North Sea faces record fall in oil and gas production

According to a story in The Telegraph today, this year could see a record fall in oil and gas production for the UK:

North Sea oil and gas production could decline by as much as 22pc this year - the biggest annual slump on record – as maintenance on ageing infrastructure hits operations, the industry body has warned. Oil & Gas UK said it now expected average output to fall to between 1.2m and 1.4m barrels of oil and gas per day (boepd) this year, down from 1.54m boepd in 2012.
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The decline has been in the region of 10% a year for some time now anyway, but some major technical issues in the past year have pushed production down faster than has been typical. In some ways this isn't all bad - it means that oil and gas is still there to use later on, when prices are higher. But there's always the risk that it's not worth repairing failing machinery if there's not much left to be extracted from a particular field, leaving it locked underground for good. (Of course, from a climate change point of view that's a good thing!)

This trend doesn't fully show up in the latest DECC Energy Trends, as it only covered up to Q1 2013, but even then oil production was down 15% from a year ago, and gas down 14.5%. It'll be interesting to see what's in the September edition...

On a slightly more positive note, it seems that more attention is being paid to thorium as a nuclear fuel. Obviously nuclear energy of any sort has numerous downsides, but thorium does seem to be be 'less bad' than uranium in several ways, so it'll be interesting to watch for more developments...

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Peak oil lives, but will kill the economy

Interesting story in the Guardian this week, noting that the BBC had lined up a row of 'experts' to tell us that there's no need to worry about the future of oil supplies. The point they seem to have missed is that the cheap oil is declining fast, and the gap is being filled by expensive oil, and that this expensive oil also takes more energy to get it out of the ground and turned into usable fuel.

"Global production of crude oil and condensates... has essentially remained on a plateau of about 75 million barrels per day (mb/d) since 2005 in spite of a large increase in the price of oil. Even more important, the global net oil exports from oil-exporting countries (oil production minus internal consumption) have peaked and are in decline."
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The Eos paper goes on to point out that while "total oil production has plateaued, production of oil from older existing fields has been in decline, dropping roughly 5% annually, corresponding to a loss of 3-4 mb/d." Although production from unconventional oil and gas has balanced this decline, they are "difficult and expensive" with "very low energy return on investment (EROI)." In simpler terms, "it takes energy to get energy, and more is required to produce energy from unconventional sources."

The outcome is of course that oil will cost more, and that limits economic growth.

The result is an undulating production plateau correlating with higher but more volatile oil prices, as well as a prolonged recession punctuated by small cycles of 'recovery' and contraction.

Hmmm, 'prolonged recession punctuated by small cycles of 'recovery' and contraction.' - sound familiar to anyone?

You can read the full article here.

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Interview with Kjell Aleklett, one of the Peak Oil 'founding fathers'

An interesting interview with Kjell was published a couple of days ago, where he sets out the story so far on Peak Oil. Good to hear it from one of the pair who coined the term originally. A few quotes:

How have attitudes shifted since you first made your predictions?
Attitudes have changed considerably. Traditionally, economists have stated that if the price of a commodity is high, you should be able to produce more of it. However, this doesn’t necessarily hold true for a finite resource. Previous IEA and EIA estimates suggested that by 2030, oil production would have reached 120 million barrels per day. They have since revised their estimates to 95 million barrels per day: a reduction of 25 million barrels per day.

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Do you think that sufficient measures are being taken by policymakers to plan for our transition to the second half of the age of oil?
No. It is clear that in this respect, we have a big problem. It is very difficult for any politician to admit that something is wrong, and that we might need to do something about it. If they were to do this, another politician would come along and say, ‘There’s no problem; vote for me and we can carry on as we are’.

This is the democratic dilemma. Drastic action is necessary, but it is very difficult to achieve. Education will be crucial if we are to succeed in implementing the required measures. Alternatively, it might take a crisis to precipitate change.

This last point is key - how can a politician get elected by telling people that they must consume less and pay more for it? Or is a crisis the only option?

You can read the full interview at Science Omega.

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UK gas supply and prices for winter 2013/14

Yeah, yeah, I know summer's not even started yet, but the UK gas markets are already planning ahead to next winter. Time to take a first look at how things are shaping up...

