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18 April 2015

Press review 18-04-2015 - Inversion?

It is not uncommon in commodities markets for an unanimous view to signal a turning point. With the resource optimist media reviewing their outlooks for infinite growth, something was clearly about to change. It just took a few days from the moment the Forbes group declared the "shale boom" dead to a new run up in petroleum prices. Wednesday alone the Brent index climbed nearly 7%, closing the week well above 60 $/b, the highest price since early December.

It will certainly not be this price yet to invert the contraction of the petroleum industry and halt the wave of job losses. But this week trading shows that in first place the price bottom of early January is likely done and secondly that volatility has not gone away.

Soon the media will start guessing where will the petroleum price settle. It will be a pointless discussion, the drivers behind the volatility that brought the price here have not changed.

11 April 2015

Press review 11-04-2015 - Air quality: a driving force

This was a relatively quiet week in the petroleum market, with neither the agreement over Iran's Nuclear programme, nor the raging wars between Sunni and Shiites causing unexpected movements. There is still some volatility but its magnitude is winding down. For the past four weeks the Brent index seems to have settled in the high 50s $/b.

During the largest part of the week a strong polar high parked over north-west Europe before resuming its journey southwards; in many places these were the first real days of Spring. The high pressure imposed by this huge mass of cold air stalled air circulation at the surface and pollution accumulated. By Friday, particulate mater concentrations where prompting public health warnings throughout, with an especial political spin in France, where for the second time this year, restrictions to automotive circulation had to be imposed.

04 April 2015

Press review 04-04-2015 - Agreement or disagreement?


Image by Wikipaedia
When did the Nuclear Iran story start? It was so long ago that is hard to remember exactly. Consulting the Wikipaedia, the first round of sanctions was introduced in 2006, gradually expanding up to an economic-wide embargo set in 2010. If all goes well the stand off will come to a close next June with Iran largely de-scaling its Nucelar programme. The Islamic Republic is set to become a full-right petroleum exporter once again.

These news not only mean some degree of breathing space to the international market (with a particular impact in Asia). For Iran itself means it can now properly care for its ageing petroleum resources, properly managing their inevitable decline.

But is it all good? Considering the reactions from other regional powers that might not be exactly the case.
Deutache Wella
'Framework' for final deal reached at Iran nuclear talks
02-04-2015

World powers and Iran have been finalizing a joint statement at the talks in Lausanne. More than two thirds of Tehran's enrichment capacity will be decommissioned and monitored for 10 years.

The United States, Iran and five other world powers have reached an understanding that will direct them toward achieving a comprehensive nuclear agreement within three months.

"A decisive step has been achieved," EU foreign policy chief Federica Mogherini said while reading out a joint statement in the Swiss city of Lausanne.

"Today we have taken a decisive step," Iranian Foreign Minister Mohammad Javad Zarif said.

US Secretary of State John Kerry and the top diplomats of Britain, France and Germany also briefly took the stage behind them.
In spite of celebrations in Iran and the OECD, this agreement represents some sort of defeat to Israel and Sunni nations, that see it as emboldening Shiites in the region. As battle grounds between the two blocks expand, this could actually become a catalyst for a larger conflict; unless OECD/NATO decide to take on a different role in the region.
The Independent
The battle for the Middle East's future begins in Yemen as Saudi Arabia jumps into the abyss
Robert Fisk, 27-03-2015

You can understand what it looks like from Riyadh. To the north, the Shia Muslim Iranian Revolutionary Guards are assisting the Shia-dominated Iraqi government in their battle against Sunni Muslim Isis. To the north-west, the Iranian Revolutionary Guards are assisting the government of Alawite (for which read, Shia) president Bashar al-Assad against Isis and al-Nusrah and whatever is left of the so-called “Free Syrian Army”. The Shia Hezbollah from Lebanon are fighting alongside Assad’s army. So are Shia Muslims from Afghanistan, wearing Syrian uniforms. Saudi Arabia claims the Iranians are in Yemen with the Houthis. Unlikely. But be sure their weapons are in Yemen.

Unprecedented in modern Arab history, a Sunni Muslim coalition of 10 nations – including non-Arab Pakistan – has attacked another Arab nation. The Sunnis and the Shia of the Middle East are now at war with each other in Iraq, in Syria and Yemen. Pakistan is a nuclear power. The armies of Bahrain and the Gulf states include Pakistani soldiers. Pakistanis were among the dead in the first great battle against Iraqi troops in the 1991 Gulf War.
In 2000 440 kb/d of petroleum where being extracted in Yemen, of which 340 kb/d where exported. In 2013 oil extraction was down to 130 kb/d, and for the first time in almost 30 years the country had to import petroleum to meet its needs. It is a recurrent story : oil extraction peaks in a developing country, exports quickly vanish and social-economic chaos ensues.
BBC
Sectarian power grab tears Yemen apart
Frank Gardner, 03-04-2015

Already the poorest country in the Middle East, wracked by soaring unemployment, dwindling oil and water reserves and home to the most dangerous branch of al-Qaeda, now Yemen is being torn apart by war of many sides.

