oilvoice magazine | may 2013

7/28/2019 OilVoice Magazine | May 2013

1/39

After gold, oil comes next

Peak oil demand is already a huge problem

Shipping crude oil by rail: A victim of its own success?

Edition Fourteen May 2013


2/39

1 OilVoice Magazine | MAY 2013

Issue 14 May 2013

OilVoiceAcorn House381 Midsummer BlvdMilton KeynesMK9 3HP

Tel: +44 208 123 2237Email:[email protected]: oilvoicetalk

EditorJames AllenEmail:[email protected]

Director of SalesTerry O'DonnellEmail:[email protected]

Chief Executive OfficerAdam Marmaras

Email:[email protected] Network

Facebook

Twitter

Google+

Linked In

Read on your iPad

You can open PDF documents, suchas a PDF attached to an email, withiBooks.

Adam Marmaras

Chief Executive Officer

Welcome to the 14th Edition of theOilVoice Magazine.

After a very long and persistent winterhere in the UK, we're pleased to haveput together one of our best evereditions. The web site traffic on thearticles inside has been immense, andwe expect record downloads for this

edition too. Feel free to forward a copyof this PDF onto as many people asyou like.

If you like what you read inside thisedition, remember we have adedicated pageon the OilVoice sitethat contains all our featured authors.Read their insightful commentary, andtake a moment to visit their sites too.

Here's hoping for a long and hotsummer,

Happy Reading.

Adam Marmaras

CEOOilVoice
http://c/Users/content/Documents/Magazine/Template/[email protected]://c/Users/content/Documents/Magazine/Template/[email protected]://c/Users/content/Documents/Magazine/Template/[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]://www.facebook.com/oilvoicehttps://www.facebook.com/oilvoicehttp://www.twitter.com/oilvoicehttps://plus.google.com/118419367014120616513/http://www.linkedin.com/groups/OilVoice-3162868http://oilvoice.com/open/features.aspxhttp://oilvoice.com/open/features.aspxhttp://oilvoice.com/open/features.aspxhttp://www.linkedin.com/groups/OilVoice-3162868https://plus.google.com/118419367014120616513/http://www.twitter.com/oilvoicehttps://www.facebook.com/oilvoicemailto:[email protected]:[email protected]:[email protected]://c/Users/content/Documents/Magazine/Template/[email protected]


3/39


Contents

Featured Authors

Biographies of this months featured authors 3New Zealand Government moves to deter protests against oil and gasexplorationby Hayden Wilson

6

Recent Company ProfilesThe latest Oil & Gas company profiles added to OilVoice 8

Insight: East African Gas and LNG-on-LNG competitionby David Bamford 10

Shipping crude oil by rail: A victim of its own success?

by Keith Schaefer 11Peak oil demand is already a huge problemby Gail Tverberg 16

After gold, oil comes nextby Andrew McKillop 26

Global impact of North American shale gas boom forces Qatar to shiftfocusby Mark Young

29

Aging giant oil fields, not new discoveries are the key to future oilsupplyby Kurt Cobb

31

Tide turning for crudeby Andrew McKillop 33

Scientific viewpoint or 'religious' belief: My cat explains energyoptimismby Kurt Cobb

35


4/39


Featured Authors

Hayden Wilson

Kensington Swan

Hayden heads Kensington Swans Wellington based Government andRegulatory practice. He is an experienced litigator specialising in commercialand public law.

Keith Schaefer

Oil & Gas Investments Bulletin

Keith Schaefer is the editor and publisher of the Oil & Gas InvestmentsBulletin.

Gail Tverberg

Our Finite World

Gail the Actuarys real name is Gail Tverberg. She has an M. S. from the

University of Illinois, Chicago in Mathematics, and is a Fellow of the CasualtyActuarial Society and a Member of the American Academy of Actuaries.

Kurt Cobb

Resource Insights

Kurt Cobb is an author, speaker, and columnist focusing on energy and theenvironment. He is a regular contributor to the Energy Voices section of TheChristian Science Monitor and author of the peak-oil-themed novel Prelude.

David Bamford

Finding Petroleum

David Bamford is 63. He is a non-executive director at Tullow Oil plc and hasvarious roles with Parkmead Group plc, PARAS Ltd and New EyesExploration Ltd, and runs his own consultancy.
http://www.kensingtonswan.com/http://www.kensingtonswan.com/http://oilandgas-investments.com/http://oilandgas-investments.com/http://ourfiniteworld.com/http://ourfiniteworld.com/http://resourceinsights.blogspot.co.uk/http://resourceinsights.blogspot.co.uk/http://www.findingpetroleum.com/http://www.findingpetroleum.com/http://www.findingpetroleum.com/http://resourceinsights.blogspot.co.uk/http://ourfiniteworld.com/http://oilandgas-investments.com/http://www.kensingtonswan.com/


5/39


Andrew McKillop

AMK CONSULT

Andrew McKillop is a regular contributor to OilVoice.

Mark Young

Evaluate Energy

Evaluate Energy is a leading provider of efficient data solutions for oil & gascompany analysis. Services include annual and quarterly financial data, M&A,worldwide E&P assets, Refinery and LNG databases and an emerging

US/Canadian Shale Gas & Liquids offering.
http://www.evaluateenergy.com/http://www.evaluateenergy.com/http://www.lunarsafari.co.uk/http://www.evaluateenergy.com/


6/39

Forcomprehensiveand

successfulexploration...

For more information contact: Website: www.neftex.com Email: [email protected]

Tel: +44 (0)1235 442699 Facebook: www.facebook.com/neftex

Now Explore

:

...weneedto:Researchallrelevantpublishedliterature

Interpretallavailablewellandoutcropdatawithinagloballyconsistentramework

Produceaseriesostratigraphically-preciseaciesmaps,chronostratigraphicchartsandplayschematics

Accessacomprehensiveorganicgeochemistryandpetroleumfuidsdatabase

Placelocalbiostratigraphicschemesintoaregionalorglobalcontexttoimprovecorrelation

Utiliseahigh-resolutiongeodynamicplatemodeltoaidprediction

Integratealldataina3Dormatorrapidregionalassessments

Integratewithseismicdatatocreateplayanaly

sesandprospectgeneration.

www.netex.com/nowexplore

3

3

3

3

3

3

3

3

Contactustodayifyouneedhelp

tickingoffyourexplorationto-dolist


7/39


New ZealandGovernment moves todeter protests againstoil and gas exploration

Written by Hayden Wilson fromKensington Swan

The New Zealand Government recently announced proposed changes to the NewZealand Crown Minerals Act to establish tougher penalties for protestors damagingor interfering with oil and gas exploration activities in New Zealand's territorial seaand Exclusive Economic Zone (EEZ). These changes are controversial within NewZealand but should be welcomed by industry participants.

These changes come following protest activities against Petrobras's exploratoryactivities off the East Cape of New Zealand. In April 2011 Petrobras was using theOrient Explorer to conduct a seismic survey of the Raukumara Basin under a fiveyear permit given by the New Zealand Government. A protester was arrested forpositioning his vessel in front of the Orient Explorer while it was surveying a part of

the basin within New Zealand's Exclusive Economic Zone. He was charged withoperating a vehicle in a way that caused 'unnecessary risk' in breach of NewZealand's Maritime Transport Act 1994.

The Government has had difficulties prosecuting this case. It was initially dismissedby a lower court on the basis that the legislation did not extend to activities in NewZealand's EEZ. The High Court recently overruled this, holding that protesters canbe charged with actions in the EEZ, and has ordered that this case continue in thelower court.

The New Zealand Government's legislative changes appear to be partly a response

to this incident, but also a clear indication that they recognise the importance ofexploration activity to ongoing national economic development. New Zealand, withsovereign rights of over more than 5.7m km2 of seabed, has significant offshoreO&G potential which needs to be realised.

The new laws create two offences focused on protest activities at sea. These make itclear that protests in both New Zealand's territorial sea and its EEZ can beprosecuted. It will be illegal for a person (or an organisation, such as Greenpeace) todeliberately damage or interfere with exploration structures or exploration work. Ifthey do, they may face up to one year in prison or a fine of up to $50,000 (or twicethis amount if they are an organisation).

The changes also make it unlawful for protesters to enter what are called 'specified
http://www.oilvoice.com/description/Kensington_Swan/1bea9f51.aspxhttp://www.oilvoice.com/description/Kensington_Swan/1bea9f51.aspxhttp://www.oilvoice.com/description/Kensington_Swan/1bea9f51.aspxhttp://www.oilvoice.com/description/Kensington_Swan/1bea9f51.aspx


8/39


non-interference zones'. These are areas up to 500 metres around structures orvessels being used to carry out exploration. If people enter these areas without areasonable excuse they can be fined up to $10,000. Both the New Zealand Policeand, significantly, the Defence Force are given powers to enforce these new laws.

These new offences have been the subject of criticism as protestors now facetougher penalties for interfering with exploration activities at sea compared with thepenalties for protesting the same activities on land. Others have suggested that thechanges significantly limit protesters' rights to freedom of expression and peacefulassembly.

The new offences will, however, deliver certainty to industry participants undertakingexploration activities off the New Zealand coast, as well as discouraging dangerousprotests offshore. This will encourage exploration in New Zealand and also protectindividuals on exploration vehicles and structures from significant potential healthand safety risks as a result of protest activities. The new offences also demonstrate

the significance the New Zealand Government places on attracting and retaining oiland gas industry participants to the country.

View more quality content fromKensington Swan
http://www.oilvoice.com/description/Kensington_Swan/1bea9f51.aspxhttp://www.oilvoice.com/description/Kensington_Swan/1bea9f51.aspxhttp://www.oilvoice.com/description/Kensington_Swan/1bea9f51.aspx


9/39


Recent Company Profiles

The OilVoice database has a diverse selection of company profiles, covering new

start-up companies through to multi-national groups. Each of these profiles featurekey data that allows users to focus on specific information or a full company reportthat can be accessed online or printed and reviewed later.Start your search today!

