Tech Talk - More on Iraq

A single picture is sufficient to tell the story of the fate of the Baiji Refinery in Iraq. Recently reached by the ISIS forces, it has been the largest refinery in Iraq, with a capacity of 310 kbd, and has been used to provide products for domestic use. Since it would provide fuel for both sides in the conflict it had been left largely intact, but that “understanding” seems to have fallen apart.

Figure 1. View from space of the fire at the Baiji Refinery in Iraq (Slate)

The remaining significant refineries in Iraq are at Daura near Baghdad which can produce 210 kbd, although promised at 280 kbd and Basra in the south, which can produce 140 kbd. There are an additional 11 very small refineries located around the country.

The conflict has already led to a drop in Iraqi exports of around 300 kbd and while this will not immediately impact the United States, given that imports have been declining in the face of growing domestic production, it will affect the overall global market, with longer term impacts on price and availability. India, for example, is already worried. It is quite possible that Iraq will partition, with the northern tier ending up Kurdish.

Figure 2. The Kurdish part of Iraq (Talking Points Memo)

This region has already run a separate pipeline through its own territory up into Turkey and thence to Ceyhan. From there it is tankered, and the Kurds have just sold a shipment to Israel, which arrived at Ashkelon on Friday and unloaded that night. The report has, however, been denied by the Kurdish Ministry. Three more tanker-loads destined for other customers are now in process at Ceyhan. The tanker was one which has, until recently, been unable to find a market.

In May, the Kurds took a further step by leasing two tankers, loading them in Jihan and looking for buyers. Attempts to sell oil to Morocco and other countries were rebuffed, out of solidarity with Iraq and concerns over legal action. It now seems that the Kurds have re-discovered their old ally Israel, which agreed to purchase the oil. To avoid a direct sale, the Kurdish tanker unloaded its oil onto another tanker. It’s unclear if the purchase is a one-off deal or the start of a permanent arrangement.

But the Kurdish pipeline is currently limited to a capacity of 100 kbd, whereas the main pipeline running up the center of the country (and through ISIS territory and control) can handle 600 kbd. The potential for a continued drop in Iraqi exports flowing north to Turkey of over 500 kbd is thus now quite possible. However the oilfields in the Kurdish territory are only, at present, producing around 120 kbd. Yet, by the end of the year it is projected that the pipeline can be expanded to handle flows of up to 400 kbd, with that capacity being reached as additional oilfields around Kirkuk are connected into the system and production raised. In the meantime additional oil is being trucked up to Turkey.

The impact of the conflict has already caused bidding on the Nassiriya oilfield and refinery to be postponed indefinitely.

Figure 3. Location of Nassiriya (Red point) (Google Maps)

Bidding on development of the 4 billion barrel oilfield, and associated 300 kbd refinery, was scheduled to have taken place on Thursday, but after being postponed in December and January has now been put off indefinitely.

At the same time Lukoil remains optimistic about expanding the West Qurna 2 field over the next year. The field has started production, and reached 200 kbd and Lukoil is hoping to start filling tankers in the third quarter of this year. The project was shared with Statoil, but they dropped out in 2012. West Qurna is in the South of Iraq, and at present a considerable distance from conflict.

Figure 4. The location of the West Qurna 2 field. (Statoil)

The field is anticipated to ultimately be capable of yielding 1.8 mbd of oil. In order to handle higher flow rates a new agreement has just been signed in which Lukoil will build two new pipelines from the field down to the off-shore terminal at Fao.

As long as the conflict remains north of Baghdad, and the oilfields in the South are not threatened then the major restriction on plans to grow exports from the south to 6 mbd may continue to lie with the Iraqi bureaucracy and the delays in installing the necessary infrastructure needed to support both production and also transport of the oil to the offshore terminals. There has also been some reduction in targets, for example Zubair which had been producing at 200 kbd was originally scheduled to produce at 1.2 mbd a target that was dropped to 850 kbd last year. A 200 kbd gas and oil separation plant (GOSP) has just been contracted, with completion in 2016.