As you will remember, winter dragged on a bit this year in the UK, and it was only seven weeks ago that our gas supplies were running on empty. As I noted at the time, this leaves us with a problem, as there is now not enough time to easily refill the long range gas storage before next winter, as there are technical limits to how fast gas can be injected back into the store at Rough.

To illustrate the problem here's a graph showing long range gas stock levels for the past few years (click for a larger version):

As you can see, we are starting from an all-time low and are several weeks behind the next worst case (which was 2010). Here's another graph showing the rate at which gas has been injected into Rough since the cold weather stopped:

Centrica have actually been making a good effort to get gas in there as fast as possible, actually setting a new record on 1 May, but there have still been some blips due to cold weather or other issues that have slowed things down.

So how has this been affecting price? The exceptionally low storage level following last winter represents itself as extra demand in the gas market between now and next winter, so it's no surprise that average wholesale prices are up 23% for the year to date compared to 2012:

This can only translate into higher bills eventually, although the bumper profits made last winter may result in a short delay before this happens. Boosted gas prices will feed through into electricity prices too.

So what can you do? Well, the message hasn't changed - insulate and draught-proof your house, upgrade your heating controls and thermostats, get a new boiler if you need to. Switching supplier will make little difference, especially in the long run, so the only answer is to use less gas.

I'll post more updates over the summer when I see how things are going in preparation for the coming winter.

Mike

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The real reason we won't stop climate change

Note that I said won't, not can't. We have the technology we need to shift to a renewable-energy powered society, though it would certainly be hard work. And there would also need to be changes in the way we live. But it could be done, if we were willing. However, 'we' includes every individual and organisation, and it's not the hard work that's putting some of them off, it all comes down to money...

This isn't new, but it was on the BBC news today, so I thought it was worth mentioning:

Some 60% to 80% of fossil fuel reserves owned by listed firms could be classed as unburnable if politicians stick to CO2 emission limits, a report warns.

The research by the London School of Economics and NGO Carbon Tracker says firms spend billions of pounds of shareholders' money on exploration.

It says 200 listed firms spent £440bn in 2012 chasing more coal, oil and gas.

It says if this continues for a decade - and if CO2 limits are achieved - they would waste over £4tn.
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To stick to the current agreed global limit on emissions - which is sure to be breached - the firms would probably be able to emit no more than about 125-275 billion tonnes of CO2 - about a quarter of their assets.
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The authors say the current fossil fuel business model assumes that there are no emissions limits.

This was written about last year in Rolling Stone:

We have five times as much oil and coal and gas on the books as climate scientists think is safe to burn. We'd have to keep 80 percent of those reserves locked away underground to avoid that fate. Before we knew those numbers, our fate had been likely. Now, barring some massive intervention, it seems certain.

Yes, this coal and gas and oil is still technically in the soil. But it's already economically aboveground – it's figured into share prices, companies are borrowing money against it, nations are basing their budgets on the presumed returns from their patrimony. It explains why the big fossil-fuel companies have fought so hard to prevent the regulation of carbon dioxide – those reserves are their primary asset, the holding that gives their companies their value. It's why they've worked so hard these past years to figure out how to unlock the oil in Canada's tar sands, or how to drill miles beneath the sea, or how to frack the Appalachians.

If you told Exxon or Lukoil that, in order to avoid wrecking the climate, they couldn't pump out their reserves, the value of their companies would plummet. John Fullerton, a former managing director at JP Morgan who now runs the Capital Institute, calculates that at today's market value, those 2,795 gigatons of carbon emissions are worth about $27 trillion. Which is to say, if you paid attention to the scientists and kept 80 percent of it underground, you'd be writing off $20 trillion in assets. The numbers aren't exact, of course, but that carbon bubble makes the housing bubble look small by comparison. It won't necessarily burst – we might well burn all that carbon, in which case investors will do fine. But if we do, the planet will crater. You can have a healthy fossil-fuel balance sheet, or a relatively healthy planet – but now that we know the numbers, it looks like you can't have both.

So what it comes down to is that it's not just that our electricity supply, transport, food production and manufacturing is tied to fossil fuels, it's that a massive chunk of the world's economies are also inextricably linked to them too. If we ever acknowledge the problem and decide to leave some of these resources in the ground, the value of stock markets, pension funds and much else will plummet, as the amounts to be written off dwarf what happened in the 2007-present financial crisis.

