Peak Oil Today - 29 Feb 2016

The very best weekly analysis and evaluation of the global peak oil situation with additional briefings, charts and videos, added by the curator from accredited professional sources, to enhance the informed reader's knowledge and understanding of its deep complexities and evolving outlooks. 

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Peak Oil Review – 29 Feb 2016 

By Tom Whipple

Quote of the Week

“The problem is going to be the money. Where is the money going to come from? A lot of people who have burned their fingers on (U.S. shale) are going to be reluctant to reinvest.”

Arnaud Breuillac, president of exploration and production at French oil giant Total.

Contents

1.  Oil and the Global Economy

2.  The Middle East & North Africa

3.  China

4.  The Briefs

1.  Oil and the Global Economy

Oil had a good week for a change with New York futures rising 3.2 percent to close at $32.78 and London climbing 6.3 percent to close at $35.10.  This time, there was more than just wishful thinking behind the price increase as pipeline outages shut in 600,000 b/d in Kurdistan and 250,000 b/d in Nigeria to cut global exports by 850,000 b/d. In both cases, it is unclear as to just when the pipelines will reopen. In Nigeria, the outage was due to an underwater leak while the situation in Kurdistan likely is related to one of many wars taking place in the region.

Despite the outages, the global market is still oversupplied and many traders are looking for the Saudi-Russian production “freeze” to morph into an actual production cut that will rebalance the markets. However, at the IHS-CERA oil conference in Houston last week, Saudi Arabia’s oil minister made it clear that a production cut was not going to happen despite all the hype and optimism. The Iranians seconded the sentiment saying they were not going to freeze or cut anything until their production was back to the pre-sanctions 4 million b/d. Moscow chimed in with the claim that even with a freeze its oil production could set a new post-Soviet record this year.

Amidst all the gloom and doom about low prices at the Houston conference, the IEA rolled out its most recent thoughts about the future of oil. The Agency naturally is concerned about the major cutbacks in capital investment that are underway and believes the industry will be hard pressed to recover after prices rebound later in the decade. The executive director of the IEA says he expects prices to climb back up to $80 a barrel by 2020. He also believes there will be a second leg to the US shale oil boom which will be quick to recover when prices rise and will send US domestic oil production to new highs by 2021.

In the meantime, the US oil industry is going through a major contraction with numerous bankruptcies and much selling off of assets. During the Houston conference, it was noted that the reason there are so few mergers is that many company debts become due the minute the company comes under new ownership. Few companies are willing to bear the upfront costs of paying off the debt of new acquisitions, even at bargain prices.

For the immediate future, it looks as if US shale oil production will be falling as the number of active drilling rigs continues to fall steadily. The week before last the rig count fell by 13 to 400. However, there still remains a backlog of hundreds of wells that have been drilled and are awaiting fracking before they can start producing. This backlog and increasing production from large offshore projects nearing completion in the Gulf of Mexico may be enough to keep US domestic production from falling as fast as many foresee.  Even the Saudis noted in Houston last week that the US shale oil industry is very light on its feet. Once having established itself in an area with drill sites, permits, and the logistic infrastructure already in place, shale oil production can be increased very rapidly in comparison to what would be required to increase OPEC members’ production. The problem in increasing shale oil production will come when the most productive “sweet spots” are all drilled.  Some knowledgeable observers believe this will come circa 2020.

Concerns once again are increasing that a shortage of oil and oil product storage capacity in the US could drive oil prices considerably lower within the next few months. The main US storage facility and futures delivery point at Cushing, Okla. is already 80 percent full, is turning away some types of business, and at the current rate of filling will be completely filled in another four months. The same problem is occurring in other facilities along the Gulf Coast and in the mid-west. Refiners in the mid-west are already cutting back gasoline production as the demand is simply not there despite the very low prices ($1.11 in parts of Minnesota) and the much-ballyhooed economic recovery.  Some analysts are convinced that another major down leg to the oil markets is virtually certain to occur before supply and demand come back into balance.

Another interesting situation is arising in the natural gas markets where prices touched a new 17-year low last week, below $1.75 per million BTUs. Most believe the cost of producing shale gas is in the vicinity of $4 to $6 per million; it is obvious that natural gas producers, and Wall Street, are losing a lot of money. Currently, prices are being pushed down by an unusually warm winter and stockpiles which are about 30 percent above normal for this time of year. Close examination of US natural gas numbers, however, shows that production is starting to drop and is now down about 1.2 billion cubic feet/day from last September’s output.