This does not discount, however, that sabotage and terrorist attacks will not have some impact. The main pipeline to Turkey has been closed for months due to such attacks, but while that pipeline runs through Sunni territory, the lines from the Southern fields are all within Shia controlled land, and those in the north are now controlled by the Kurds. Oil companies have, however, as a precaution, begun repatriating some of their employees. Gazprom has just begun production from the Badra field. Originally projected to begin, at 15 kbd, in 2013. Production has now begun, although it is now anticipated that it will be another couple of months before the field reaches that initial 15 kbd target, and 2017 before it peaks at 170 kbd. Gazprom have, at least publically, “no problems” at the site.

OGPSS - future natural gas supplies and Cyprus

This post began as a view on the developments in Cyprus, and I am grateful to Gail for the suggestion, and it is my fault that it morphed a little from that simple original objective.

One of the problems that one faces in marketing natural gas is that there is so much of it coming onto the market that it makes it difficult to set a price for future production. Even when the fields and reserves are estimated to be large, having some confidence in the price that the gas will bring helps provide confidence, in turn, with investors that there will be a positive return on the cost of bring that gas to the market. However, once that initial commitment is made to invest the money, then the need for a return often drives an expeditious program to bring in revenue, even if the market is already reasonably well supplied. Prices may then fall, and the investment becomes a losing one.

The current cold weather in the United Kingdom, and the threat of gas rationing has raised the price some 30% this month and the market appears lucrative. But the UK market, in the short term, can be rescued by 3 tankers of LNG from Qatar with more available if needed. (Provided it is ordered soon.) And then, though there remains a need to refill storage, the crisis will be over for now, and the price will likely fall back. (Although likely not completely since the UK is in process of shutting down coal-fired power stations to comply with EU edicts and natural gas is the replacement fuel of the moment.) Looking further down the road Centrica, a major energy supplier in the UK, has agreed to a 20-year agreement with a US supplier to buy LNG from the US (out of the Sabine Pass terminal). This would take a fifth LNG train, at a facility where the first train is expected to come on line in 2015, and the second in 2016. Each train has a liquefaction capacity of 4.5 million tons pa or 220 bcf of NG, and customers have already been found for the first four trains – again for a 20-year period. The UK supply is therefore not anticipated to start until 2018.

In the meantime Qatar has no plans to increase production in the face of the overall growing glut in supply, although it potentially could. And this availability of alternate supply is not good news for the Big Daddy of natural gas exporters, those in Russia. Russia has already seen Turkmenistan sell its natural gas to China directly, rather than through Russian middlemen. To date this has reached 1.7 tcf with further expansion in the works.

To make the situation more volatile the natural gas discoveries in the eastern end of the Mediterranean over the course of the last five years have been found to be of increasing size, as exploration continues.


Figure 1. Relative location of the gas fields (the green region) being explored in the Eastern Mediterranean (Google Earth)

Three of these fields, Leviathan, Tamar and Dalit are in Israeli waters, while the fourth, Cyprus A, belongs to Cyprus.


Figure 2. The location of the different fields that are being developed by Noble Energy in the Eastern Mediterranean.

In terms of relative size, Cyprus A is at 7 tcf, Leviathan was initially projected at 17 tcf, Tamar at 9 tcf and Dalit is at 0.6 tcf. Since the original projection Leviathan has now been increased to 15 to 21 tcf, with a likely value of 18 tcf.

The Russian natural gas heavyweight, Gazprom has not been neglectful of these developments, occurring as they do in a region where it would not be difficult to challenge their supplies into Southern Europe. Thus Gazprom has been the high bidder in a project to float an LNG plant over the Tamar field and to liquefy that gas so that it can be sold into Asia. The goal for the start of that project is in 2017.

Turning to Leviathan, which is expected to come on line in 2016, with 750 mcfd being supplied to Israel. The interesting question is what to do with the rest. There is talk of a pipeline to run up into Turkey and thence on into Europe. This would have the advantage of further diminishing the European dependence on Gazprom and Russian gas, but there are some political problems. One is that the pipeline would run through the Greek controlled waters off Cyprus, another is that Turkey gets most of its natural gas from Russia and Iran, and they would be displeased. (Though it would help Turkey over the difficult problem of Iranian sanctions).


