OGPSS - Of Egyptian Bread and Oil

The turmoil in the Middle East shows little sign of ending in the near future, and the potential lack of enough cheap fuel for the population is a warning that the levels of unrest may continue and even get worse. There is, however, some hope for enough local supply in the near term to help with some of the indigenous problems. Consider, for example, Egypt which has the largest population of the countries in its immediate vicinity, a population that has grown 200% in the last 50 years.

Figure 1. Growth in Egyptian population (Trading Economics )

By last December Egypt was populated by some 83.66 million folk, with little sign of change in the growth rate. Over that time, energy demand has grown, while domestic supplies of fuel have not kept up. The most significant change, perhaps, is in oil consumption, with recent data, as previously noted, showing that the country has now switched to one that must import oil to meet demand.

Figure 2. Egyptian oil statistics (Energy Export Databrowser )

The EIA puts consumption at 811 kbd, set against a production of 555 kbd of petroleum products and, for natural gas, the country produced 2.1 bcf , which can be set against a consumption of 1.8 bcf, but the balance there also is trending downwards as recent levels of discovery and development have failed to match the increase in domestic demand.

Figure 3. Trends in Egyptian natural gas statistics (Energy Export Databrowser)

The developing need for oil imports is made more difficult by the subsidies that have become an accepted part of the Egyptian economy, including not only fuel, but also bread. Fuel subsidies are reported to be at around $17.4 billion and about a fifth of total state spending. Bread subsidies though a similarly critical part of picture, run only at about 20% of the fuel cost. To help manage costs and encourage domestic production, the Morsi government had cut back on foreign purchases of wheat, but this has now been reversed with the take-over even as the new government works to transition away from the subsidy burden. With the change, foreign governments are now also more willing to provide fuel, the United Arab Emirates (UAE) will send around a million barrels of oil this month, and Kuwait, Saudi Arabia and the UAE are promising more aid packages.

This may help with the short–term problem, which has too many political entanglements to allow any solid predictions for longer term help from outside the country, but there are potential sources of increasing domestic supplies from both the Western Desert and the Nile Delta itself.

Egypt has been supplying natural gas to Jordan, Syria, Lebanon and Israel through the Arab Gas Pipeline with flow starting in Arish, and the leg to Ashkelon being underwater.

Figure 4. Route of the Arab Gas Pipeline with projected extensions. (hydrocarbons technology)

Because of the connection to Israel the pipeline has been the subject of a number of terrorist attacks (the latest a couple of weeks ago) . However these more often affect the flow of gas to Jordan, rather than to Israel, because of the pipeline locations, with the pipeline being vulnerable in the Sinai where it is flowing south to Taba. This problem has led Jordan to consider importing natural gas from Israel and the recently found offshore natural gas deposits being developed in that country. Flow from the Tamar field started on March 30th tapping into the estimated 8 Tcf therein, while flow from Leviathan is anticipated in 2016.

The possible presence of oil-bearing strata at a lower depth in the Levant Basin has led Noble to plan an offshore well to go down 31,200 ft to a potential field holding perhaps as much as 1.8 billion barrels of oil. However Noble estimates the chance of success at 25%.

The recent success in finding these resources within the Levant Basin suggests that the potential for other discoveries in future years, with significant possible impacts on the local economies.

Figure 5. Location of some of the discoveries and developments in the Levant Basin (USGS)

The problems limiting future exploration in the region tie in with the conflicts and internal disruption that seems to spread to most of the countries in the above map. But in the more immediate short term Egypt is reducing exports in order to meet the growth in domestic demand, while importing natural gas, currently as a gift, from Qatar.

In the longer term, as the Israeli fields come on line, it might be possible to change the direction of flow of the Arish-Ashkelon pipeline to carry Israeli gas into Egypt. There are thus potential technical solutions to getting fuel to Egypt to meet their growing need.

However this does not address the underlying problem of how Egypt is going to be able to pay for that fuel (not to mention the bread). Even with a potential glut in global natural gas prices, without a stable economy Egypt is not going to be able to pay its import bill. This was evident towards the end of the Morsi government, when a lack of cash, or hard credit made it more difficult for the country to assure itself of enough imported oil to meet demand. The continued turmoil will keep away the tourists that could provide the economy with enough funds, while the lack of international recognition of the current regime is currently keeping the IMF from providing any help.

A couple of hundred years ago deriding the people’s need for bread reputedly led one ruling family to the guillotine. In the time since the people have also come to expect that they can also get fuel. Until both demands are satisfied it may be more likely than not that rule in Egypt will remain unstable, with the presence and influence of the competing mobs making rational decisions less achievable and the situation worse. (And they are also blowing up pipelines in Iraq.)

To Forbes - A Gentle Cough of Correction at TOD's end

Forbes recently issued a commentary on the closing of The Oil Drum, which deserves some rebuttal, since, as with many stories on the "Peak Oil" topic, it conveys too many incorrect statements and false assumptions.

Just over eight years ago I became irritated by several articles in the Main Stream Media that were clearly technically wrong. (My academic research includes many years of making holes in geological media, an interest that began with my doctoral work in the late 1960’s). I began writing about some of the misconceptions in regard to the approach of Peak Oil in a blog I was writing at the time. Shortly thereafter I agreed to join with Kyle, who was then writing his own blog, under the nom de plume of Prof Goose, to jointly create the website The Oil Drum.

In the beginning, Kyle handled the site management issues (a task he later passed on), and my main contribution has been the intended one of writing on the more technical sides of the situation. This was particularly the case during the events surrounding the Deepwater Horizon disaster, where readership of TOD rose to around 60,000 a day. But writing to a site that began to achieve some technical credibility had its drawbacks. Very early on I got into the habit of referencing almost every fact I cited, given the questions that arose whenever I appeared (at least to my audience, but also, at times, in fact) to misspeak. Working for the site has made me a better writer, but it was clear almost from the start that the two of us could not sustain the interest that the site very quickly drew.

