OGPSS - introduction to China

When I first began this review of future production from the different oil producing countries about fifteen months ago, I produced this list of the relative performance of the top 30 producers.


Figure 1. Top 30 oil producing countries (those increasing production over 2009 are shown in red). (Click on the table to enlarge it)

So, after covering the top three the question becomes which country should be covered next, given the changing ranking? The United States is now producing some 6.36 mbd of crude oil, and after a steady rise in production seems to have, transiently perhaps, reached a plateau. The number given in the table above includes ethanol and refinery gains, among others, and OPEC considers that the total average production this year will be 9.8 mbd. (MOMR)

Figure 2. US Crude oil production for the past year (EIA TWIP) OPEC consider that Russia will average 10.34 mbd this year, and is running just under that number this month, and Saudi Arabia is running at between 9.89 and 10.1 mbd at present. As one moves beyond this top three China has now moved into fourth place with a reported production of 4.22 mbd. (OPEC MOMR)

China’s supply is expected to average 4.22 mb/d in 2012, an increase of 80 tb/d over 2011 and steady from the previous month. China’s output in May averaged 4.19 mb/d, also steady from the previous month and the same month last year. However, cumulative production till May 2012 indicates a decline from the figure for the same period in 2011. This has been mainly due to the shutdown of the Penglai field, while healthy production from the Changqing field, which reached a record level in May after 40 years of operation, has partly offset the decline.

As the initial table above shows, China has been lagging Iran in production, but even as China has grown production, that in Iran has slipped. OPEC report that (again depending on who one believes) Iran is producing between 2.96 and 3.76 mbd. (The latter is the Iranian number). Iraq is still running either slightly ahead or behind at 2.98 mbd. Iran may therefore be moving from 4th to 6th in production rank.

Even as China’s production has crept up, and against an EIA estimate of 20 billion barrels of reserves, these numbers are being dwarfed by the rate at which demand is rising.

Figure 3. Comparison of Chinese crude oil production and consumption (Index Mundi)

The EIA notes that this ranks the country as second (to the USA) both in terms of overall consumption, and also of imports (running at around 5.5 mbd).

As the demand for fuel for China has increased over the past decade, the country has been assiduous in seeking resources abroad which can provide future supplies. Although at present some of these resources are selling to other markets their products can be “swopped” for that from other sources which can be diverted to China. (Nexen which CNOOC has just moved to acquire produces 213 kbd.) It is worth noting the comment that:

the acquisitions will help China "lower the risks when energy shortages become an urgent problem in the global market."

Also this week Sinopec bought into 8% of the production from the United Kingdom (1.8 boepd) as it purchased 49% of Talisman.

China still gets most of its energy from coal, (71% in 2008 according to the EIA review)

Figure 4. The sources of Chinese Energy (EIA)

At a time when India has just emerged from two days of blackout vulnerabilities outside of the availability of the fuel itself are ubiquitous and equally well hold true in China where both domestic and imported fuel must make its way through a crowded infrastructure to the point of use.

Oil and natural gas are more easily transported in pipelines, though the large distances and the mountainous terrain in regions of the country does not make that construction easy. China has, however, been willing to invest in such pipelines to gain access to, for example, natural gas supplies from Turkmenistan. Until the advent of the pipeline in 2009 the Turkmen were stuck with having to sell their natural gas through Russian pipelines into Europe, and had to take the price that they were allocated. With the opening of a second market, this was foreseen as a considerable boost to both countries. However there have since been some further negotiation of price, as the global market has changed. Those negotations are now complete and flows will increase to some 65 billion cubic meters/year (bcm/yr). It is anticipated that this will cut the need for China to import additional volumes of natural gas from Russia. To date some 20 bcm have been shipped from Turkmenistan through the 1,830 mile pipeline since it opened in 2009, and field development in Turkmenistan is proceeding to provide the volumes required by the new agreement.

In terms of their own resources China has a number of large oil fields, ownership of some of which (the offshore ones) is not always completely agreed.

Figure 5. Major oilfields in China (Rigzone via EIA ).

The development of natural gas resources from shale has yet to begin in China, but as the Polish experience has shown, it is too early yet to predict that this might achieve the success of that in the United States.