Peyto Explorationand DevelopmentGas

Peyto Exploration & Development is a naturalgas weighted E & P that is committed tobuilding value through the exploration anddevelopment of high quality gas properties.

Peyto's OilVoice profile

Xstate ResourcesOil & Gas

Xstate Resources (XST) is an ASX listedcompany focussed on the oil and gas sector.

Xstates strategy is to generate value forshareholders through field development andproduction, from exploration and appraisaldrilling in areas that:

Have high prospectivity for oil andgas,

Have the benefit of new data, e.g. 3DSeismic,

Have access to oil and gas productionand transport infrastructure, but

Are relatively under-explored.

Xstate shares (ASX symbol: XST) and options(XSTO) are listed on the ASX

Xstate Resources' OilVoice profile

Archer PetroleumOil & Gas

Archer Petroleum Corp. is an independentenergy company focused on exploration anddevelopment in North America.

The Company's shares are listed on the TSXVenture Exchange under the symbol "ARK"and the DB Frankfurt exchange under "A6VA".

Archer Petroleum's OilVoice profile

IG Seismic ServicesSeismic

IG Seismic Services (IGSS) is a leading pureplay, land and transition-zone seismiccompany, primarily servicing clients in Russiaand the CIS. We offer:

high-quality seismic acquisition data processing and interpretation

services

We are the result of the combination of theRussian seismic assets of three leadingcompanies, finalized in December 2011:

GEOTECH Holding The largestRussian seismic companies, itsmember companies have beenoperating at the top of the Russian oiland gas sector for over 70 years

Integraone of Russias foremost

oilfield services companies Schlumberger the world-leading

oilfield services provider

By combining the global experience andtechnology of Schlumberger with the strongregional infrastructure and operationalknowledge of GEOTECH and Integra, we arein prime position to capitalize on the favorablesecular trends in the Russian and CIS seismicmarkets.

IG Seismic Services' OilVoice profile

Wrangler WestEnergyService

Wrangler West is a Canadian junior crude oiland natural gas producer which explores forand develops natural gas and crude oilproduction assets in the Province of Alberta.Since inception, the Company's mandate hasbeen to use the drill bit to add shareholdervalue.

Wrangler West Energys OilVoice profile
http://www.oilvoice.com/directory/http://www.oilvoice.com/directory/http://www.oilvoice.com/Description/Peyto_Exploration_and_Development_Corp/f28549a0.aspxhttp://www.oilvoice.com/Description/Peyto_Exploration_and_Development_Corp/f28549a0.aspxhttp://www.oilvoice.com/Description/Xstate_Resources/6b5c8848.aspxhttp://www.oilvoice.com/Description/Xstate_Resources/6b5c8848.aspxhttp://www.oilvoice.com/Description/Archer_Petroleum/5b2812c8.aspxhttp://www.oilvoice.com/Description/Archer_Petroleum/5b2812c8.aspxhttp://www.oilvoice.com/Description/IG_Seismic_Services/467ae549.aspxhttp://www.oilvoice.com/Description/IG_Seismic_Services/467ae549.aspxhttp://www.oilvoice.com/Description/Wrangler_West_Energy_Corp/8b0eeb0d.aspxhttp://www.oilvoice.com/Description/Wrangler_West_Energy_Corp/8b0eeb0d.aspxhttp://www.oilvoice.com/Description/Wrangler_West_Energy_Corp/8b0eeb0d.aspxhttp://www.oilvoice.com/Description/IG_Seismic_Services/467ae549.aspxhttp://www.oilvoice.com/Description/Archer_Petroleum/5b2812c8.aspxhttp://www.oilvoice.com/Description/Xstate_Resources/6b5c8848.aspxhttp://www.oilvoice.com/Description/Peyto_Exploration_and_Development_Corp/f28549a0.aspxhttp://www.oilvoice.com/directory/


10/39


11/39


Insight: East AfricanGas and LNG-on-LNGcompetition

Written by David Bamford fromFinding Petroleum

East African gas discoveries have been enormous but the plan to export this gas asLNG faces considerable global competition for markets, most notably from NorthAmerica.

Over the last 2 or 3 years, there have been some very significant gas discoveriesoffshore East Africa, so significant that they have not escaped the attention of ourever insightful media. Lots of bullish statements from CEOs might lead you to believethat this is gas is almost in production already, has world-beating reserves, will soontransform the economies of the countries involved etc.

A good exampleBloomberg TVs piece on 17th Jan 2013 included:Biggest natural gas discoveries in a decadeLures investors from steel billionaire Lakshmi Mittel to Royal Dutch ShellMocambique has > 50Tcf; $800bn of value

Will rival Qatar and Australia in scale of LNGThe geography is almost perfect for (LNG) feeding the economies of China andIndia (this quoting Statoils CEO)and elsewhere one can read similar expansive content regarding Tanzania.

At its heart is a failure to recognise the difference between prospective volumes,resources and reserves, and we all know we have to be especially circumspect withgas, mindful of the Shell reserves scandal of 10 or so years ago. The key is this:

The principles for booking of proved gas reserves are limited to contracted gassales or gas with access to a robust gas market (also courtesy of Statoil, as ithappens).

With this in mind, we can look at where East African gas sits in the global LNGpicture, and here I am indebted to the diligent work of the folk at Bernstein Research,summarised herefor example.

When probable LNG projects around the world are ranked according to cost permmbtu, and then cumulative capacity (in mtpa), it turns out that the advantagedprojects all lie in North America. Significant numbers of projects are planned both onthe west coast of both Canada and the USA and in the Gulf of Mexico and on the

east coast. Clearly this LNG will head for Asia and Europe (in the main) respectively.
http://www.oilvoice.com/description/Finding_Petroleum/b84c9bc3.aspxhttp://www.oilvoice.com/description/Finding_Petroleum/b84c9bc3.aspxhttp://www.oilvoice.com/description/Finding_Petroleum/b84c9bc3.aspxhttp://www.findingpetroleum.com/n/Insight_Future_global_LNG_flows_and_the_realities_of_East_African_Gas/50cb8cdc.aspxhttp://www.findingpetroleum.com/n/Insight_Future_global_LNG_flows_and_the_realities_of_East_African_Gas/50cb8cdc.aspxhttp://www.findingpetroleum.com/n/Insight_Future_global_LNG_flows_and_the_realities_of_East_African_Gas/50cb8cdc.aspxhttp://www.oilvoice.com/description/Finding_Petroleum/b84c9bc3.aspx


12/39


This is all about exporting shale gas from North America and it is worth noting thatthis iscontentious, with E&P companies wishing to utilise their gas sooner ratherthan later and domestic consumers, especially in the chemicals industry, arguing thatthis will drive up the price they have to pay for their feedstock gas, which of course itwill. Thus a lobbying battle is being fought in Washington with President Obama

eventually planning to decree how much gas can be exported per annum from theUSA.

The immediate point is that East African LNG faces significant cost-advantagedcompetition. Bernsteins results show Mocambique LNG as more expensive thanNorth American and, for example, East Mediterranean LNG, but advantagedcompared with some of the more difficult Australian projects. On this basis, firstexports are seen as occurring after 2020.

This is a fast moving picture and Tanzanian LNG does not (yet) appear inBernsteins reviews; perhaps (but note this is IMHO) it will have a similar cost base

to Mocambique and commence slightly later?

A simple conclusion from all this might be that if Mocambique, Tanzania (and Kenya)seek rapid economic transformation from their hydrocarbon endowment, they mightbe better served by strongly promoting exploration for more rapidly developable oil,in addition to enabling the exploitation of existing onshore gas/condensatediscoveries (in Tanzania, for example)

View more quality content fromFinding Petroleum

Shipping crude oil by

rail: A victim of its ownsuccess?

Written by Keith SchaeferfromOil & Gas Investments Bulletin

Oil producers in Alberta have embraced the holy rail, shipping out by train car an

estimated 120,000 barrels of oil per day (bopd) to refiners on the east coast and theU.S. Gulf.
http://www.findingpetroleum.com/n/Insight_The_questionable_logic_of_US_natural_gas_exports/c1607c4d.aspxhttp://www.findingpetroleum.com/n/Insight_The_questionable_logic_of_US_natural_gas_exports/c1607c4d.aspxhttp://www.findingpetroleum.com/n/Insight_The_questionable_logic_of_US_natural_gas_exports/c1607c4d.aspxhttp://www.oilvoice.com/description/Finding_Petroleum/b84c9bc3.aspxhttp://www.oilvoice.com/description/Finding_Petroleum/b84c9bc3.aspxhttp://www.oilvoice.com/description/Oil_Gas_Investments_Bulletin/226802cf.aspxhttp://www.oilvoice.com/description/Oil_Gas_Investments_Bulletin/226802cf.aspxhttp://www.oilvoice.com/description/Oil_Gas_Investments_Bulletin/226802cf.aspxhttp://www.oilvoice.com/description/Oil_Gas_Investments_Bulletin/226802cf.aspxhttp://www.oilvoice.com/description/Finding_Petroleum/b84c9bc3.aspxhttp://www.findingpetroleum.com/n/Insight_The_questionable_logic_of_US_natural_gas_exports/c1607c4d.aspx


13/39


Despite rail costs doubling pipeline tariffs, producers were able to get such a betterprice railing it past the mid-continent refineries all the way to the US East Coast andGulf Coastit made the logistics worth the time.

But just as Canadian rail use is set to soar againyou can boost that number to

200,000 bpd by the end of the year when several terminals are completed, sayanalystsrail may no longer be economic. Rail could be a victim of its own success.

In May or June, producers that have traditional access to pipe may see betternetbacks than rail, one oil and gas marketer told me last week. Netback is theindustry word for profit per barrel.

