Afghan oil, and gold, and iron

I noted today that the Afghan government is beginning to pin some hopes on oilfield development as a way of helping generate some desperately needed cash. It was just last August that a field containing up to 1.8 billion barrels of oil was reported. There has been exploration and hopes of significant production in Afghanistan since 1937 but there has been little significant production as yet. Prior to the Soviet invasion in 1979 it had been estimated that the country had 100 million barrels of oil and a refinery was planned, but cancelled by the resulting conflict. The Angot field had been identified, and some 14 wells drilled into it, without much production. In those years much of the Afghan energy production was in natural gas, that was shipped to the Soviet gas grid, via Uzbekistan. The conflict and guerrilla activity in the region lowered production, and when the Soviets left many of the wells were capped.

An attempt to start the oil production process over at the beginning of this year was not successful, with only a single, rejected, bid being received. A Norwegian evaluation of the situation in June suggested that it was too early for a decision.

Balancing the notable achievements that have come in place through Norwegian facilitation and support for the Government of Afghanistan with the range of risks identified in this report, and not least the two central conflict issues identified in the literature review, Norad is advised to consider the following: Await further engagement on policy matters relating to implementation of the Hydrocarbons Law and a new (if materializing) Hydrocarbons bidding round until there is further clarity as to how the Government of Afghanistan aims to develop and utilize these resources and to what extent major external donors support such policies”.

But by August, when the new discovery was made, a rig had been fielded in the Angot field in the Sar-i-Pol (Sar-e-Pul) region in the North to begin a production stream. It is that field that is now being brought on line, looking to production from both new wells and some of the existing older ones that will be refurbished. Production will only be on the order of 800 bbl/day but for a country where the United States spends $250 million a year providing diesel for the Afghan forces, any start is welcome. The oil will be extracted by the Afghan government and then sold at $80 a barrel, and is being marketed to an Afghan group, Ghazanfar Group. The company is one of the largest private companies in the country, and made $475 million in gross earnings from its petroleum business in 2008 (up from $2 million when it got into that business in 1998).

And just as the “black gold” of the country is starting to be developed, so also is the real yellow stuff. Plans were also announced for a gold mine to be opened.

About 10 investors - most of them from the United States and Britain - are investing an estimated $50 million in the gold project in Dushi district of Baghlan province, about 84 miles (135 kilometers) northwest of Kabul, Wahidullah Shahrani, Afghanistan's minister of mines, told the Associated Press. The only other gold mine in Afghanistan is in neighboring Takhar province.

There has been considerable talk of the mineral wealth that is part of the Afghan geology. These developments, and preliminary discussions on the mining of the largest iron ore deposit in Asia, that at Hajigak, reputed to have 1.8 billion tons of a 62% purity, are an indication that there can be progress in moving the country into a more prosperous future.

It is interesting to note, however, that in the case of the iron, as is the case with some of the oil in Iraq, it is China and India that are looking to develop the industries, and thereafter likely to consume the product. It Iraq they are already hard at work. The Chinese are willing to go into countries such as Iraq, and Afghanistan, as well as Sudan, which now sends more than 60% of its oil output to China. They face the difficulties of operating in countries under wartime conditions, and yet the benefits that can accrue will assure them of needed supplies in the years ahead.

The new fields that are being developed in Afghanistan lie in the north of country and the oil transitions to gas as the reservoirs approach the Turkmenistan border and the much richer gas deposits that lies north of the Amu Darya River. The new developments are also to the East of the planned route for the gas and oil pipelines that have been discussed, for many years, as a way of bringing needed energy to India and Pakistan.

Planned Afghan pipeline ( derived from one in The Canadian )

And while the pipeline may remain more a paper exercise, the production of the fuels has begun. But it should not be forgotten that the Chinese have already initiated one pipeline with Turkmenistan and that pipeline is a whole lot closer to these fields, over less disputed ground, than it would be sending the production South.

Deepwater Oil Spill - nearing intersection, hurricanes, the TWIP and gold

Progress on the Deepwater Horizon well is going well enough that the Admiral considers it likely that the remaining work (other than plug and abandon) may be completed within the next four days.

just to summarize again, in the last 24-hour period we proceeded to go ahead and drill to the intercept. At the time we started drilling we estimated that we were 3.5 horizontal feet away and 50 feet away from the intercept. We drilled down (inaudible), we went through the drill string, we put in a ranging tool just to make sure that we wanted to calibrate what the ranging tool told us versus the equipment that now allows us to do some ranging measurements from inside the drill bit.