I can only think of a few ways this pans out, and none of them are pretty. For example:

• We do nothing, climate change accelerates, and by the time we realise we need to change it is too late. Unpredictable weather reduces food supplies and causes localised disasters, eventually impacting the economy sufficiently that fossil fuel extraction slows.
• We have a global economic crash, caused by some other factor, and as a result fossil fuel extraction reduces. But this comes at a heavy price, and if we want to build a renewable energy infrastructure that will support us, we need a working economy while we do it.
• We agree, globally, that fossil fuel extraction is reduced by a few percent a year. Note that I say extraction, not consumption. The only way to make this work is to get less out of the ground, so that prices stay high and encourage reductions in use. We'd probably focus on coal first, as that's where most of the potential lies. Of course, this will not be pain-free, it would change economics completely, would reduce overall economic activity every year, and would make many assets useless, such as recently built coal power stations.

A recent story in the Guardian covers the same ground from a different angle:

The industrial revolution that kick-started the human impact on the climate was driven by just such a feedback. The steam engine enabled us to drain coal mines, providing access to more coal that could power more steam engines capable of extracting yet more coal. That led to better technologies and materials that eventually helped ramp up production of oil as well. But oil didn't displace coal, it helped us mine it more effectively and stimulated more technologies that raised energy demand overall. So coal use kept rising too – and oil use in turn kept increasing as cleaner gas, nuclear and hydro came on stream, helping power the digital age, which unlocked more advanced technologies capable of opening up harder-to-read fossil-fuel reserves.

Seen as a technology-driven feedback loop, it is not surprising that nothing has yet tamed the global emissions curve, because so far nothing has cut off its food supply: fossil fuels. Indeed, though our governments now subsidise clean-power sources and efficient cars and buildings – and encourage us all to use less energy – they are continuing to undermine all that by ripping as much oil, coal and gas out of the ground as possible. And if their own green policies mean there isn't a market for these fuels at home, then no matter: they can just be exported instead.
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Even the UK, with its world-leading carbon targets, gives tax-breaks to encourage oil and gas recovery and has been growing its total carbon footprint by relying ever more on Chinese factories – and therefore indirectly its reliance on American and Australian coal. And not just that. Although it rarely gets commented on, Britain – along with other supposedly green nations such as Germany – regularly begs Saudi Arabia and the other Opec nations to produce not less oil, but more. As journalist George Monbiot once put it, nations are trying simultaneously to "reduce demand for fossil fuels and increase supply".

It does seem that as we add renewables, they are in addition to fossil fuel use, not instead of, and haven't made any real difference to actual CO2 emissions - check out the graph in the Guardian story above.

I think the only thing we can do is to challenge people in government and industry who support tackling climate change to face up to this issue. Where we go from there is unknown...

Mike

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Energy crises popping up across the world

While most people interested in energy in the UK (myself included) have been focused on our gas supply issues, with the unseasonably cold March, events have been unfolding in other countries that may be a cause for concern.

During past price rises in the price of energy and problems in global supply, poorer countries have often acted as 'canaries in the mine', as their relative lack of financial muscle exposes them to the risk of shortages much sooner than rich countries. This is not surprising, given that our energy markets impose 'rationing by price' when demand rises, supply falls, or both happen at once.

Over the past week, there are three stories that have come to my attention, in Jordan, Thailand and Egypt:

Jordan

According to Reuters, Jordan is in the grip of an electricity supply crisis:

The resource-poor kingdom, which imports 97 percent of its energy, has in the past two years seen the annual cost of those purchases soar above $5 billion (3.3 billion pounds) - equivalent to about 15 percent of its gross domestic product - after supplies of cheap Egyptian gas were disrupted by sabotage of a pipeline to Jordan.

Dependent now on costly diesel and fuel oil, Jordan is considering wider electricity rationing and is preparing a hike in electricity prices in June, a politically fraught move in a country which saw street protests last year over fuel subsidy cuts imposed as a condition for a $2 billion IMF loan.

"Energy is the Achilles heel of the Jordanian economy, it's a huge vulnerability for Jordan...the biggest drain on the economy," Nemat Shafik, deputy head of the International Monetary Fund, said during a visit to Jordan last month.