Railing oil has been more profitable than transporting by pipe for a lot of Canadianproducers since last summerwhen the difference between US and Canadian oilprices widened. It has also been necessary, as producers have had to find alternateroutes to marketrising oil volumes competed for limited pipeline space.

And while pipeline tariffs might be cheaper than rail, the additional fees add up:producers often have to shell out trucking fees to a pipeline-connected battery, plusdiluent fees (diluent makes heavy oil flow in the pipe better) and perhaps a fee toremove water from the oil to bring it up to pipeline spec.

The netback has been greater by railusually more than 10% better than thepipeline-connected alternative, says Chris Cooper, CEO of Aroway Energy, a 1000bopd producer in southern Saskatchewan. In some months it can exceed 20%.

Smaller producers without access to the financing needed for long-term (10-20years) contracts on pipelines, make every penny count when marketing their barrels.Coopers savings are diluent costs of $6/b and pipeline fee/tariffs of almost$1.50/barrel.

The price paid for the crude shipped to the rail facility fluctuates on WCS prices,Cooper says. We were getting $45-$50 in Jan, were getting $66.72 today.

Last year the rail rush was driven by limited pipeline capacity and the wide gapbetween the price for US oil and the price for Canadian oil. The difference betweenthe two (or the difference in oil price between any two places) is called the

differential.

There was some BIG differentials at Christmas 2012Canadian light oil traded aslow as $68/barrel and heavy oil at $48/barrel.

At the same time, refiners on the U.S. Gulf Coast and northeast were payingoverseas prices for their heavy oil feedstock, around $110/barrel. Thats a bigdifferential! So there was lots of room to spend $14-$18/barrel to rail it to a muchhigher priced market.

Fast forward to late April 2013. Light oil only has $3/bbl discount to WTI, trading at

$86.13/bbl and heavy oil (WCS, or Western Canada Select) gets $71.431. Part ofthe reason for higher prices is seasonal; less oil gets produced in Canada in Q2


14/39


because of spring break up, so supply is less. But another reason is that rail hascreated a bigger demand by making Canadian oil available to more US refineries.

When Canadian crude was selling $40 less than its U.S. counterpart, rail madesense; producers paid $14/bbl to hit northeast refineries or $14-$18 to the U.S. Gulf

Coast, where refineries paid Brent prices of up to $119/barrel.

However, when the Canadian-US arb tightens to $12-$14/bbl, like it is now, it maynot be worth it.

In addition to the narrow differential, the cost to ship crude by rail, from loadingprices to rental fees, has jumped in a classical supply-demand imbalance response.

Shipping oil by rail used to be the answer to tight pipeline capacity and cheapCanadian crude. But the question now is has that train left the station?

WIDE DIFFERENTIALS MAKE RAIL SENSE

Analysts and producers say shipping crude by rail, usually an expensive choice,made sense when West Texas Intermediate (WTI) was $20 per barrel less thanBrent priced crude, and Western Canada Select was about $15 under WTI.

Refiners on the U.S. Gulf Coast and the northeast U.S. and Canada pay higherinternational prices based on Brent, so when the difference between coastal andinland crude widens, the netback from rail is higher, especially if you cant getpipeline capacity.

Last November, Southern Pacific was raking in $20-$30/bbl more by railing andbarging its bitumen to Louisiana than it would have at the congested Cushing,Oklahoma hub. The junior oil sands producer paid $31/bbl to rail and barge its oil toa Louisiana refinery, compared to $8/bbl by pipeline. But a $20 differential from Brentand lower diluent costs made the move profitable.

Cooper says that typically, a companys oil marketer negotiates and lines up railloading space for crude trucking shipments out of the field. Even so, high demandhas translated into waits of up to six months for rail loading space.

Once at the terminal the custody transfer is made and the producer gets paid asingle price for its crude.

If youre bigger, doing like 10,000 barrels of oil per day, those operators probablyhave an ability to rent rail cars somewhere from somebody to get it to the rightrefinery; were too small to do that. Others have rail agreements and agreements tobring back diluent in the same cars.

Approximately 19,000 tank cars were ordered by Canadian companies, according toRail Theory Forecasts. The railcars are insulated to carry heavy crude but will not bedelivered until 2014.

Most producers have opted to lease tank cars, for term contracts of up to five years


15/39


on average, rather than build. They are taking advantage of the thousands ofkilometres of railroad tracks which already exist, crisscrossing North America,connecting to industrial hubs, pipelines and waterways.

In Western Canada, transportation companies have been busy expanding and

building new transload terminals to total about 16 facilities run by six major playersCanadian Pacific Railway, Altex Energy, Canadian National Railways, TorqTransload, Gibson Energy, Canexus Corp. and Keyera/Enbridge.

CP said in December it would be shipping 70,000 carloads of crude by the firstquarter of 2013, out of Canada and the U.S. Thats up from 500 in 2009.

The company expects to transport 44.8 million barrels this year, based on about 640barrels for each rail car, up from 8.3 million barrels of crude oil in 2011.

Three years ago rival Canadian National didnt even ship oil. The railway firm moved

some 3.2 million barrels of crude in 2011, an estimated 19.2 million barrels by theend of 2012, and could eventually handle 200,000 barrels a day or more.

The run for rail started in North Dakota when producers untapped tight oil reserveswith horizontal drilling and multi-staged fracturing. Volumes exploded without enoughpipeline capacity to move product to market.

By 2012 the number of U.S. trains moving oil soared to 233,811 carloads, up from9,500 carloads just five years prior.

Keep in mind those numbers look to be derailed as the price of Canadian crudeclimbs and the netback to shipping by train drops.

View more quality content fromOil & Gas Investments Bulletin
http://www.oilvoice.com/description/Oil_Gas_Investments_Bulletin/226802cf.aspxhttp://www.oilvoice.com/description/Oil_Gas_Investments_Bulletin/226802cf.aspxhttp://www.oilvoice.com/description/Oil_Gas_Investments_Bulletin/226802cf.aspx


16/39

RokDocQED - Quantitative Exploration & Development

The Next

Generation ofIkon RokDoc

Next generation technology from Ikon Science;

geological inversion, geopressure prediction,

fast workows and more. From rock physics to

reservoir properties in one powerful and connected

platform. RokDocQED for Quantitative Exploration &

Development.

Find out more www.ikon-rokdoc.com/QED


17/39


Peak oil demand isalready a hugeproblem

Written by Gail Tverberg fromOur Finite World

We in the United States, the Euro-zone, and Japan are already past peak oildemand. Oil demand has to do with how much oil we can afford. Many of thedeveloped nations are not able to outbid the developing nations when it comes to the

worlds limited oil supply. A chart of oil consumption shows that oil consumptionpeaked for the combination of the United States, EU-27, and Japan in 2005 (Figure1).

We can see an even more pronounced version of this pattern if we look at the oilconsumption of the five countries known as the PIIGS in Europe: Portugal, Italy,Ireland, Greece, and Spain. All of these countries have had serious declines in oilconsumption in recent years, as high oil prices have impeded their economies.

Oil consumption for the PIIGS in total hit its highest level in 2004, before the declinebegan. Peak oil consumption by country varied a bit: Portugal, 2002; Italy, decliningsince 1995; Ireland, peak in 2007; Spain, peak in 2007; Greece, peak in 2006.

Peak demand is very much related to jobs. Peak oil demand occurs when a

country is not competitive in the world market-place, and because of this, losesindustry and jobs. One reason this happens is because the countrys energy cost

Figure 1. Oil consumption bypart of the world, based onEIA data. 2012 worldconsumption data estimatedbased on world all liquidsproduction amounts.

Figure 2. Oil consumption forPortugal, Italy, Ireland,Greece, and Spain, based on

EIA data.
http://www.oilvoice.com/description/Our_Finite_World/0ff628da.aspxhttp://www.oilvoice.com/description/Our_Finite_World/0ff628da.aspxhttp://www.oilvoice.com/description/Our_Finite_World/0ff628da.aspxhttp://www.oilvoice.com/description/Our_Finite_World/0ff628da.aspx


18/39


structure is not competitive in the world market-place. With the run-up in oil pricesstarting about 2003, oil is by far the most expensive of the traditional energy sourceswe have available today. Countries that use a large percentage of oil in their energymix can be expected to have a hard time competing, because of oils higher cost.

Anything else that is done which raises costs for businesses will also have animpact. This would include carbon taxes, if competitors do not have them, and ifthere is no tariff on imported goods to reflect carbon inputs.

High-cost renewables can also have an adverse impact, regardless of whether thecost is borne by businesses, consumers or the government.

If the cost is borne by businesses, those businesses must raise their prices tokeep the same profit margins, and because of this become less competitive.

If the cost is borne by consumers, those consumers will cut back ondiscretionary expenditures, in order to balance their budgets. This is likely tomean a cutback in demand for discretionary goods by local consumers.

If the government bears the cost, it still must pass the cost back to businessesor consumers, and thus reduce competitiveness because of higher tax costs.

This importance of competitiveness holds, no matter how worthy a given approachis. If costs were externalized before, and are now borne by the local system, itmakes the local system less competitive. For example, putting in proper pollutioncontrols will make local industry less competitive, if the competition is Chineseindustry, acting without such controls.

One issue in competitiveness is wage levels. Wages in turn are related tostandards of living. In a global economy, countries with higher wage levels for

workers, and higher benefit levels for workers (such as health insurance andpensions) will be at a competitive disadvantage. Countries that use coal as theirprime source of energy will be at an advantage, because workers wages will tend togo farther in heating their homes and buying electricity.

Countries that are warm in the winter will be at a competitive advantage, becausehomes dont have to be built as sturdily, and dont have to be heated in winter.Workers can commute by bicycle even in the coldest weather.

Energy usage (all types combined, not just oil) is far higher in cold countries than it isin warm wet countries. Countries that extract oil also tend to be high users of energy.

Figure 3. Oil consumption aspercentage of energyconsumption for selectedcountries, based on BPs 2012Statistical Review of WorldEnergy.


