In
And in
Meanwhile, the National School Transportation Association received $2.4 million over the summer to replace 98 older buses in
In all, the federal stimulus package approved this year has earmarked roughly $6 million to the cause of cleaning up the nation's aging fleet of school buses.
Researchers have linked diesel exhaust from older buses with asthma, heart disease and cancer, and studies have found that pollution inside the buses can be worse than levels found outside on the street.
And studies show kids are more vulnerable to the pollution than adults.
To help cut down on this pollution, the EPA has established goals to eliminate unnecessary idling, update buses with better emission controls, fuel them with cleaner-burning fuels, and finally, to replace the oldest buses in the fleet with new, cleaner models.
Overall, the stimulus allotted the National Clean Diesel Campaign (NCDC) a total of $300 million. Of that, the National Clean Diesel Funding Assistance Program received $156 million to fund competitive grants across the nation. The stimulus package also included $20 million for the National Clean Diesel Emerging Technology Program grants and $30 million for the SmartWay Clean Diesel Finance Program grants.
For more information on the EPA's Clean School Bus
US retailers are trying to jump-start holiday buying early this year, moving from the goblins and witches straight to the over-sized ornaments and eggnog flavored lattes.
Heating oil bulls looking for some holiday cheer aren't going to find it in the crack spreads. The December NYMEX heating oil crack spread settled at $6.44/barrel on November 16, the January 2010 crack at $7.41/b and the February 2010 at $7.94/b. By comparison, on November 17, 2008, the December 2008 NYMEX heating oil crack settled at $20.27/b, the January 2009 at $20.49/b and the February 2009 at $20.48/b.
New York spot market crack spreads are much weaker. On November 16 the New York spot heating oil crack was at $1.62/b, down from $3.73/b at the beginning of the month and $17.71/b on November 17, 2008.
That spot crack spread is derived by subtracting a delivered Bonny Light crude price from the prompt New York barge heating oil price -- a still-imperfect comparison considering the prompt timing of the heating oil assessment.
It's hardly news that the US is simply glutted with distillate inventories. While the economy was already in a slump in the winter of 2008, heating oil cracks reflected tighter distillate supplies. As the economic slump continued, and refiners continued to churn out product, distillate inventories mounted.
The week ending November 6, US distillate stocks at 167.725 million barrels were 40.37 million barrels above the five-year average, according to the US Energy Information Administration. For the same week in 2008, stocks were just 1.142 million barrels above the five-year average.
Much of that increase is in low sulfur diesel. But on the US Atlantic Coast, where the bulk of domestic heating oil is consumed, high sulfur heating oil stocks stood at 43 million barrels the week ending November 6 -- 6.89 million barrels above the five-year average, compared to a 6.4 million barrel deficit for the same week in 2008.
The bulls can take comfort in the fact that its still a bit early for peak heating demand to kick in. Sustained cold temperatures typically don't hit the New York region until December, and it may not take too long to chip away at the 6.89 million barrel surplus.
But spot gasoil crack spreads outside of the US are weak as well. The front-month Northwest European crack (Brent basis) was at $5.04/b November 16, according to Platts data, while the Singapore gasoil crack (Dubai basis) was $5.91/b and the Singapore (Tapis basis) was $3.94/b.
European traders have pointed to low demand and high inventories, some of which are still in floating storage. Heating oil sales in Germany were up 9.4% in October from September, but were down 40.1% on the year, according to a German oil industry lobby group, MWV.
Sluggish heating oil cracks have helped eat into refinery margins. For the week ending November 13, the Midwest WTI cracking margin averaged minus $1.48/b, according to Platts and Turner, Mason & Company data. That's down from an average of $5.07/b the week ending October 23.
Over the same period, the US Gulf Mars coking margin has fallen to 35 cents/b from $3.04/b, the West Coast ANS cracking margin to $3.22/b from $5.08/b, and in Asia, the Singapore Dubai margin to minus $2.65/b from minus $2.13/b.
The Northwest European Brent cracking margin has been comparatively stable, falling to $2.15/b from $2.21/b over the same period.
Of course, a rise in heating oil cracks alone isn't going to save refinery margins; cracks for all refined products are currently weak except for residual fuel, which are less negative than usual. But in the current economic environment, refiners will likely be grateful for even the most modest gains.
]]>
Paranoia runs deep among fellow travelers on the political right and Monckton's smear is reminiscent of Wisconsin Senator Joe McCarthy's witch hunts of the 1950s, when he spoke of Communists in high places "concerting to deliver us to disaster."
In his 1964 essay, "The Paranoid Style in American Politics," historian Richard Hofstadter, wrote, "American politics has often been an arena for angry minds." Hofstadter called it paranoid "simply because no other word adequately evokes the sense of heated exaggeration, suspiciousness, and conspiratorial fantasy."