The drill string is now packed and it’s commenced drilling so the air at this moment as we’re speaking drilling that last 20/25 feet and they are almost touching the well at this time. That’s the report I got just before I came out here. When we do the intercept, which will be imminently I will say in the next 24 hours because they may elect to pull that drill bit back do another ranging run, which would add time. That’s the reason I’m not going to say it’s going to happen in the next hour.

Sometime in the next 24-hour period, we should do the well intercept. Once the well is intercepted, we’ll have to understand from the pressure differentials and the drilling fluids the nature of the annulus. Once that’s been determined decision, will be made on cement and then once it’s cemented the cement will have to adhere and be pressure tested.

That entire element from this morning I would estimate to be about 96 hours.

It is good that the remaining critical work will be done in this time. Right at the moment there are two Category Four hurricanes in the Atlantic (something that hasn’t happened since 1926). While both of those are likely to head North up the Atlantic, Tropical Storm Karl may turn into a Hurricane after it crosses the Yucatan, which may be some cause for concern because, when it re-enters the Gulf, it will be quite close to the offshore Mexican wells, where over 2 mbd is produced.

The possibility that global warming is causing an increase in hurricane intensity, if not overall numbers, is something that climate scientists continue to debate, but the possibility of another series of hurricanes of the likes of Katrina and Rita clobbering the oil supply/distribution network, regardless of cause, is something that the EIA has to consider, and that is the topic of the front page of the TWIP, this week. The EIA is introducing a Hurricane page, which will, on a hurricane specific basis, show the projected path of the hurricane, and the facilities that might be at risk.


As an example, they showed this illustration from the recent path of hurricane Earl ( a larger version is available here

And speaking of the state of the refineries, with the driving season over, inputs to the refineries have fallen, with most of the drop coming from imports, domestic production even had a slight uptick.


Gasoline production remains constant for the moment:


Although demand has begun its seasonal fall.


Fuel ethanol production continues to rise,


Some of that increased production is going into rebuilding stocks, which had been falling until recently.

Distillate demand is also rising seasonally, and is significantly ahead of where it was last year.


Speaking of things rising, I note the record price for gold on Tuesday, though it has since fallen a little. But it may show what happens when a product that is in demand, passes beyond the point of peak production.

And finally, speaking of mining metals, it appears that the trapped miners in Chile, will have a lot of job offers when they get out safely. We can only hope that this comes sooner rather than later.

Looking back at Peak Global Production of Gold

Yesterday the President of the largest gold mining and production company, Barrick Gold, noted that after ten years of declining production it is time to recognize that the world has seen the peak in gold production. To maintain production ore is being mined with increasingly less gold in it. (The grade of the ore, or metal content, defines whether it is profitable to mine).

Ore grades have fallen from around 12 grams per tonne in 1950 to nearer 3 grams in the US, Canada, and Australia. South Africa's output has halved since peaking in 1970.

The supply crunch has helped push gold to an all-time high, reaching $1,118 an ounce at one stage yesterday.

Gold serves two purposes, firstly it has provided, down through history, a form of currency, though it is not clear whether it was Croesus or the Egyptians who used it in trade, both date back to around 5-600 B.C. and gold coins have flourished since that time. (But before then gold was mined around Mestia, in what is now Georgia, back at the time of Jason and the Golden Fleece (before 1300 B.C.) and used for ornamental wear and art objects). But gold also has a useful function as a metal.

Gold conducts electricity, does not tarnish, is very easy to work, can be drawn into wire, can be hammered into thin sheets, alloys with many other metals, can be melted and cast into highly detailed shapes, has a wonderful color and a brilliant luster. Gold is a memorable metal that occupies a special place in the human mind.

It is even, on occasion, used as a roofing material.

Gold roof to the Small Gold Tile Hall of the Ta’er Temple in Qinghai Province, China.

As with peak oil, the fact that global production has peaked, does not mean that there is no gold left to mine. Rather it means that less gold will be mined each year into the future. It will likely, in time, bring back into debate the environmental costs of mining.