The Saudi-led air strikes began last month, raining down precision-guided missiles on a rebel group called the Houthis who swept down from their mountain stronghold in the far north six months ago, taking town after town, and pushing out the UN-recognised President Hadi.

That alarmed the Saudis and the other Gulf Arab states, especially as they suspect the hand of Iran as being behind the Houthis' spectacular blitzkrieg.

How else, Saudis keep saying to me, could an impoverished group of tribesmen get the training, the weapons and the money to take over half the country?

There's a sectarian angle here too. The Houthi rebels are Zaidi Shias, representing about a third of the population. The Saudi rulers are suspicious of Shias, many of whom look to Iran for spiritual leadership.
Even from a different point of view, the contribution of the ambiguous US (and NATO) policy towards the Middle and Near East to the growing Sunni-Shiite confrontation is an obvious conclusion.
Fuel Fix
Geopolitics and oil prices — between a rock and a hard place
Amy Myers Jaffe, 27-03-2015

In all this, the United States has lacked a coherent public articulation of its goals, choosing perhaps purposely, perhaps haphazardly, to hide behind tactical actions that have confused its allies in the Mideast. It is pinning all on the prospects of a historic deal with Iran, but this perhaps is unwise since even signing a deal might not be followed with Iranian compliance to it. If Iran thought a deal and peace was imminent, its actions and statements vis a vis Yemen would be different. With so much at stake, guarding all future US moves on the chess board might not be the most effective approach for the world’s superpower. Members of the US Congress are correct in weighing in. More debate about options and the level of US engagement is needed.

A rearticulation of US purpose would be timely, especially one that includes a US policy to export its energy resources and refashion its understanding of the importance of the US strategic petroleum reserve if the pending war in the Middle East continues to escalate. A better understanding of US diplomatic goals would be useful in today’s complexity of battles on the ground, allowing the US to lead its allies instead of reacting to their independent actions.
And speaking of the US, David Hughes published these days a long article sobering the discourse on "shale oil". With so much happening in world geo-politics, articles like these are easy to overlook, but contain vital information to understand what has happen and what will happen with the US petroleum industry.
Post Carbon Institute
Revisiting the Shale Oil Hype: Technology versus Geology
David Hughes, 30-03-2015

The press has been all abuzz the past few weeks speculating on what the drop in oil prices will mean for U.S. shale oil (tight oil) production. Pundits have been falling over themselves quoting various estimates of the breakeven cost of production in this play or that, and rushing to be the first to declare a peak in the Bakken, Eagle Ford, Niobrara or wherever. The Baker-Hughes rig count, which comes out every Friday, has become a must-read for people who probably had never heard of it a few months ago. Even the U.S. Energy Information Administration (EIA), based on estimates, suggests production is declining in three big shale oil plays.

The industry, on the other hand, has been more circumspect. They point to productivity gains being made in drilling and completion technology that lower costs, and suggest they are developing a backlog (aka “fracklog”) of wells that have been drilled but not completed, hanging in abeyance for the inevitable oil price rise (half or more of the cost of completing a well is the fracking). Keeping a stiff upper lip in the face of harsh pricing realities, many companies are telling investors that despite slashing capital expenditures on drilling and exploration (in some cases by more than 40%), production will be maintained and even rise. Others, such as Whiting, are putting themselves up for sale or, in the case of Quicksilver, declaring bankruptcy.
With companies forced to re-evaluate their assets according to present petroleum prices, banks are now turning off the debt spigot to a wide section of the market. "Downward spiral" is an appropriate metaphor to this phase in the shale sub-prime story.
Bloomberg Business
Reckoning Arrives for Cash-Strapped Oil Firms Amid Bank Squeeze
Dawn Kopecki, Christine Idzelis and Bradley Olson, 01-04-2015

Lenders are preparing to cut the credit lines to a group of junk-rated shale oil companies by as much as 30 percent in the coming days, dealing another blow as they struggle with a slump in crude prices, according to people familiar with the matter.

Sabine Oil & Gas Corp. became one of the first companies to warn investors that it faces a cash shortage from a reduced credit line, saying Tuesday that it raises “substantial doubt” about the company’s ability to continue as a going concern. About 10 firms are having trouble finding backup financing, said the people familiar with the matter, who asked not to be named because the information hasn’t been announced.