As with oil China has significant quantities of coal, but still imports large quantities from abroad to meet the distributed demand across the country. It is not used purely for electric power generation, in the far West houses are transforming from mud brick to baked brick, with all the local brick works fired by coal, in a region which otherwise gets its power from hydro-electric plants.

Figure 6. The coal fields of China (USGS )

There is, in short, a fair amount of complexity to the Chinese energy story, which will form the focus of the next few posts.

Gas Prices - when will $5.00 a gallon for gas be the US average?

It is hard to miss the recent rise in gasoline (gas) prices in the United States, and the rumblings that it has generated in the national press. It is a concern that has already entered the ongoing political debate with one Republican candidate promising that, once elected, he will bring the price of gas down to $2.00. (The unreality of that prediction has been explained earlier.) As a result there have been a number of reasons projected (for example here) as to why, in contrast with most seasons, gas prices are rising at the present, in the season of the year when demand is generally lower than normal. Today (Thurs the 1st March) they have risen for the 23nd straight day with prices about $0.30 above what they were a month ago. The Administration does not seem, however, concerned.

Changes in the price of gasoline (EIA TWIP)
Changes in US demand for gasoline (EIA TWIP)

Even though the economy is somewhat stronger than it was a year ago, the demand for gas is still down around 400 kbd. (8.746 against 9.101 mbd). In a more conventional market decreasing demand, against constant supply would lead to a fall in prices. That is not likely to happen, and in part this is because the USA only provides a part of the global market where the demand from the developing countries (as Stuart Staniford has noted) is steadily increasing. China, for example, is growing its oil demand at slightly more than 5% p.a. (0.51 mbd y-o-y for December growth) and has reached a total consumption of 9.3 mbd. It is also slowly starting to build its own reserve of oil and has been buying additional oil for that reason. How long that will continue this year is one of those questions to which there is no clear answer, although, since it is apparently buying heavier and higher sulfur crude and it may be acquiring those crudes that Saudi Arabia has previously had problems selling.

However I continue to have a concern that in the face of this growing demand there continues to be a question over the stability of supply during the next year. (And also thereafter, but that is less likely to affect current gas prices). Consider, if you will, that during the height of the summer US demand will, following the pattern shown above, rise about 1 mbd. Similarly with the driving season in Europe and elsewhere, demand in general can be anticipated to increase over the next four months. OPEC, in its February Monthly Oil Market Report, has lowered its projection of demand growth this year overall to 0.9 mbd, (for a peak of 89.95 mbd on average in the fourth quarter of 2012) having recently lowered the estimate based on doubts over the growth of the US economy, but nevertheless that additional supply has to be found from somewhere.

Projections of oil demand growth from OPEC (OPEC February 2012 MOMR)

And this is where the troubles that continue after the beginning of the “Arab Spring” may have consequences in meeting those targets, together with questions on the nature of the continued status of oil shipments from Iran. OPEC anticipates that, in total, it will (plus minus 100 kbd) continue to supply 30 mbd into the global market. For, as the EIA TWIP notes:

EIA estimates that the world oil market has become increasingly tight over the first two months of this year. Oil prices have risen since the beginning of the year and are currently at a high level. Global liquid fuels consumption is at historically high levels. While the economic outlook, especially in Europe, remains uncertain, continued growth is expected. . . . . With respect to supply, the world has experienced a number of supply interruptions in the last two months, including production drops in South Sudan, Syria, Yemen, and the North Sea. Both the United States and the European Union (EU) have acted to tighten sanctions against Iran, including measures with both immediate and future effective dates. There is some evidence that these measures may already be causing some adjustments in oil supply patterns. For example, there is emerging evidence that some shipments of Iranian crude oil under existing contracts are being curtailed . . . .

One should also remember, that, in discussing oil supply, price is set by that which is available on the market, and this usually discounts the volumes that are consumed domestically. Thus, if Saudi Arabia, for example, increases domestic demand by 100 kbd and the FSU increases demand by 100 kbd, both against a constant overall output, then the rest of the world has to find that additional 200 kbd from somewhere else. In the short term that might be the United States, since production overall rose some 360 kbd in 2011, largely credited to growth in production from the Bakken in North Dakota, and from Eagle Ford shale in Texas. OPEC anticipates that growth to continue, estimating a total gain of 260 kbd from North America this year, though only half of that will come from the United States (the rest will come from Canada).