Obviously, prices cannot remain this low for long and a rebound before the end of the year is highly likely. Many gas producers used hedges to capture the $5 per million prices that obtained in 2014, but those hedges have now expired and producers are fully exposed to the low market prices. Some analysts believe that we will soon see rapid cutbacks in production with even the possibility of shortages later this year.  More electricity producers are switching to natural gas to comply with EPA regulations and US LNG exports are just getting underway amidst much hype about America supplying Europe and the world with cheap natural gas.

Conventional natural gas production in the US is down by 17 billion cubic feet/day since 2008 and continues to drop at about 5 percent a year. While this has been made up in recent years by the rapid increase of shale gas, it seems that this too will be coming to an end, both through low prices and geologic constraints. Given the ongoing decline in conventional gas production and the rapid depletion that takes place in existing shale gas fields, it will take an increase of 15 billion cubic feet/day of new production in 2016 just to keep US production level for the year much less meet the expected export demand. This demand is forecast to reach 7 million cu. feet/day by the end of the decade.

All this says that there is likely to be a major rebound in natural gas prices to economic levels in the next year or so, provided financially strapped drillers can find the financing in today’s markets. LNG exports do not seem to have a bright future.

 

READ MORE

http://peak-oil.org/peak-oil-review-29-feb-2016/

 

 www.firstfinancialinsights.blogspot.com

UK #PeakOil - UK North Sea Continues Production Slide

UK North Sea Oil Projects Collapse Amid Market Drop

By Danica Kirka ,AP
February 24, 2016, 12:11 am TWN

LONDON -- The number of new investment projects in the North Sea has collapsed amid a fall in oil prices, underscoring fears for the future of the basin and the jobs it creates.

Oil & Gas UK, an industry association, said in its annual survey Tuesday that some 1 billion pounds (US$1.4 billion) was expected for new projects, compared to the typical 8 billion pounds annually. It argued that the long-term future of the industry is at risk and that the government should reduce taxes "to minimize the loss of capacity in the downturn."

"We are truly trying to fight for our survival," said Mike Tholen, the economics director for Oil & Gas UK. 

Once one of the world's great oil regions, the North Sea's resources are being depleted. Production has dropped from a peak in 1999 — when the U.K. pumped 4.6 million barrels of oil equivalents a day — to 1.6 million barrels of oil equivalents a day last year. Oil & Gas UK's chief executive, Deirdre Michie, said the U.K. Continental Shelf is entering a phase of "super maturity."

That decline is being hastened by a collapse in oil prices, which have been falling for over a year. Brent crude, the benchmark for international oil, hit a 12-year low of US$27.10 a barrel in January, having been above US$100 a barrel in September 2014. It traded at US$34.46 on Monday.

The number of oil rigs being de-commissioned — that is, taken out of service and dismantled — is accelerating. The group said the number of fields expected to cease production has risen by a fifth to over 100 between 2015 and 2020.

The trade body said that if oil remains at around US$30 a barrel for the rest of 2016, nearly half of the U.K.'s offshore fields will likely be operating at a loss, "deterring further exploration and capital investment, and making additional cost improvement imperative."

With competition for investment cash fierce, Tholen argued that Britain needs to adapt the tax regime to make sure the industry can keep moving in the downturn. Tholen said thousands, if not tens of thousands, of jobs are at risk. Contractors and other suppliers rely on the industry, meaning that woes of the North Sea will be deeply felt across the country, not just in one region.

"A coherent approach by the industry, regulator and government will be critical to boost the industry's competitiveness and its investors' confidence," Michie said

www.firstfinancialinsights.blogspot.com

#SPROTT MONEY - Volatile Bond Markets

SPROTT MONEY

Weekly Wrap-up

May 16, 2015

BONDS STILL 
VOLATILE 

Listen to Eric Sprott shares his views on the status of the economy, volatility in the bond markets, the launch of BitGold this week, Indian gold demand, and movement in the precious metals market. Tune-in to the Weekly Wrap Up

 http://www.sprottmoney.com/sprott-money-weekly-wrap-up

www.firstfinancialinsights.blogspot.com

SPROTT MONEY - Weekly Wrap-up

SPROTT MONEY

Weekly Wrap-up

April 25, 2015

GREEK DEBT CRISIS

 Listen to Eric Sprott share his views on this weeks release of current U.S. economic data, the Greek debt crisis and the eurogroup meeting this weekend in Riga, the farce of high frequency trading and the lack of responsible regulation, and Swiss gold exports and global demand.