The political paranoid sees the world in "apocalyptic terms, traffics in the birth and death of whole worlds, whole political orders, whole systems of human values," Hofstadter wrote.
Cue Lord Monckton: "In the next few weeks unless you stop it, your president will sign [a climate agreement and] your freedom, your democracy, and your prosperity away forever," he said in
Hofstadter wrote that the mantle of McCarthy had fallen to retired candy manufacturer Robert H. Welch Jr., founder of the John Birch Society. Welch charged that Communist influences "are now in almost complete control of our government."
Near, if not at the top of Welch's list of Communist infiltrators: President Eisenhower, "a dedicated, conscious agent of the Communist conspiracy." A conclusion, Welch said, based "on an accumulation of detailed evidence so extensive and so palpable that it seems to put this conviction beyond any reasonable doubt."
Hofstadter wrote: "We are all sufferers from history, but the paranoid is a double sufferer, since he is afflicted not only by the real world, with the rest of us, but by his fantasies as well."
In its latest monthly report released November 12, the International Energy Agency confirmed this, raising its estimate of world demand in 2010 by 140,000 b/d to 86.19 million b/d.
]]> The IEA said it was witnessing "surging demand" in China and Saudi Arabia as well as stronger-than-expected data in the US, the world's biggest oil consumer.As a result, we are likely to see higher demand in the fourth quarter of 2009 than in the same period of 2008, which would mark the first year-on-year growth in oil demand since the second quarter of 2008.
But don't break open the champagne yet.
For one thing, the IEA hints that the apparent increase in demand might not be due to 'real' consumption patterns.
In China, the increase is showing up in the somewhat obscure 'other products' category, suggesting that it is a result of spending on infrastructure stemming from government stimulus measures. And in Saudi Arabia, it is more a result of bigger volumes of crude oil being burnt directly for power generation.
Neither of these is as reliable an indicator of 'true' demand as gasoil, which powers railways and trucks and is much more closely linked to economic activity, according to the IEA. And the gasoil picture is much less rosy, with world consumption expected to fall by 3.1% this year.
In addition, there is also the specter of high oil prices, which the IEA says pose two big threats if they contionue climbing--firstly, they could jeopardize the general economic recovery, and secondly they are likely to have a more direct, dampening effect on oil demand.
In short, oil demand is showing signs of coming back to life. You can probably turn the life support machines off, but the patient is still under close observation.
And there is a further complication. OPEC, although it has given out the overall target number for the current output agreement, has not published the individual quotas under that target. Which means that people like my colleagues and myself have had to work out those quotas by ourselves, sometimes with a bit of help from delegates or ministers who may confirm figures or indicate that our calculations are close to the mark.
]]> It would, of course, be so much easier if OPEC just published the figures.Platts' latest survey of OPEC and oil industry officials and analysts suggests that the group's production has continued to increase alongside the strengthening of prices over the past few months that took US light crude futures to a one-year high of $82/barrel last month.
The survey estimates total OPEC output in October, including that of Iraq, at 28.89 million b/d, up 60,000 b/d from September. Excluding Iraq, October production from the 11 members bound by quotas averaged 26.4 million b/d, up 70,000 b/d from September.
The latest Platts estimates leave the OPEC-11 overproducing their 24.845 million b/d output target by nearly 1.56 million b/d. This means that compliance with the 4.2 million b/d of cuts agreed late last year, which has
been declining since April as oil prices firmed, has fallen further. We calculate October compliance at just below 63% -- quite a plunge from the peak rate of 82% in March.
OPEC has had little choice but to link its output policy to developments in the global economy, regardless of how it may view oil market fundamentals.
At its September meeting, it explained that, despite very high consumer inventories and gloomy fundamentals, it had decided to leave official levels unchanged because it did not want to jeopardize the nascent global economic recovery by cutting production.
In October, the price climb to $82/b spurred talk of a possible increase in official output levels at the December 22 meeting in Angola. Kuwaiti oil minister Sheikh Ahmed Abdullah al-Sabah and OPEC secretary general Abdalla el-Badri said ministers the group was ready to raise production if market conditions warranted such a move. Indeed, Sheikh Ahmed said OPEC would have to call an extraordinary meeting if prices climbed to $100/b.
Badri said at the time that an output increase would depend on several factors, including a continuation of oil prices at $75-$80/b, a drop in OECD oil inventories from the current 60 days of forward cover, real global economic growth and -- a view shared by Qatari oil minister Abdullah al-Attiyah -- a genuine need for additional oil.
More recent soundings from OPEC officials, however, suggest an ongoing reluctance to increase official targets despite the continuing rise in actual output. UAE oil minister Mohammed bin Dhaen al-Hamli was quoted last weekend as saying that raising official targets was not on OPEC's agenda for the December 22 meeting.