Figure 3. A pipeline to send the natural gas to Turkey (Mining.com)

When one looks at the Cyprus field, with these ramifications going on in the rest of the global gas market, it becomes a little more evident why Russia has not been willing to dash into the financial scene and bail the Cyprus economy out by buying a future stake in the Cyprus natural gas.

There was an alternative proposal (H/t Gail) for the pipeline to run instead through Cypriot waters and then on up into Europe directly.


Figure 4. An alternate route for the natural gas to reach Europe. (John Galt )

With Cyprus in a financial mess they offered their natural gas to Russia, as part of the security for immediate help. In the end Russia did not bail out the Cypriots. At the same time that Cyprus was talking to the Russians they were also talking with the European Union, and it appears that perhaps the threat of Russian control of Cypriot gas helped expedite an EU rescue move.

There is, I believe, more in this for the EU than for Russia. The benefit to Russia would come more from controlling a relatively small amount of competitive natural gas, at a time when they are trying to maintain the market for their own. And while they likely did not anticipate the hit that Russian bank deposits are taking, the overall cost to them does not translate into an adequate return on the investment that they would have had to make to keep Cyprus stable.

On the other hand this has benefits for the EU if it can further expand the availability of an alternate source of supply to that from Gazprom, then they can possibly lower future projected prices for natural gas. Set against which is the history of Gazprom sitting on the sidelines waiting for an investment opportunity later in the game, and then stepping in and gaining control for a lower price. It will be interesting to see how this one plays out.

OGPSS - An update on Russian plans and the OPEC MOMR

The Arctic is a less forgiving place than many folk care to recognize. Shell have just moved back the date on which they plan to restart drilling in the Chukchi Sea and won’t be going up there this year. At the same time, last August, Gazprom announced that the development of the Shtokman gas field off the Russian coast and also in the Arctic had been put on an indefinite delay. Yet the region still shows considerable promise. ExxonMobil and Rosneft have agreed to exploration in the Chukchi, Laptev and Kara Seas, with the latter considered as possibly having the highest potential.


Figure 1. Location of the Kara and Laptev Seas. (Google Earth)

The blocks that will be explored are South of the island of Novaya Zemlya, in relatively shallow water. They lie north of the Yamal Peninsula, and the Shtokman field is on the other side of the island.


Figure 2. The locations of the East Prinovozemelsky blocks south of the island of Navoaya Zemlya (Rosneft)

Rosneft estimates that the reserves that are recoverable are 6.2 billion tons of oil, and a total of 20.9 billion tons of oil equivalent when the natural gas content is included. The first wildcat well is scheduled to be drilled in 2015.

While Gazprom and Rosneft share access to these offshore resources, Lukoil has found a site at Khatanga Bay in the Laptev Sea where it believes that it can be successful. Despite the difficulties, the need for Russia to sustain production is forcing the companies offshore into more difficult waters, it is where the future production lies, and the Russian economy needs the income.

The February OPEC Monthly Oil Market Report notes that Chinese demand has now topped 10 mbd on a quarterly average, the highest to date and growing at 6%. The greatest increase has been in the use of gasoline. Global demand is anticipated to top 91 mbd by the end of the year. Russia is anticipated to produce some 10.42 mbd on average this year. OPEC has, however, a few caveats:

The Vankor oil field is expected to average 435 tb/d in 2013, a minor increase from the level of 410 tb/d achieved by the end of 2012. Some operators provided that new technologies will be utilized to stop natural decline. On the other hand, the supply forecast remains associated with a high level of risk, due to technical, political, geological and price factors. On a quarterly basis, Russian oil supply is expected to average 10.43 mb/d, 10.42 mb/d, 10.42 mb/d and 10.42 mb/d, respectively. Preliminary figures indicate that Russian oil production stood at 10.46 mb/d in January, steady from the previous month.

As usual it is interesting to compare the OPEC production results for the last few months, based both on the reports obtained from secondary sources, and those numbers that the individual nations provide.