 http://www.sprottmoney.com/sprott-money-weekly-wrap-up

www.firstfinancialinsights.blogspot.com

The Wealth of Planets

**Also watch  the most IMPORTANT video you'll ever see below**
*Over THREE Million Views World Wide*



"Yes Mr Smith, the Invisible Hand lead us to our final destiny"

  The Most IMPORTANT ECONOMIC Blog Ever


THE WEALTH OF PLANETS
 

Introduction and Purpose

Humanity’s course is clearly in the grips of a fate that is accelerating it to a final destiny. We are at a crossroad. Our choices at this crossroad are defined by two paths, either to slow the pace of our journey to extinction or to carry on as before with exponential speed. Preference is sensibly given to the former, as it provides some time for a possibility to put the proverbial house back in order, thereby extending the fate of our species. Central to achieving this order of utilities are global economic frameworks and beliefs aimed at prolonging human activity and resource supplies.

Currency constructs play a major role in how we go about organizing our economic activities and conceptions. In turn their implementation affects whether we venture towards a more sustainable path of existence or move in rapid concert towards our final demise. Thus, this abstract briefly examines and illustrates the nature of currency and surrogates. It provides a possible redefinition of the conceptual process leading to the creation of currency and management of economies. A process that is aimed at more directly managing object concrete constructs – more particularly, non-renewable resources.

In short, “it plants the seed” for a  revised view related to the printing of money (currency) that embeds a concurrent goal of sustaining and allocating resources of the planet for as long as possible… “Thus, deferring our final curtain”.

Paper Currency or Gold?

The view that gold and similar assets will act as alternate currencies in the immediate term is apparent and unfolding. Gold, in particular is still a feel good visible abstract and not a concrete construct with diverse utility. Gold has operated with this unique psychological characteristic through-out civilized history, a perceived store of magical invisible value. In the last analysis however, the trading of this abstract (gold) for another abstract (paper currency) as a last store of value is redundant unless it is also tied to usable concrete constructs with utility.

The Wizard of Oz, parody, sheds historic light on the on-going forces within societies that debated for decades the contrasting values of paper currency and surrogate constructs, such as gold. An impossible debate to conclude. There is no form of object reasoning or algebra that may be applied to analyze “two visible abstracts” to form an absolute utilitarian answer. Add into the mix the perception or notion of magical powers … the social conversation then shifts from the parody of Oz to the fairytale of Alice in Wonderland. A collective insanity of sorts.

Currency Extinction

  

This redundancy issue and lack of magic that these constructs hold will become increasing apparent as the human race runs quickly towards resource exhaustion and a resultant extinction. Ultimately extinction is a mathematical reality. The course of any wasting finite constructs plotted against the infinity of time (abstract), intersects at a point where a final state occurs. In stages before the intersection, both currency and surrogates move to a point of becoming worthless. Simply because these visible abstracts can no longer be exchanged for concrete constructs with utility. There are too few left.

Easter Island and more recently the country of Nauru have provided examples of what happens when resources are depleted. Those who argue that these defacto extinctions occurred because these were small and isolated geographies on the planet need a dose of quantum perspective. Earth is a small and isolated place in the context of a vast unimaginable universe. We would be wise to heed this quiet warning. Very wise indeed.

What are the Choices?

What to do? What concepts of currency align best with sustaining human survival for a longer period? Existential economics suggests that the currency construct and creation should centre more on a balance sheet approach as opposed to the income statement approach commonly used. a.k.a., GDP. There are important simple distinctions between the two. One favours the past, the other the future. One favours consumption, the other savings.

The income statement approach - GDP is a measure or report on the history of what aggregate economic activity occurred over a period. When currency is created based on a nation’s GDP it assumes an on-going relationship between past and possible future activities. The currency created takes no measure of a nation’s ability to continue to produce such goods and services in the future. For instance, in the extreme case when all of a nation’s resources were consumed in the past GDP period, then all of its currency has no future value. No store of value whatsoever and it can no longer be exchanged for concrete objects with utility.

Income Statement Shortcomings

Flaws with this approach are clear. First, there is no firm relationship between the currency created based on past GDP and the future utility it purports to convey for exchange. In fact it is created simply by extending the past goods and services mix produced. The likely future production mix based on productive capacity and resources is largely discounted in its creation. Any budgetary deficit further fuels the unsound relationship and the use of resources currently

Second, it sets the stage for the rapid waste and use of resources by encouraging sequential increases of GDP, with little regard for future supply shortages of key economic elements. Ironically, the math of finites invisibly works (“the invisible foot”©) against this approach as we rush to produce much more today, for a lot less output tomorrow faster. Again adding deficits compounds the rapid use of resources and essentially makes the “outright theft” of the non-renewable resources belonging to future generations legitimate. Something just does not make sense, neither is it responsible nor fair.