Non-OPEC growth is, in total, expected to continue in 2012, with an overall production gain to 53.34 mbd by the fourth quarter.

But it is the volumes from the countries involved in continued conflict that raise concern. Libya is making considerable strides to return to pre-conflict levels of 1.6 mbd, having reached 1.4 mbd this month, with exports at 1.1 mbd but Iraq has yet to reach 3 mbd – being at 2.75 mbd in January. (It remains hard to be optimistic over claims that this will rise significantly in the near term.) The EIA are more concerned than OPEC. They note that in order to balance demand against supply Saudi Arabia was producing at 9.9 mbd in January and they consider that the country has only 2 mbd in additional production that it can bring to the market at present (and most of that is heavy sour crude). Further they see domestic demand rising to 3.2 mbd in the middle of the summer, cutting exports significantly. Some of this might be needed to offset supply from Syria, which has been shipping over 150 kbd into the market, but which has already had to cut back that amount as sanctions from Turkey have cut the market.

But it is Iranian production, which normally runs at around 3.5 mbd that raises the real concerns. If this all disappears from the market, the fear is that this cannot all be made up even if Saudi Arabia went into emergency production, and thus that there may be a shortfall of around 1.4 mbd in global supply. The ban will take full effect in July, but as sanctions continue to bite and nibble away at what is still being sold, so the flexibility of the market to adjust is going to be tested. And that may have already begun. Predictions of increases in production and thus global supply, appear somewhat more tenuous than one can be comfortable with, as oil – and thus gas – prices continue their rise.

Coal - a new technology and another look at the TV series

Back in 2008 Robert Rapier wrote a post on using coal in the making of ethanol, in which he referred back to a post he had written in 2006 on the same subject. That earlier post said, in part:

The natural gas input into ethanol production is a serious long-term threat to economic viability. Since natural gas is a fossil fuel, and supplies are diminishing, it will put upward pressure on the price of ethanol over time. However, if the energy inputs could be produced from coal, ethanol prices would be insulated from escalating natural gas prices.

Using coal might also lessen the significance of the EROEI debate. If you take 1 BTU of (cheap) coal, and you get back 0.8 BTUs of (more valuable, liquid) ethanol, then EROEI doesn't have the same significance as when you use natural gas to produce ethanol. You converted the BTUs into a readily usable liquid form. This argument may be valid from an economic point of view, but it ignores the fact that coal is still an inherently dirty energy source. If coal remains abundant and cheap, coal economics will beat natural gas economics, but coal will increase the rate at which we put carbon dioxide into the atmosphere.

In those remarks Robert was writing about the use of coal as a power source for running the ethanol plant, as opposed to the use of natural gas. The feed stock would remain the corn that is fermented, and turned into the beer that is then distilled into the ethanol that can be used as a liquid fuel source. That process still raises the debate over fuel versus food.

In an alternative approach Celanese are now starting to build plants in China that will use coal as the feedstock, without the grain, and they claim that this technology, is a game changer.

The so-called TCX technology can convert coal, petroleum coke or natural gas to ethanol for 25 percent to 35 percent less than alternative processes, Celanese said today in presentation slides posted on its website. The cost of converting coal to ethanol is $1.50 a gallon, equal to making gasoline from crude oil costing $60 a barrel, the Dallas-based company said.

“Fuel with our ethanol technology represents a game- changer for the company,” Chief Executive Officer David Weidman said in a presentation to investors in New York.

Weidman said he is advancing a November plan to build two factories in China that will turn coal into ethanol for industrial uses. The company also may produce ethanol for fuel in China, India, Australia, Colombia and Egypt, he said.

The technology, which is still being held fairly close to the Celanese chest, appears to use some of Celanese technology for the manufacture of acetic acid and involves the gasification of the coal to syngas as an earlier step. That supply will be provided by Wilson.

The use of coal is apparently currently commercial with this technology, while using the same process with a cellulosic feedstock is apparently not as yet that far along.

The two plants will each have a capacity of 400,000 tons of ethanol (134 million gallons) and will produce industrial ethanol rather than, at this stage, the fuel for use in vehicles. In China this is a larger (at 3 million tons/year) market than the fuel market, at half that size. Both are growing at up to 10% pa and the plants are expected to help meet that growth. Fuel ethanol prices in China have been estimated at $950 per tonne.