OPEC's latest monthly oil market report, released on November 11, gave no direct clue as to the likely outcome of the Luanda meeting. It has upwardly revised its estimates of demand for OPEC crude by 70,000 b/d to 28.7 million b/d in 2009 and by 110,000 b/d to 28.5 million b/d in 2010. But the 2010 number represents a 200,000 b/d year-on-year fall in the call on OPEC crude plus movements in and out of stocks. It is also 390,000 b/d below October production as estimated by Platts and 490,000 b/d OPEC's own estimates, derived from secondary sources.
So, despite the upward revisions in demand, OPEC takes a cautionary approach in its monthly report, making the point that even expectations of economic recovery are realized, it is by no means certain that demand will return to pre-financial crisis levels.
"Energy policies and behavioral changes are bound to have some impact on consumption and this will gradually feed into overall demand patterns, especially in key sectors such as transportation. However, it is still premature to assess the full effect of these changes," OPEC said.
In the meantime, it said, oil demand growth in the next few quarters will be subject to ongoing risks to the economic outlook, with particular implications for the second quarter, a traditionally lower period for demand.
If demand turns out to be lower than expected, there will be further pressure on already weak fundamentals given that inventories are high by historical standards, OPEC said.
At some point, OPEC ministers will have to debate the question of whether not jeopardizing economic recovery means raising production, but based on the most recent utterances from various corners of the organization, December may not be that time.
Crude production is on course to top 2 million barrels per day after the amnesty deal halted attacks on oil facilities, but the country may have its work cut out simply holding on to its current oil production capacity in the short-term.
]]> Shell last week said it had taken advantage of a ceasefire and was repairing damaged pipelines but had yet to restore 800,000 b/d of production lost to earlier militant attacks.The country hopes to raise production to 4 million b/d in the next decade, but it is unlikely to reach even half that figure in the year ahead.
In fact, government numbers released earlier this month prove that Nigeria is being realistic about expansion of its oil production with levels projected to average 2.088 million b/d next year and 2.275 million b/d in 2011.
Any increments in production capacity will almost certainly arise from deepwater offshore fields, unaffected by years of unrest and growing maturity but international oil companies (IOCs) already appear to be treading cautiously with investment plans. Nigeria's lower OPEC production target level -- 1.7 million b/d according to Platts calculations, OPEC having declined to publish individual quotas under the current 24.845 million b/d target for 11 members -- also appears to be constraining IOC investment decisions for more expensive projects.
Excluding current shut-in production, the Paris-based International Energy Agency estimates Nigeria's output capacity at 2.46 million b/d by 2014. The lower capacity picture largely reflects delays in agreeing timeframes for expansion of some of Nigeria's ultra-deepwater field developments, some of which are running at least three years behind original planned targets.
President Umaru Yar'Adua's amnesty offer, which ended on October 4, signals the type of bold strategy that is needed if Nigeria's government is going to make any real progress to end the long-simmering crisis in the southern oil patch.
Up to 15,000 gunmen have surrendered their arms and accepted Yar'Adua's unconditional pardon and there are signs that the period of relative calm has allowed Nigeria to increase output, with production rising to 1.87 million b/d in October.
Moreover, Yar'Adua's investment plans to jump-start development projects in the region appear to show a sincerity on the part of the government to address the core issues at the heart of the Niger Delta crises.
For all the grandstanding announcements, the devil is in the detail and not much as been said on how the government would apportion a 10% stake of its joint ventures to the people of the Delta. Three decades of corruption and mismanagement of revenue accruing from oil and lack of transparency in detailing how oil money is allocated and spent have engraved a litany of mistrust between the stakeholders.
Nigeria, which for long had remained Africa's leading oil producer, recently lost that distinction to Angola and must find ways to end the steady decline in its oil production.
Encouraged by the successful disarmament of the Niger Delta militias, the government has increased pressure on the National Assembly to pass the stalled Petroleum Industry Bill (PIB) before the end of the year.
While efforts to inject greater accountability and transparency in the energy sector have been welcomed, the multinationals fear the tough fiscal terms in the legislation will making Nigeria one of the least investor-friendly countries in the world.
They say the aggregate impact of multiple taxes, high royalties and loss of incentives under the bill will have a significant negative impact on investments.
Analysts say IOCs operating are not inclined to plough several more billions into new oil and gas projects when the fiscal terms under the new PIB will make some of those future investments uneconomic.
This poses a problem at a time when new investment in the critical hydrocarbon sector has already been threatened by the security crisis in the delta.
And despite government expectations that Asian companies are grappling to invest billions of dollars in Nigeria's energy sector, there is as yet no evidence that any Asian player is willing to replace the investment gap left by the IOCs.