19/39


The difference in per capita energy usage among the various countries is trulyastounding. For example, Bangladeshs per capita energy consumption is slightlyless than 2% of US energy consumption. This difference in energy consumptionmeans that salaries can be much lower, and thus products made in Bangladesh canbe much cheaper, than those made in the United States. This is part of ourcompetitiveness problem, even apart from the energy mix problem mentioned

earlier.

In my view, globalization brought on many of our current problems. Perhapsglobalization could not be avoided, but we should have foreseen the problems. Wecould have put tariffs in place to make a more level playing field. See my post,Twelve Reasons Why Globalization is a Huge Problem.

Inadequate world oil supply isnt exactly the problem. The issue is far more thatthe price of oil extraction is rising. The price of oil extraction is rising for a varietyof reasons, an important one being that weextracted the easy to extract oil first, andwhat is left is more expensive to extract. Another issue is that oil exporters now have

large populations that need to be kept fed and clothed, so they dont revolt. This is aseparate issue, that raises costs, even above the direct cost of extraction. There isno reason to believe that these costs will level off or fall, no matter how much oil theUS produces using high-priced methods, such as fracking.

When oil prices rise, wages dont rise at the same time. In fact, in the US there isevidence that wages stagnate when oil prices are high, partly because fewer areemployed, and partly because the wages of those employed flatten.

The countries that are most affected by rising oil prices are the countries that use oilto the greatest extent in their mix of energy products. In Figure 3, that would be the

PIIGS. The rest of the US, EU-27, and Japan would be next in line.

Figure 4. Per capita energyconsumption for selectedcountries for the year 2010,based on EIA data.

Figure 5. High oil prices are associated with

depressed wages. Oil price through 2011from BPs 2012 Statistical Review of WorldEnergy, updated to 2012 using EIA data andCPI-Urban from BLS. Average wagescalculated by dividing Private Industry wagesfrom US BEA Table 2.1 by US population,and bringing to 2012 cost level using CPI-Urban.
http://ourfiniteworld.com/2013/02/22/twelve-reasons-why-globalization-is-a-huge-problem/http://ourfiniteworld.com/2013/02/22/twelve-reasons-why-globalization-is-a-huge-problem/http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aH57.uZe.sAIhttp://www.bloomberg.com/apps/news?pid=newsarchive&sid=aH57.uZe.sAIhttp://www.bloomberg.com/apps/news?pid=newsarchive&sid=aH57.uZe.sAIhttp://www.bloomberg.com/apps/news?pid=newsarchive&sid=aH57.uZe.sAIhttp://ourfiniteworld.com/2013/02/22/twelve-reasons-why-globalization-is-a-huge-problem/


20/39


When oil prices rise, consumers need to balance their budgets. The price of oilproducts and food rises, so they cut back on discretionary items. Their smallerpurchases of discretionary goods and services means that workers in discretionarysectors get laid off.

Businesses find that the price of oil used in manufacturing and shipping theirproducts has risen. If they raise the sales price of the goods to reflect their highercosts, it means that fewer people can afford their products. This too, leads tocutbacks in sales, and layoffs of workers. Sometimes businesses decide tooutsource production to a cheaper country, or use more automation, as a way ofmitigating the cost increases that higher oil prices add, but automation or outsourcingalso tends to reduce US wages.

The net effect of all of these changes is that there are fewer workers with jobs in thecountries with high oil usage. This reduces the demand for oil in the high oil usagecountries, both from business owners making goods and from the consumers who

might use gasoline to drive their cars. This price mechanism is part of what leads tothe oil consumption shift we see in Figure 1.

We are dealing with is close to azero-sum game, when it comes to oil supply.The amount of oil that is extracted from the ground is almost constant (very slightlyincreasing for the world in total). If prices stayed at the low level they were in the past(say $20 barrel), there would not be enough to go around. Instead, higher pricesredistribute oil to countries that can use it manufacture goods at low overall cost.Workers in factories making these goods are then able to afford to buy goods thatuse oil, such as a motor scooter.

Citigroup recently released a report titled, Global Oil Demand Growth, the End isNigh. Its subtitle says,

The substitution of natural gas for oil combined with increasing fuel economy meansoil demand is approaching a tipping point.

This is out-and-out baloney, for a number of reasons:

1. There are way too many of them compared to the number of us, for energyefficiency to make even a dent in our problem.

2. When we look at past oil consumption, changes in vehicle energy efficiency didnot make a big difference.

3. Substituting natural gas for oil still leaves cost levels for the US, Europe, andJapan very high, compared to those for the rest of the world, where little energy isused.

4. There are really separate markets in many parts of the globe. Our market iscollapsing because of high price. Perhaps increased efficiency and natural gassubstitution will help low-cost producers until they reach a different limit of some sort.

Lets look at these issues separately.
http://en.wikipedia.org/wiki/Zero%E2%80%93sum_gamehttp://en.wikipedia.org/wiki/Zero%E2%80%93sum_gamehttp://en.wikipedia.org/wiki/Zero%E2%80%93sum_gamehttp://ftalphaville.ft.com/2013/03/27/1441252/is-the-end-of-the-oil-era-nigh/http://ftalphaville.ft.com/2013/03/27/1441252/is-the-end-of-the-oil-era-nigh/http://ftalphaville.ft.com/2013/03/27/1441252/is-the-end-of-the-oil-era-nigh/http://ftalphaville.ft.com/2013/03/27/1441252/is-the-end-of-the-oil-era-nigh/http://ftalphaville.ft.com/2013/03/27/1441252/is-the-end-of-the-oil-era-nigh/http://ftalphaville.ft.com/2013/03/27/1441252/is-the-end-of-the-oil-era-nigh/http://ftalphaville.ft.com/2013/03/27/1441252/is-the-end-of-the-oil-era-nigh/http://ftalphaville.ft.com/2013/03/27/1441252/is-the-end-of-the-oil-era-nigh/http://en.wikipedia.org/wiki/Zero%E2%80%93sum_game


21/39


There are way too many of them relative to us, for energy efficiency to evenmake a dent in our problem.

If we look at world population, this is what we see:

Using a ruler, we could probably make fairly reasonable projections of futurepopulation for each of these groups.

If we look at per capita oil consumption for the two groups separately, there is a hugedisparity:

Per capita oil consumption for the EU, US, and Japan group peaked in 1973a verylong time ago. In recent years, it has been drifting down fairly rapidly, just to keep upwith a slight per capita rise in oil consumption of the Rest of the World. Even withrecent changes, per capita oil consumption of the EU, US and Japan group is morethan 4.5 times that of the rest of the world.

If cars were made more efficient, more people could afford them. The market for carsis unbelievably huge, compared to todays market, if costs could be brought down.Furthermore, gasoline accounts for less than half of US oil consumption. Even ifefficiency were improved to allow cars to use half as much fuel, it would save a littleless than one-fourth of current oil consumption. How far would this oil go in satisfyingthe needs of 6 billion other peopleand growing every year?

When we look at past oil consumption, changes in vehicle energy efficiencydid not make a big difference.

If we look at per capita oil consumption in the US, split between gasoline and otheroil products, we see that the big drop in oil consumption came from the drop in other

oil productsthat is the commercial and industrial part of US oil consumption.

Figure 6. World populationsplit between US, EU-27, andJapan, and the Rest of theWorld.

Figure 7. Per capita oil consumptionseparately for the group US, EU-27,plus Japan, and for the rest of theworld, based on BPs 2102 StatisticalReview of World Energy, andpopulation statistics from EIA (since

1980) andAngus Maddison data.(earlier dates).
http://www.ggdc.net/maddison/Maddison.htmhttp://www.ggdc.net/maddison/Maddison.htmhttp://www.ggdc.net/maddison/Maddison.htmhttp://www.ggdc.net/maddison/Maddison.htm


22/39


The amount of fuel used for gasoline has stayed in the 10 to 12 barrels a year percapita band, since 1970, in spite of huge improvements in vehicle efficiency.

I recently wrote a post calledWhy is US Oil Consumption Lower? Better GasolineMileage?In it, I looked at the decrease in US oil consumption between 2005 and2012. I concluded that the majority of the decrease in consumption was due to a

drop in commercial use. Only 7% was due to an improvement in miles per gallon forgasoline powered vehicles.

Substituting natural gas for oil still leaves the US (as well as Europe andJapan) very high priced, compared to the rest of the world, that doesnt usemuch energy.

Living in the US, Europe or Japan, it is hard to get an idea of the cost structure of therest of the world. We are so far above the cost structure of the rest of the world thatsubstituting natural gas for oil would do little to fix the situation.

We can also debate how much substitution of natural gas will actually do, and inwhat timeframe. In the US, natural gas is temporarily very cheap. But it costs more toextract shale gas than the market currently pays, in many areas. Also, a recentlyUniversity of Texas study showed thatBarnett Shale was past peak production, ifprices do not rise.

There are really separate markets in many parts of the globe. Our market iscollapsing because of high price. Perhaps increased efficiency and natural gassubstitution will help low-cost producers, until they reach a different limit ofsome sort.

When a country is not competitive, it is not just oil consumption that drops, butconsumption of other energy products as well. If we look at the per capita energy

Figure 8. US per capita consumption ofoil products, split between gasoline andother. Total consumption from BPs2012 Statistical Review of WorldEnergy. Gasoline consumptionfrom

EIA. (Amounts include biofuels.)Difference by subtraction.