Figure 3. OPEC crude production based on secondary sources (OPEC February MOMR )

It is important to note that Saudi Arabia has dropped its production by around 300 kbd or so for the last couple of months. While I suspect that this to keep markets a little tighter and thus hold prices stable, others might suggest that the may have some slight difficulty sustaining the higher numbers.


Figure 4. OPEC oil production figures as reported by the producing countries. (sources (OPEC February MOMR )

Iran continues to have a disparity of around 1 mbd between the two tables, Iraq still seems to be struggling to get over 3 mbd, and Venezuela has a discrepancy of around 400 kbd. In short, not much new.

Turning back to look for just a moment at Gazprom activities, although they have continued to keep Lukoil out of the Arctic, they have also continued to seek resources abroad. The company has acquired territory in Iraqi Kurdistan and is reported to have an 80% stake in the Halabja project with reserves of around 700 mb. The field lies on the Iranian border in the Kurdish part of the country, and Baghdad objected to the deal going forward. It might, however, help raise Iraqi overall production. Gazprom has two other projects in the region at Garmian and Shakal, and one at Badra which falls under the control of the central government.

And, still in the Middle East, Gazprom is in talks with Israel to buy LNG from the offshore Tamar field and ship it to Asia to serve markets that it cannot easily reach with its pipelines. The intent is to use a floating liquefaction plant that will take gas from both Tamar and Dalit, at the rate of around 3 million tons a year with production starting in 2017.

Gazprom recognizes that, if it is to develop Asian customers it must provide LNG and so it has begun work on an LNG plant in Vladivostock with three trains, each capable of producing 5 million tons of LNG a year, from the Sakhalin, Yakutia and Irkutsk gas fields. With production aimed to begin in 2018, the market will, again, be in the Asia-Pacific region and may be one of the reasons to accelerate production from the Kovyktinskoye field. At the present time Gazprom has brought the Zapolyarnoye up to full production, and they estimate that this will produce 20% of Russian natural gas as the field moves to be the largest producer in the country.

And, while tracking down some of the information for this post, I did find a picture of a polar bear and cub in the region that ExxonMobil is venturing into. It was taken on the island of Novaya Zemlya. Hopefully environmental concerns won't raise the same sort of difficulties in developing these sites that they have in other places further East.


Polar Bear and cub on Novaya Zemlya on the Shores of the Kara Sea (the photo is on Google Earth and was taken at the red arrow in Figure 2 by

Oh, and before I forget the Alaska pipeline continues to run below 600 kbd with an average of 577, 604 bd. for January.

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 - Looking at Azerbaijan future fuel production

The President of SOCAR, the State Oil Company of Azerbaijan, is touring the United States at the moment. His goal is, in part, to gain support for the Baku Higher Petroleum School, a place to generate the indigenous engineers that his firm needs for future resource development. (About 75% of the labor force is currently Azeri, but at lower levels of management). The school is expected to open its doors next September. While this is, perhaps a little late to the game, it underscores the global need to find those individuals who can be technically trained and who are then willing to spend weeks of their lives, at a time, in increasingly remote parts of the world, often in inclement conditions, just so that the rest of us can have an easy commute to work in the mornings. (Folks were even talking about the opportunities in the wilds of North Dakota at our Rotary meeting this week).

The effort by SOCAR also underscores the point that there remains a future for the petroleum industry in Azerbaijan, despite the long history of oil recovery that the nation has already seen, with the depletion of many of the old reservoirs. There are new fields in which oil and natural gas are being developed, though as Darwinian pointed out, the rapid build-up in production to which I referred last time, has, more recently, begun tailing off. He referred to the Joint Organizations Data Initiative – Oil (JODI) which shows the decline from 1.05 mbd in July 2010 to 920 kbd this September. That peak was down from the peak of almost 1.1 mbd in early 2008. This year the decline has reached around 11% pa and while SOCAR explains that this is the result of introducing additional safety measures following the Deepwater Horizon event, and for scheduled maintenance, the number seems a little large for such a cause.