In reality, Asian companies have secured little more than a handful of blocks out of several hundred awarded over the past fifty years to the IOCs and western independents, and not a single barrel of oil has yet been produced by them.
A lot of the frenzy stemmed from what was then a growing gap between North American gas demand and the ability of industry to deliver the goods. Companies were reviving long-dormant LNG plants and planning dozens of new ones. Gas was a trendy commodity, and corporate presentations routinely included maps sporting company logos of the western North American gassy continental corridor that proudly boasted their regional holdings.
]]> A rash of gas-weighted independents such as Chesapeake Energy and EOG Resources bulked up and attained industry prominence chiefly on that commodity.But what difference a decade makes. Now oil prices are robust and gas prices are pushing slowly up -- albeit how long this will last is uncertain -- many US corporate managers are now hedging their bets by chasing properties that contain sizeable gas pools with healthy liquids streams.
"Liquids-rich is good," Bob Simpson, Chairman of XTO Energy, said during his company's earnings conference call this week, noting that the company, once overwhelmingly weighted to gas, has stepped up its oil and liquids mix in the last couple of years.
Quicksilver Resources, a large operator in the giant Barnett Shale gas field in north Texas, was one of the first independents to exploit the "gas-plus" resource there. EOG Resources was another pioneer who deliberately chased the Barnett's oil window which is chiefly located in that play's northern rim.
At the time these companies began pursuing more liquids content in gassy properties a few years ago, gas was still riding high at prices that rarely dipped below $5/Mcf and during peak usage months often rose into the double-digits. But in the last year or two, gas supplies have done an about-face. In an unexpected twist on expectations earlier in the decade, gas is suddenly not scarce but abundant, thanks to the Barnettt and other shale plays where wells have been drilled that boast astounding production rates.
Besides the Barnett, one promising gas play with liquids topknot is the Eagle Ford Shale in South Texas. There, companies are already talking up the play's liquids shots even though testing is in an extremely early stage. But many companies say they are encouraged by what they are finding and say the gas there is extremely rich at up to 1200 BTU.
Pioneer chief operating officer Tim Dove, for example, said that if his company's first Eagle Ford well, which flowed 11,300 Mcfe/d, were dry gas, it would have captured $57,000/day at a gas price of $5/Mcf. But the gas, plus gas liquids and condensate, boosts that to a robust $96,000/day.
The liquids component "may be one of the keys to Eagle Ford economics being very competitive as compared to several other shale plays," Dove said.
And even hard-line gas gun Chesapeake, whose properties are today about 8% oil-prone, wants to become oilier to the tune of about a 20% leverage over time, according to CEO Aubrey McClendon.
Anadarko Petroleum is also chasing more oil-oriented plays. Besides its own Eagle Ford operation, the big independent is active at the West Texas Haley gas field, where its most recent well in the Bone Spring area yielded about 3,000 Mcf/d with 1,000 b/d of condensate.
"We like what we're seeing there on the economics, based on liquids recovery," Bob Daniels, Anadarko Senior Vice President, Worldwide Exploration, said in the company's recent earnings call. "We have teams out looking around the country to see if there are other (pure oil or gas-with-oil) plays we'd like to get into."
]]>But while Saudi Arabia has remained among the top five suppliers to the US, its exports have fallen dramatically this year, and it's not entirely clear why.
]]> Earlier this week, the US Energy Information Administration published official monthly data showing that crude imports from Saudi Arabia fell to 745,000 b/d in August from 1.137 million b/d in July. That's a month-on-month drop of 392,000 b/d, but compared with August 2008 volumes, the drop is huge -- 788,000 b/d, or a 51.4% year-on-year fall.The August 2009 volume is the lowest in almost 22 years and puts Saudi Arabia in fifth place behind Nigeria -- not exactly a short-haul supplier and itself an exporter whose volumes have shrunk because of attacks on oil installations in the Niger Delta -- and just ahead of Iraq, which is still struggling to rebuild its oil sector after years of sanctions and war.
On an annual basis, US imports of Saudi crude peaked at 1.726 million b/d in 2003 but stayed at levels of around 1.4-1.5 million b/d over the next few years, averaging 1.5 million b/d in 2008.
On a monthly basis, Saudi crude exports had not been less than 1 million b/d since the late 1980s until earlier this year when they fell to 944,000 b/d in March.
April saw a recovery to 1.021 million b/d but volumes fell again to 996,000 b/d in May and to 902,000 b/d in June before recvoering to 1.137 million b/d in July.
Then came the plunge to 745,000 b/d in August, the lowest volume since December 1987.
So far this year, the EIA data shows, imports of Saudi crude have averaged just 1.022 million b/d, well below the 1.537 million b/d over the first eight months of last year, although that volume puts the kingdom in third place behind Mexico in second place and Canada in first.