Interestingly, it is provoking some positive responses, such as improvements in energy efficiency and plans to build large solar farms, but sadly they are still focusing on fossil fuels, for example: pipelines to import crude oil and plans to develop shale oil and gas. Jordan is actually in a similar situation to the UK, only worse, as it seems to have been getting most of its gas through one major import route, while the UK has several. But the lesson is there - if you depend on imports, then disruption to them can turn into a serious problem very quickly.

Thailand

Another Reuters story covers the trouble in Thailand, where technical problems at gas fields in Myanmar have resulted in a shutdown of gas supplies right at the peak of electricity demand.

Government electricity-saving plans - including agreements with factories such as a Thai unit of Toyota Motor Corp to stop operations on April 5 - may prevent blackouts in the short term but point to the potential long-term economic impact.

The supply crunch also highlights the difficulties in securing alternatives. Liquefied natural gas is much more expensive, while cheaper coal faces strong opposition after problems caused by pollution in the early 1990s at a coal-fired power plant.

As in Jordan, they are considering other options, but not many of them are renewable:

To strengthen electricity security, Thailand aims to develop an ASEAN power grid to link transmission systems among Southeast Asian countries, said Pongdith Potchana, deputy governor at the state-run Electricity Generating Authority of Thailand.

Thailand has already signed deals to buy up to 7,000 megawatts of power from Laos and is aiming to buy either hydro or coal-fired power from Cambodia and Myanmar, he added.

But for real security, Thailand needs to double its electricity generation capacity to 70,000 MW by 2030 and the most cost-effective way to do that - and the most controversial - is through coal-fired plants.

Imported coal provides power at 2.94 baht per kilowatt hour, cheaper than 3.96 baht for natural gas, as well as the 3.00-5.20 baht for biomass and wind power and the 12.50 baht for solar energy, according to government data.
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Another way the government can tackle the looming gas shortage is to dampen demand by allowing prices to rise. It has said it wants to raise prices of cooking gas, or liquefied petrolem gas (LPG) and natural gas for vehicles to reflect costs.

Egypt

Meanwhile, Alternative Energy Africa reports on the situation in Egypt, where there is no single cause for the crisis:

The Egyptian government has announced that it will close the Cairo International Airport beginning on June 1 from 1:30 am to 5:30 am in order to save electricity; however, one lane at the airport will remain in operation to receiving incoming flights.

While the airport has not been hit by the power outages that have affected the rest of the city because of back-up generators, the energy situation in Egypt continues to deteriorate. Over 95% of the population has access to electricity, but the rising demand has crippled the already battered economy. Previously, the government announced that it would cut power from shops at 9 pm each night, but business owners protested against the change since many places depend on the active Egyptian night time to conduct operations.

In some ways this is worse than a specific technical or political problem restricting energy supplies, as there are no quick solutions to increase supply. Of course, this is also the situation for the UK in the next few years, as we face an ageing energy infrastructure here too, with power stations closing and not many new ones opening that don't rely on imported gas...

Mike

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Britain's biggest gas storage runs out of normal supply

Following up on my post on Friday, here's a report from Reuters with more details:

Britain's biggest gas storage site ran dry of normal supply on Friday and is using gas usually reserved for the technical operation of the site, National Grid data showed.

Unusually cold weather in Britain has boosted gas consumption, forcing the Rough storage site off Scotland's east coast to take the unusual step of dipping into its so-called cushion or base gas.

What's very useful is that they got some figures out of Centrica on how much of this 'cushion gas' can actually be extracted:

"There is potentially an additional 1.1 TWh (terawatt hours) (100 million cubic metres) that could be produced from the Rough reservoir below this opening stock level... The opening stock published by National Grid may ultimately be at -1 TWh)," Rough operator Centrica said in a regulatory update on Friday.

They finish up by saying:

Gas traders said next week a planned strike by workers on Norway's offshore gas fields could hurt gas flows to Britain.

Supply could also be impacted by unplanned outages because of technical problems that are a regular occurrence in the vast network of gas platforms and pipelines that crisscross the North Sea.

However forecasted milder weather and two deliveries of LNG to Britain due next week could take pressure off prices, traders said.

So, we can draw a further 100mcm, or 1,100 GWh out of Rough below 'zero'. By 6am on Sat 6 April 2013 we'd already drawn 290 of these GWh of gas out of there, as shown by this screenshot taken from the Prevailing View page:

 

Thankfully it's warming up now, because soon this store really will be empty... The problem, and cost, of refilling it in time for next winter still remains though...

Mike

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