Figure 9. Photo of an auto-rickshaw I tookwhile visiting India in October 2012. A totalof 10 of us (including driver) traveled forseveral miles in a three-seated version ofone of these. Those of us on the edgesheld on tightly to the frame, because therewas not room for all of us.
http://ourfiniteworld.com/2013/01/31/why-is-us-oil-consumption-lower-better-gasoline-mileage/http://ourfiniteworld.com/2013/01/31/why-is-us-oil-consumption-lower-better-gasoline-mileage/http://ourfiniteworld.com/2013/01/31/why-is-us-oil-consumption-lower-better-gasoline-mileage/http://ourfiniteworld.com/2013/01/31/why-is-us-oil-consumption-lower-better-gasoline-mileage/http://www.utexas.edu/news/2013/02/28/new-rigorous-assessment-of-shale-gas-reserves-forecasts-reliable-supply-from-barnett-shale-through-2030/http://www.utexas.edu/news/2013/02/28/new-rigorous-assessment-of-shale-gas-reserves-forecasts-reliable-supply-from-barnett-shale-through-2030/http://www.utexas.edu/news/2013/02/28/new-rigorous-assessment-of-shale-gas-reserves-forecasts-reliable-supply-from-barnett-shale-through-2030/http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MGFUPUS2&f=Ahttp://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MGFUPUS2&f=Ahttp://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MGFUPUS2&f=Ahttp://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MGFUPUS2&f=Ahttp://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MGFUPUS2&f=Ahttp://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MGFUPUS2&f=Ahttp://www.utexas.edu/news/2013/02/28/new-rigorous-assessment-of-shale-gas-reserves-forecasts-reliable-supply-from-barnett-shale-through-2030/http://ourfiniteworld.com/2013/01/31/why-is-us-oil-consumption-lower-better-gasoline-mileage/http://ourfiniteworld.com/2013/01/31/why-is-us-oil-consumption-lower-better-gasoline-mileage/


23/39


consumption of the US, EU-27, and Japan combined, we see that non-oil energyconsumption per capita reached its peak in 2004, and is now declining (Figure 10,below). If consumers are too poor to buy oil products, they are also too poor to buyproducts made with other types of energy.

The Rest of the World followed a very different pattern of energy consumption. Non-oil consumption soared, on a per capita basis. Oil consumption also increased on aper capita basis.

More detailed data showsthat the big increase in non-oil consumption was a hugerise in coal consumption, afterChina was admitted to the World Trade Organizationin December 2001.

How does peak oil demand work out in the end?

I would argue that lack of competitiveness in world markets is a limit that the US, EU-

27 and Japan are hitting right now, but at slightly different rates. EU-27 now seemsto be ahead in the race to the bottom, partly because its combined currency. I wrotea post in March 2012 calledWhy High Oil Prices Are Now Affecting Europe MoreThan the US, explaining the situation.

It seems to me, though, that a big piece of the problem with lack of competitivenessgets transferred to the governments of the affected countries. This happens becausecollection of tax revenue lags, because not enough people are working, and thosewho are working are earning lower wages. At the same time increased payouts areneeded to stimulate the economy, and to provide benefits to the many without jobs.

Governments increase their debt to meet the revenue shortfall. They reduce interestrates to record-low levels, to stimulate the economy. They also useQuantitative

Figu re 10. Per capitaconsumption for the sum ofthe EU-27, US, and Japan,based on BPs 2012 StatisticalReview of World Energy.

Figu re 11. Per capita energyconsumption for the Rest ofthe World, based on BPs2012 Statistical Review ofWorld Energy.
http://ourfiniteworld.com/2012/12/06/energy-leveraging-an-explanation-for-chinas-success-and-the-worlds-unemployment/http://ourfiniteworld.com/2012/12/06/energy-leveraging-an-explanation-for-chinas-success-and-the-worlds-unemployment/http://www.wto.org/english/thewto_e/countries_e/china_e.htmhttp://www.wto.org/english/thewto_e/countries_e/china_e.htmhttp://www.wto.org/english/thewto_e/countries_e/china_e.htmhttp://www.wto.org/english/thewto_e/countries_e/china_e.htmhttp://ourfiniteworld.com/2012/03/05/why-high-oil-prices-are-now-affecting-europe-more-than-the-us/http://ourfiniteworld.com/2012/03/05/why-high-oil-prices-are-now-affecting-europe-more-than-the-us/http://ourfiniteworld.com/2012/03/05/why-high-oil-prices-are-now-affecting-europe-more-than-the-us/http://ourfiniteworld.com/2012/03/05/why-high-oil-prices-are-now-affecting-europe-more-than-the-us/http://en.wikipedia.org/wiki/Quantitative_easinghttp://en.wikipedia.org/wiki/Quantitative_easinghttp://en.wikipedia.org/wiki/Quantitative_easinghttp://ourfiniteworld.com/2012/03/05/why-high-oil-prices-are-now-affecting-europe-more-than-the-us/http://ourfiniteworld.com/2012/03/05/why-high-oil-prices-are-now-affecting-europe-more-than-the-us/http://www.wto.org/english/thewto_e/countries_e/china_e.htmhttp://www.wto.org/english/thewto_e/countries_e/china_e.htmhttp://ourfiniteworld.com/2012/12/06/energy-leveraging-an-explanation-for-chinas-success-and-the-worlds-unemployment/


24/39


Easing, or printing money to try to lower long-term interest rates, and to try to maketheir exports more competitive. Unfortunately, these actions do not solve the basicstructural problem of high and rising world oil prices, and the fact that these risingprices make their economies increasingly less competitive in the world marketplace.

One possible way I see of the current situation working out is that the total energyconsumption (including all types of energy products, not just oil) of the EU, US andJapan will continue to fall, as high-priced oil continues to erode our competitiveposition in the world marketplace.

The slope of the decline is based on the type of decline experienced by the FormerSoviet Union, in the years immediately following its collapse. This pattern mightreflect a combination of different patterns for different countries. Greece and Spain,for example might continue to fall quite quickly. The US might lag the EU in thespeed at which problems take place. The likely path seems downward, because anyaction taken to fix the government gap between income and expense can be

expected to have a recessionary impact, and thus have an adverse impact onenergy consumption.

The Rest of the World is now growing rapidly, but at some point they will startreaching limits. One of these limits will be lack of an export market. Another will belack of spare parts, because businesses in the US, Europe and Japan are failing forfinancial reasons. Some of these limits will relate to pollution and lack of fresh water.The effect of these limits will also be to raise costs. For example, a shortage of watercan be worked around through desalination, but this raises costs. Lack of spare partscan be worked around by building a new plant to make the spare part. Pollutionproblems can be mitigated by pollution controls, but these add costs. These higher

costs, when passed on to consumers will also lead to a cutback in demand fordiscretionary goods, and the same kinds of problems experienced in oil exportingnations. Thus, these countries will also have Peak Demand problems, because ofrising prices, related to limits they are reaching.

I dont know exactly how soon the Rest of the World will hit limits, but given theinterconnectedness of the world system, it would seem to be within the next fewyears. Figure 13 shows one estimate of how this may occur.

Figu re 12. One view of futureenergy consumption for theEU-27, US, and Japan.Historical is based on BPs2012 Statistical Review of

World Energy.
http://en.wikipedia.org/wiki/Quantitative_easinghttp://en.wikipedia.org/wiki/Quantitative_easinghttp://en.wikipedia.org/wiki/Quantitative_easing


25/39


Here again, individual countries may do better than others. Countries with littleconnectedness to the world system (for example, countries in central Africa) mayhave fewer problems than others. Of course, their energy consumption (of the typemeasured by the EIA or BP) is very low now. They may use cow dung and fallenbranches for fuel, but these are not counted in international data.

Figure 14, below, shows the sum of the amounts from Figures 12 and 13. Thus, itgives one estimate of future world energy consumption based on Peak Demandconsiderations.

If there is a silver lining to all of this, it is that world CO2 emissions are likely to startfalling quite rapidly, because of Peak Oil Demand. World CO2 emissions could quitepossibly drop below 20% of current levels before 2050. In the scenario I show,energy consumption drops faster thanforecasts such as those put out by the EnergyWatch Group. Such forecasts do not take into account financial considerations, soare likely overstated. The downside of Peak Oil Demand is that the world we live inwill be very much changed. Population levels will likely drop, indirectly because ofserious recession, job loss, and cutbacks in government benefits. The financial

system will need to be completely revised, because debt financing will make sensemuch less often than today. In fact, in a shrinking world economy, money can nolonger act as a store of value. There no doubt will be some people who survive andprosper, but their lives will likely be very different from what they are today.

View more quality content fromOur Finite World

Figur e 13. One view of energyconsumption for the Rest ofthe World. Historical data arebased on BPs 2012 StatisticalReview of World Energy.

Figur e 14. One view of futureenergy consumption for theworld as a whole. History isbased on BPs 2012 StatisticalReview of World Energy.
http://www.energywatchgroup.org/fileadmin/global/pdf/EWG-update2013_long_18_03_2013.pdfhttp://www.energywatchgroup.org/fileadmin/global/pdf/EWG-update2013_long_18_03_2013.pdfhttp://www.energywatchgroup.org/fileadmin/global/pdf/EWG-update2013_long_18_03_2013.pdfhttp://www.energywatchgroup.org/fileadmin/global/pdf/EWG-update2013_long_18_03_2013.pdfhttp://www.oilvoice.com/description/Our_Finite_World/0ff628da.aspxhttp://www.oilvoice.com/description/Our_Finite_World/0ff628da.aspxhttp://www.oilvoice.com/description/Our_Finite_World/0ff628da.aspxhttp://www.energywatchgroup.org/fileadmin/global/pdf/EWG-update2013_long_18_03_2013.pdfhttp://www.energywatchgroup.org/fileadmin/global/pdf/EWG-update2013_long_18_03_2013.pdf


26/39

Finding big oil & gas fields in South East AsiaThe Politics may overwhelm the Geoscience!London, 14 May 2013

Delivering well integrityHow best to manage well integrity - errant technologies, new technologies?London, 22 May 2013

Developments with FPSO operationsBetter ways to make decisions about specifying and operating FPSOsLondon, 04 Jun 2013

Russia & the FSU- plenty of opportunities below ground, plenty of problems above ground!London, 18 Jun 2013

Exploiting deep water fields

....it's not as easy as explorers think!London, 19 Sep 2013

Exploring internationally for unconventional oil and gas.......finding the "sweet spots"London, 02 Oct 2013


27/39


After gold, oil comesnext

Written by Andrew McKillop fromAMK CONSULT

LONG TERM METRICS

The gold-oil ratio or how many barrels 1 Troy ounce of gold will buy has beentracked for decades, and has long term median values, about 15.4 barrels per Troyounce. Whenever we move out of that range, as in the Cheap Oil Era of around1986-2000 the ratio sends us a signal.