A rebound in volumes over the remainder of this year could mean that the earlier blips were little more than an aberration. But what if that volume rebound does not happen? What will this mean for the Saudi-US political relationship which has so much to do with oil?
Meanwhile, it's difficult to offer one single explanation for the volume drops this year. Is it to do with pricing, OPEC quotas or an increasing Saudi focus on Asia, where future demand growth is expected to come from, or maybe a combination of all those things?
]]>The story goes thus: Amazed at the relatively cheap prices that you could buy 'gas' in the European market, US traders gleefully shelled out for cargoes only to find that in buying gas they had bought... well, gas.
]]> Of course the rather less exciting (and wholly more likely) explanation is that the term actually arose to differentiate it from "avgas" -- aviation gasoline. Either way, recent developments from the European continent mean that in the near future, the unwary buyer could find that stumping up for mogas could actually land you with a very large quantity of hydrogen.Stung by the run up in crude values, blamed for many of the world's environmental woes and finding the open road increasingly choked by many other of its kind, to say nothing of being the product of an industry that is finding it ever harder to make money, the car has had a hard time of late.
While European governments have been reluctant to tackle the sheer number of autos on the average road, they have been gleefully quick in tackling emissions through the creative application of various tax incentives.
Now there are moves afoot to attain the absolute holy grail of personal, private transportation--to wean the motor car off fossil fuels altogether.
Arguably one of the things that has stood in the way of progress has been the inability, in a world of private finance initiatives, to find a big enough backer prepared to throw its weight behind one of the myriad of potential alternative approaches to petrol, and see it through to fruition.
Or at least to a point where private investment can take over and embark on the development of engines, supply routes, technology and all the other paraphenalia and logistics it entails.
That stumbling block looks to have been pushed aside with the announcement in mid-September that Germany is again looking to hydrogen as a means of public transport*.
As an alternative power supply it is hydrogen that has got the most people the most animated, as technology has paved the way for a fuel cell that produces electricity from a chemical reaction involving two of the three most abundant chemical elements on earth. And the only waste product is water. You can see the appeal, and California is also among the places already trialing this technology.
But the German government has committed the country to becoming "the market leader for modern drive technologies." To attain this goal, it has pledged a significant expansion of its network of hydrogen filling stations by 2011, and the creation of a nationwide supply by 2015, centered on the northwest port of Hamburg.
By the end of this year, Hamburg will see work begin on the construction of Europe's largest hydrogen filling station. The city is already an established epicenter for radical oil activity, pioneering the move to ultra low sulfur 10ppm road fuels well ahead of the rest of Europe, and also trailblazing the move to ultra low sulfur 50ppm heating oil.
Now the relationship between man and motor (if you'll excuse the distinctly 20th century gendering) has been at the heart of the oil industry since its dawn. The two have grown in tandem to be utterly dependent on each other -- a dependence vividly illustrated over the last 18 months as rampant price increases laid into gasoline demand and drove the price-sensitive US motorist off the road. That hurts European refiners, who export their surplus gasoline across the ocean.
Adding insult to injury, the ensuing global economic collapse and plunge into recession kicked away the other leg of refining support, slaying Europe's until then insatiable diesel appetite and leaving the future for many refiners looking horribly uncertain.
Meanwhile, oil majors are themselves showing an increasing distaste for both the retail and refining side of road fuels. Shell, for example, is currently mulling plans to divest itself of some of its European refinery operations, while its total number of UK service stations has fallen from nearly 2,000 in 1996, to just over 850 in 2007. Against that background, the search for alternative to fossil fuels looks like another straw being laid precariously upon the camel's back.
Interesting then to find that when the German Minister for Transportaton announced these plans, senior representatives from the German arms of both Shell and Total stood in support, alongside representatives from the Austrian power and gas company OMV and the head of Mercedes-Benz, Dr. Dieter Zetsche.
And refiners are already handling hydrogen in susbstantial quantities. Steady streams of the stuff is produced from catalytic reformers and is being pumped back into hydrodesulfurization units to act as a catalyst in production of low sulfur fuels. Such was the disparity between diesel and gasoline during much of the first half of 2008 that gasoline production was all about making hydrogen in meet the demand for diesel desulfurization.
However, all is not plain sailing, and a troubling challenge is stemming from across the border. In early October, France revealed its own plans to introduce 4.4 million electrical charging points across the country in the next ten years, and to move 12.5% of the French car fleet, or some 4.5 million vehicles, to some form of electrical power by 2020.
Hydrogen doesn't feature here at all; France, a country that gets over 75% of its domestic electricity supply from nuclear power, is investing its money on the good old fashioned battery. And it has the backing of the French car giant, and former dyed-in-the-wool diesel fan, Renault.
It's no wonder, perhaps, that Total should be among those backing the German initiative.