Over the years I felt very fortunate that Kyle went out and found funding, and innocents willing to carry the burden of editing the increasingly large talent of folk that were kind enough to contribute to the large interest that the site engendered. The site was fortunate to attract some really perceptive folk, and if I hesitate to name them it is only from the fear of missing the odd one and causing offence to people that I have acquired great respect for over the years. Many of those now have their own sites, and so TOD acted in some small way as an encouragement for that effort and to broaden and grow the community that is concerned about the coming point where the production of oil, at a reasonable price, will be unable to keep up with demand and the unpleasant consequences that will then arrive.

I was watching the hearing before the UK House of Commons Science and Technology Committee this past Wednesday on the public understanding of climate. In response to a question, Ralph Lee of Factual, Channel 4 and David Jordan, Director of Editorial Policy and Standards for the BBC pointed out the difficulty in sustaining the level of stories on Climate Change, because of the need for these to generate significant new material to justify publication. They noted that repetition of the basic information, beyond a certain point, was counter-productive. So it is with the Peak Oil story. The facts, in neither case, change, but the amount of new information while accumulating (vide the superb work that Leanan has done with Drumbeat over the years) is often repetitive or confirmatory of earlier stories and thus harder to turn into interesting and exciting new material. There are developing stories that justify continued interest in the topic, but the slow pace with which some of the stories unfold make it difficult to sustain interest.

The transition of Egypt to an importing state for example, revealed in the Energy Export Databrowser figure shown a few weeks ago illustrates a growing problem that their new government must address, but it can only be covered a few times before interest wanes.

Figure 1. Change in oil consumption and the need for more imports for Egypt (Energy Export Databrowser)

And this holds true for many of the topics covered in the past years. The perceptive articles written at TOD on Saudi Arabia by Stuart Staniford (who now writes Early Warning), Euan Mearns and with JoulesBurn’s images from the satellites showed how Ghawar was in significant decline. But there are only so many photos of oil rig sites in the desert that can be made interesting. Aramco are switching to the heavier oils offshore. Manifa has just started new production and Safaniya is being expanded. These are needed to offset the permanent declines in production from the older fields, but again, other than chronicling these steps it is hard to sustain interest in an inexorable process that takes years to play out and where the route to Peak Oil is following along many of the predicted lines.

Even drawing back the curtains of hype over the Bakken and Eagle Ford production, which Rune and Art have so ably done, can only be written about at a certain low frequency before folk see it as repetitious.

Much of the story of the future supply will, in my view, come from activity outside the United States. There will always be a need to update activities in and offshore Alaska, and in the US shales and other formations where future production will have to come from, but as we are likely to see by the end of this year, the gilt on that gingerbread is very thin. Thus the posts that I have been writing recently (and which will continue on Bit Tooth Energy – my own home site) will likely focus on the situations abroad, such as the Middle East, where the political upheaval has a much greater potential to disturb overall global supply than the changes in the US. Similarly Japan is moving toward a more militant attitude as China moves to extract fuel from disputed fields in the East China Sea. This however, again, is a potential tragedy unfolding in slow motion.

At the beginning of the year the EIA were predicting that gas prices would fall this year and pundits that suggested that gas prices would stay down after the recession still appear with regularity to quote their lines of optimism, even as gas prices stay stubbornly high and potentially may rise through the rest of the year. Why is that? Well the OPEC nations need a certain level of income and adjust their production each month to help sustain prices – something these optimists seem unwilling to recognize.

The problem, however, is that if global demand rises at (for the sake of discussion) 1 mbd a year, then a point will be reached, fairly soon when increasingly this OPEC supply becomes no longer capable of filling the demand. Prices will then rise again, balancing supply against those able to pay for their demand at that price. Stating that this is not going to happen because "a way will be found" is to remain an ostrich.

No, gentle readers, the closing of TOD is, in my opinion, based on a deliberate but IMHO faulty management decision made in that group a couple of years ago. It was predictable at that time, but it has nothing to do with the coming of Peak Oil, and is not even symptomatic of much of a delay in that arrival.

And with that off my chest I will return to writing about the evolving problems. My hope at the founding of TOD was that it would chronicle the events through the Peak, it got to nearly the Peak, though I don’t anticipate that this will be a pleasant story beyond that point. But, that coverage will now shift to being only at a new location at a time chosen by the TOD editors.

OGPSS - Insecurity in the Middle East

The continuing conflict in Syria, and the slow spread of violence in the region around it, continue to make it difficult to make accurate predictions about the future of oil exports from the region. Within Syria itself production had fallen into decline about ten years ago, before the current struggle began. The precipitate drop over the last two years has, however, been much more dramatic. As Energy Export Databrowser noted from the BP statistic review, production fell by 49% last year.

Figure 1. Syrian oil production showing the recent fall in volume. (Energy Export Databrowser ).

As with most oil-producing nations oil consumption had, on the other hand, been steadily rising with net exports (some is exported as crude and re-imported as refined product) falling to around 100 kbd. The conflict has, however, also reduced internal consumption at similar rates earlier in the conflict.

Figure 2. Syrian production and consumption until 2011. (EIA )

At the same time that Syrian exports have sensibly disappeared, the exports from Iran have continued to fall. Data through the end of last year shows that sanctions continued to bite, with exports falling 31% last year.

Figure 3. Oil production, consumption and exports for Iran (Energy Export Databrowser)

Much of the oil from Iran goes to China, India and Turkey. In May 2013 the total exports are reported to have fallen to 700 kbd although individual monthly numbers fluctuate given the complexity of now getting oil into the hands of customers. (H/t Gail - that report may only cover Chinese imports, since Bloomberg reports a different set of numbers, and an IEA estimate that Iran is averaging 1 mbd of exports this year.) India is hoping that the change in the Iranian Presidency will lead to an easing of sanctions. In the interim, the exemptions that China, India and Turkey are receiving to some of the sanctions have just been extended another six months. Part of this comes from the cuts those countries have already made. India, for example is now down to around 117 kbd around half that of a year ago.

Oil imports into China are reported to have increased, perhaps because the Chinese have just agreed to buy a number of Chinese drilling rigs. Total exports are projected to fall to 1.3 mbd over the current Iranian fiscal year (which started in March). If Iran is having to store more of its oil in off-shore tankers, this may explain the fall in regional tanker availability over the past month.

