P36. Pick Points

So today was Power day at CERAweek, and the President of the Environmental Defense Fund was pressing for increased research and development for carbon capture and storage. But he recognized that there would no industrial participation until there is more guidance from the Administration. They have already given Congress a blueprint on how to enact a carbon cap and trade legislation, and urged action. He was opposed by the Marathon CEO speaking instead for a carbon tax as being more simple, since cap and trade is a market set up by the government., and would provoke more volatility (and price rises) in that market.


The CEO of Energy Future Holdings bragged on Texas’ position as a leader in wind technology, and its willingness to adapt the grid to input from renewables. Given the need for a heavy investment in new plant (sometimes just to replace old capacity not to increase it) the demands for the great amounts of capital this will require was predicted to lead to consolidation in the industry, according to the CEO of PPL Corp of Pennsylvania. There are currently some 200 companies invested in the power production business, and with the demand for new plants (which are planned to be about half coal and half natural gas) the money will have to come from somewhere (including the general public.)

Looking at the scene from Michigan the CMS Energy President noted that his coal plant fleet was an average of 50-years old, and while demand would not rise, plant needed to be replaced because of age. Trying to permit a new coal-fired power plant was like “swimming upstream.” They had a plant replacement planned for Bay City but this has been postponed two years to 2017, even though the new plant was over rock which would be suitable for CCS. Collectively the industry is beginning to accept cap and trade, and just hopes that the money goes into research and development, instead of social programs.

Nissan is anticipating rolling out an electric car next year, that will be generally available by 2012. The plant will go into Tennessee, and they hope to see 10% of the fleet sold to be electric by 2020., though this depends on an agreement for a charging network, and that hasn’t been resolved yet. That may put up pollution, since the power must come from somewhere Pacific Gas & Electric said that either drivers learned to plug in and charge in off-peak hours or the country would need a lot of new electricity generating plants. There may be meters that would control activation and thus help to solve the “plug-in time” problem.

The next topic was biofuels, BP felt that these would comprise 10 – 20% of liquid fuels by 2030. It will take a billion hectares growing sugarcane to produce the ethanol to replace gasoline totally around the world, In a recent report (Sandia and General Motors said that the country could produce 90 billion gallons of ethanol, by 2030 this would replace a third of the 140 billion gallons of gasoline being used – but five sixths of the total must come from cellulosic ethanol (which we don’t have ready even in the lab yet). “P.S.” they added, “send money.”

The economists on the panel felt that the recession though severe should turn around within the year. But the blame game on that has started.

With the Shtokman field now being scheduled for development, Total is committing to $200 million on engineering studies, while the main base for the operation may end up in Norway. Part of this recent surge in activity may because Russia is suddenly realizing it will have to increase incentives if it is to halt an anticipated drop in production. The intent is to change the tax structure so that investment in new fields will be encouraged, now it is not. Remember that in Russia oil revenue taxes provide 43% of budget revenues.

P35. Pick Points

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

So first what happened at CERAweek. The Marathon CEO saw a change coming in refineries, with there being fewer of them, that they would be more oriented to diesel (with a smaller relative market for gasoline) and that they need to be able to handle heavier crudes. The Tuesday night dinner speaker was the Saudi oil minister and he said that when Khurais comes on stream this year at 1.2 mbd, then Saudi Arabia will have a cushion of about 4.5 mbd that it can put on stream. (Bear in mind they have cut back production dramatically, and I bet they are counting Manifa, which they cannot refine until at least 2012).

“The unprecedented price volatility in conjunction with the complexity, breadth and the pace of the collapse of the financial system crashed over us like an economic tsunami, ripping us from our intellectual and experiential moorings, leaving many confused and uncertain about the way forward,” he said.

But the more telling quote (not looking at anyone, Dr. Chu) was:

“A nightmare scenario would be created if alternative energy supplies fail to meet overly optimistic expectations while traditional energy suppliers scale back investment due to expectations of declining demand for their products,” he said.

Saudi is now at around 8 mbd, and OPEC as a whole cut production 3% in January.


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

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

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

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

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

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

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

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

P34. Pick Points

Half-a-dozen or so stories of interest.