The most recent announcement comes as China is moving to increase coal imports by perhaps as much as a million tons a week due to drought reducing the output from hydro-electric power plants. Normally the country imports around 10.8 million tons a month, although this is a steadily increasing number. Without the additional imports it is possible that the country may see significant power shortages this summer, since the drought may lower available power by as much as 30 GW.

Speaking of the loss in power I did, eventually start to watch the second episode of Coal. One of the issues in that episode was the drop-out of power that was supplied to the mine. It is one of the ways in which mines can be given a lower price for electricity, if they accept that they will be “shed” if the demand exceeds that which the power generator can supply. The episode showed how that unexpected drop out can affect the men underground. Other power problems arose at the mine because the continuous miner operator was not fully experienced and was running the machine in to take too large an amount of coal or roof rock at one time. This overloaded the switches and tripped power. The necessary methodical restart of the system slows production, since nothing can start producing coal until all the components of the system are back up and running. As they are showing producing coal is not that simple or necessarily pleasant a process.

And a small additional note. In my comment on the first episode I was not that impressed with the way that the miners were bringing down the loose overhead rock. It turns out that I wasn’t the only one unimpressed. MSHA Inspectors, who watched the show, have fined Cobalt coal – for the use of improper barring tools and procedures, as well as a number of other violations.

The series has a considerable value in showing how difficult it can be to run a small mine, and though most of my experience has been in much larger operations (both financially and in terms of seam height) there are a number of different lessons that the series shows on coal mine operation. The problems of ventilation, when the belt drive started smoking and could have caught fire, are illustrative of that, with the telling message two miners died in a not too dissimilar event not that far away.

Oman’s unrest may be a domino, not just to suppliers, but also to customers

There are reports that the unrest in the Middle East has spread to the Sultanate of Oman. While at the moment there has only been one, or perhaps two deaths, small in number relative to the much larger number of fatalities in countries such as Libya, nevertheless such a milepost is sadly likely to indicate that the situation will get much worse. Oman lies East of the United Arab Emirates (UAE) South of Saudi Arabia, and North of Yemen. It is therefore within the region that is now in turmoil. And as the consequences of the unrest begin to compound, the consequences grow beyond the point where simple answers will be sufficient.

Location of Oman (CIA)

Oman is not a member of OPEC, but contains the largest oil reserves of any country outside that group in the Middle East.

Oman produced 863,000 barrels per day (bbl/d) of total petroleum liquids in 2010, 860,000 bbl/d of which was crude oil. Average oil production in Oman has increased by over 20 percent for the past three years, from a low of 714,000 bbl/d in 2007.

Oman oil statistics (EIA )

At the moment production is growing a little faster (865 kbd) than consumption (115 kbd) so that exports have increased a little. The EIA seems cautiously optimistic that this growth can be sustained in the short term, with the potential for Enhanced Oil Recovery technologies (miscible gas injection, steam and polymer flooding are the ones listed) to give a greater boost to these numbers. The main market for the oil is in Asia, with China and Japan as primary customers.

The EIA estimates that Oman has 30 Tcf of natural gas reserves, ahead of both Iran and the UAE. It consumes a fair portion of this so that when one compares production (2.4 bcf/day) with consumption (1.42 bcf/day) there is a smaller percentage available for export.

3 Natural gas statistics for Oman (EIA )

South Korea and Japan are the main customers.

As the turmoil continues to spread it is difficult to assess what effects it will have on the different exporting countries. (And thus in turn on the world market). Saudi Arabia has said that it can cover the possible lapses in delivery from Libya, and is willing to increase output to balance any losses. The full scale of that need is not yet, however, likely apparent. If I look at the numbers for February:

Total OPEC production slipped 285,000 barrels, or 1 percent, to an average 29.11 million barrels a day, according to the survey of oil companies, producers and analysts. Daily output by members with quotas, all except Iraq, decreased 335,000 barrels to 26.515 million, 1.67 million above their target.

Libyan output fell 200,000 barrels a day to 1.385 million this month, the lowest level since January 2003.

Unfortunately it may well be that Libyan production is cut in half, which would bring the loss closer to 800 kbd. Since the Saudi’s have been talking of just raising production to 9 mbd this may not be sufficient to make up for the loss. (They were running at around 8.6 mbd in January). If one adds to the drop in Libya any additional losses that might come from the falling dominoes around them, such as Oman, then it may become too much of a strain to rely on KSA by itself. Current additional flow is apparently coming from Abqaiq as well as Khurais.

