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Former Shell Scientist M. King Hubbert Speaks On Peak Oil in 1976
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What Happened To The $11 Oil?

"The chairman of Royal Dutch/Shell, Mark Moody-Stuart, three months ago unveiled a five-year plan that assumed a price of $14 a barrel. He has since publicly mused about oil at $11. Sir John Browne, chief executive of BP-Amoco, is now working on a similar assumption. Consumers everywhere will rejoice at the prospect of cheap, plentiful oil for the foreseeable future. Policymakers who remember the pain of responding to oil shocks in 1973 and in 1979-80 will also be pleased."
The next shock?
Economist, 4 March 1999

".... today's $11-a-barrel price [is].... [the] lowest inflation-adjusted oil prices of the past half-century ...   Even if consumption rises dramatically over time, most analysts believe prices should remain in check because of advanced technology and because OPEC nations need to sell as much as they can to maintain their incomes..... Low oil prices are excellent news, of course, for big energy consumers. A sustained $10-per-barrel drop in the price of oil cuts about 0.7 points from the annual U.S. inflation rate over five years and adds about 0.3 points to the U.S. economy's growth.... [I]f you're still operating under the assumption that the earth's petroleum--or at least the cheap stuff--is about to run out, you're not going to thrive in the new oil era. Technology is making it possible to find, produce, and refine oil so efficiently that its supply, at least for practical purposes, is basically unlimited."
TREMORS FROM CHEAP OIL
Businessweek, 14 December 1999

Conventional Crude Oil Production Has Peaked
As Predicted By M.King Hubbert

"While the oil forecasters were pumping out bearish calls, the market itself has stuck to its triple-digit price outlook. Oil buyers apparently know the Western world’s economic recovery will boost consumption, since growth and oil use are aligned. That’s not all. They also know that the math doesn’t work: Prices can’t go into gradual, long-term decline, or even stay flat, when the world’s conventional oil fields are in fairly rapid decline. Exotic production – oil sands, biofuels, natural gas liquids – are supposed to fill the gap. But this so-called unconventional production is highly expensive and quite possibly insufficient to cover the drop off in cheap, conventional production. Prices will rise to the point that demand will have to level off or fall. The 'peak oil' and 'peak demand' theories are really opposite sides of the same coin. A few days ago, Richard Miller, the former BP geochemist turned independent oil consultant, delivered a sobering lecture at University College London that laid out the case for dwindling future oil supply. His talk was based on published data from the U.S. Energy Information Agency, the International Energy Agency, the International Monetary Fund and other official sources.The data leave no doubt that the inexpensive oil is vanishing quickly. Conventional oil production peaked in 2008 at about 70 million barrels a day and is declining by about 3.3 million barrels a day, every year. Saudi Arabia pumps about 10 million barrels a day. The math says a new Saudi Arabia has to be found every three years to offset the conventional oil drop off. "
Inexpensive oil vanishing at alarming rate
Globe and Mail, 13 December 2013

2016

"The Permian Basin in West Texas may be the second biggest field in the world after Ghawar in Saudi Arabia,” he said. Zhu Min, the deputy director of the International Monetary Fund, said US shale has entirely changed the balance of power in the global oil market and there is little Opec can do about it. “Shale has become the swing producer. Opec has clearly lost its monopoly power and can only set a bottom for prices. As soon as the price rises, shale will come back on and push it down again,” he said. The question is whether even US shale can ever be big enough to compensate for the coming shortage of oil as global investment collapses. “There has been a $1.8 trillion reduction in spending planned for 2015 to 2020 compared to what was expected in 2014,” said Mr Yergin. Yet oil demand is still growing briskly. The world economy will need 7m b/d more by 2020. Natural depletion on existing fields implies a loss of another 13m b/d by then. Adding to the witches’ brew, global spare capacity is at wafer-thin levels - perhaps as low 1.5m b/d - as the Saudis, Russians, and others, produce at full tilt. 'If there is any shock the market will turn on a dime,' he said. The oil market will certainly feel entirely different before the end of this decade. The warnings were widely echoed in Davos by luminaries of the energy industry. Fatih Birol, head of the International Energy Agency, said the suspension of new projects is setting the stage for a powerful spike in prices. Investment fell 20pc last year worldwide, and is expected to fall a further 16pc this year. “This is unprecedented: we have never seen two years in a row of falling investment. Don’t be misled, anybody who thinks low oil prices are the ‘new normal’ is going to be surprised,” he said. Ibe Kachikwu, Nigeria oil minister and the outgoing chief of Opec, said the ground is being set for wild volatility. “The bottom line is that production no longer makes any sense for many, and at this point we’re going to see a lot of barrels leave the market. Ultimately, prices will shoot back up in a topsy-turvey movement,” he said...Saudi Arabia has made it clear that there can be no Opec deal to cut output and stabilize prices until the Russians are on board, and that is very difficult since Russian companies are listed and supposedly answerable to shareholders."
Saudis ‘will not destroy the US shale industry’
Telegraph, 24 January 2016