In a recent post I discussed my concern over the likelihood of Iraq being able to achieve the increased volumes of production within the time frame that their Central Government has suggested. However, as Leanan caught recently, Kurdish Iraq is moving more and more toward independent action in regards to their oil. From the Turkish side a pipeline will be allowed, that can go to the border, but not cross it. Mysteriously it will likely then fill, over time, with a flow of 1 mbd. Turkey is working with BP to develop the resources of Kurdish Iraq. In the interim Turkish demand has stabilized to a greater degree than it has in its southern neighbors.

Figure 4. Oil imports and consumption in Turkey (Energy Export Databrowser)

To a degree the instability is feeding off itself. Egypt continues to have problems in ensuring an adequate supply of fuel, and while Iraq and Libya have agreed to help, they prefer cash up front for the delivery, and that is proving to be a bone of contention. The country has reached the point where domestic production can no longer keep up with consumer demand, and these imports are going to become more critical to the budget, and, as a follow-on, national stability.

Figure 5. Change in oil consumption and the need for more imports for Egypt (Energy Export Databrowser)

The hope is that a pipeline can be built from Iraq, through Jordan, but that requires that a mutually acceptable line of credit be established, and that appears to be a problem. Egypt has the same soft-credit deal with Libya for a supply of a million barrels a month. The price, however, will be at that of the world market.

Unfortunately as the level of violence continues to grow one starts to get into an almost inevitable snowball effect, and there is a consequent negative impact on much industry, likely including that of oil production. The most likely consequence will be a further fall in the regional export of oil, which has a follow-on consequence in that the customers who have lost this supply (Japan has given up all Iranian oil for example) must then go onto the world market to find an alternate source of supply.

As those sources become even scarcer than they are already, marginal amounts of oil become more critical to maintaining a global balance. But such supplies don’t become available at the drop of a hat.

It seems to be a drum that I beat perhaps a bit often, but it is a message that bears repeating. Without significant and ongoing investment in the more difficult regions of the world, funds to identify the necessary availability of resource, and then to drill, in a timely manner, to prove the resource and start the process of turning it into a reserve, the oil balance cannot be sustained at a viable and acceptable price. It does not matter how glowing a set of reports are put out about how we can all relax because the world has plenty of oil in shale.

The largest of those resource sites is in Russia, where there may be as much as 75 billion barrels. But two things should be remembered. The first is that peak oil is reached, not when we run out of oil, but when we start producing less each year than in the previous. And the second is that getting much of the oil in the shale into the proven reserve category is going to take a fair amount of time, after which production rates, going from the results seen, for example, in the Bakken will decline at such a rate that a continued and expansive program of expensive drilling will be required to sustain production. And all this time the flow of oil from existing reservoirs will continue to fall.

Figure 6. A pretty wall hanging . (EIA)

Editorial Note: Because of one of those delightful family events that occur from time to time, this series will be on hiatus for a couple of weeks, since we will be traveling, when I would otherwise be writing.

OGPSS - Iranian oil and the global future

There is a lot going on in the Middle East at the moment. There is the revolution in Syria which seems now to be entering some form of end game, and there are the riots in Egypt. There are some signs that these events might move on to countries such as Jordan. Increasing levels of turmoil in the Middle East do not help stabilize the future flow of oil and natural gas around the world, and there are underlying tensions, brought about in part by the need to sustain sanctions against Iran.

Turkey, for example, which is caught up in dealing with Syrian refugees and the adjacent civil war is also largely dependent on Iranian fuel to get it through the winter. In October Turkey is reported to have imported 75 kbd of Iranian oil with larger portions of the total 417 kbd import coming from Iraq (105 kbd) and Russia (103 kbd). The volumes that continue to flow are now becoming a source of friction, since US law demands that countries continue to lower their imports every six months . While Turkey continues to work to lower their need for Iranian oil (and may increase imports from Russia) in the interim the U.S. Government is not increasing pressure but apparently moving to extend the waiver of sanctions not only to Turkey, but also to a total of 21 countries, a list that includes China, India and South Korea.

Two officials said an announcement of the six-month extensions was expected from the State Department on Friday. The officials spoke on condition of anonymity because they were not authorized to publicly preview the step.

In addition to China, India and South Korea, the waivers will apply to Malaysia, Singapore, South Africa, Sri Lanka, Turkey and Taiwan. All nine were originally granted six-month renewable exemptions from the sanctions in June.

The exemption means that banks and other financial institutions based in those places will not be hit with penalties under U.S. law enacted as a way of pressuring Iran to come clean about its nuclear program.

A total of 20 countries and Taiwan have been granted the waivers. The others—Belgium, Britain, the Czech Republic, France, Germany, Greece, Italy, the Netherlands, Poland, Spain and Japan—will come up for review in March.

Yet Turkey, which gets some 20% of its natural gas from Iran, taking roughly 90% of Iran’s natural gas exports is resisting pressure to lower its gas purchases, since the fuel is the primary source for most Turkish electricity. And further, with estimates of Turkish needs estimated as rising to 655 kbd by 2016, the ability of the country to sustain an adequate supply of power supply may become more difficult without reliance on Iran.

There is a somewhat similar argument made in South Korea, who, while they have cut demand by some 30%, continue to import around 186 kbd of Iranian oil as of October, though the volume varies, depending on who is doing the counting. Similarly one sees that both China and India are reported to be lowering their purchases so that there is a projection that Iran might not ship more than 834 kbd in December. Some of the problem in sustaining even this level of supply is apparently coming from the lack of available tankers, and with Iran now being willing, apparently, to use false shipping transponders in co-ordination with Syria rather than just changing names; events seem moving toward some form of a Bond movie.

Oil is a recognized critical component in building energy supply and the current ongoing effort to contain Iranian exports seems to take much of the headline, relative to overall supply questions. But the game is being played in the margins of balance of overall oil supply and demand. The arrival of significant supplies of natural gas, whether real – as in the United States – or potential – as in most of Europe – has moved the focus away from concerns over oil supply as an issue.