Beginning by perusing the snippets that dribble into the Houston Chronicle blog from CERAweek, Representative Markey admitted there would be some role for coal in the future; while IHS looked to see the recession last through this year, bottom out next and rebound in 2011, in the process demand for oil will fall another 1 mbd this year. In the same session company assets were foreseen as dropping further below real value, according to an IHS analyst; and the imbalance between operating costs and commodity prices would continue to feed increasing supply volatility. The BP Chairman felt that with enough investment (a trillion dollars a year) enough energy will be found to meet global demand. If we can overcome the human problems, the geological problems will be insignificant. He called for a confident relationship between government and companies, since without it investment would not be forthcoming; an open energy market; a heavy investment in conservation and energy efficiency; a program to address global warming, through increasing the price paid for carbon fuels (cap and trade); opening up the reserve areas now off limits including the continental shelf; incentives to encourage CCS and low carbon technology; and more investment in energy research – he bragged about the model program he set up with Dr Chu. In questions he said that the industry must get costs in line so that $40 becomes a good price again; that corn ethanol is not an answer (but cane ethanol is); and before we decide on electric cars we have to decide where the power is coming from.

The Schlumberger Chair reminded the audience that before the economic collapse we were having a hard time meeting supply, and his job is to keep a viable company until those times come back, and that includes keeping R&D going. The Director General of Pemex, said that they plan on producing 2.9 mbd this year, but needs more money for investment in new resources and a refinery. The Vice Chairman of CNPC said that China had a remarkable year and were concentrating on technology, including EOR for mature fields. In questions they saw a role for gas from shale, and a need for a better image for the industry .

The lunch speaker was the Shell CEO and he also pointed out that as the recession ends so the demand for oil will return, and fast. This will require use of all resources and will raise carbon dioxide levels. But it also will require investment, even through these hard times. They are now living on past investments, but fears that in 3-4 years the cost of insufficient investment will be hurting production. They plan on continued investment in R&D, he bragged about the unmanned offshore monotowers that produce gas. He also supported cap and trade, and many of the items listed by the BP head. In questions he said that Europe, having higher taxes was equivalent to a carbon tax, and had led to more efficient cars. In other talks, they admitted Texas was in recession with the country economy expected to continue to contract all year. And then Exxon spoke out against cap-and-trade, preferring a straight tax. Finally the IEA Chair said that they expected to revise this years demand down another notch, before starting to grow next year. But he also said that energy professionals were more optimistic than financiers at this point.

The struggle between water and energy from hydroelectric projects continues to divide Tajikistan Kyrgyzstan and Uzbekistan as the situation turns bad enough that growers are burning their orchards for fuel.

In the United Kingdom the National Grid is planning on sequestering its carbon from 5 coal-fired power plants near the Humber in rock layers under the North Sea which once held natural gas. They feel they can do this within 3 years. On the other hand Brazil’s Energia hopes to trap 1- 15% of the gas from a power plant in algae that can then generate oil. Another UK Power company Centrica has upset shareholders who would rather it invested in natural gas rather than nuclear power. And in the gas business Gazprom which is anticipating a 5% cut in Western European demand is also now expecting a 15% drop in demand from Eastern Europe. But that has no stopped them denying the rumors and pledging to move forward on development of the Shtockman field, starting next year, yielding natural gas in 2013, and LNG the following year. Gazprom is also investing in LUKoil to help it repay some loans. And speaking of LNG the anticipated shipment of LNG from Sakhalin has been postponed until April In the meantime they are making up the contracted amounts by using gas from Abu Dhabi. (Unrelated but they also have a wakening volcano – just like Alaska). Gazprom are also making another move at the UK market, this time trying to sell electrical power.

Russia is considering a tidal power plant near Murmansk. And half-way around the world similar plans are being considered for the Columbia river in the Northwest USA. Rolls Royce, meanwhile are testing turbines in the UK that can generate up to 1 MW, with a sea trial for a 0.5 MW unit scheduled for this summer , they foresee up to 300 MW of tidal power being possible around the UK by 2020.

The power crisis in Bangladesh is likely to continue until at least mid-May when the Monsoon starts, since the current drought has dropped the water levels needed for hydropower and at present they are drawing down the existing gas fields so fast that they risk damaging the rock structure, and still don’t have enough. Chittagong, a major city, now only has power for half the demand.

For more stories see The Energy Bulletin or Drumbeat at The Oil Drum