2015

"Ten years ago you couldn’t avoid it if you tried. Books by James Howard Kunstler, Richard Heinberg, Kenneth Deffeyes, and others were warning that worldwide oil production would inevitably peak soon, based on analysis similar to that of celebrated geologist M. King Hubbert, who predicted, in 1956, that U.S. oil production would peak between 1965 and 1970. Darn if he wasn’t right. With the presumed world peak in oil production, national economies hooked on injecting oil straight into their largest arteries then began to decline. Peak oil doesn’t mean oil would disappear – half of it would still be left – just that less of it would be produced each year going forward, and shell-shocked economies would fall into a permanent state of recession as consumers battled, Mad Max-like, for every last barrel. Except “events never play out the way one expects,” said James Murray, a speaker at a session entitled “Is Peak Oil Dead and What Does It Mean for Climate Change?” at the AGU Fall Meeting in the City by the Bay. Technology came to the rescue, in the forms of fracking and three-dimensional directional drilling. U.S. oil production soared upward 54 percent in just five years, from 3.3 billion barrels in 2009 to 5.1 billion barrels in 2014. Although world oil production increased by only 8.5 percent in that time, it was enough to keep it from peaking. So is peak oil now an outdated concept, or does it still lie in our future? The latter, most experts at the AGU meeting were saying, while admitting they hadn’t foreseen the technological revolution that has allowed U.S. oil and gas production to soar over the past decade. Those resources are finite, and the cost of extracting them increases once the low-hanging fruit are picked. Oil has dropped to about $35 per barrel because oil producers, hungry for unconventional oil from tar sands and gas from shale, overproduced. Yet they’re still not making money, said James Murray from the University of Washington. Shale oil – what the industry calls “tight shale” – “is profitable for drillers, hotels and restaurants, but not for investors,” he said. Cash flow in this sector was $10 billion in the red in 2014, even as yet more money is plowed into it from, Murray thinks, investors desperate for yields as the Federal Reserve keeps inerest rates extremely low. Murray said the break-even price for conventional oil is $20 per barrel, but $75 per barrel for tight oil. So oil companies are drawing back: U.S. oil production seems to have peaked in July 2015, and even the Eagle Ford shale basin in Texas and the Bakken field in North Dakota are cutting back. “The world may be close to peak oil production,” Murray concluded....David Hughes, president of Global Sustainability Research, Inc. in Calgary, pointed out that “the remaining reserves [of fossil fuels] are large, but of lower quality and require more energy to produce.” He estimated that more than 90 percent of what are known in the field as 'unconventional sources' – shale gas and oil and tar sands oil – 'are not recoverable.'"
Whatever became of 'peak oil'? Still to come?
Yale Climate Connections, 18 December 2015