Yet China does not seem to be cutting back on overall oil use, demand rose 6.6% in October 2012, over that in October 2011, and averaged 9.76 mbd. If that continues, then China must find an additional source for 644 kbd next year, over and above current suppliers and volumes. And so, with the country still growing, that demand will also continue to grow. But there are not a lot of places that can provide for that increased need. The slow economies of the United States and Europe have dropped demand from where it could have been. And while the European economy is likely to struggle on through next year, that of the United States (lunatics no longer being allowed in Washington) is on the path to recovery, which may well swell energy demand more than anticipated, and absorb any increased domestic supply without much further change in import needs.

And thus one comes back to the aggressive nature of the Chinese in regard to the hydrocarbon resources of the China Seas. The ASEAN nations seem powerless, whether by inclination ore real power, to do much to protest the Chinese position. The Chinese are also working to minimize the American presence, and treaty obligations, that involve them in these discussions. China has just authorized seizure of foreign vessels in their waters (which they, disputedly, claim include most of both China Seas). At the same time India has taken notice, and is more than just expressing concern.

Although India doesn’t have any direct territorial claim in the area, the waters are strategically important to New Delhi for three reasons. First, like for any trade-dependent country, the South China Sea represents an important global shipping route and freedom of navigation must be maintained. Second, India’s state-run Oil and Natural Gas Corporation (ONGC) owns a stake in waters claimed by Vietnam. And third, and perhaps most importantly, the South China Sea represents an opportunity for an Indian riposte against China’s ‘string of pearls’ naval encirclement of the Indian subcontinent.

Overall the world does not seem to be heading in the direction of a peace-filled future. The underlying imperative of energy supply to meet national needs has brought the world to war before now, remaining unconcerned about the situation means that we remain unwilling to learn the lessons of history.

Waterjetting 2c - using Nature's crack system

In this section (part 2) of the series on Waterjetting, the focus is on the way in which high-pressure waterjets grow cracks in their target. As John Field showed, even the presence of microscopic cracks on a glass surface are enough to initiate the larger cracks that lead to failure. In many cases, however, the most useful growth can be achieved if the cracks only extend to the point that they remove a desired amount of material. This becomes important where there are weaknesses and flaws in the material – such as the layers between plies of wood, or even Kevlar - which should not be grown as the jet cuts down through the material. And in a later article this topic will be a part of a discussion as exactly what happens as a jet drills a hole into a target. But, for today, I would like to talk about crack growths in rock and soil, both because it is one of the oldest ways in which water can penetrate into material, and also because it holds the potential to be one of the newest areas into which waterjetting is growing, and will likely further advance into a more significant business.

And to begin consider that, as water penetrates into the cracks in a rock, and grows those cracks slowly, under natural forces, rocks with minerals in them, will see those mineral particles separately broken out. The classic example of this is with gold. One of the ways in which the Forty-Niners found the gold in California was by panning for the gold particles in the rivers, and tracking the gold deposits back up-stream until they reached the original gold deposits of the Sierra Mountains. Not that this was the first time that water transport had helped in gold mining. One of my favorite stories to begin classes is to remind them of Jason and the Argonauts.

Figure 1. Movie poster for the 1963 film version of Jason and the Argonauts (iMDb )

It is a theme that has been made into a movie several times, (see, for example, here) and tells the story of how the Greek Prince Jason and a band of companions go in search of the Golden Fleece, and the adventures that he has along the way. Despite the mythical creatures the story is thought to be likely based on some measure of truth, with the voyage taking place some time before 1300 B.C. But our focus is on the fleece, rather than the voyagers.

Figure 2. Suggested path that Jason followed to get to the River Rhion in Georgia.(Google Earth)

Within the Caususus mountains of Georgia lies the modern town of Mestia, which was thought in Roman times, to be the site of Colchis, where Jason found the Golden Fleece. The reality is not quite as dramatic as the legend since, as the Roman historian Strabo noted

“It is said that in the country of Colchis, gold is carried down by mountain torrents, and that the barbarians obtain it by means of perforated troughs and fleecy skins, and that this is the origin of the myth of the Golden Fleece”

The torrents of water in the Svaneti valley outside Mestia, (Nika Shmeleva Google Earth at 43deg02’29.74”N, 42deg42’25.13E)

It is thought that the miners of the time directed the streams so that they flowed over the veins of gold and eroded out the particles so that the gold was carried down to the valley. Here it was fed through the troughs that Strabo described, and the heavy gold particles were captured as they tangled in the wool of the fleece. To recover the gold the miners would then hang the fleeces in trees, so that they would dry, and the gold could be shaken loose. Unfortunately as the fleeces hung in the trees they provided a tempting target for Greek thieves. (In a later version that I will write about in the next post the sheep fleece was replaced with brush that could be dried and burned to release the gold).

Water was thus, in one of the earliest “automated” mining processes, used to both dislodge and then carry the valuable mineral from the mining site The overall power of water to move soil has been used to wash away material for over a hundred years. In the 1973 War between Egypt and Israel the Egyptian Army gained a significant advantage in the early hours of the war by using waterjet monitors to wash away the defensive barrier along the edges of the Suez Canal, rather than using conventional mechanical excavators.

To deal with the massive earthen ramparts, the Egyptians used water cannons fashioned from hoses attached to dredging pumps in the canal. Other methods involving explosives, artillery, and bulldozers were too costly in time and required nearly ideal working conditions. For example, sixty men, 600 pounds of explosives, and one bulldozer required five to six hours, uninterrupted by Israeli fire, to clear 1,500 cubic meters of sand.

The quoted Sunday Times report of the time suggested that the Israeli Army had anticipated that it would take 24-hours to remove the barriers giving time for their Army to mobilize and arrive. However, using a set of five pumps per breech site the Egyptian Army was able to make an opening in as short as a 2-hour time, with the mobilized water cannon opening 81 breeches, and removing 106 million cubic feet of material in that first day of the war. They were thus able to initially advance into the Sinai with relatively little resistance.

