise, whether and when they will impact the global financial recovery.

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