Wednesday, December 10, 2014

US Proved Reserves Set To Plummet

One of the big points that appears to have been largely missed over the last few weeks is that if WTI crude prices stay in the low $60 range, US proved reserves will plummet. Proved reserves over the past few years have been based on a spot price of around $95.


The November 2014 average for WTI was $75 and at the time of writing WTI was sitting at $63.16.

BP explains proved reserves:

“Proved reserves of oil are generally taken to be those quantities that geological and engineering information indicates with reasonable certainty can be recovered in the future from known reservoirs under existing economic and geological conditions.”

The last time oil prices were in the $60 range was in 2009 when reserves were just 30.9 thousand million barrels, 30% lower than the 2013 figure that was last put out by the EIA. In fact the US proved reserves had been sitting around the 30 thousand million barrel mark for sixteen years until the shale boom kicked off and reserves were significantly raised in 2010 and every year after that.

If oil prices stay low the US could be in for a big shock and the mythical “energy independence” will be even further from their grasp. Now of course drilling technology has advanced greatly since 2009 and will lessen the impact. However it is also worth noting that many shale companies have yet to actually make a profit and this price drop could be enough to send investors running which will have further negative impacts.

Sunday, November 2, 2014

Peak Oil Is Happening

The media is full of peak oil refutations. Unfortunately for the pundits, while they’re heavy on rhetoric they tend to be short on data.

In comparison, way back in 2009, Praveen Ghunta, used the BP Statistical Review of World Energy to make a list of countries past peak oil on his True Cost blog. He updated the data again in 2011.

Taking Ghunta’s work as a base I have followed up with figures from the 2014 BP Statistical Review of World Energy. I have purposefully been much more conservative in in defining what a country past peak actually looks like: I have made the arbitrary decision that any country or region that peaked more than 10 years ago and produced a minimum of 10% less oil in 2013 than in the peak year has officially reached peak oil. That is of course is the point in time when the maximum rate of extraction of oil is reached, after which the rate of production is expected to enter terminal decline.  Peak oil is only visible through hindsight and so I have taken a cautious approach to assigning exactly which countries and regions are past peak. Peak oilers have long been far too quick to draw conclusions based on questionable data and so I am trying to avoid this same pitfall.

It is worth noting that terminal decline is not always inevitable as we have have seen from the stunning turn around in the United State’s production figures. How long this will actually last and how applicable the United State’s shale oil technology is to the rest of the world is yet to be seen. Too many factors play into oil production to make any strong predictions for the future.

That being said, Luisa Cipollitti an official for Statoil Venezuela recently commented that half of the world’s 163 biggest oil projects require a $120 price for crude oil. Given the current plummeting oil prices many projects could be delayed or cancelled if those prices stay low. This in turn could hurt global production in the coming years. At the time of writing Brent crude prices were sitting around $85 a barrel.

The truth is that peak oil is happening in a number of countries and regions throughout the world. It’s just happening in a way that many of the doomsday peakers never imagined. John Michael Greer appears to be correct in coining the term “the long descent.” We can expect to see periods of growth truncated by recessions which push greater and greater proportions of society to breaking point. We will also see an increasing number of countries and regions hitting peak oil. Some will decline spectacularly such as Australia, Norway and Yemen. Others will carry on for many years on an undulating plateau. Yet others still will see production gains due to new technology making olds fields viable once more. The only thing for certain is that the future will be messy.


It is worth noting that a number of politically unstable countries such as Iraq and Syria and sanctioned countries such as Iran are more than likely not physically past peak. However their difficult political/conflict situations make external investment untenable for many players. It is unlikely they will stabilise enough for production to increase in the near future and so for all intents and purposes they are past peak. Including these countries and those potentially past peak, 27% the worlds production comes from countries and regions that are past peak oil.

A full 40% of countries and regions appear to to stable and/or growing. Most of these countries are relatively politically stable and so are attractive for investment. However, ongoing trouble in Nigeria has seen a pullout of some major players which has led to a lack of development of new fields and the Republic of Congo has seen a number of major fields pass peak.

The  most interesting sub-group is that which I have classed as ‘outliers.’ These countries account for 33% of 2013 production but don’t follow any discernible pattern and so need to be looked at individually.

Angola’s production has been stagnant due to persistent technical problems with some projects. Despite some new fields coming online since 2008 rapid depletions in other fields has led to steep  decline rates.