The pressure of the water does not have to be high to disaggregate the soil, but large volumes were needed in that application both to break the soil loose and to move it out of the way. Moving the debris out of the way is an important part of the operation, and while, in the above case it could be just pushed to one side, in many more localized jobs, particularly in cities, that is not an answer. However if the soil can be collected with the water, then the fluid can help to move the soil down a pipe away from the working area. And, more importantly, if the soil can be captured as it is being broken loose, then both can be collected before the water has had a chance to penetrate into the soil around the hole, and so the walls of the hole will not get wet, and will remain stable and not fall in.

One way that we have achieved this is to rotate a pair of waterjets relatively rapidly (depending on the material the jet pressure can range from 2,000 psi to 10,000 psi) so that the surface layer is removed, and to immediately take this away by combining the jet action with a vacuum for removal. (In the initial trials we used a Shop Vac to remove both water and debris). This combination has become known as hydro-excavation, and will be the topic of a couple of posts in the future.

Similarly the use of high pressure to break an ore down into its different parts, so that the valuable mineral can be separated from the host rock at the mining machine, is become a new way to reduce the costs of transporting and processing the ore, and make mining more efficient. As yet this latter is still more of a laboratory development, though it will develop for greater use in the future, and there will be additional posts on this too in the future. But, in both cases, the use of waterjets to effectively rely on extending pre-existing cracks makes the systems work. In the next post I’ll write about a couple of other ways of getting enough cracks into the rock as ways of making it easier to separate and remove valuable materials from underground.

OGPSS - thoughts on oil production from the MENA countries in turmoil

The popular protests among the countries of the Middle East and North Africa (MENA) are continuing to roil, and so, rather than the review of the countries that I have been discussing in the posts of the last few Sundays, I thought I would just briefly review the status of the countries that are now in various stages of unrest, and include their relative production and exports of oil. I am not going to discuss the natural gas situation since, in relative terms, there is currently a significant excess of natural gas available to the world market. As a result, should the MENA production falter (providing it does not spread to countries such as Qatar), any default can be made up from elsewhere.

I am going to take a quick look at Libya, Yemen, Syria, Algeria, Morocco, Bahrain and Jordan, as counties that are looking less than stable. The list is my estimate of the order in which they will fall, or not, in the sequence shown (my unapologetic dominoes). I am not going to talk about Tunisia and Egypt since, optimistically, they are now in transition with little impact, in the short term, for their hydrocarbon statistics. (And Schlumberger would add Ivory Coast to the list.)

Let me start with Libya, since I was struck by a comment by a Guardian reporter on the current situation there.

Everywhere, there are long queues at petrol stations, sometimes with hundreds of vehicles stretching down the road as they wait. At one queue, drivers were relieved when a tanker finally delivered a load of fuel, but then reacted with frustration when there was no electricity to operate the pumps.

If there is no fuel within the country, then the time it will take to bring the oil refining and distribution system back into operation will get longer, as the crisis continues. And since domestic demand will be met before exports restart, the length of time that Libyan oil will be off the world market continues to grow.
Just as a reminder of the balance between exports and domestic use, here is the EIA plot of that balance.

Libyan oil statistics (Source EIA )

The impacts of the protests in Libya was almost immediate and the world market has lost 1.4 mbd of oil. The impacts in other countries will be more or less drawn out, depending on the nature of the change.

Yemen appears to be the next shakiest in my rather murky crystal ball. With Yemen, although the President there just withdrew his promise to resign, the protests are beginning to follow the Libyan model in that the protesters have taken over part of the country, and fighting has started. Yemen produces some 260 kbd of oil, but exemplifies the Export Land model in that production as now declining, and domestic consumption rising, the volume available for export is rapidly diminishing. The EIA report that it was 125 kbd in 2009, and mostly went to Asia.

Yemeni oil statistics (Source EIA )

It is beginning to look as though Syria might collapse along the same path. The precursors are starting to happen, in the same way as for Libya, and if it goes there is another 368 kbd of production that may be lost. Of this some 148 kbd is exported, mainly to Germany, Italy and France. Internal consumption, on the order of 200 kbd, may decline, which will, in itself, likely foment unrest.

Syrian oil statistics (Source EIA)

While the protests in Algeria have died down, for now, should more governments topple (as seems increasingly likely, vide the above) then protests may return to more public visibility, since the causes of the unrest largely remain. However we are now moving from the countries where significant change is beginning to seem probable, to those where it is increasing unlikely. Algeria is, I suspect, right in the balance on this. There is less motivation to get back into the troubles that preceded the French leaving the country back in 1962, when a million people died, and then there was a civil war that ended in 1999 that killed another 150,000. As a result there is more of a chance for the current President to make enough changes to survive.

I wrote about Algeria, which produces more than 2 mbd, earlier in the series and for now will presume that the production of both oil and natural gas will continue.

Algerian oil statistics (Energy Export Databrowser)

Morocco, which produces only around 4 kbd of crude, needs to import around 191 kbd to meet domestic needs. It is also a country where, after some initial unrest, the king took some actions and has promised reforms. Whether these will come to pass and will be sufficient remains in question, but for the present it moves the country over more toward stability, and I will accept that for now.

Bahrain, produces around 40 kbd of oil, with recent investments of $15 billion being projected able to increase that to 100 kbd by 2017. This is expected to require an additional 3,500 wells be drilled.

Bahrain has seen more turmoil than some adjacent countries and had seemed to be heading along the Egyptian path. However it lies close to Saudi Arabia, and there has been sufficient intervention from tanks and troops from there that the unrest seems to have been quashed. Unfortunately the economy has nose-dived, but this is unlikely to affect the oil production.

Jordan follows along the same lines as Morocco, in that the king remains relatively popular, and the unrest is more directed at the government. The recent protests demonstrated the conventional use of the police water cannons for riot suppression, as opposed to cooling spent nuclear fuel piles (as in Japan recently). In terms of oil production, Jordan sensibly stopped producing oil around 1992, and has imported around 100 kbd since then. Thus with a low probability of the monarchy falling, and no oil production, there is likely to be little impact from Jordan, at the present.