Further if one looks at the drilling record for the country, SOCAR reports that while drilling was down last month (and likely will also be this month) overall they anticipate exceeding the 2010 figures, with roughly 90% of the work going for development and about 10% for exploration. The development drilling is down from the 2010 figure, which was itself lower than that in 2009, which was below that of 2008. But some of this may have been market driven, one can certainly see that in the natural gas numbers that I discuss below.

I had missed, when I wrote the post last week, that Jerome had previously written on the topic in 2008, my apologies to him and you for that omission. His post gave more detail of the fields off the peninsula than I had provided, so I am reproducing a figure from the post here:

Oil and gas fields off Azerbaijan (Jerome at TOD)

The recent decline in overall oil production impacts flow through the pipeline from Baku to Ceyhan (the BTC pipeline) which had a targeted flow of over 1 mbd, and much of this comes from the Azeri-Chirag-Gunashi fields (there is some crude also from Turkmenistan, and condensate from Shah Deniz). IHS list it as currently the third largest oil field (behind Saudi Arabia’s Ghawar and Kuwait’s Burgan). Recent production from the complex can be obtained from the BP site:

During the first three quarters of 2011, ACG produced on average 757,500 barrels per day (b/d) (206.8 million barrels or 27.9 million tonnes in total) from the Chirag, Central Azeri, West Azeri, East Azeri and Deepwater Gunashli platforms.

At the end of the third quarter of 2011, a total of 57 oil wells were producing, while 27 wells were used for injection in the ACG field, as follows:

Chirag had 12 wells (8 oil producers and 4 water injectors), producing on average of 73,300 b/d.

Central Azeri (CA) had 19 wells (13 oil producers, 5 gas injectors and one water injector), producing on average 209,200 b/d.

West Azeri (WA) had 19 wells (13 oil producers and 6 water injectors), producing on average 213,800 b/d.

East Azeri (EA) had 14 wells (11 oil producers and 3 water injectors), producing on average 134,300 b/d.

Deep Water Gunashli (DWG) had 21 wells (12 oil producers and 9 water injectors), producing on average 126,900 b/d of oil.

Development of Chirag (EPC Engineer )

A new platform is in construction for Chirag, aimed at adding 185 kbd to current production in 2013, which with increased drilling at the other platforms (averaging about 20 wells a year) may, in the short term, bring the production back toward the 1 mbd target production. The total estimated recoverable reserve is estimated at 5.4 billion barrels of oil, of which around 1.8 billion is estimated to have been produced to date. The partnership is currently extended until 2024.

The natural gas picture is a little more complicated. Although the ACG complex produces more gas than Shah Deniz roughly 75% of it is re-injected to maintain reservoir pressure. Discounting the production from Shah Deniz, SOCAR is still producing natural gas for export to Europe, for which it is still being paid on average $191 per 1,000 cu m (kcm) ($5.40 per 1,000 cu.ft or million Btu approx) this year (though down to $151 in October). These prices are significantly higher than the $61 per kcm it received last year, and are also ahead of the $186 price in 2009, though just under the 2008 average.

They are undercutting the price of Russian gas, which they report as being some $446 per kcm this year, though it is anticipated to fall to $415 next year. (In perspective Ukraine is currently paying $400 per kcm, ($11.33 per kcf) for Russian gas, but hoping to get that price lowered).

SOCAR is anticipating that this market may dry up in three years when the gas fields off Cyprus are brought into production. This will be gas from the Aphrodite gas field, which holds some 3.3 Tcm of natural gas – about three times the reserves for Shah Deniz. That area of the Mediterranean is, however, quite politically sensitive.

Together with other fields (Leviathan and Tamar), this area of the Mediterranean is estimated to have 10 trillion cu m of gas. In connection with the worsening political and military situation fields Leviathan, Tamar and Block 12 have been patrolled by Israeli drones. Russia sends its only aircraft carrier to this area, while fleets of other countries claiming to develop these fields are drawing as well.

These new fields lie in the Levant Basin Province, and, given this location and the neighborhood, who will end up producing what is going to be an interesting development to watch. Given the size of the deposits, their development could also change the economics of natural gas distribution for some time.