2014

"It is now generally accepted by those actually studying the issue that production of 'conventional oil,' which is what the early 'peakists' were talking about 10 or 15 years ago, really did stop growing back in about 2005-2008. Since then official 'oil' production numbers have continued to climb slowly, but included in the 'official' numbers as put out by the US and international agencies is not all your grandfather’s oil. Instead the compilers of our oil statistics have learned to lump all sorts of liquid hydrocarbons of varying utility together and tell us that oil in the form of 'all liquids' continues to grow. Now these hydrocarbons such as natural gas liquids, biofuels, tar sands, and shale oil have uses, but they either cost considerably more to produce than conventional oil, or do not have the same energy content as conventional oil. In at least one case, 'refinery gains' which are sort of like whipping up a pint of cream into gallons of whipped cream, have no additional energy in their expanded state at all. They simply fill more barrels and let us pretend we have more energy to use than we actually do. While the financial press continues to chatter endlessly about the technological breakthroughs that have brought us millions of barrels of new shale oil, sadly they have the basics of the story wrong. It is the high prices that 'oil' has been selling for in the last ten years, not the decades-old fracking technology that has allowed very expensive shale oil to be produced that is new. Even with the recent $40 per barrel price decline, oil is still selling for four times what it was going for 12 or 13 years ago. It is the surge in prices to circa $100 a barrel has allowed very expensive oil such as that from fracked shale wells, the Canadian tar sands, and deep offshore oil wells to be produced; now with oil selling for closer to $70 a barrel the question is how long oil that is no longer economic to produce will keep being extracted. The other question is just how much of our oil supply is in danger of being mothballed until prices climb again as they surely will. The reason for the current fall in prices is still in debate. The 'oil' supply has continued to creep up in recent years, but starting last June the demand for $100+ oil was no longer there. While demand in the 'rich' OECD countries has been down since the 2008 oil price spike, this year it seems to be the slowing Chinese economy and its reduced demand for raw materials that has been behind the sinking demand. Many of the developing economies have been growing and using more oil each year due to growing trade with the Chinese. Someday conventional wisdom will conclude that oil at circa $100+ a barrel was simply too much to sustain high rates of economic growth and so the growth fell taking oil demand along with it. "
The Peak Oil Crisis
Falls Church News-Press, 31 December 2014

2013

"The critical measure here is EROEI (the Energy Return On Energy Invested). The days of 100:1 energy returns are long gone. The ratio for new oil projects has declined from 30:1 to barely 10:1 since the 1970s. For global energy overall, the EROEI has declined from about 37:1 in 1990 to less than 14:1 now. The flip-side of EROEI is the real cost of energy. The cost ratio at an EROEI of 37:1 in 1990 was 2.6 per cent, but this has risen to 6.8 per cent today. The global EROEI may fall to 10:1 by 2020, increasing the energy cost 'levy' on the economy to 9 per cent. In blithe ignorance of this increasing levy, we have continued to grow the claims value of the financial system on the assumption of perpetual growth. These 'excess claims' show up as unsustainable debt, undeliverable welfare commitments, and unrealisable expectations for returns on investment. My calculations suggest that the system now owes $90 trillion (£55 trillion) more than it can deliver. For individuals, this is being manifested in the escalating real costs of fuel, power, food, water and physical infrastructure. Globally, it is visible in 'energy sprawl', as the energy-delivering infrastructure expands (both in scale and in cost) in response to the weakening in efficiency resulting from a deteriorating EROEI. As well as crimping disposable incomes and destroying returns on investment, this process is curbing our ability to invest in other things. The essential point is that the economy is not a monetary system governed by the theoretical 'laws' of economics, but an energy dynamic determined by the all-too-real laws of thermodynamics. Once we understand this, the squeeze on household prosperity becomes far less of a mystery."
Tim Morgan - The global economy sinks under its debts as the real cost of energy rises
City.AM, 24 October 2013

2012

"The most common misconception about peak oil is that it means the world is running out of oil. Many articles that seek to debunk the notion of peak oil start with that premise, and then they proceed to tear down that straw man. Peak oil is about flow rates, and the overall flow rate will begin to decline while there is still a lot of oil left in the ground. Another misconception is that peak oil beliefs are homogeneous. The beliefs among people who are concerned about the impacts of peak oil cover a wide span. There are those who believe that a peak is imminent, to be followed by a catastrophic decline....... A more mainstream peak oil position is that the real threat is much higher oil prices, leading to stagnant economies.... The points of contention are the timing, the steepness of the decline, the impact on the global economy and the ability of other energy sources to fill the supply gap. Some believe we will smoothly transition to alternatives, and some people believe peak oil will be catastrophic."
Peak Oil: Misconceptions and Realities
Investing Daily, 26 November 2012

2011

"...we are entering an era of scarce resources. Apart from the atomic bomb, this is the most dangerous development in two centuries..... New powers such as China and India are rising, not yet risen, mixing emphasis on their 'developing' status with assertiveness."
David Miliband, British Foreign Secretary, 2007-10
'It was not bin Laden who defined this decade'
London Times, 7 September 2011, Print Edition, P28