This above chart stops in 2010, but as it shows we were already in a context wheregold price growth had outstripped oil's price growth. While the question "Is oiloverpriced?" could be eluded, for a long while, it became very clear gold wasoverpriced. The simplest proof came these past few days - gold was slain on bullionmarkets through Apr 12 - Apr 15 and the fantastic price drop tells us all we need toknow. Cheaper gold is the only logical readout, with potentially a long way further tofall to get anywhere near the all-in mining costs of producing gold as reported bymajors like Barrick Gold and its African Barrick subsidiary (around $1045 per ounce).In turn this logically means only one thing for oil: further price erosion.

To be sure, covering all options and possibilities, we can have simultaneous rises, or

falls, in the price of both commodities holding their ratio unchanged or almost. Butthis ignores the other main variables, which start with the US dollar's world value,
http://www.oilvoice.com/description/AMK_CONSULT/82b50237.aspxhttp://www.oilvoice.com/description/AMK_CONSULT/82b50237.aspxhttp://www.oilvoice.com/description/AMK_CONSULT/82b50237.aspxhttp://www.oilvoice.com/description/AMK_CONSULT/82b50237.aspx


28/39


and range out to average CPI or PPI inflation rates, and the price of other energysources and supplies. The period of around 1950-1970 for example, featured oil atrarely above $2 per barrel and gold mainly at $34 per Troy ounce. The gold-oil ratiotells us nothing about the absolute value of a resource, and specifically when it isoverpriced and must fall.

GAUGING HOW MUCH OIL MUST FALL

Even early last week, Herd analysts from respected large firms and funds could beheard saying that while gold may be set to "correct downwards", perhaps a lot,possibly to $1400, it will be "back around $2k per ounce" by the end of the year. Todate, few or no Herd analysts are trying the same talk with oil - for example a quicktwo-day 10% fall in prices, bringing Brent to $90 and WTI to $80 a barrel. Thiscorrection is overdue but seemly trading, supposedly, demands moderate daily cutsin the price. However, exactly like the gold rout, the downward spiral for oil willaccelerate out from those initial good mannered 1%-a-day fat trimming exercizes, to

muscular daily cuts.

The first target will be around $75 for Brent, and close to $70 per barrel for WTI,preserving a Brent premium, if only for nostalgia reasons.

Below $75 for Brent, serious oil industry problems will generate - exactly like theusually neglected role of gold mining industry financial meltdown, which has playedfor around 12 months already, among the factors that made the gold crunch of mid-April 2013 not only possible, but overdue. Gold mining is a no-no industry, it fooleditself into thinking gold prices could grow forever and embarked on ill-fated, high costexpansion programs. The results were bad, as the quickest check on equity pricesfor gold miners from as far back as 2011, will show. The energy industry hassobering evidence in the US, of what happened to company debt, EBITDA andequity values for gas-oriented majors when natural gas prices fell 75% from their2005-2006 highs. When (rather than if) that happens to oil, even the initial "fattrimming" to $75/b oil, there will be major financial fallout.

Big Oil is walking a tightrope to a very uncertain future, from a controversial past. It iscondemned to produce more - despite painfully sluggish market growth and in manymarkets like Europe, zero growth or contraction of oil demand, year-in, year-out.

Unfortunately for oil, at least as many killer facts can be lined up to show that oil,exactly like gold, is overvalued and overpriced. How it corrects, the process and itsstages, will be part-and-parcel of oil analysts and traders' daily concern. For the oiltrading industry, the gold price crash of April 2013 sends an advance warning of bigthings coming and due to happen in the oil market.

View more quality content fromAMK CONSULT
http://www.oilvoice.com/description/AMK_CONSULT/82b50237.aspxhttp://www.oilvoice.com/description/AMK_CONSULT/82b50237.aspxhttp://www.oilvoice.com/description/AMK_CONSULT/82b50237.aspx


29/39


30/39


Global impact of NorthAmerican shale gasboom forces Qatar toshift focus

Written by Mark Young fromEvaluate Energy

The global impact of the US shale gas boom was in further evidence this week asQatar Petroleum, along with its MOU partner, Centrica, made its first move into theNorth American E&P market in a $1 billion acquisition of Canadian assets fromSuncor Energy. North America had been earmarked by Qatar as a guaranteedmarket to sell its copious Liquefied Natural Gas (LNG) export capacity in, but the USShale boom has turned this idea on its head, as the middle-eastern NOC becomesthe latest foreign power to move into the North American E&P arena. The assetsbeing acquired (to be 40% owned by Qatar Petroleum) are well spread over thecountry in 3 provinces, and the British Columbia set of the assets will no doubt forma potential export opportunity as Kitimat becomes Canada's LNG exporting centre inthe coming years.

A look at Qatar Petroleum's world-standing will shed light on just how significant amove this is, and just how big an impact the shale boom is having on world energymarkets. Qatar is the world's largest LNG exporter by a significant distance witharound 78 million tonnes per year (mtpa) of export capacity, and Qatar Petroleum isthe operator of all of it. Its nearest rivals, including Indonesia (34 mtpa), Malaysia (24mtpa) and Australia (23 mtpa), are dwarfed in comparison. Efforts to catch up withQatar have been led by the Australians, with plans in place to expand the industry inthat country significantly by 2020. But these plans are beginning to fall into ruin, asmany projects are being cancelled or delayed for various reasons, chiefly a lack ofskilled labour and extreme rises in projected costs - Chevron's Gorgon LNG project

is now projected to cost US$50 billion, for example. Plans in new regions of potentialLNG exports, such as Mozambique/East Africa, are likely to be a long way off intothe future, so Qatar, on the face of it, looks to be in an extremely strong position asthe global leader of gas exports. Yet it still moved into this new market.

Recent years have seen Indian, Chinese and other far-eastern NOC's moving intothe North American market following the US shale gas boom, countries withoutstrong domestic markets, but this is arguably the first time a reasonably stable worldgas power has felt the need, or has been forced, to join the party. Even as recentlyas the company's 2011 Annual Report, Qatar Petroleum lists North America as thetarget market for its LNG Production 'mega-trains' 6 & 7 at its Ras Laffan complex.

Whilst the company also listed more ensured markets of Asia and the Middle East asdestinations, these 'mega-trains' have a total capacity of 15.2 mtpa, and the potential
http://www.oilvoice.com/description/Evaluate_Energy/479701d2.aspxhttp://www.oilvoice.com/description/Evaluate_Energy/479701d2.aspxhttp://www.oilvoice.com/description/Evaluate_Energy/479701d2.aspxhttp://www.oilvoice.com/description/Evaluate_Energy/479701d2.aspx


31/39


income from exporting this amount of gas to the US had to be replaced, as the LNGimport terminals on the American east coast became obsolete and began to sit idleafter shale gas began to quickly flood the domestic market.

In the company's first move to combat the potential harm caused by the shale gas

boom, Qatar Petroleum, along with partner ExxonMobil, submitted plans to therelevant authorities to convert its 15.6 mtpa import facility at Sabine Pass, Texas,into an export terminal of the same capacity, in a clear effort to recoup some of theshortfall back by profiting on US exports in the future. However, this follow-up moveinto Canadian E&P provides a more immediate solution to Qatar's problem, with net2P reserves of around 390 bcfe (90% gas) and net production of 100,000 mcfe/d. Infact, this move is not really any different to what Woodside Petroleum are planning,the company is reportedly in talks over acquiring Canadian gas assets, andWoodside is a company who recently shelved an LNG project in Australia to look fora cheaper option, standing it in stark comparison to the world leader in LNG exports.

Widescale exports of US/North American shale gas may be as far as 3 to 5, even 10years into the future, so for the time being, shale gas will remain trapped within thoseborders. But now the world leading gas exporter has got involved, the global impactof the US shale boom is extremely hard to deny, no matter how trapped the physicalquantities of gas may well be.

View more quality content fromEvaluate Energy
http://www.oilvoice.com/description/Evaluate_Energy/479701d2.aspxhttp://www.oilvoice.com/description/Evaluate_Energy/479701d2.aspxhttp://www.oilvoice.com/description/Evaluate_Energy/479701d2.aspx


32/39


Aging giant oil fields,not new discoveriesare the key to future oilsupply

Written by Kurt Cobb fromResource Insights

With all the talk about new oil discoveries around the world and new techniques forextracting oil in such places as North Dakota and Texas, it would be easy to miss themain action in the oil supply story: Aging giant fields produce more than half of globaloil supply and are already declining as group.

Research suggests that their annual production decline rates are likely to accelerate.

Themost recent research on giant oil fieldshas been available since 2009 so itdoesnt attract media attention the way new discoveries hyped by oil company publicrelations departments do. And yet, that research is far more important tounderstanding our oil future.

Heres what the authors ofGiant oil field decline rates and their influence on worldoil productionconcluded:

1. The worlds 507 giant oil fields comprise a little over one percent of all oilfields, but produce 60 percent of current world supply (2005). (A giant field isdefined as having more than 500 million barrels of ultimately recoverableresources of conventional crude. Heavy oil deposits are not included in thestudy.)