Momentum is building, as the IEA's October Oil Market Report noted; "the trend in France -- and in other large OECD countries -- seems clear: to transcend the traditional internal combustion engine, a move that will likely have dramatic consequences in terms of oil demand in the medium to long term."
Of the future success of these ventures, only time will tell, but if you're looking to make a killing on trading mogas past 2015, it's definitely buyer beware.
* You remember the Zeppelin, right?
]]>The bill also follows on the heels of three hydrogen fluoride explosions at different US refineries and calls by the sector's leading workers' union to get HF out of the refining process. No surprise that API has responded by noting that alternatives to HF for alkylation units that produce gasoline components cost more and may not necessarily be all that safer.
The House bill, H.R. 2868, would have the DHS make calls on which chemicals to use and when to use safer alternatives. Republican opponents to the Democractic-drafted language have argued that DHS lacked the expertise and budget to get involved with making determinations about so-called "inherently safer technology."
But is a new law aimed at this concern needed? In 1990, the US Congress passed a provision in the Clean Air Act specifically written as a deterrent for chemical accidents after the disastrous Union Carbide accident in Bhopal, India.
That very provision was used to prosecute BP for the deadly 2005 accident at its Texas City, Texas, refinery, which killed 15 workers and injured 180 other people. BP ultimately settled that case, pleaded guilty to two criminal counts of the Clean Air Act for not sufficienly warning workers of possible dangers of toxic releases and fire as a unit was in startup mode, and not having certain written procedures for maintaining refinery process unit integrity.
Victims and survivors of the BP Texas City accident argued that the $50 million settlement it paid in its plea bargain hardly serves as a deterrent. But a judge found that the amount was properly calculated based on the costs involved with the particular unit that exploded and that a different tactical pursuit by the prosecution in that case of a higher amount could have blown up the settlement. The company was forced in the wake of the disaster to undertake a $1 billion recommissioning.
This should serve as the cautionary tale for the refining business, but yet there were those three HF blowups this year. In March, there was a HF release at Sunoco's 330,000 b/d refining complex in Philadelphia, followed by a July fire after an alkylation unit explosion at Citgo's 163,000 b/d refinery in Corpus Christi, Texas, and the August HF release from an alkylation unit at ExxonMobil's 238,600 b/d refinery in Joliet, Illinois. All three incidents are under investigation by the US Chemical Safety Board.
The Citgo incident drew out quintessential fears from one neighbor who told reporters that neither the refinery or Texas regulators seemed concerned with their well being despite the chemical release. Her response to apparent silence in the immediate aftermath of the fire is understandable. "The first thing we hear is the public was never in any danger. You can't say that. You never know when it could explode. It could pop out somewhere else. That's what fires do," the Citgo Corpus neighbor, Jean Salone, said during a July 30 press conference held by the Sierra Club and a local environmental group. "You've got to be kidding."
That is not to say the industry blithely does nothing. For instance, Sunoco said in September it is spending $125 million on a process improvement project involving HF storage.
But, does the pending bill come face-to-face with such issues? Having the Department of Homeland Security somehow come up with a means of deciding refining processes to avert chemical disasters, even if laudable, does not seem realistically doable. Perhaps the spotlight should go back to the Department of Justice, Occupational Safety and Health Administration and Chemical Safety Board, who already maintain scrutiny over refinery safety. If there are shortcomings in those agencies, then such gaps should be addressed in these existing areas. Anyone in favor of giving CSB penalty authority for refinery accidents, which it lacks under current law?
]]>One recent example of just how jaw-dropping the US shale gas story has become came from big independent Newfield Exploration. Houston-based Newfield said in a conference call this week that its production from Oklahoma's Woodford Shale today is 308,000 Mcfe/d, versus about 240,000 Mcfe/d at June 30 -- up nearly 30% in less than four months. Moreover, the company has an inventory of 28 drilled but uncompleted Woodford wells waiting to be put online by early 2010, signalling the potential to boost production still higher.
]]> The astounding output jump prompted a comment from analysts at investment bank Wells Fargo, who in an October 22 report called Newfield's gushing Woodford production trend "disturbing." They noted the company's output had "reached recent highs despite (a drilling) slowdown and deferred completions."But Newfield, and the Woodford field, are hardly the only purveyors of über-volumes of gas. Despite cutbacks in activity elsewhere, dozens of companies both large and small are drilling away at shale and other unconventional plays which they claim continue to offer towering economic rates of return. Their efforts have resulted in huge gas volumes flowing around the US and also recently in Canada. But with just a week left in the refill season, US gas storage bins are brimming over with the commodity. And current demand is not enough to use it all, which could continue the surplus into next year.