For there are deposits of gold still in the ground that are not mined, in part because of the environmental cost. If you go, for example, to the Malakoff Diggins in California (A state park north of American Hill) you will find tall sandstone cliffs that used to be mined using streams of water from large monitors. However, in excavating the rock it was also disintegrated, and the clay particles were carried down into the Sacramento River, gradually filling the river bed, to the point that in heavy rains the river flooded the surrounding communities. Thus, back in 1886 Judge Sawyer restricted the practice, which largely fell into abeyance. But the gold is still “in them thar hills.” Similarly if one goes up to the valleys outside Fairbanks in Alaska, there is gold in the gravel beds – but is has been largely too expensive, both commercially and environmentally, to recover to this point. One of the more recent discoveries in Alaska has become known as the Pebble Mine Project, but while there may be up to 3 million ounces of gold in the region, there has been strong opposition to development. even though that development continues.

Gold has been a valuable mineral for a long time and for nations all around the world. All the good and easy places to find it, therefore, have been sought after and largely found. The gold deposits that are worked have become smaller of lower value and found in places that are harder to get to. With lower availability, greater demand and higher price, it became more practical to mine and process lower grade deposits and to go deeper into the Earth for the higher grades. Mines in South Africa , and in South Dakota worked down to more than 2 miles below the surface, to recover the ore. And techniques have been developed that recover it in even very small quantities – 3 gm per tonne is an ore that contains very little gold (3 divided by 1000 = 0.003 kg divided by 1000 = 0.000003 tonnes or 3 parts per million). So, while miners can still find the odd nugget when they pan for gold in streams around the country (and there are lots of maps available to tell you where to look), for the large scale levels of production that make a significant impact on the market, you need large deposits of gold with the potential for greater yields, and those places are getting harder and harder to find. And even as one goes deeper the grade of the gold doesn’t necessarily continue.

Harmony Gold said yesterday that it may close two more mines over coming months due to poor ore grades.

Gold production in South Africa had fallen 9.3% year-on-year last September, this in the country that once led the world in gold production.

We haven’t run out of gold yet

Barrick produced 1.9 m ounces of gold last quarter, down from 1.95 m a year earlier. Costs have been "trending down" to $456 an ounce, though rising energy prices pose a fresh threat. Total reserves are 139 m ounces, far ahead of rival Newmont Mining at 86 m.

But production will continue to fall as the reserves become even harder to extract. Beyond a certain point there is not a lot that technology can do, except perhaps to fund ways of getting gold out of veins that are too small and costly to mine at present. But that won’t yield the millions of ounces that are needed to maintain supply. And the industry was not one, in recent years, to invest in that future. When gold can be recovered by soaking crushed rock in a solvent at relatively low cost, there is not a lot of incentive for new ideas. The days of the industrial innovations that used to come from the research labs in South Africa are likely now over.

So, as the oil industry starts its travels down a similar path past peak and into decline, there are a couple of thoughts I would offer.

Firstly it could be pointed out that the gold industry has been able to see the declining production and lack of available prospects for some time. But it is only now, some 9 – 10 years after the decline started, that the industry is publically recognizing the problem.

Secondly one might ask whether there should not be an agency of the government that can independently warn the government and the nation of this before it happens, so that either better mining methods, access to restricted reserves or the development of alternate materials could be hastened. Well actually there was, it was called the U.S. Bureau of Mines and all those tasks were in its charter. But the mining community is a small one, and has not nearly the clout or popularity in Washington that it is though to have, and thus, in 1996 the agency was closed.

Thirdly, even though the story is out there it is unlikely, for a while, to get much media attention, and the vast majority of the world’s population will not either know of the predicament that is now approaching, nor understand why it is going to be something that will impact many aspects of their lives. Until, of course, it does.

And of course gold is only a pre-cursor of other minerals that will soon run short. Few folk realize the role that metals and minerals play in providing their lifestyle, and do not recognize that the value of many metals comes, in part, because there is nothing that can substitute as well for that particular metal in doing a particular job. Unfortunately doing something about it requires vision for an industry that is not favorably viewed by much of the population. It will be interesting to see if that perception changes, or if the industry becomes the target of blame as shortages lead to even further cost increases.

And then, of course, will come oil . . . . .