Given the concern by Schlumberger let me end with a quick glance at the Ivory Coast. The EIA page for the country is currently down, and to remind you of the problem there – there was an election and the incumbent President was defeated. He has, however, refused to step down, and so unrest is growing as the winner would like his job. The more immediate impact may come in the price of cocoa, since this is the major export, but there is an oil component. The concern comes because the Ivory Coast is along the off-shore trend from Nigeria, through Ghana, that is now being followed by international exploration. Results haven’t been particularly promising, but the ongoing violence is reducing exploration drilling to validate potential.

To summarize the situation therefore it would seem that, for just the MENA countries, the developing unrest could take Libyan (1.4 mbd); Yemeni (125 kbd); and maybe Syrian (148 kbd) oil from the export market. The domino that is starting to look a little unstable is Algeria at 2 mbd, but at the moment I doubt that it will go.

The rolling blackouts in Japan are a warning of what will happen in other countries that start to come up short in energy production. It makes industrial production difficult, and thus plans for load shedding will become more important. Wonder which companies are working on them? Because the numbers are beginning to look worrisome in terms, not just of price, but also of availability of oil at the time that it is needed in the non-too-distant future.

OGPSS - Oil producers just below 1 mbd, India, Argentina, Egypt and Oman

There were nine countries that, in 2008, produced between 500 kbd and 1 mbd , according to the EIA. Of these one, Azerbaijan, has been able to increase production to just over 1 mbd, and I wrote about it last week. Let me, therefore look at the first four of the remainder – India, Argentina, Egypt and Oman, in this post. The latter two are part of those countries where popular protests have in one case brought down the government, and in the other caused some changes to be made. How these will play out in terms of oil production, and oil exports remains one of the questions which are currently unanswerable.

India was producing 888 kbd of oil in 2008. It is a country with recognized growing demand for oil, to the point that Libya’s Gadaffi has offered it the chance (along with Russia and China) for them to replace Western companies who have shut down operations because of the turmoil. The growing internal demand for vehicular liquid fuel, remembering that India was the country that introduced the Tata Nano, is reaching record levels. Growth for different sectors of that market are rising at more than 10% a year.

Local car sales jumped 23% from a year earlier in February to 189,008 vehicles, showed data issued Wednesday by the Society of Indian Automobile Manufacturers, an industry lobby group. The figure is more than January's all-time monthly record sales of 184,332 cars.

Indian demand for oil is now more that 2 mbd above domestic production and it is increasingly dependent on imports. In 2009 the EIA showed where these came from:

Source EIA
As one looks at the coming global oil market, therefore, India is one of the BRICS nations (Brazil, Russia, India, China and South Africa) that will drive increased international trade, likely well above the levels of today. The EIA consider that Indian growth will be on the order of 100,000 bd per year, which will likely have to be met by additional imports.

The Indian situation in regard to natural gas is similar. Although production has started to increase signficicantly, demand continues to outstrip it.


In the global market India has often been overbid by China as both seek to guarantee fuel supplies into the future. India is currently seeking to add Russia to its suppliers. and there has been an ongoing effort to run a pipeline down from Turkmenistan into India, via Afghanistan and Pakistan, for a number of years. (The TAPI Pipeline) At the moment agreements are reported to be imminent, and these will be followed by natural gas purchases. It should be remembered, however, that the pipeline has to run through Afghanistan and over its thousand-mile length will pass through Kahdahar Province, and then through the troubled tribal areas of Pakistan.


Route of the planned TAPI pipeline to India.

The pipeline would deliver up to 2 bcf from the rich Turkmen fields, though some of the resulting flow would likely be tapped along the way to help both transmitting countries, before the remainder reaches India.

An alternative would be to run a pipeline from the natural gas fields of Iran down through Pakistan into India. This is the IPI pipeline, but (because of the sanctions on Iran) is less favored, at least by the US. And, unlike China, which has already created the pipelines into Turkmenistan, India is still not that far along in the discussion.

Planned route of the Iran, Pakistan India pipeline

Argentina does not attract a whole lot of attention on the hydrocarbon front page. Yet, the picture of how it illustrates the Export Land Model, can perhaps easily be seen from this plot from the Energy Export Databrowser.

The Argentine oil statistics (Export Energy Databrowser )

The situation in the Argentine is perhaps illustrated best by the actions of Repsol, Spain’s largest oil company.

“The sale of YPF shares is part of Repsol’s strategic goal to rebalance its portfolio of assets,” the company said.

Repsol is seeking to reduce business in maturing fields in Argentina while investing in exploration in Brazil’s offshore Santos Basin and elsewhere to increase output.

Thus, as production in the country falls, and demand rises, the amount that is available for export will likely continue to decline. The EIA, which listed Argentine production at 782 kbd in 2008, anticipates that it will be slightly down at 760 kbd this year continuing the trend shown above. Nevertheless, as Spain pulls out, China is moving in , buying out the Exxon Mobil interests in the country.

The natural gas picture is just a little further along, with production having peaked, domestic consumption which had followed right along, now requires that the country begin to import natural gas.

he Argentine natural gas statistics (Export Energy Databrowser )

It is expected that the natural gas fields in Argentina will collapse fairly quickly, with reports that the country will sensibly run out of the fuel within seven years. Within that time frame it is likely that only the current glut in supply will help. But (as with the UK) as more countries find themselves in this predicament, the supply excess will more rapidly attenuate.

Egypt was, of course, one of the two countries that led off the current popular protests against state leaders that had led too long. Producing 718 kbd in 2008, it was about that time that domestic consumption overtook production. Production in 2010 averaged 660 kbd, of which 540 kbd was crude oil.


Government plans to control demand as the country moves to import a larger percentage of that demand are likely now out of the window, at least in the short term. Because the country has about a million b/d refining capacity it will continue to both export and import hydrocarbons, but with the balance swinging toward the import need, within the frame of the current unrest, it is difficult to predict how this will evolve in the future.

Consider, in this regard, the natural gas exports to Israel and Jordan. Until five weeks ago a pipeline carried the gas across the Sinai . Following a terrorist attack on the pipeline flow has been restored to only a quarter of the previous level, and even that is now in question, as a leak just halted the flow again.