April is a crucial month for the industry because it’s when lenders are due to recalculate the value of properties that energy companies staked as loan collateral. With those assets in decline along with oil prices, banks are preparing to cut the amount they’re willing to lend. And that will only squeeze companies’ ability to produce more oil.

“If they can’t drill, they can’t make money,” said Kristen Campana, a New York-based partner in Bracewell & Giuliani LLP’s finance and financial restructuring groups. “It’s a downward spiral.”
In contrast, the low permeability reservoirs that gave rise to the "shale oil" boom in the US are slowly becoming out of reach in Europe. Not only has exploratory drilling been disappointing, public pressure is leading to legislation that makes the employment of rock fracturation techniques increasingly difficult.
Reuters
Germany sets very high bar for fracking
Caroline Copley, 01-04-2015

German Chancellor Angela Merkel's cabinet signed off on a draft law on Wednesday that imposes an effective ban on the controversial technique of fracking for shale gas.

Fracking, or hydraulic fracturing, involves blasting chemicals and water into rock formations to release trapped gas. Opposition is strong in densely populated Germany due to concerns about the risk of contaminating drinking water.

Environment Minister Barbara Hendricks said the new law would set Germany's strictest conditions for fracking.

"Protecting health and drinking water are top priorities. For this reason, we want to restrict fracking as far as possible," Hendricks told a news conference.
A stark reminder that fossil fuels are just one of many resources Mankind exploit from the Earth's crust. World gold extraction has been idle for almost a decade and is likely to enter a terminal decline before 2020. In tandem, extracted volumes of other metals (with far more economic relevance such as silver or zinc) are also set to peak in the not-so-distant future. A sustainable economy will require much more than replacing fossil fuels.
MarketWatch
In 20 years, the world may run out of minable gold
Myra P. Saefong, 31-03-2015

In another two decades, rare commodities may become seriously scarce.

According to Goldman Sachs, the world has about 20 years’ worth each of known minable reserves of gold GCJ5, -0.55% diamonds and zinc. Platinum PLJ5, -0.50% copper HGK5, -0.62% and nickel reserves only have about 40 years or less left.

“The combination of very low concentrations of metals in the Earth’s crust, and very few high-quality deposits, means some things are truly scarce,” Eugene King, European metals and mining analyst at Goldman Sachs, wrote in a recent research note.
The story below presents an important angle on the deficient European energy policy, largely reliant on unbundling and deregulation, clearly lacking long term vision and mechanisms. The closure of state-of-the-art combined cycle and combined heat and power plants has been happening all over Europe, particularly in the regions that used to profit from pre-PV peak load requirements in Germany.
The Barrel
A stark moment of truth for Europe’s power plants
Henry Edwardes-Evans, 01-04-2015

We should be used to it by now, but it was still a shock when E.ON announced March 30 that it plans to close its 550-MW Irsching-4 and 846-MW Irsching-5 CCGTs next year.

For my sins, I update a tracker of new European power stations. It feels like I’ve only just tagged the Irsching units as ‘operational.’

OK, so they came on line in Q3 2009 and Q2 2010. But these are top-of-the-class 60% peak efficient units, €500 million-worth of Siemens’ best kit with an operational life of 25 years. Closing? Really?
Wind energy is still going on a tailwind, with a new record installed capacity in 2014. As happens with PV, Asia and Latin America are becoming the clear leaders in this market, profiting from dwindling costs, while much of the OECD pursue erratic policies.
CleanTechnica
2014 A Record Year For Wind, Emerging Markets Driving Global Wind Energy Growth
Joshua S Hill, 02-04-2015

With 2014 sitting as another record year for the global wind industry, following annual installations surpassing 50 GW, and investments into the wind energy sector rising by 11%, much focus has been given to what 2015 and the years following will look like for wind energy. The Global Wind Energy Council (GWEC) Global Wind Report: Annual Market update report, released in Istanbul on Wednesday, also highlighted the important role emerging countries are playing in the global wind industry: China installed 23 GW of new wind capacity in 2014, bringing its cumulative total up to a staggering 114 GW. Brazil was the world’s 4th largest installer in 2014, and entered the top 10 cumulative rankings for the first time. The African wind energy market also took off in 2014, while Germany, Chile, Canada, and Turkey also had record years.

“Wind power’s growth is increasingly driven by its competitive pricing, as well as because it enhances energy security, price stability and (especially in China) through the need to address the choking smog that is increasingly making major urban areas in the developing world unlivable,” said Steve Sawyer, GWEC Secretary General.
Following is a corporate video portraying novel mobility technologies being deployed in Europe. If e-car sharing is nothing new, the progressive leaning of personal transport vehicles is an important trend to take notice.