2. [A] majority of the largest giant fields are over 50 years old, and fewer andfewer new giants have been discovered since the decade of the 1960s. The

top 10 fields with their location and the year production began are: Ghawar(Saudi Arabia) 1951, Burgan (Kuwait) 1945, Safaniya (Saudi Arabia) 1957,Rumaila (Iraq) 1955, Bolivar Coastal (Venezuela) 1917, Samotlor (Russia)1964, Kirkuk (Iraq) 1934, Berri (Saudi Arabia) 1964, Manifa (Saudi Arabia)1964, and Shaybah (Saudi Arabia) 1998 (discovered 1968). (This list wastaken from Fredrik RobeliussGiant Oil Fields -The Highway to Oil.)

3. The 2009 study focused on 331 giant oil fields from a database previouslycreated forthe groundbreaking workof Robelius mentioned above. Of those,261 or 79 percent are considered past their peak and in decline.

4. The average annual production decline for those 261 fields has been 6.5percent. That means, of course, that the number of barrels coming from these

fields on average is 6.5 percent less EACH YEAR.
http://www.oilvoice.com/description/Resource_Insights/a99eb502.aspxhttp://www.oilvoice.com/description/Resource_Insights/a99eb502.aspxhttp://www.oilvoice.com/description/Resource_Insights/a99eb502.aspxhttp://www.postpeakliving.com/files/shared/Hook-GOF_decline_Article.pdfhttp://www.postpeakliving.com/files/shared/Hook-GOF_decline_Article.pdfhttp://www.postpeakliving.com/files/shared/Hook-GOF_decline_Article.pdfhttp://www.postpeakliving.com/files/shared/Hook-GOF_decline_Article.pdfhttp://www.postpeakliving.com/files/shared/Hook-GOF_decline_Article.pdfhttp://www.postpeakliving.com/files/shared/Hook-GOF_decline_Article.pdfhttp://www.postpeakliving.com/files/shared/Hook-GOF_decline_Article.pdfhttp://uu.diva-portal.org/smash/record.jsf?pid=diva2:169774http://uu.diva-portal.org/smash/record.jsf?pid=diva2:169774http://uu.diva-portal.org/smash/record.jsf?pid=diva2:169774http://uu.diva-portal.org/smash/record.jsf?pid=diva2:169774http://uu.diva-portal.org/smash/record.jsf?pid=diva2:169774http://uu.diva-portal.org/smash/record.jsf?pid=diva2:169774http://uu.diva-portal.org/smash/record.jsf?pid=diva2:169774http://uu.diva-portal.org/smash/record.jsf?pid=diva2:169774http://uu.diva-portal.org/smash/record.jsf?pid=diva2:169774http://uu.diva-portal.org/smash/record.jsf?pid=diva2:169774http://www.postpeakliving.com/files/shared/Hook-GOF_decline_Article.pdfhttp://www.postpeakliving.com/files/shared/Hook-GOF_decline_Article.pdfhttp://www.postpeakliving.com/files/shared/Hook-GOF_decline_Article.pdfhttp://www.oilvoice.com/description/Resource_Insights/a99eb502.aspx


33/39


5. Now, heres the key insight from the study. An evaluation of giant fields bydate of peak shows that new technologies applied to those fields has kepttheir production higher for longer only to lead to more rapid declines later. Asthe worlds giant fields continue to age and more start to decline, we cantherefore expect the annual decline in their rate of production to worsen.

Land-based and offshore giants that went into decline in the last decadeshowed annual production declines on average above 10 percent.

6. What this means is that it will become progressively more difficult for newdiscoveries to replace declining production from existing giants. And, though Imay sound like a broken record, it is important to remind readers that theworld remains on a bumpy production plateau for crude oil including leasecondensate (which is the definition of oil), a plateau which began in 2005.

One the clearest cases of the studys key finding is MexicosCantarelloil field, thesecond most productive in the world, until a steep decline began in 2004. Productionfrom Cantarell stalled in the early 1990s leading Petroleos Mexicanos (PEMEX), the

Mexican national oil company, to begin an aggressive drilling campaign and to buildwhat at the time was the largest nitrogen extraction plant in the world. Oncecompleted, the plant captured nitrogen from the air and injected it into the Cantarellfield in order to counter falling pressure.

The result was a dramatic rise in production from about 1 million barrels per day(mbpd) in 1995 to above 2 mbpd in 2003, just two years after the nitrogen injectionbegan. But, by the end of 2005 it was evident that Cantarell was in decline.

What followed was a breathtaking slide from2.136 mbpd in 2004to just 396,000barrels per day as of the last week of March this year. Thats a total decline of 81

percent in just over eight years. (Please note that the day after I accessed the Marchnumber from the PEMEX website, the table in which it appeared vanished from thesite. Ive been unable to find the number elsewhere.This piece, however, notedproduction a year ago at about the same level.)

PEMEX has stabilized total Mexican oil output from all fields at about 2.5 mbpditwas 3.4 mbpd at Cantarells peakby successfully increasing production from itsKu-Maloob-Zapoffshore field. But once again the company is using nitrogeninjection to achieve the increase just as it did at Cantarell. And so, PEMEX may beon course to repeat at Ku-Maloob-Zap the rapid decline previously experienced at

Cantarell.

Four years on from the 2009 study it is possible that the percentage of world oilproduction from the giants has slipped as just enough production from new smallerfields has been added to keep global production flat. But if, as the study suggests,the decline rate for giant fields accelerates, therecord-breaking expendituresandherculean technical efforts now being undertaken by the oil industry just to keepproduction flat may be overwhelmed.

Perched on a production plateau, either we are approaching ever closer to a declinein worldwide production of crude oil proper or new developmentsthat is, ones not

yet in evidencewill boost the global rate of production definitively above the current
http://www.eia.gov/cfapps/ipdbproject/iedindex3.cfm?tid=50&pid=57&aid=1&cid=ww,&syid=2005&eyid=2012&freq=M&unit=TBPDhttp://www.eia.gov/cfapps/ipdbproject/iedindex3.cfm?tid=50&pid=57&aid=1&cid=ww,&syid=2005&eyid=2012&freq=M&unit=TBPDhttp://www.eia.gov/cfapps/ipdbproject/iedindex3.cfm?tid=50&pid=57&aid=1&cid=ww,&syid=2005&eyid=2012&freq=M&unit=TBPDhttp://en.wikipedia.org/wiki/Cantarell_Fieldhttp://en.wikipedia.org/wiki/Cantarell_Fieldhttp://en.wikipedia.org/wiki/Cantarell_Fieldhttp://www.ogj.com/articles/print/volume-99/issue-11/drilling-production/worlds-largest-n2-generation-plant-starts-up-for-cantarell-reservoir-pressure-maintenance.htmlhttp://www.ogj.com/articles/print/volume-99/issue-11/drilling-production/worlds-largest-n2-generation-plant-starts-up-for-cantarell-reservoir-pressure-maintenance.htmlhttp://www.pemex.com/files/content/Full%20version%202012.pdfhttp://www.pemex.com/files/content/Full%20version%202012.pdfhttp://www.pemex.com/files/content/Full%20version%202012.pdfhttp://www.bloomberg.com/news/2012-04-30/pemex-oil-production-falls-as-cantarell-hits-record-low.htmlhttp://www.bloomberg.com/news/2012-04-30/pemex-oil-production-falls-as-cantarell-hits-record-low.htmlhttp://www.bloomberg.com/news/2012-04-30/pemex-oil-production-falls-as-cantarell-hits-record-low.htmlhttp://en.wikipedia.org/wiki/Ku-Maloob-Zaaphttp://en.wikipedia.org/wiki/Ku-Maloob-Zaaphttp://www.globaldata.com/PressReleaseDetails.aspx?PRID=333http://www.globaldata.com/PressReleaseDetails.aspx?PRID=333http://www.globaldata.com/PressReleaseDetails.aspx?PRID=333http://www.globaldata.com/PressReleaseDetails.aspx?PRID=333http://en.wikipedia.org/wiki/Ku-Maloob-Zaaphttp://www.bloomberg.com/news/2012-04-30/pemex-oil-production-falls-as-cantarell-hits-record-low.htmlhttp://www.pemex.com/files/content/Full%20version%202012.pdfhttp://www.ogj.com/articles/print/volume-99/issue-11/drilling-production/worlds-largest-n2-generation-plant-starts-up-for-cantarell-reservoir-pressure-maintenance.htmlhttp://en.wikipedia.org/wiki/Cantarell_Fieldhttp://www.eia.gov/cfapps/ipdbproject/iedindex3.cfm?tid=50&pid=57&aid=1&cid=ww,&syid=2005&eyid=2012&freq=M&unit=TBPDhttp://www.eia.gov/cfapps/ipdbproject/iedindex3.cfm?tid=50&pid=57&aid=1&cid=ww,&syid=2005&eyid=2012&freq=M&unit=TBPD


34/39


plateau. The weight of the evidence, however, suggests an unfavorable outcome inthe decade ahead.

View more quality content fromResource Insights

Tide turning for crude

Written by Andrew McKillop fromAMK CONSULT

GOLD, OIL AND THE DOLLAR

To this heavyweight trio for deciding investor sentiment in the commodities space,we can add sovereign debt, interest rates and currency valuations, in a cocktail mixthat reads badly for oil above $85 - $90 per barrel - for Brent. Short term bouncesand dips in commodity prices driven by the Eurozone merry-go-round might grindonward, perhaps, but the sundown on commodities of all kinds is shaping up on thehorizon. Taking only the dollar, if the USD strengthens, "traditional" confidence innatural resource commodity assets looks set to drain and bleed away on an almostdaily basis.

As of early April 2013 we still have no problem finding still-typical Herd statements(this one from Capital Economics) such as: "Admittedly, the price of gold has not yet

benefited as much as we had expected from the Eurozone crisis, so we are loweringour projections". Like others, Capital Economics has simply pushed forward its goldforecast of a "fresh surge to new highs around $2 000", to the year-end. This isbecoming unlikely, as the markets are showing more and more openly. Gold priceweakening also means shrinking crude prices in the current context.