Egypt has been supplying 40% of Israel's natural gas since May 2008 – raw material for the production of 20% of the country's electricity – through the state-owned EMG company, businessmen Hussein Salem of Egypt, Yossi Maiman of Israel and Jewish American Sam Zell, and Thai energy company PTT.

The Egyptian opposition openly objects to the gas deal signed between the two countries in 2005. Since the Egyptian supply was halted, Israel Electric Corp. and the private power plants have been purchasing their gas from the Israeli Yam Tatis reservoir.

Gail has recently written on some of the back story to the Egyptian problems and with the rising population, and their increasing expectations from whatever new government finally evolves, it is likely that demand will continue to grow. However, with a relatively large reserve, Egypt can continue to export into the future, though the customers may be more politically screened.


Finally, for this session, I will refer again to Oman. I wrote about Oman just recently, as the protests in other countries had started to be repeated there. There has not been much of a change in the situation since then. Protests are continuing. Saudi Arabia is now responding more aggressively than earlier, troops having been sent into Bahrain And this, perhaps, implies that reactions will not be as peaceful as they have been to date. In that scenario it is not possible to predict whether even popular monarchies such as that of Oman will survive. That , in turn, calls into question the overall reliability of oil and natural gas supply from the Middle East and North Africa. Given the nervousness about nuclear power, it will be interesting to see how the governments of the world react. There are no easy answers

Revolution - the threat to American imports

The countries of the Middle East and North Africa (MENA) are currently in the middle of a series of popular uprisings. While it is not possible to see the outcome in any of these countries at the moment, it is certain that some are likely going to end with a set of different governments and philosophies. This is not just of academic interest, since the countries involved produce collectively a significant amount of oil and natural gas, a lot of which is exported to North America and Western Europe. Looking just to the oil imports to the United States, and the natural gas imports (LNG) and averaging the volumes for October and November 2010, since there can be some wide variation month-to-month I came up with the following table, using the EIA information.

Average imports into the United States from MENA countries, averaged from October and November 2010 (EIA).

The largest concern at the moment is likely with Libya, since they supply Europe with needed oil.

Libya, a member of the Organization of Petroleum Exporting Countries, produced around 1.6 million b/d of crude oil during 2010, of which approximately 1.5 million b/d were exported, mostly to Europe. Therefore, unlike Egypt the situation in Libya has the potential to have a big impact on global oil supply. Latest news that has emerged is that oil output has stopped at Libya’s Nafoora field as workers have gone on strike.”

Algeria, as I noted in my last Tech Talk, plays a similar role in the supply of natural gas

The part of the Algerian gas in the gas balances in some European countries is significant. 86% for Portugal, 61% for Spain, 49% for Italy, 26% for Belgium, 25% for France and 21% for Turkey. Today about 97% of Algerian gas exports supply the European market next to Russia, and Norway, one of the main suppliers of the Europe. Algeria accounts for 29 percent of European Union gas imports and 15% of gas consumption

While it is too early at this stage to determine what the outcomes of the different struggles will be, it is realistic to expect some disruption of the current production in at least some countries, and the possibility of a reduced investment in future production, as the economies of the nations are restructured. And the consequence of that will be an increase in the price - Did somebody mention $147 a barrel?

OGPSS - Oil tankers in the wake of the Egyptian crisis

Gail Tverberg’s analysis of some of the underlying causes of the current Egyptian crisis is cogent, but it one of the other consequences that caught my attention today. For, as was noted in Forbes

While most equity-related assets got battered, a select group of stocks, oil shippers, were corking champagne bottles. Apart from Overseas Shipholding, Frontline Ltd. had a killer day, gaining 7.8% or $1.96 to $27.10.

An analyst for a shipping hedge fund explained that the spike is connected to fears surrounding the continued operations of the Suez Canal, amidst social unrest caused by massive riots against President Hosni Mubarak’s 30 year rule. “While Suez closure is not much of a threat, shippers are refusing to load in the Red Sea and transit the Canal,” explained the trader. “What’s probably going to happen is that they re-rout ships to the Cape [of Good Hope],” he noted.

“[Re-routing] makes voyages longer, which ties up ships and in turn diminishes supply,” said the analyst, “[this] is positive for the tanker market.”

The change involved is not just giving a tanker captain a different map and saying “get on with it.” Because of the relative size of the Suez Canal, there are different sizes of tankers involved, and so I thought it useful to talk about the different sizes of tankers, how fast and where they go, (and what the cost of that re-routing might be) in the post today.

To begin with let’s look at the traffic along the Suez Canal itself. Note that there is no immediate port of access into the Mediterranean, and thus to Europe, from Saudi Arabia or the nations of the Gulf.

Overview of the Suez Region (EIA)

The EIA, in writing about the Canal noted that

Almost 35,000 ships transited the Suez Canal in 2009, of which about 10 percent were petroleum tankers. With only 1,000 feet at its narrowest point, the Canal is unable to handle the VLCC (Very Large Crude Carriers) and ULCC (Ultra Large Crude Carriers) class crude oil tankers. The Suez Canal Authority is continuing enhancement and enlargement projects on the canal, and extended the depth to 66 ft in 2010 to allow over 60 percent of all tankers to use the Canal.

There are restrictions on the tanker size that can fit through the canal. This is mainly based on draft, or the depth of the tanker underwater, which has to be less than the 66 ft depth of the Canal, but there is also a bridge over the canal that the tankers must pass under. Those that fit into this range are designated as Suezmax tankers. In terms of the classification of tanker sizes they lie in the mid-range of those available. In a typical day about 1.8 mbd of oil passes through the Canal, which is about 5% of the global oil tanker trade.

The smallest of the tankers are those that act as coastal tankers. Typically from 300 to 670 ft long, with a draft that can go from 20 to 52.5 ft, they are used locally for the trans-shipment of refined fuel products. Ranging from 1,000 to 50,000 tons deadweight they are, most typically, the small local vessels that are often the only tankers that folk will see coming into harbor.