Azerbaijan’s production has suffered from unexpected technical problems at its largest fields. New projects such as the Chirag Oil Project, may boost Azerbaijan's production. Then again, it might not.

Ecuador rejoined OPEC in 2007 after leaving in 1992 due to OPEC’s high membership fees and refusal to allow Ecuador to raise production. Since then Ecuador has remained relatively unattractive to investment due to socialist government initiatives to retain a higher share of oil profits.

Italy banned offshore drill in 2010 following Deepwater Horizon and is only now beginning to allow some offshore projects. Italy first produced over 100,000 thousand barrels of crude in 1996 and has bounced along roughly 20,000 barrels either side since then.

Kuwait has struggled to boost oil and natural gas production for more than a decade due to project delays and insufficient foreign investment. A shake out of the state owned oil company was made in 2013 in order to try and address these issues.

Oman has technically difficult plays which are expensive to extract. Oman's fiscal breakeven price for oil in 2013 is $104 per barrel. DME Oman prices ranged between $101.69 and $95.28 per barrel in September 2014.

Most of the smaller Central and South American producers maintain relatively socialist governments with inflexible profit sharing arrangements. These countries therefore struggle to attract overseas investment to develop new wells.

The Russian Federation has a number of new projects in development but these are expected to only offset declining output from large aging fields. New technology is seeing better recovery rates from current fields.

Already mentioned, the United States has seen an unprecedented increase in oil production since 2008 due to a huge increase in exploration and drilling in previously unprofitable shale oil fields. It is highly debatable how long this boom will last. The latest EIA report forecasts a long, slow production decline after 2021 while the Post Carbon Institute put a report out last week predicting a peak before 2020 with production levels just one tenth of what the EIA forecasts by 2040.

Monday, April 7, 2014

Let’s Cut The Bullshit: Rodney Hide Is A Crank

We need to talk about Rodney. It won’t exactly surprise many people that Rodney Hide is full of shit. Disturbingly however his frothing climate denialism (Paid) continues to be published in the National Business Review and other media. To NBR’s credit they also published Kennedy Graham convincing rebuttal of Rodney’s most recent trash piece.

What I find so hard to comprehend is that Rodney Hide is supposedly a man of science. He has a degree in zoology and botany from the University of Canterbury as well as a degree in resource management from Lincoln. I can only assume these degrees require some kind of scientific comprehension because Hide certainly doesn’t have any. Everything we have seen from him over the years show’s us that he has absolutely no idea what he is talking about. 

Take for example a piece written by Hide back in January in the New Zealand Herald  that I was alerted to by Morgan Godfrey last week:


The stupidity displayed in Hide’s piece of writing is so astounding it has led me to conclude one of three things; either Rodney Hide is a complete and utter moron, he is utterly bat shit insane or he is a sociopath who understands the science but uses his platform to manipulate and provoke people. He writes:

“Future historians may point to this one ironic event as the trigger that finally ended the public fear of global warming. The Australasian Antarctic Expedition was stuck fast over Christmas and New Year in Antarctic sea ice. In summer. The ice beat back three ice-breakers.”

This is not unusual. Boats get stuck or have to make large detours due to Antarctic sea ice almost every summer. It is true that Antarctic sea ice has been growing, although this is at almost the same pace as the Arctic has been losing ice which has led to very minor net change.

So just why is the Antarctic gaining ice? Guy Williams published a great explanation over at The Conversation in October last year. The basic points are:

  1. Sea ice is completely different to continental ice and can move considerable distances with wind and currents. This means it is very difficult to predict just where sea ice will be thickest on a year to year basis.
  2. The net increase in sea ice masks large declines in particular regions around Antarctica, such as in the Bellingshausen Sea, which are equal or greater than sea ice losses in the Arctic.
  3. No one quite knows why net Antarctic sea ice is growing but Antarctica has also lost about 100 billion tonnes of continental ice a year since 1993. It also  doesn’t preclude the fact that the decline in Arctic summer sea ice extent in 2013 was 18% below the mean from 1981-2010.

But let’s hear from Hide again, he sounds like he knows what he’s on about:

“The expedition relied on computer models, not real world reports. "That can't be sea ice, the computer says so!" And please, keep worrying: our being stuck proves global warming!”