Location of the Levant Basin Natural Gas Province (Fast Company )

SOCAR is hoping that, as this transpires, it may get additional supplies from Turkmenistan through a trans-Caspian pipeline that could be completed by 2015. Concurrently Shah Deniz II, slated to produce some 100 kbd of oil and 16 bcm of natural gas, is being prepared for production to start in 2017.

In short, in the short term production of oil from Azerbaijan will continue at roughly current levels, but the volumes of gas that will be available on the global market may exceed demand within the near future unless, as now, they significantly discount the price.

Michael Lynch appears to be waiting for Harry Potter

It sometimes seems that predicting future supplies is a battle, where on the one side we have the Cornucopians, such as Michael Lynch, and on the other those whom I will call the Realists, both looking at the same situation and calling the future in entirely opposing ways. We are now in a situation where Spain has had to start implementing conservation measures in light of the problems with the loss of their fuel supplies from Libya. Spain gets 13% of its oil and 2% of its natural gas from Libya, and is starting to take precautions (H/t Luis).

On a temporary basis, the government agreed to lower the maximum speed limit on Spanish highways to 110 kilometers per hour from 120 kilometer per hour to reduce gasoline consumption. It will also lower ticket prices on the state-owned railway system to encourage the use of public transportation. In coming days, Industry Minister Miguel Sebastian will meet with regional authorities to study additional energy-savings measures.

Michael Lynch, on the other hand, is quite happy telling folk that there isn’t a problem, and that the Kingdom of Saudi Arabia (KSA) has lots of additional oil fields that it can tap, whenever they are needed.

There are several other reasons to remain calm about Saudi reserves. Officials there have discovered approximately 70 major oil fields that they have left untapped over concerns that increased Saudi production would cause global oil prices to collapse.

And while Aramco is hardly likely to find anything on the scale of the Ghawar oil field, the world’s largest, they haven’t been looking very hard. The Saudis drilled about 500 wells last year; some 11,000 are drilled every year in the United States alone.

The situation is, of course, that any analysis of any worth about the rising demand for liquid fuels comes to the conclusion, relatively quickly, that we are going to need several multiples of the production of the KSA it the world is going to continue to be supplied with an adequate resource to meet the demands of the almost immediate future. But that is not the real point.

What the current situation is likely about to teach us, however, is a somewhat different lesson, though one that some of us have been preaching for the last half-decade. It is that, regardless of resource, it is the rate at which you can bring this to market, to meet immediate demand, which is the critical value. It matters not if there are a billion barrels in the ground, if the wells taping into that deposit are few, and their individual productivity small. There are, for example billions of barrels of oil in the oil sands of Athabasca, as there are in Venezuela. Do we see that pouring into the market to meet the challenge that we face as the countries of the MENA falter in the face of political challenges more important to them than maintaining their fossil fuel production rates? No we do not, because there are a whole lot of steps between having the oil in the ground and being able to put the produced and refined gasoline into your car, and these all have to be in place before a resource can be brought into production at sufficient volume to be significant.

There is also the non-trivial point that the world is not discovering the multiples of the oil in Saudi Arabia each year that would stabilize supply, and in fact we are far beyond that point. Yes discoveries continue to be made, and likely will for decades, but they will no longer be enough in terms of volume of availability to meet the burgeoning needs of society, at the cost it is willing to pay.

Now having said that I don’t necessarily disagree with Mr Lynch’s point about the investment priorities of the current Administration. They (and also the previous Administration) were beguiled into spending more on trying to get cellulosic ethanol into significant production before fundamental commercialism of the technology was established. Robert Rapier has explained in detail what the problems have been, so there is no point in renewing that discussion here, and so I would agree that this was overdone. But to suggest that there should be no investment in future technologies is folly.

To suggest, almost in the same sentence that we should aim to stop importing Saudi oil, and at the same time not invest in “technologies of the future,” leads me to wondering as to whether Michael Lynch has been watching too many Harry Potter movies. You cannot, short of waving a magic wand in a fictitious universe, replace something with nothing. If the nation is to stop importing Saudi oil it has to replace it with something else.