These city tricycles introduced in Grenoble bear great resemblance with electric powered velomobiles, a technology pioneered by a few small companies in northern Europe. Following a video with an early prototype of this concept, attesting that to transport 100 kg a tone of metal on wheels is not a requirement.



That is it for this week. Happy Easter.

28 March 2015

Press review 28-03-2015 - Towards a great war


Image by Huffigton Post
The Middle Eastern chessboard became far denser this week with one more regional Shiite-Sunni conflict intervened from aboard. As Saudi Arabia bombed Shiite positions in Yemen's capital Sanaa, the US was helping the Shiite siege to Iraq's petroleum city Tikrit, bombing the Sunni therein. Compelled to report both events, the mainstream media was able to vent some difficult questions: are not the US and Saudi allies? Why were rebellions in Syria or Libya supported by NATO and not those in Bahrain and Yemen? And what of the European foreign policy? Missing in action?

The support NATO provided to the Sunni against the Shiite governments in Syria and Iraq has unleashed a watershed of events that is slowly igniting the whole region. Old rifts are revived, new are open, Sunni and Shiites seem now unable to cohabit peacefully. Under their feet lie the fields that provide more than one third of the petroleum consumed in the world. With Iran and Saudi Arabia on opposite shores, the Persian Gulf could be the stage for the most damaging of wars.

24 March 2015

Coal: a reality check

The IEA's 2008 World Energy Outlook brewed a particular furore among the resource realist community. With petroleum prices on the run and all the ingredients of economic recession already in the pot, this report granted the world with a cornucopian vision of fossil fuels that was hard to square with reality. During the months that followed TheOilDrum thoroughly took on this report with multiple articles from various contributors.

I was particularly intrigued with the CO2 emissions projections in this report. In the standard scenario atmospheric CO2 concentration was projected to reach 1 000 parts per million (ppm) by the end of the century, a near tripling in 100 years. I set out to construct a CO2 emission scenario based on technical fossil fuel extraction projections, and failed to get even to 500 ppm. However, the most fascinating result of that exercise was the relative imminence of a global CO2 emissions peak. Coal represents the largest underground stock of energy and the uncertainty on its ultimate size is high. Notwithstanding, following on the same growth path, a CO2 emissions peak by 2025 was only in reach to the most optimistic Coal extraction scenario. Such is the power of exponential growth.

News of recent days remind again this reality. "Coal bust" is an expression employed to characterise a market that might not be merely conjunctural.

21 March 2015

Press review 21-03-2015 - Transatlantic rift redux

Petroleum prices have endured days of great volatility this past week, with multi percentage point variations intra-day. At the end of the week the Brent index stood pretty much where it started: 55 $/b. Meanwhile the West Texas index (WTI) - the benchmark used to price petroleum extracted across the Atlantic - sank spectacularly to 43 $/b. This means the petroleum sold in the US is now over 20% cheaper than that sold in Europe. Such wide spread is unheard of, and adds another dimension to the rift opening between both continents.

In fact the present WTI levels are but a symptom of an industry out of control, that irrespective of price continues pumping petroleum to fulfil land leasing and other contractual obligations. "Race to the bottom" is an expression used in the US to describe this phenomenon, companies will keep extracting petroleum until they go bankrupt. Many of these companies have adjourned their 2014 balance declarations to the very end of the month, trying to delay as much as possible the day of reckoning.

But the ship is already sinking. The first sizeable American petroleum company went under this week, leaving behind more than 2 G$ in bonds, at best to be restructured, written down at worst. It is unlikely this to be the last company going bust.

14 March 2015

Press review 14-03-2015 - Transatlantic rift

The Brent index is back on the red, declining almost 10% in the week that now ends. The pain is here to stay, in spite of visible declines in extracted volumes, this underpricing may well last into the Summer. However, in terms relevant to us, petroleum prices have actually been rising: in the past two months Brent has climbed from 40 €/b to 53 €/b. Similar rises have taken place against many other commodities; coinciding with a period of economic recession these price movements signal well the epoch we live today.

To almost six years of political turmoil and indecision has compounded the destabilisation of many of the EU's neighbours: Libya, Tunisia, Egypt, Syria and of course Ukraine. The rift opening between the Euro and the Dollar is thus only natural. And this rift is more than monetary. European politicians have much to blame on themselves, for the careless way they discarded Kadaffi and alienated Libya, for precipitously recognising a non-elected Ukrainian government that at best represent half of the population. But the role the US played on all this is ever more evident. And it is ever clearer their objectives are largely antagonistic to our interests.