2010

"Bankers and the financial sector may have displaced energy from the front pages of the newspapers right now, but Energy Security remains at the top of the global political and economic agenda....The need to balance energy security, jobs and economic development while addressing the problem of climate change all contributed to the challenge politicians faced in Copenhagen. And that challenge means that energy security will dominate politics and policy for the next 12 months and considerably beyond.... Reliable and affordable supplies of hydrocarbon energy were taken for granted through much of the 20th century and laid the foundation for the world’s extraordinary economic progress. When concerns arose, it tended to be at times of war or turbulence, notably in the Middle East, or, closer to home, with industrial action. What’s different now is that energy security has become a defining issue for the 21st century, as one element in a complex energy challenge with strategic, economic and environmental dimensions.... Opening access to a range of potential operators encourages the most efficient solutions, and often involves partnerships that provide new combinations of skills. Iraq is a very good example. BP is teaming up there with CNPC of China and Iraq’s South Oil Company to drive a major investment programme that will nearly triple production from the super-giant Rumaila field. With this and the other agreements concluded with national and international oil companies in the last six months, Iraq has the potential to contribute 10mmb/d to global supplies in the next 10-15 years. That’s a big piece of the additional resource we need....The current debate about Copenhagen and sustainability add new urgency and importance to the broader discussion of energy security.  The challenge of creating a low-carbon economy is far from easy, requiring the wholesale re-engineering of the global economy over time."
Tony Hayard, Chief Executive of BP
The Challenge of Energy Security
Speech at London School of Economics, 4 February 2010

2009

"The most important contributors to the world’s total oil production are the giant oil fields....The evolution of decline rates over past decades includes the impact of new technologies and production techniques and clearly shows that the average decline rate for individual giant fields is increasing with time. These factors have significant implications for the future, since the most important world oil production base – giantfields –will decline more rapidly in the future, according to our findings.... By 2030 the production from fields currently on stream could have decreased by over 50% in agreement with IEA (2008) . The struggle to maintain production and compensate for the decline in existing production will become harder and harder. Our conclusion is that the world will face an increasing oil supply challenge, as the decline in existing production is not only high but also increasing."
Giant oil field decline rates and their influence on world oil production
Energy Policy Volume 37, Issue 6, June 2009

2008

"The global economy is tanking, U.S. forces remain tied up in Iraq, Afghanistan is on a downward spiral -- one might wonder why anyone would want to be U.S. president during these trying times. Recently, the nation's chief intelligence officer weighed in, painting an even more somber picture of a far more complicated world. National Intelligence Director Mike McConnell looked beyond the immediate future, focusing on what his analysts are telling him about the challenges the world community is likely to face by 2025. It isn't pretty. Speaking to an annual conference of intelligence officials and contractors, McConnell said demographics, competition for natural resources and climate change will increase the potential for conflict. President-elect Barack Obama may get a glimpse of some of those challenges on Thursday. McConnell is expected to lead Obama's first top-secret intelligence briefing, according to U.S. officials familiar with the process. According to McConnell's outlook, economic and population growth will strain resources. 'Demand is projected to outstrip the easily available supplies over the next decade,' he said at the annual conference. The intelligence community's forecast indicates oil and gas supplies will continue to dwindle and production will be concentrated in unstable areas, he said. And there appears to be no relief at hand. McConnell said studies have shown that new energy technologies -- such as biofuels, clean coal and hydrogen -- generally take 25 years to become commercially viable and widespread."
New president faces increased risk of conflict, intel chief says
CNN, 5 November 2008

2007

"If you speak to people in the industry, they will conceed that whatever my company may say publicly, we understand that we are facing decline in our own production and worldwide, we are not going to be able to produce more fuel liquids or crude oil in the near future... I was recently at a conference in New Mexico, sitting next to one of the recent CEOs of a major oil company and he, in response to a question from the audience, said 'of course I am a peakist, it is just a question of when it is coming' and I think that that is illustrative of once one is retired as a CEO, one is freer than one was in position to say I am a peakist. And what you hear privately from almost all people is we are coming to it.... I think that many of these politicians will ultimately find that the public blames them for its failure to warn them. Of course in a sense the public is responsible because it is the present public attitude to which politicians play up, and tell them what they want to hear but when the view of the world changes, what the public wanted to hear some time ago is no longer what they want to hear in the future."
James Schlesinger, former US Energy Secretary
Interview with David Strahan, ASPO 6, September 2007