Just this week, companies injected another 18 Bcf into storage, bringing the October 22 total to 3.734 Tcf, versus 3.337 Tcf during the same week last year. The five-year average is 3.302 Tcf. The overhang, which has worried industry for months, was the chief culprit behind the gas price plunge to the mid-$2s/Mcf in early September, a level not seen since 2002.
Besides the Woodford, high-volume gas is coming from other prolific plays such as the Haynesville Shale in east Texas/northwest Louisiana, Marcellus Shale in Pennsylvania and Horn River Shale in Canada's northeast British Columbia which are all routinely turning in initial well outputs north, and sometimes well north, of 10,000 Mcfe/d each. The first seven wells in Newfield's Granite Wash play, for example, averaged 22,000 Mcfe/d apiece.
And the gas just keeps on truckin' -- or is it riggin'? In any case, big US shalesmith Chesapeake Energy said late October 22 that it is now producing over 1 Bcf/d from the Barnett alone, and also that more than 2 Bcf/d, or roughly 4% of total US gas production, comes from its Barnett, Haynesville, Marcellus and Fayetteville (in Arkansas) Shale operations combined.
Even though those stratospheric initial outputs don't endure, the weeks and months before the purported 50%, 60%, 70% or even 80% first-year well decline rate starts to kick in can throw off an awful lot of gas -- and also throw off gas prices. While prices are now teetering at the $5/Mcf level, many industry observers look at storage figures and scratch their heads. Says one: "Given the amount of gas sitting around out there, it's a mystery why prices are so high."
]]>It won't be a case of oil running out, however. Rather, the world will become much more efficient in its use of energy. But in the next few years, Deutsche predicts, we will see a lot of volatility and even more chronic under-investment in production capacity.
]]> And as demand begins its decline, OPEC will be forced to switch to a market share strategy based on lower prices, which will threaten the development of high-cost reserves such as ultra-deepwater and Canadian heavy oil sands."We expect increasingly chronic under-investment in new oil supply capacity," Deutsche says in its October 4 report entitled "The Peak Oil Market: Price Dynamics at the End of the Oil Age."
"We believe that concentration of remaining oil reserves into OPEC government hands will lead to under-investment in new supply and higher volatility in regulatory and fiscal regimes, and more volatile pricing," it adds.
The report notes that within OPEC, supply from Iran, Venezuela, Iraq and Nigeria declined between 2004 and 2008 even as market growth soared. "With the possible exception of Iraq, there is little prospect of any near-or medium-term growth from these massive reserves holders," it says.
"Consumer governments are adding to uncertainty with total lack of clarity on environmental legislation/regulation outcomes," the report says. "That deep uncertainty in supply and demand will likely disincentivize private sector oil supply investment, exacerbating overall oil under-investment, and leading to peak oil supply within the next six years. We see market maximum capacity at 90 million b/d in 2016 -- just 5% above 2009."
Deutsche believes that electric cars will have a much greater than expected positive impact on oil efficiency, which will rise to 44 miles per gallon by 2020 from about 29 mpg in 2009.
"The impact will be concentrated in US gasoline, the largest single element of global oil demand (12%), and will be dramatic enough in its own right to cause the peak of global oil demand around 2016," says Deutsche, which forecasts that US gasoline demand will fall by 46% to 4.9 million b/d by 2030.
In addition, big price discounts for natural gas will encourage a major switch from oil.
And then there is the Obama effect. "We believe Obama's environmental agenda, the bankruptcy of the US auto industry, the war in Iraq, and global oil supply challenges have dovetailed to spell the end of the oil era," it says.
By 2030, Deutsche suggests, the price of oil will be around $70/b and the market will have shrunk by 8% to 79 million b/d.
The International Energy Agency, which is due to publish its latest long-term forecasts on November 10, last year cut its estimate of world oil demand in 2030 by 10 million b/d to 106 million b/d.
Deutsche, meanwhile, sees refining as "a twilight business that will struggle mightily in a world of ever-declining gasoline demand," although it suggests that continued oil demand from agriculture, heavy transport and shipping may provide a future for "niche" refiners.
]]>In contrast, the last upstream bidding round in 2008 had attracted 181 bids for the 57 blocks on offer.
Of the international players and oil majors India was trying to woo, only BG, BHP and Cairn Energy showed up at the party.
So what went wrong? Was it the depressed global economic climate and financial constraints faced by oil companies? Likely, but that could not have been the only reason. Was it insufficient data on some of the blocks? Might have been a factor, but probably not a major one.
Was it doubt and question marks over the country's gas pricing and utilization policy? Absolutely.
While the world took note of Reliance Industries Limited's speedy commercialization of the D6 gas reserves in a challenging offshore environment, it was also bombarded by reports of the company's fierce legal battle with Reliance Natural Resources Limited over a preliminary gas supply deal gone sour.