The design objectives for coastal tankers are demanding and sometimes contradictory, maximum volume in minimum dimensions. Operation in coastal service means frequent harbor calls, often through very restricted waterways having high currents and winds. Good manoeuvring capabilities are thus also required and, of course, high system availability to avoid incidents and accidents in case of system malfunction.

One of the more modern ones is fitted to carry either oil or liquefied gas.

The coastal tanker Seychelles Paradise.

But before I go on, I now need to define deadweight (DWT). It is not the weight of the empty tanker, but rather the weight of the cargo and fuel that the ship carries. In other words almost everything but the weight of the ship (which, just to be confusing, is known as the lightweight). Put them both together and you get the displacement of the vessel. So, that a tanker with a 50,000 ton DWT, with 6.3 barrels to the ton, would carry 315,000 barrels of oil. Now this is not all cargo since perhaps 5% of that total would be the fuel oil to drive the ship, which in this case would be around 15,000 bbl, giving a capacity of around 300,000 bbl. The density of the oil varies, and I used a value from one of the shipping companies, rather than the 7.3 value I have used in the past when converting shipped product.

And remember that bridge over the Canal that I mentioned? Well that brings in the other measure, known as “air draft.” This is the head room that the tanker needs, and for Suezmax this is 223 ft.

The next significant size category up are known as Aframax, and for a long while I thought that this related to some African capability. However it actually refers to the Average Freight Rate Assessment (AFRA) for the classification. A typical tanker will have DWT range from 80,000 to 120,000 tons (i.e. typically a useful cargo of around 690,000 bbl), a draft of 49 ft and a length of 820 ft. It has a typical speed of 14.7 knots. For those interested, Venezuela just bought 10 of these for $70 million each from Russia. Lloyds see a continuing oversupply of this category, to the point that (until this weekend) they projected rental costs of $10,000 a day or less, below operating costs. However there is a current hope in the industry that the rates may now rise (hence the champagne).

The Aframax tanker Tamara (currently for sale )

The next category will be the Suezmax category which has the restrictions that I mentioned above. They range up to 160,000 tons DWT.

Tanker in the Suez Canal (photo by Bob Wallace )

In addition to the air draft, the vessels are limited to a maximum width of 230 ft. Such a tanker might consume 410 barrels of oil a day, and travel at about 15 knots.

Those vessels that are too large for the Suez Canal, (and for that matter many ports) divide into two categories. The smaller is the VLCC (very large crude carrier) which are those carriers above 200,000 tons DWT, and then there are the ULCC (Ultra Large Crude Carriers) carriers, which are those above 320,000 tons DWT. These are large enough that they have been used for oil storage, as well as for transport. Just over a year ago there were more than 30 such supertankers parked around the globe. At that time rates of up to $75,000/day were being charged for the use of those tankers. In September 2010 Lloyds reported that the number was around 57, holding around 70 million bbl. These are the vessels that are very hard to turn, and take a long time and distance to stop. (Don't for example try throwing out an anchor.)

VLCC at sea

Once one gets to this size of vessel, the amount of fuel that is used in making a voyage becomes a significant factor in deciding how fast the ship will steam. Though that, in turn, is controlled by how valuable and necessary the cargo is at the time. For example in 2007 spot rates went from $30,000 a day to $300,000, but more recently have fallen steadily.

Recent VLCC market (after Devanney )

According to Devanney VLCC move at between12.5 knots, (50% power) and 18 knots, though at increasing fuel demand (which at top speed and loaded may reach up to 800 barrels of fuel oil a day.) As he notes in one example:

Once we get to 12.5/14 kts, we note that by speeding up another half knot, we can save 1.53 days at a cost of $63,000. This is a good idea if and only if we can earn $44,000 per day (about WS53)) or better with the days saved.

The 12.5/14 knot selection refers to the difference in speeds between when running loaded, and when in ballast (i.e. empty).

If one knows the intended travel speed, then one can look up the relative distances to be travelled (remembering that the vessel has to go both ways to complete one trip). The distance from Ras Tanura in Saudi Arabia to Port Sucre in Venezuela, for example, is 10,245 nautical miles. At 12.5 knots this would take 35.6 days at sea, each way (providing that the tanker was small enough to fit through the Suez Canal).

Going from Ras Tanura to Rotterdam via the Cape of Good Hope adds an additional 74% of the miles traveled going through the Suez Canal (from 6,399 to 11,109) while adding 20 days (from 41 to 61) to the round trip .

The costs incurred from going round the Cape is related to the extra fuel consumption but also to the extra capacity required and related insurance premium increase in order to lift the same quantum of cargo in the same amount of time. Conversely, the costs incurred in going through the Suez Canal consist of canal tolls, extra insurance risk premium and the use of services such as tugs, pilotage and mooring. Canal costs have decreased by 5% over the last five months.

The break-even point at the moment is related to the cost of bunker fuel. Should this be below $370 a tonne, then it is cheaper to go around the Cape, should it be over $370 a tonne then it is cheaper to go through the Canal. (It is currently well above that price). However the break-even is a function of charter rates and other values, and so varies with time.

There is one other way of shipping oil through Egypt and that is to put some of the liquid in a Suezmax vessel to transship the canal, and send the surplus up through the Suez-Mediterranean pipeline. With the enlargement of the canal this option is less favored, and the EIA note that volume in the pipeline dropped from 2.3 mbd in 2007 to 1.1 mbd in 2009.

I have not written much on ULCC since they have proved unpopular.

As of 2010, only 12 tankers above 320,000 dwt remain. Of this, only two "true" ULCC of around 430,000 dwt are left in operation, the TI Europe and the TI Oceana, which were part of a group of four ships constructed between 2002 and 2003. The other two ships, TI Africa and TI Asia were converted into floating storage and mooring units in 2010.

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The TI Europe

The vessel TI Europe was built in 2002. It is 1,246 ft long, it is 223 ft wide and has a draught of 80 ft. It can carry 3.2 mb of oil. (DWT 441,893 tons.) The optimal speed of TI Europe is 16.5 knots laden and 17.5 knots in ballast.