Reducing demand by improving energy efficiency is a method that has been demonstrated to work in California. I get 50% better mileage with my Camry hybrid than I got with the Buick that preceded it. So technology has already a track record of providing a way of reducing energy demand. In the right places wind has been able to generate significant amounts of power – I don’t think that it is going to be enough, or grow fast enough to play a significant part in the coming energy shortage, and since it largely is aimed at replacing coal rather than oil it is a bit of a red herring to the problems of the coming oil shortage.

In the immediate short term KSA has said that they can produce enough crude to meet any potential shortages. Whether they can match the quality of the crudes that are needed is yet to be determined, as will be the time that such an increase in production must extend. The IEA has also mentioned drawing down the reserve stocks held by member nations.

IEA also said it can make up for any lost shipments from Libya by tapping into large surpluses held by member countries, which include the U.S., the United Kingdom, France and Germany. Altogether, member nations hold 1.6 billion barrels of emergency oil supplies, or enough crude to supply the group for 145 days.

Unfortunately the political crises may play out over a longer time frame than will allow this to be a viable solution. Short term fluctuations in the price of oil, as the reality of the situation starts to play out over the next few months are similarly no useful guide to the ultimate development of this situation. It is too early to know whether, for example, changes in government will change the supply of fuel to Israel, which is already looking for alternate sources of supply. (Their indigenous new gas will likely not show up in a pipeline for a couple of years yet). And that is but one precursor of other changes that might come about.

Being more cautious than Mr Lynch I do not plan on predicting how this might play out, but that does not stop me suspecting that, as he has been frequently in the past, he will be proven wrong this time also.

P43. Pick Points

I mentioned in Monday’s post that I have an interest in algae, and so I will put up a couple of items that caught my attention this weekend. The first deals with the possibility of using wind power to provide some of the energy that algae need to foster growth Some of the European wind farms have been up for a while, and one in Denmark, that was installed in 1990, is looking at using some of the extra power to encourage algae growth. The algae, through the generation of biofuel, would thus act as a form of “battery” for the wind. One problem, however, is to ensure biological security, since the escape of algae species into a favorable place, such as in Hawaii, can have negative results, and require costly capture and remediation. The use of algae for flue gas cleanup has inspired a number of efforts, from Israel to MIT (who use it to make hydrogen), to Missouri . There is also the blog Oilgae, which carries the MIT report on the topic.


Developers of the Shtokman project are talking about using CCS as part of the strategy for development at the site. There is anticipation that the cost of the project will decline with the poor economy. More details of the loan from China to encourage a pipeline and oil supply to that nation are now emerging. The change in investment strategy has the advantage of getting a good price now for the oil, and securing it into the future. Russia is also trying to find a way to improve the efficient use of energy, with planning for a new law on the way, and an example of how it might be done, comes from a dairy. In the United States homeowners can look at the Home Energy Rating System which compares the energy use of a house with a standard. Based on the result that you get different approaches may be needed to lower the number (a 200 means you use twice the standard). Oregon is moving to have the state provide loans to encourage upgrading of homes in a way that would make them more energy efficient. As I noted in Monday’s post, this is something that we are seeing in an increasing number of states.

St Mary Land and Exploration is drilling horizontal wells into the Woodford, and Haynesville shale and while cutting the number of rigs back to 7, from 16 at the peak of last year, one or two of the rigs will shuttle between the Haynesville, the Eagle Ford and the Marcellus shale sites. The lateral section of the well is around 3,300 ft, and with 10 slick-water fracs will use some 3,000,000 lb of resin coated sand proppant. There is some move in Pennsylvania to require that drilling records for the Marcellus be made public (including production data) every six months. Other states such as Louisiana and Wyoming post such production on Web sites. Chesapeake, who is drilling both Marcellus and Hanesville is currently getting a favorable press. With natural gas prices projected as perhaps falling as low as $2 per MMBtu due to lack of demand and overproduction, this years prospects don’t look good for the industry.