One of the worries in the present situation has been the increase in violence in Iraq. At the end of last year OPEC had reached a two-year high of production at 29.85 mbd and the increase was largely due to an increase in Iraqi production. And while the refinery that was attacked on Saturday is now back in partial production it will be at least 6 weeks before the plant can be fully restored, and in the interim the company is searching for supplies from neighbors that could be used to meet the national demand. (Iraq's refined product stays in country to meet domestic demand).

Of course there are other available sources short term. Gazprom has increased gas supplies to Italy to help cover shortfalls that have arisen due to the supply pipe from Libya being closed. The replacement is a flow of some 1.7 bcf/day, up from the pre-crisis Gazprom supply of 1 bcf/day. And certainly Russia which is producing at equivalent levels to KSA must be considered as a possible additional source. But there is not a lot of spare capacity in their oil production numbers, there has been talk that they might even decline slightly this year – so that while gas supplies might increase, it is hard to see much of a rescue coming from them at this time to meet any oil production shortfalls.

Individually all these individual areas of concern could be relieved by some compensatory change in supply – as the KSA and Gazprom responses to the Libyan declines illustrate. Unfortunately this is not the greatest concern. The spreading popular uprisings are continuing to develop in additional countries and the changes in government that will result (and the conflicts presaging them) will impact fossil fuel production and export over a much longer interval. Particularly if, as might be the case in Iraq, foreign instigators (perhaps Iranian) foment attacks on the distribution networks, then it will not take many incidents before the short-term stability between supply and demand is threatened. The irony there is that Iran itself is not invulnerable to a similar threat, both to the regime, and to their production of fossil fuels. And unfortunately the victim of any fall in production would again be Asia, with over half the Iranian 2.6 mbd of exports going to China, Japan and India.

"Not our problem" you might say – as those countries seem to be the customers to a number of the nations at risk – well it might be wise to note that this problem has not gone un-noticed, and both China and India have been purchasing more from Mexico, which given its falling production status, means that the traditional markets for that oil might not be getting as much in the near future. Wonder who that might be??

The Chinese diesel situation

Well it appears that we are about back up to $90 a barrel oil which is the top end of the range which the Saudi Oil Minister said he was comfortable with, the other day. However, I suspect that were it to go higher, it would not change the current Saudi plans on oil production.

It might, however, draw more attention to the problems of dealing with an increasing demand for oil, in face of a limited ability to meet that demand. OPEC have just announced that they see next year’s average demand to be at 87 mbd, up about 120,000 bd over their estimate last month. Whether that projection proves realistic will depend on what happens in Asia.

Refineries in Asia have been faced with an increased demand from China, where there have been recent shortages of diesel across country, likely leading to the price increases that have just been imposed. Part of the cause of the increase is because refineries in China were reported to be losing up to $18 a barrel in refining oil they were buying at $80 a barrel. (Diesel was at $2.43 a gallon, and prices have been raised 10%, which given the current oil price, still leaves the refineries making a loss). Nevertheless Chinese government data shows that refining reached a record volume (8.8 mbd) in October, at the same time that overall Chinese crude imports fell for the month. In light of the increased demand it is expected that this month’s production will be even higher. Sinopec will also import feedstock for ethylene production so that refineries that were being used to supply the feed can, instead, concentrate on making diesel.

The unexpected size of the problem has been caused by the Chinese government trying to lower electricity consumption to meet a national target for energy savings by the end of the year. As a result of those decisions coal-fired power fell back, in October to the levels of a year ago, after an earlier increase. Because of these cuts in power, those who still need it (including metal production plants) have switched to diesel generators, with the increase in demand overwhelming the available supply. (Though some have had to close including 100,000 tons of aluminum smelting capacity). Thus the situation may be transient and improve, with electricity supply, after the end of the year, though that is not necessarily a given at this point, since it is dependant on government policies. (And hidden in that discussion has been the Chinese record refinery outputs of gasoline, which also hit a new record this month.)

For countries in Asia outside China the situation is reversed. With the profit on refining Dubai crude at over $14 a barrel in Singapore, refineries around the region are seeking to increase imports of crude. (China has been a net exporter of diesel until recently, but demand had grown, until recently, at 13% this year leading China to the potential switch to becoming a net importer of diesel, though that is debatable.) There are thus some strains evident in current ability to match existing demand.

