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13 September 2014

Press review 13-09-2014 - Back in Contango

Petroleum prices took a nose dive this week in international markets, pulling the futures contracts structure back into contango. Politicians in Europe insist on slashing GDP, while China finally faces its long waited housing crisis; demand is shifting and the outlook for consumption is turning to negative. To these issues adds the escalation of economic sanctions between NATO and Russia, a tit-for-tat game with unknown consequences.

These economic developments come at the wrong moment for the petroleum industry. Recent reviews have focused on the mismatch between prices and extraction costs, that for some marginal producers may be at this stage in excess of 50%. The sustained price hike necessary to support these producers seems remote at this stage, leaving great doubts over the gargantuan amounts of debt that allowed the industry to operate with prices under marginal cost. If in pasts weeks extra-heavy petroleum and off-shore resources have been the focus of these debt woes, now even the so called "shales" in North America are cast in doubt.

07 September 2014

Scotland independence: the case for Yes

Thursday the 18th Scotland is going to vote what may well be the most important political decision in several centuries for itself and the UK. The reasons that prompted this process are many: the perception of a slow derision of Scottish identity and culture, the crystallisation of the UK's democracy (where non elected individuals still retain important powers), natural resources, budget sharing, NATO, just to name a few.

I am not Scottish, nor do I live in Scotland, thus I can not possibly fathom everything driving the vote. But one exercise I can make: assess the economic risks associated with the decision. And by doing so the complexity of this question becomes apparent, as so how uncertain is the outcome.

06 September 2014

Press review 06-09-2014 - The Limits

These days, having the media referencing "Peak Oil" in reasonable terms is a rare enough event; having it referenced together with the Limits to Growth study is pure luxury. But that is just what two journalists writing for The Guardian did, noting that the standard scenario produced by the MIT scientists in 1973 has been remarkably accurate. This should not be something new to regular readers, but it is important to know that the issue of exponential growth is still being studied seriously.

Contrary to what these journalists assert, I do not find the study to be a doomsday prophecy. The standard scenario is one of various developed, each with a different outcome. The study provided important insights into the mechanisms driving exponential growth and the possible obstacles to its perpetuation. The fact that the standard scenario has been the most accurate these past forty years means that finite resources are the most important of these obstacles, anticipating an end to growth sooner rather that later. And herein lies the path to a sustainable future: replacing finite resources with renewable ones and/or closing the resource extraction - usage - disposal cycle.

30 August 2014

Press review 30-08-2014 - The North Sea End Game

Scotland is voting an independence referendum in two weeks time. The debate has heated up considerably in recent weeks with the North Sea petroleum and gas resources coming into play. A great deal has been debated around reserve estimates and the implications for an hypothetical sovereign Scottish budget. However, far more important than reserves is knowing the net revenues that such resources can yield. And it is here than EROEI chimes in.

There is not much wealth in a resource that, however plentiful, is a marginal producer, parked at the head section of the supply curve. Yes, there is still petroleum and gas under the North Sea, but these are now mostly low return resources, that - as the article below explains - hardly provide revenues for their own exploration. The moment costs per barrel go above the market price it is all over.

Nevertheless, the sheer political risks associated with either the "yes" or the "no" supersede the budgetary questions and should be the main driver of the Scots' decision.

23 August 2014

Press review 23-08-2014 - American "shale gas" to reach Europe by 2016

I have repeatedly expressed my scepticism regarding the impact the outburst of gas extraction from source rocks in North America can have on the European market. However, in the market place most players seem to be driven by the belief that these gas resources will change the market.

Just this week the Portuguese Secretary of State for Energy announced the signing of several contracts between American and European companies to start shipping gas from the former to the latter from 2016 onwards. This gas is to enter Europe through Sines, the westernmost deep water LNG terminal in Europe, with a total storage capacity close to 400 000 m3.

The Secretary of State believes the so called "shale gas" to reach European shores at prices well under those paid today for conventional gas. Nevertheless, his discourse is mostly conditional, repeatedly employing the word "could". Portugal and Spain do not consume Russian gas, having historically relied on Algeria for this fuel. With exports from that country in decline, diversification through LNG is mostly inevitable.

09 August 2014

Press review 09-08-2014 - Beholding cahos in confort

Iraq is back to the front pages and for the wrong reasons. In another twist of events, the Islamic State (IS) started attacking cities in the autonomous Kurdish region, openly engaging - and defeating - the peshmerga. What had so far been a safe heaven for non-Sunni refugees has suddenly turn into hell.

The IS is now pushing in three different fronts: to the west in Syria, to the north-east against the Kurds and to the south-east against the Shiites; it still holds the initiative in all of these. This is the most serious war of the XXI century, for its barbaric nature, for the large territories it extends to and for the number of countries involved: Iraq, Syria, Lebanon, Iran, US, plus Turkey Jordan and Saudi in high alert.

Remarkably, there is no visible impact on Iraq's petroleum exports. So far the only impact on the comfortable lifestyles of the west are the gory images circulating through the so called social media.