Scotland is looking for new ways to develop marine energy, the target being some 60,000 MW. The current projects are based in Orkney, and the European Marine Energy Centre. The current targets are sites around Britain and Ireland that are capable of producing more than 1,000 MW each, largely from wave and tidal energy.

The State Governors are asking Presidential help in promoting biofuels hoping to see approval, for example, of ethanol blends above 10% and as high as 30%. (This was something Dr Chu was asked about last week).

Because of the global financial problems Russia and Kazakhstan are considering slowing the development of the Karachanganak project (which is reputed to have 47 trilion cubic ft of gas).

P39. Pick Points

Half-a-dozen or so stories of interest:

China is going to need a lot of oil, and to ensure it gets it, it has just loaned the Russian oil companies Rosneft and Transneft (who runs the pipelines) $25 billion, and for this they get an annual delivery of 15 million tons of oil (300,000 bd) for 20 years. Of the sum Rosneft will get $15 billion. The first pipeline heading that way will carry up to 0.6 mbd, but needs a spur to carry the oil to China. The oil will likely come from the Vankor field in the Tyumen region of Siberia, with the pipeline running from Taishet in Siberia to Skovorodino, a town of about 10,000 people, on the border, and in Amur province. Overflying part of the route on Google Earth, it doesn’t look quite as uncivilized as the articles make out. There is a Youtube video of the town of Tynda, for example.

Despite the problems that they are having with the California budget, customers of the Southern California Gas Company are getting a 20% drop in their heating bill. The average winter bill of 75 therms per month is expected to be in the $70-80 range. However there is a drive to change the gas hot water heaters to solar heating, given that about 38% of the home power goes to heating water. Unfortunately I suspect that the $250 million price tag will be too much for the state right now, even though it would be through rebates. Oddly Government support for such a move in Australia is meeting some opposition from Greenpeace, on the odd argument that they don’t generate electricity. It was only last week that tentative agreements were signed for solar-thermal power for Southern California Edison, with Brightsource Energy building 7 plants for a total of 1,300 megawatts over the next seven years. though the first 100 MW unit, in the Mojave Desert won’t be ready until 2013. SCE states that it now gets 16% of its energy from renewables. (Though by next year the state target is 20%).

BrightSource CEO John Woolard said the 400-MW Ivanpah project will create about 1,700 full-time jobs in construction and another 3,500 jobs to last the 40-year life of the plants.

The technology uses the tower approach rather than the trough shaped collector idea used by Acciona in Nevada. Israel contrarily has just approved the connection of a photo-voltaic power station to their national grid, though it will take 4 years to install the connection.

Perhaps the money put into the stimulus package for high-speed rail might head toward maglev. China is looking to start a new project next month although there is already one system in operation in Shanghai, that uses German technology. Plans for high speed rail systems in California are being debated even though no-one knows where the stimulus money is going yet.

While recent talk has focused on a gas pipeline from Iran to Pakistan and on to India, and recent reports have been either favorable or discouraging, Bangladesh remains strapped for energy, and so there is now talk of a pipeline from Myanmar, through Bangladesh to India.. However economic reality, and the fact that coal is indigenous to many in the region is causing the countries of South Asia to seriously consider switching to coal. India, for example, is now seeing a gap of some 5.7% between available supply and demand and needed the pipelines that had been planned, since even now gas can only meet 60% of industrial demand.

There have been concerns in the past over the ability of wind turbines to operate in cold climates, but with turbines now working successfully in Alaska those days may be over. It may still take about 17 years to pay for the installation, however, on an expected life of 20-25 years. Yet with that promise there is still uncertainty over the future of wind in Canada. In the UK permission was given to install ten new wind farms around Scotland. Britain currently generates some 3 GW from wind, and these farms may add double that amount.

And the EU has just released the Market Observatory for Energy report looking at energy generation in the EU. However since the range of oil prices assumed go from $61 to $100 per barrel for oil in 2020 it may still be a little unrealistic – but I will take a look!

More stories can be found at The Energy Bulletin and Drumbeat at The Oil Drum.