In addition to getting additional supplies of crude from Russia, China has also increased crude imports from Iran, helping that country at a time when gasoline rationing and sanctions are being blamed for an 18% drop in internal gasoline demand.

In the United States there has been an increase in distillate demand according to the latest TWIP that is somewhat greater than usual:

(EIA)

The heating season is however anticipated to be, in general warmer than usual (sorry NorthEast), reducing heating fuel needs.

Fuel expenditures for individual households are highly dependent on local weather conditions, market size, the size and energy efficiency of individual homes and their heating equipment, and thermostat settings. The National Oceanic and Atmospheric Administration (NOAA) projects population-weighted U.S. heating degree-days will be about 4 percent lower than last winter. However, heating degree-day projections vary widely between regions. For example, NOAA projects that the South, a large market for propane, will be about 17 percent warmer than last winter, while the Northeast will be about 4 percent colder. The largest residential propane consuming region is the Midwest, where 8 percent of the homes heat with this fuel. Projected temperatures in this area are 2.2 percent warmer than last year. EIA projects Midwest propane prices to increase by 18 percent this winter while consumption in that region falls by 2.3 percent, resulting in an expenditure increase of 15 percent.

Oh, and in case you missed it, following my piece on explosives on Sunday, just to prove that not everything in life goes perfectly, here is a chimney demolition falling the wrong way.

Current and future Saudi and Russian oil production

One of the inexorable results of the developing shortage of oil is that prices will rise. It is a prospect that does not particularly concern the Saudi Arabian Administration, Minister Al-Naimi having recently inflated the acceptable range for crude up to $90 a barrel, and JP Morgan has recently predicted an imminent rise to $100, a theme apparently now also taken up by Libya. Higher oil costs lead to higher fuel bills, and there is already a report in the United Kingdom that, in consequence , there may already be an increase in winter deaths.

Because demand for imported oil in countries such as China and India continues to increase at a steady rate, it will only be through the increase in production from the exporting nations that supply can meet such demand, and prices can be held at a relatively stable level.

Chinese changes in oil flows (Energy Export Databrowser )

Indian changes in oil flows (Energy Export Databrowser )

The two plots above are only illustrative of the problem, given that the volumes and relative import/export flows change around the world continuously. However, the world’s two largest producers of oil are Saudi Arabia and Russia.

Given the likely continued increase in the world thirst for oil it is worth reviewing again the potential for increased exports from these two countries. The first is Saudi Arabia, whose oil Minister I quoted at the beginning of this piece.

Saudi Arabian changes in oil flows (Energy Export Databrowser )

While it is likely that a significant proportion of the oil export drop in 2009 was due to the world recession, the steady rise of the black line, that showing internal consumption, is also contributing to a reduced volume available for export. That rise is perhaps better illustrated with a plot from The Oilwatch Monthly for August.


Whether Saudi Arabia will increase production, and if so by how much, is now one of the more interesting questions for 2011. They have indicated that they are increasingly more concerned with maintaining the long term potential for higher ultimate yield, which requires lower daily production rates, and have already cut their maximum planned production rate to 12 mbd in consequence. If they do not increase flows significantly, then the focus swings to Russia.

Only today Russia was announcing that production had reached a new record of 10.26 mbd for October. The gain was achieved with increased production from Sakhalin Island, and oil exports increased to 4.97 mbd. Whether this level can be sustained, however, remains a critical question.

Russian changes in oil flows (Energy Export Databrowser )

President Putin has noted that it will take $280 billion in investment to stop a 20% fall in production over the next 10 years, and that investment will only hold production at current levels. Russian consumption has also been relatively flat over the last decade, and one has to wonder if that will continue, given the flow of money into the economy that the sale of the oil is bringing. The increased funding has already stopped the decline in oil production in the country that had been forecast only a year ago. Production is coming from the relatively new fields such as Vankor (270 kbd), South Khylchuyu, Verkhnechonskoye (51 kbd), Uvat (78 kbd) . However production from these fields has been manipulated a little, apparently, by attempts to find helpful tax breaks. Production at South Khylchuyu being a current victim of that, since the field has a potential of 150 kbd, and started at 80 kbd. That production is now all slated to go to China and China has also funded a loan for pipeline construction to Vankor, scheduled to be completed next year, that will carry that production (scheduled to peak at 510 kbd in 2014) to China. Current Vankor production is about 10% above that anticipated last year, but with that gain going to China, and overall production being about level, this suggests that the declines in production from older fields will increasingly hurt exports to the West.