The high-profile dispute between companies headed by the estranged Ambani brothers, sons of Reliance founder Dhirubhai Ambani, also sucked in the Indian government and raised questions about the state's role in commercial matters in India.
The government insists it only approves the price of domestic gas production, and the contractor is "free" to set the rate based on a market-linked formula -- a statement that might look contradictory to the outside world.
The government also allocated the first 1.4 Bcf/day of D6 production to specific power and fertilizer companies, city gas and LPG, identified as the priority sectors. That would not seem very encouraging to potential upstream investors.
Besides, the regulatory regime in India needs to come up to world standards. The downstream regulator, the Petroleum and Natural Gas Regulatory Board, remains a nebulous and anemic entity with no clear mandate more than two years after its establishment in mid-2007.
Apart from focusing on the setting up of city gas distribution networks, it has not applied itself to any of the weightier issues facing the downstream oil and gas sector so far.
Though gas supply in the country -- both output from indigenous fields and regasified LNG from imports -- is growing exponentially, the government has dragged its feet on putting together a coherent policy on a national gas grid for several years now. A pan-Indian pipeline network could be in place by 2015 at the earliest, chairman of the downstream regulator, L. Mansingh, said earlier this year. But the government has yet to come up with a blueprint for its long-distance "gas highways" plan.
International upstream roadshows are good. But getting the country's oil and gas infrastructure in place and establishing a fair, transparent regulatory regime is far more crucial for attracting investment dollars.
]]>Oil companies reported 321 polar bear sightings in 2007 and 313 in 2008, about four times the annual average from 1994 through 2000, according the US Fish and Wildlife Service.
There have been no recent polar bear attacks on workers (the last polar bear mauling was of a contract worker in 1993). Companies take great efforts to avoid any potentially dangerous encounters, Marilyn Crockett, executive director of the Alaska Oil and Gas Association, told Reuters.
While no one has been injured of late, last spring a mother bear with cubs forced a late-season shutdown of the ice road to Point Thompson, a prospect 55 miles east of Prudhoe Bay. And the ice roads themselves, which are critical to oil company operations on the North Slope, are usable for shorter periods of time because of global warming.
]]>The family home, which is more than 300 years old, was seen by my sisters and cousins as the ultimate holiday destination with its many rooms, corridors, cellars and attic. What we didn't realize then was that it was also the ultimate in environmentally friendly construction, energy efficiency, self-sustainability and promoting recycling habits.
]]> The house was built to be lifted up in times of floods so that it could float. But of course, this was not seen as much of a convenience feature because as the family grew with more grandchildren and more rooms were added, the extensions were anchored to foundations beneath the ground. Then it was wired for electricity and modern plumbing was introduced. All of which was supposed to make life more convenient. But did it?And instead of the waste water from the kitchen and bathroom running into the orchard to water the banana plants and coconut trees, a huge underground pipe connected the house to the sewage system of the town's municipal corporation. We appreciated all the additional comforts even as we lamented the lost charm of days gone by.
Then came the power cuts, the high cost of diesel for generators, the rising cost of electricity and water. And we all complained. But no one thought of returning to the self-sustainable life that had been the norm once upon a time. Not even when bananas and coconuts came from the supermarket rather than the back garden.
Then I read about the house built in New Orleans by Brad Pitt's Make It Right Foundation. Built in an area that was devastated by Hurricane Katrina, the FLOAT house is built on a special prefabricated chassis that is designed to float up to 12 feet in floodwaters. It has a battery backup for power, solar paneling (not very useful in torrential rain) and a rainwater harvesting system. All of which makes the house self-sustaining.
"The reality of rising water levels presents a serious threat for coastal cities around the world," says Thom Mayne, whose Mosphosis Architects designed the house, as quoted in the global media. "These environmental implications require radical solutions. In response, we developed a highly performative, 1,000-square-foot house that is technically innovative in terms of its safety factor -- its ability to float -- as well as its sustainability, mass production and method of assembly."
Sounds very much like my grandparents' house. When we had the knowledge three centuries ago what were we thinking to move away from such a life?
Maybe it is time to think about it especially with all the debate about climate change. Rising sea levels, shrinking ice caps, drought, violent weather, hotter temperatures with up to 10% rise in average temperatures in certain parts of the world in the next 90 years -- all these are seen as very current problems and will be part of the discussions at the Copenhagen Climate Change Summit later this year.
Despite Geroge Soros promising to spend $1 billion on clean energy technology and help combat climate change, it seems an uphill battle to get everyone on board. So will it take something as drastic as a violent storm during the summit to actually make policymakers and world leaders pay attention to climate change?
Of course, there have been no floods at my grandparents' town for more than half a century. But if they return to the coastal state of Kerala, the house that was built for self-sustainability will suffer just as thousands of other modern homes will.
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