2006

"The scarcity of energy supplies and the energy imbalance between nations is a threat to our prosperity and national security. As resources contract, oil-hungry economies will compete for dwindling supplies of hydrocarbons. Competition for fossil fuels will increase.... Energy resources have long been a major strategic concern: access to secure sources, control over supply lines: these are issues of national security.... The energy challenge is now more pressing than ever.... Global oil production is apparently nearing its peak.... current estimates seem to be converging on some point between 2010 and 2020.... [there] are five factors which are changing the energy landscape: rising demand; dwindling supply; greater concentration of resource in the hands of a few; limited spare capacity; and the environmental impacts of energy use.....This is not a problem that can wait ten years."
Sir David Manning, British Ambassador To The United States Of America
Speech at Stanford University, 13 March 2006

2005

".... a series of crises in oil supply is likely over the coming decades. The first, related to the peak and decline of non-OPEC production, is practically upon us and underpins the currently high oil prices...... The imminent inability of non-OPEC production to meet incremental demand and its decline after 2010 precipitates the second crisis as OPEC’s diminishing spare capacity (even with Iraq’s production back to preinvasion levels) becomes less and less able to accommodate short-term fluctuations.....The third crisis, due to OPEC’s incremental supply being unable to meet incremental demand, follows in the first half of the next decade. This assumes that OPEC’s reserves are as published. .....These crises will have global economic and geopolitical significance: The oil price will be high and volatile, and demand growth will have to be curtailed..."
Oil Supply Challenges - 2: What Can OPEC Deliver?
Oil and Gas Journal, 7 March 2005


The Energy Challenge Of The Post 9/11 Period

"The U.S. needs energy — lots and lots of energy — and 37.1% of it is currently supplied by oil. As the population expands and the policy decisions and technological innovations needed to make the switch to green, renewable energy sources lag, thirst for the stuff is only going to grow. Critics have long lamented that when it comes to energy policy, 9/11 was an opportunity for the country to have an honest debate about the choices it needs to make if it's ever going to break its addiction to oil. 'We need to address the underlying issue,' says Lisa Margonelli, director of the New America Foundation's Energy Policy Initiative, 'and that's our dependence on oil.' Having a national conversation now — an adult one — is the only way forward."
The Far-Ranging Costs of the Mess in the Gulf
TIME, 6 May 2010

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2016

"A new study by the University of Michigan has found that a single oil and gas field in the western United States is largely responsible for a global uptick of the air pollutant ethane. The research team found that fossil fuel production at the Bakken Formation located in North Dakota and Montana is emitting roughly 2 percent of the ethane detected in the Earth’s atmosphere. Ethane reacts with sunlight to form ozone, which triggers respiratory problems. “Two percent might not sound like a lot, but the emissions we observed in this single region are 10 to 100 times larger than reported in inventories. They directly impact air quality across North America. And they’re sufficient to explain much of the global shift in ethane concentrations,” said Eric Kort to the Michigan News. Kort is a U-M assistant professor of climate and space sciences and engineering, and first author of the study published in Geophysical Research Letters. The study solves what had been a scientific mystery after a mountaintop sensor in Europe registered an increase of ethane in 2010, following decades of declines. Searching for the source, an aircraft from the National Oceanic and Atmospheric Administration sampled air from over the Bakken region in May 2014. Those measurements showed ethane emissions far higher than previously reported."
Study: Bakken oil fields leading cause in global air pollution uptick
Associated Press, 29 April 2016

"Senators patted themselves on the back last week after passing a wide-ranging energy bill, a feat that seems amazing given the partisanship on Capitol Hill and the deep divisions between the parties on fossil fuels in particular. But the hype was too good to be true: The bill has at least one glaring flaw that must be changed before President Obama considers signing it....the bill also would command the Environmental Protection Agency to “recognize biomass” — that is, plant matter such as wood harvested from forests — “as a renewable energy source” because of its “carbon-neutrality.” This is a rank example of Congress legislating science rather than allowing agency experts to make determinations based on facts, and the results could be very bad for the environment. Burning wood produces carbon dioxide emissions; the case for treating biomass energy as carbon-neutral is that, as plants grow back, they recapture carbon dioxide from the air. Yet burning biomass releases a lot of CO2 into the atmosphere all at once, and plant regrowth takes time. Meanwhile, scientists warn that the planet could reach climate tipping points soon. This alone is reason not to treat biomass and, say, wind energy as equivalent. Moreover, trees will continue growing, sequestering carbon dioxide all along, if they are not harvested for energy, which calls into question the net carbon benefits of chopping them down and growing new ones. Using wood for electricity also means that other industries, such as paper, might have to get their raw materials from other places, which could end up increasing deforestation. The country cannot get much electricity out of biomass, anyway. Tim Searchinger, a Princeton University researcher, calculates that obtaining 4 percent of the country’s electricity from biomass would require 74 percent of its timber harvest.  Biomass advocates respond that the product is better than fossil fuels. That might be so, but it is not an excuse to treat biomass like any other renewable. Sixty-five experts, including Mr. Searchinger, warned senators in February against including the biomass language in the bill, predicting that it would “promote deforestation in the U.S. and elsewhere and make climate change much worse.”"
Dear Congress: Burning wood is not the future of energy
Washington Post, 28 April 2016