Balance Sheet Approach for Future

In light of this, it seems to make more sense to print and distribute currency tied to only current concrete resources and capacities of a nation and their abilities to create future utility… its balance sheet. These concrete constructs of the balance sheet may be broken into five elements: renewable and non-renewable resources; physical and conceptual infrastructures; plus human capital. These are the five key concrete constructs of a nation’s balance sheet. (Conceptual and human capital are concrete constructs for purposes of this discussion).It is then important to rank their value, so as to properly focus on their management and long-term use.

The ranking of balance sheet constructs places non-renewable resources at the top of the list of elements for reasons of need and limits. In metaphorical terms they may be viewed as the lifeblood, insulin or oxygen that all the other economic elements require in order to exist and function. They are extremely precious and important because they cannot be renewed. Ever. (Assuming we never learn all the laws of the universe in order to create matter and energy at will?). This leads to an illustration using oil to show how such elements determine the viability of a nation.

Planet OIL a Case Study

For illustration purposes, assume oil is the only non-renewable resource that exists on this case planet - Planet OIL. There are no other resources. And no replacements. It is finite. It is the lifeblood of economic activity and its species concerns. Therefore it is also the true currency for the economy of Planet OIL as all other elements are derived and exist because of it.

Planet Oil’s circumstances raise many interesting observations and questions. But first let us divide the planet into two nations where each owns a 100 year supply of oil. No population growth. No pollution. No weapons. Two very nice places. One nation is called the Rapidusers and the other is called the Slowusers.

The Rapidusers consume twice as much oil (a two year supply yearly) as the Slowusers. Relatively their economy is booming twice as fast as the Slowusers. Their GDP is twice as big and its currency is valued at twice the value of the poor ole Slowusers. What currency really has greater value? What nation would you prefer to live in for the next 75 years?  The answers with a little math should be self-evident

Now in 40 years their currencies are still valued at a two to one ratio in favour of the Rapidusers based on GDP. However their oil reserves are only good for another 10 years while the Slowusers have a supply good to last 60 years. Dr. New Economist comes along and says the GDP approach (income statement) for your currencies is wrong and they should be based on the respective nations’ balance sheets …their likely future utilities.

Overnight currency markets panic and are engulfed in historic sensational trading volumes. The next morning the currencies are realigned. Slowusers currency is now valued at six times the value of Rapidusers…a 1200% increase. The Rapidusers nation falls into chaos with financial meltdowns, business closures, massive unemployment, political upheaval and social unrest. It was heart-breaking. The party is over

  

While this story hints of today’s realities, what is clear is that creating currencies, managing resources, economies and lives of nations based solely on a GDP approach may lead to disastrous outcomes. The value of a nation and its currency is better based on a balance sheet approach tied to concrete constructs to assure its longer-term stability and sustainability

.

Real Life Application?

    

What if real currencies are valued and tied to the productive capacity and resources of a nation – its balance sheet? Will it change present currency values? Yes, it may. Compare Canada and the US resource reserves on a "per capita basis" and an answer is somewhat evident. It may be asserted that the US dollar is worth .15 in Canadian dollars terms based on resource reserves divided by population (balance sheet per capita) Compare this figure to the parity ascribed by current markets. The difference relates to perhaps the GDP bias, historical perceptions and sadly the US military/industrial complex.

Summation

The balance sheet approach conveys a different story of value and sustainability. No approach is perfect. A mixture of the two approaches in the end should serve to provide a better way to manage and sustain longer-term economic activities. But, to ignore a bias of emphasis towards the balance sheet approach places our travels on this planet in great peril.  

And, we should wisely heed quiet warnings…

First Financial Insights

Toronto ON

"The Most IMPORTANT Video

You'll Ever See"

A very special thanks to a dear late friend,  Dr. Albert A Bartlett, Professor Emeritus of Nuclear Physics, University of Colorado at Boulder,  for his ongoing work and passion in this area of grave human concern, as well as his inspiration and permission to use the video included in this blog. His unyielding efforts pass on a great heroic legacy to many coming generations; that so few bravely achieve, for so many. Thank you.

http://www.albartlett.org/

One small step...

The conceptual duality that creates a wall between the theories of economics and the principles of both science and mathematics cannot persist should we desire to move
the human condition forward. Today, we tear down that wall. Today, we build the bridge. Today, we light the candles of possibilities...

Dream…then go do great things