It’s a bizarre claim to make as there is an abundance of real world reports of climate change impacting people and ecosystems going back years now. Just one example from 2008 the Solomon Times Online reported 40 Carteret Islanders were to be resettled in Bougainville, the first of the population of 1500. Sea levels around the atoll have risen 10 centimeters in the past 20 years, inundating plantations and making the islands largely inhabitable.

Hide finishes by repeating a lie:

“The world is not warming. It hasn't warmed since 1997.”

Skeptical Science refutes this one the best:

“There's also a tendency for some people just to concentrate on surface air temperatures when there are other, more useful, indicators that can give us a better idea how rapidly the world is warming. Oceans for instance -- due to their immense size and heatstoring capability (called 'thermal mass') -- tend to give a much more 'steady' indication of the warming that is happening.  Records show that the Earth has been warming at a steady rate before and since 1998 and there is no sign of it slowing any time soon (Figure 1).  More than 90% of global warming heat goes into warming the oceans, while less than 3% goes into increasing the surface air temperature.”

Fig 1

Figure 1:  Land, atmosphere, and ice heating (red), 0-700 meter ocean heat content (OHC) increase (light blue), 700-2,000 meter OHC increase (dark blue).  From Nuccitelli et al. (2012).

Free speech is a great thing but when people with a platform such as Rodney Hide use it to distribute bullshit and lies they need to be called out loudly and often. In an election year we need to drown out batshit insane moronic sociopaths such as Rodney Hide or in the not too distant future a sizeable portion of humanity will be drowning as the sea rises around them.  

Monday, February 17, 2014

Why The Green Party's Solar Panel Proposal Is Smart Policy

Yesterday the Greens announced a policy to increase the number of solar panel installations, the second stage of their highly successful home insulation policy which has been in effect since  2009.
Low cost government loans would be provided in order for households to install solar panels and which would then be paid back over a number of years. Details of the Greens policy can be found here.
The reaction from National has been negative as expected. John Key was quoted on Breakfast this morning as saying:
"If you look at the big emissions at the moment in New Zealand, it's Genesis through Huntly where they have coal fired power plants, and the plan that [the Greens] have got is going to reduce all competition and in my view, put up power costs to consumers, not reduce it, [and] actually locks that in."
Unfortunately for Key the experience overseas with home solar power has been exactly the opposite. In Western Australia (WA) solar panel installations have grown from zero to 130,000 in just five years and continue to grow at a rate of more than 2,000 a month. This has been pushed by a 70% rise in power costs from utilities since 2008.
The massive increase in home power generation has led to what appears to be a “death spiral” for utilities as the gap between the cost to generate, transmit and sell electricity and the end charge to consumers has widened. This has led to state owned Synergy revealing that the cost of delivering power through the grid was $500 million more than what it received from consumer bills.
Meridian chief executive Mark Binns said last week he "can't follow" the numbers put forward by proponents of solar power. “On our numbers, in our analysis, it is still probably not viable if you went to an accountant."
This is an odd statement to make from a man that runs a company that sells solar sheds to farmers as “the future of your farm.” The first benefit on their website mentions reducing your energy costs.

It could just be that Binns has seen the writing on the wall from his off siders over the Tasman and is concerned about his own companies long term viability. If the Greens solar policy rolls out over enough households it could make a very real dent in profit margins.

One of the major differences between Western Australia and New Zealand that could see solar having less of an impact here is sunshine hours. While most areas in New Zealand get more than 2000 sunshine hours annually, WA averages roughly 2900.
That being said solar still has a lot to offer in New Zealand. The government’s own Energy Efficiency and Conservation Authority (EECA) states:
“…if every New Zealand home had a 3kW photovoltaic (solar) panel array, they would collectively generate enough power in a year to satisfy over a quarter of New Zealand's annual residential electricity needs.”
As New Zealand's solar energy resource is about 4 kWh/m2 per day the potential cannot be balked at.
For those New Zealanders that have already gone down the solar route the benefits are telling. Nelson solar panel users have reported making a profit from feeding electricity back into the grid. As more households come onboard opportunities like this will likely dry up but it is still worth noting that real world experiences fly in the face of what industry experts like Mark Binns are saying.
Other real world examples include Putaruru farmers Hugh and Sue Chisholm. They have installed one of the country's largest solar powered systems ever to be used on a dairy farm and expect to see a return on investment of 12.8 per cent.
The Greens solar policy isn’t a magic bullet, but coupled with the home insulation programme it is another step in the right direction. National needs to stop dragging its feet and get on board with  sensible policy.
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