"Russian President Vladimir Putin is on the verge of realizing a decade-old dream: Russian oil priced in Russia. The nation’s largest commodity exchange, whose chairman is Putin ally Igor Sechin, is courting international oil traders to join its emerging futures market. The goal is to increase revenue from Urals crude by disconnecting the price-setting mechanism from the world’s most-used Brent oil benchmark. Another aim is to move away from quoting petroleum in U.S. dollars. If Russia is going to attract international participation in Russian-based pricing, the Kremlin will need to persuade traders it’s not simply trying to push prices up, some energy analysts said. The government is dependent on oil revenue to fund its budgets. “The goal is to create a system where Russian oil is priced and traded in a fair and straightforward way,” said Alexei Rybnikov, president of the St. Petersburg International Mercantile Exchange, or Spimex, in a phone interview. Russia, which exports about half its crude, has long complained about the size of the discounts for lower quality Urals oil compared to North Sea Brent prices, which are assessed by the Platts agency. With world oil prices down by half in the past two years and Russia facing the prospect of its worst budget deficit as a percentage of its economic output since 2010, it needs every dollar of petroleum revenue it can get. Having its own futures market would improve Russian oil price discovery as well as help domestic companies generate extra revenue from trading, said Rybnikov....Moscow is not alone in its push to change global oil pricing. China, which vies with the U.S. as the world’s biggest crude importer, has spent two decades trying to introduce its own oil futures contact, now expected this year. Iran and Venezuela, members of the Organization of Petroleum Exporting Countries, have called for trading oil in other currencies than U.S. dollars."
Putin's Decade-Old Dream Realized as Russia to Price Its Own Oil
Bloomberg, 28 April 2016

"For the companies that operate offshore rigs on behalf of oil producers — including Transocean, Seadrill, Ensco and Noble Corp — the slump in crude prices since the summer of 2014 has been brutal. They have been reporting large losses, and have cut or scrapped their dividends. Their share prices have plunged. The impact of low oil prices is often depicted as a battle between Saudi Arabia and the onshore shale producers of the US. But other relatively high-cost sources of supply around the world have also been hit, and for offshore oil the effect is likely to last longer. The latest data for offshore oil and gas production still look healthy. Last year output from the UK sector of the North Sea rose 7 to 8 per cent, while crude production in the US waters of the Gulf of Mexico rose 10 per cent. That growth is the result of decisions taken years ago, however. Matt Cook of Douglas-Westwood, a consultancy, says that because offshore projects take years to develop, the impact of falling oil prices is felt only after a lag....The number of drillships and “semi-submersible” floating rigs working around the world has dropped from 251 in September 2014 to 169 last month, according to the RigLogix database from Rigzone, a research firm. Only a handful of new offshore projects were given the green light last year, including Royal Dutch Shell’s Appomattox in the Gulf of Mexico, Eni’s OCTP off the coast of Ghana, and Statoil’s Johan Sverdrup field in the Norwegian sector of the North Sea. Even more ominously for the contractors, many oil producers have cut back sharply on exploration to find fields that will lead to future developments. ConocoPhillips of the US said last year it would pull out of deepwater exploration altogether by 2017. Paal Kibsgaard, chief executive of Schlumberger, the world’s largest oil services group, on Friday told analysts that its customers showed signs of “facing a full-scale cash crisis”, and in the second quarter their spending was likely to be even lower than in the first three months of 2016. One particular weak spot for Schlumberger was sales of offshore seismic survey data — essential for exploration — which Mr Kibsgaard said had fallen to “unprecedented low levels”. With cash flows under extreme pressure, and commitments to investors that dividends will not be cut, oil companies see little benefit in spending money on exploration that might at best pay off in production 10 years from now. The slowdown in both exploration for new fields and the development of past discoveries is causing particular difficulties for those rig operators that are heavily indebted. ....Transocean’s regular fleet status report last week showed that of its 28 rigs capable of working in “ultra deep” waters, just 12 were under contract, with the rest “stacked” or idle....Although offshore and especially deepwater oil is expensive, the fields found can be very large. So the cost per barrel is not necessarily higher than for US shale, says Amrita Sen of Energy Aspects, a consultancy. The big difference, however, is in flexibility. Offshore, a well might cost $100m and take many weeks to drill, while onshore it will cost about $5m to $7m and take less than two weeks.... ExxonMobil told investors last month that it was pursuing “several” offshore development opportunities. However, executives also stressed the flexibility of its US onshore assets, which would allow them to ramp up production quickly if oil process rise. Mr Kibsgaard of Schlumberger suggested on Friday that this would be a common view across the industry. Large new offshore projects, he said, were “not going to be the first area that our customers are going to start putting money into“. When the recovery comes, he added, investment will pick up onshore first and offshore — and especially in deep water — only later. That means the financial pressures on the rig companies will continue, potentially with significant low-term consequences. Keeping a modern drillship “hot stacked” — ready to move off to a job if needed — can cost $150,000 per day, according to Antoine Rostand, president of Kayrross, an energy technology start-up. That creates an incentive for the operators to scrap or sell rigs, rather than retain them to wait for the upturn. There is a widespread expectation that as oil prices recover, the US shale industry will spring back to life. If, for whatever reason, that fails to happen, then it will take a long time for the offshore industry to be revved up to fill the gap. The result could be a surge in oil and gas prices, at least for a while. “This is a dangerous game for the industry,” says Mr Rostand. “The knock-on effect of reduced activity on the industry will be prolonged.”"
Offshore rig operators reel from oil price rout
Financial Times, 24 April 2016