"Vankor say they will do 250,000 bpd next year, but unless you're bringing on very sizeable fields every year, the five percent decline rate in western Siberia will take that out," said Russian oil analyst Oswald Clint of Sanford Bernstein. (last year).

Clearly the current prices of oil are helping to justify the increased production practices from Russia, and their investment in maximizing production.

I am, however, drawn to remember Jonathan Callahan’s presentation at the ASPO meeting. Because that is not yet up on the ASPO site I am going to include my review of it, as it drew the same conclusion as I. The bit that is important is the contrast between the British way of developing their oil reserve, and that of the Dutch.

Jonathan used representative plots from the series for his talk, beginning with the UK.


Noting that the UK used town gas (made from coal) until 1959, when the first LNG was imported from LA, gas in the UK was privatized in 1986 and reached peak production in 2000, becoming a net importer of natural gas in 2004. This last winter it was necessary, on three occasions for the National Grid to issue “Gas Balancing Alerts”, where industrial consumers should reduce use to protect domestic consumers. The situation is anticipated to get worse.

He contrasted this way of managing a resource with that of the Dutch, who have the large Groningen Gas field but which they have managed in a much more conservative way. With their different management philosophy they have retained a considerable margin for the future, over the same time interval.

I would suggest that we are increasingly seeing the Russians follow the British model, while the Saudi’s are moving toward the Dutch model. Such changes will likely impact future supplies.

(And if you think this is sort of a commercial for the upcoming Tech Talk switch you might not be wrong).

P26. Pick Points

Half-a-dozen or so stories of interest:

Former Vice-President Gore has given his support to the Administration’s Stimulus package. He supported the cap and trade process for dealing with CO2 emissions, and the need to enter the Copenhagen treaty talks, something the Europeans are also suggesting. Not everybody, however agrees. And despite the comments around the blogsphere the news that Dr Hansen’s supervisor is now skeptical of the whole Global Warming argument, is not making any waves, or even riding above them, in the MSM. Of course the darkness could also be because of power outages from the storm that has a million folk without power.

In Davos, at the World Economic Forum, the theme is also that investing in “green” energy projects will fix the economies of the world and bring us back to good times, although the need for investments in current fuel sources, such as oil, should not be forgotten as the IEA executive director pointed out. They will be needed for the new off-shore oil tracts that the Interior Department is now looking into opening up. And the story of Prime Minister Putin’s painting won’t go away. He can’t be excited by the news that after the Ukraine debacle Germany is now considering importing LNG. They are also forming an International Renewable Energy Agency to match the IEA.

Chinese energy imports were down to a growth rate of only 3.7% last year and while coal was down, oil was up. However the amount that they expected from Venezuela did not all arrive . Some of the oil sent from Venezuela is to pay off on a Chinese loan, but Venezuela is hoping that the world price will get back up to around $80 a barrel, and is trimming production.

Colorado is tightening the rules on natural gas, while Utah is committing to more investment in renewable energy. The sort of energy savings that the new Administration may have in mind by adopting energy efficiency standards may be epitomized by Glenborough LLC who saved 1.5 billion kilowatt hours. Cisco is coming out with business software to monitor and manage energy use.

Five utility companies are joining EPRI to study ways of conducting CCS as a retrofit to existing power plants. Trying to stimulate plankton to absorb CO2 doesn’t appear to work as well as hoped so there goes the idea of dumping iron particles into the sea. Which is good given the questions about its legality.

Further to the note the other day about Bangladesh moving to install surface coal mines, the government is now going to prepare a law governing compensation for those that will be displaced.

The Russian city of Arkhangelsk is thinking of changing its power station from oil to gas, as a way of saving money, but given that Gazprom is talking to Norway about possibly using some of its pipelines to supply Britain, though that may be a problem, since, according to a detailed article in Der Speigel on the Nord Stream pipeline, Russia only has 20-years of natural gas left.

For more stories go to The Energy Bulletin, or Drumbeat at The Oil Drum