While the main source of what we can call "conventional macroeconomicuncertainty" is the Eurozone and other EU economies, this downplays the remaininghigh level of uncertainty concerning the US economy, increasing concern on Japan's"monetary experiment" for restoring inflation, and rising uncertainty concerningChina's economy. Taking simply the complex and long-running US "fiscal cliff issue",Societe Generale's commodity experts advise this could potentially shave as muchas 3% from US economic growth in 2013-14. This would create a Eurozone
http://www.oilvoice.com/description/Resource_Insights/a99eb502.aspxhttp://www.oilvoice.com/description/Resource_Insights/a99eb502.aspxhttp://www.oilvoice.com/description/AMK_CONSULT/82b50237.aspxhttp://www.oilvoice.com/description/AMK_CONSULT/82b50237.aspxhttp://www.oilvoice.com/description/AMK_CONSULT/82b50237.aspxhttp://www.oilvoice.com/description/AMK_CONSULT/82b50237.aspxhttp://www.oilvoice.com/description/Resource_Insights/a99eb502.aspx


35/39


economic future for the US.

WILDLY BEARISH

The day after a wildly bearish report from the US Energy Information Administration

showing that crude supplies are at their highest level for 82 years and refinery runsat a 6-year high for this time of year, the oil market response was set in stone. Add inthe worldwide pressure, not only from central banks but also North Korea that bolsterthe dollar, and talking about Brent at $120 becomes fond memories of a recedingpast. Whatever Mario Draghi of the ECB may be saying about the Eurozoneeconomy the readout is continuing or deeper recession in Europe, which in 2013entered its 7th straight year of declining oil demand.

Back-flow from a strengthening dollar in the shape of more expensive US exportsmay also play its own baleful role in further depressing any potential for expanded oildemand in the US, whose crude oil imports can only decline due to powerful growth

of domestic oil production. Add in China's potentially serious new bird flu outbreak,and things look even worse for non-US oil demand.

Once upon a time, also down Memory Lane, cold weather could give a fillip to USheating oil demand and lever growth of crude prices in its wake, but natural gasusurped that role long ago. The highly exceptional long-life winter conditions rulingthe northern hemisphere, especially strong in Europe, have helped gas prices inseveral market, but cold winter conditions have also depressed gasoline demand,while global gas prospects, including stranded resource and shale resourcepotentials make it clear that gas shortage, anywhere, can only be temporary.

In Europe, despite its high-cost renewable energy action plans (REAPs) mandating aswitch away from carbon fuels for power generating, real world change this winterhas featured rising use of coal, "clean" or otherwise, and declines in natural gasdemand in most EU27 countries reaching double-digit levels. Coal stays cheap, withprices still as low as $8 per barrel equivalent before shipping costs. For US powerproducers, like European generators, this is a no-brainer shown by US coal-firedgeneration up 21 percent YOY. How long this will last is however in question, as theObama administration turns its political heat on coal steam power into something ofa crusade.

GEOPOLITICS TO THE RESCUE?

This is always a wildcard, and even the North Korean nuclear issue (replacing theIran nuclear issue for a while) could or might prove worthy of a short upbeat intervalin the general decline of crude prices, but first and most it can bolster the dollar.Israel-Palestine tensions, with the return of Spring are back on the boil and theSyrian civil war can at all times break out of its borders - but almost only westwardinto Lebanon. The decline in Turkey-Israel tension due to recent "peace feelers" fromIsrael runs counter to the usual program of rising Mid East tensions, whichtraditionally bolster oil.

More important and a real fundamental change, global oil production is poised tomove out and away from the Mid East on a steadily accelerating basis. To the


36/39


increasing number of onshore and offshore oil E&P projects moving forward tocommercial supply status in west and central Africa, east African projects are addingtheir weight. In many cases including gas resources, often large, the Dark Continentis now revealing its potential promise of a global shift of oil-and-gas emphasis thatcan chip away at Mid East domination, with a major downward impact on the always-

variable "risk premium on oil".

Global oil, today, provides around 32 percent of world energy compared with 53percent at the time of the first oil shock in 1973 and this longterm fundamental isunlikely to change its direction. In turn, this changes the metrics for gauginggeopolitical risk in oil, making current probable premiums of round $15 per barrel andup, another hangover from the receding past

View more quality content fromAMK CONSULT

Scientific viewpoint or

'religious' belief: Mycat explains energyoptimism

Written by Kurt Cobb fromResource Insights

Each morning when I release my cat from the basement where he sleeps, he rushesto the upstairs bathroom to drink water from a bowl placed there for him. He appearsto have a 'religious' belief that the water in this bowl is far superior to that in the bowlsitting alongside his food in the basement. So far as I can tell, there is no discernibleevidence available to him to make this distinction. I take his preference then as amatter of faith rather than evidence. The water upstairs is holy. The water in thebasementnot so much.

How do I know that the upstairs water is really holy? When I forget to fill the upstairs

bowl, the cat complains even if his basement bowl is full. It is hard enough to reasonwith a cat, but even harder to argue one out of what is essentially a religious belief.
http://www.oilvoice.com/description/AMK_CONSULT/82b50237.aspxhttp://www.oilvoice.com/description/AMK_CONSULT/82b50237.aspxhttp://www.oilvoice.com/description/Resource_Insights/a99eb502.aspxhttp://www.oilvoice.com/description/Resource_Insights/a99eb502.aspxhttp://www.oilvoice.com/description/Resource_Insights/a99eb502.aspxhttp://www.oilvoice.com/description/Resource_Insights/a99eb502.aspxhttp://www.oilvoice.com/description/AMK_CONSULT/82b50237.aspx


37/39


And so it is with humans. Some ideas find their basis in fact, while others fall underthe category of faith. As it turns out, those that are faith-based are the most difficultto overturn. I rarely try. But, then there is a vast sea of ideas parading as facts, whenreally, these 'facts' are nothing but ideology based on ideas that are empirically false

or at least suspect.

Such is the ideology of the fossil fuel optimists who tell us that the marketplace willbring forth whatever fossil fuel supplies we need when we need them at prices welike. Some, but not all, tell us that fossil fuel supplies have no practical limits becauseit is our imagination that brings them out of the ground. Statements like that are partand parcel of the kind of magical thinking that infects the public discussion about thefuture of energy.

I style myself as an energy realist with anemphasis on risk management. No onecan know the future. That's why it is important to use our imagination to picture

outcomes that might hurt us badly and to suggest measures to prevent or mitigatethose outcomes.

The fossil fuel optimists in the world tend to be economists, not geologists (whogenerally take an empirical rather than religious approach to matters). Thoseeconomists simply know that they know that the marketplace is a superior forceeven a god-like oneto which we should exclusively entrust our energy future. Yet,that same marketplace has failed to yield enough crude oil in the last decade toprovide the cheap energy that keeps the global system stable. In fact, therecordprice of oilhas and continues to be a destabilizing force in global affairs.

My colleague Jeffrey Brownwho back in 2006 conceived theExport Land Modeland through it correctly foretold the subsequent decline in global oil exports and theaccompanying price riserecently remarked that many of the optimists believesomething which defies logic. They believe that the sum of production from discreteoil wells, oil fields and oil producing countries around the worldwhich provideinnumerable examples of peak production followed by persistent declineswill neveradd up to a global peak and decline in oil productionever! Oil production will growat some percentage each year forever, indefinitely.

In fairness, I must point out that quite a few of the other optimists say that a peak in

oil production is decades away. So, at least their case does not rest on a logicalimpossibility imposed on a finite Earth. But, they refuse to admit that no one knowsthe day when oil production will peak. And, the inescapable logic of their position isthis: If world oil production will someday peak and decline, the risk of a decline growswith each day. Failed peak oil predictions of the past don't mean that peak oil iswrong, only that peak oil draws ever closer.The bumpy plateau in oil productionproper (crude oil plus lease condensate) since 2005ought to be cause for alarm.

Now, I should classify those economist/optimists so that their motives become moretransparent. There are those who work directly for or as consultants to the oilindustry. Enough said. There are those who work for Wall Street firms that do

substantial business with the oil industry. Enough said. There are those who work ingovernment all around the world. Here it can only be said that most of the world's
http://www.resourceinsights.blogspot.com/2013/03/current-us-energy-policy-risk.htmlhttp://www.resourceinsights.blogspot.com/2013/03/current-us-energy-policy-risk.htmlhttp://www.resourceinsights.blogspot.com/2013/03/current-us-energy-policy-risk.htmlhttp://www.resourceinsights.blogspot.com/2013/03/oil-is-at-100-and-theyre-telling-us-its.htmlhttp://www.resourceinsights.blogspot.com/2013/03/oil-is-at-100-and-theyre-telling-us-its.htmlhttp://www.resourceinsights.blogspot.com/2013/03/oil-is-at-100-and-theyre-telling-us-its.htmlhttp://www.resourceinsights.blogspot.com/2013/03/oil-is-at-100-and-theyre-telling-us-its.htmlhttp://www.resilience.org/stories/2013-02-18/commentary-the-export-capacity-indexhttp://www.resilience.org/stories/2013-02-18/commentary-the-export-capacity-indexhttp://www.resilience.org/stories/2013-02-18/commentary-the-export-capacity-indexhttp://www.eia.gov/cfapps/ipdbproject/iedindex3.cfm?tid=50&pid=57&aid=1&cid=ww,&syid=2005&eyid=2012&freq=Q&unit=TBPDhttp://www.eia.gov/cfapps/ipdbproject/iedindex3.cfm?tid=50&pid=57&aid=1&cid=ww,&syid=2005&eyid=2012&freq=Q&unit=TBPDhttp://www.eia.gov/cfapps/ipdbproject/iedindex3.cfm?tid=50&pid=57&aid=1&cid=ww,&syid=2005&eyid=2012&freq=Q&unit=TBPDhttp://www.eia.gov/cfapps/ipdbproject/iedindex3.cfm?tid=50&pid=57&aid=1&cid=ww,&syid=2005&eyid=2012&f