"An extensive new scientific analysis published in Wiley Interdisciplinary Reviews: Energy & Environment says that proved conventional oil reserves as detailed in industry sources are likely “overstated” by half. According to standard sources like the Oil & Gas Journal, BP’s Annual Statistical Review of World Energy, and the US Energy Information Administration, the world contains 1.7 trillion barrels of proved conventional reserves. However, according to the new study by Professor Michael Jefferson of the ESCP Europe Business School, a former chief economist at oil major Royal Dutch/Shell Group, this official figure which has helped justify massive investments in new exploration and development, is almost double the real size of world reserves. Wiley Interdisciplinary Reviews (WIRES) is a series of high-quality peer-reviewed publications which runs authoritative reviews of the literature across relevant academic disciplines. According to Professor Michael Jefferson, who spent nearly 20 years at Shell in various senior roles from head of planning in Europe to director of oil supply and trading, “the five major Middle East oil exporters altered the basis of their definition of ‘proved’ conventional oil reserves from a 90 percent probability down to a 50 percent probability from 1984. The result has been an apparent (but not real) increase in their ‘proved’ conventional oil reserves of some 435 billion barrels.” Global reserves have been further inflated, he wrote in his study, by adding reserve figures from Venezuelan heavy oil and Canadian tar sands - despite the fact that they are “more difficult and costly to extract” and generally of “poorer quality” than conventional oil. This has brought up global reserve estimates by a further 440 billion barrels. Jefferson’s conclusion is stark: "Put bluntly, the standard claim that the world has proved conventional oil reserves of nearly 1.7 trillion barrels is overstated by about 875 billion barrels. Thus, despite the fall in crude oil prices from a new peak in June, 2014, after that of July, 2008, the ‘peak oil’ issue remains with us.” Currently editor of the leading Elsevier science journal, Energy Policy, Professor Jefferson was also for 10 years deputy secretary-general of the World Energy Council, a UN-accredited global energy body representing 3,000 member organisations in 90 countries, including governments and industry. Earlier this year, Deloitte predicted that over 35 percent of independent oil companies worldwide are likely to declare bankruptcy, potentially followed by a further 30 percent next year - a total of 65 percent of oil firms around the world. Already 50 North American oil producers have gone bankrupt since last year due to a crisis of profitability triggered by bottoming oil prices."
Where did all the oil go? The peak is back
Middle East Eye, 24 April 2016

"The head of the world's largest provider of services to oilfields has warned of a "full-scale crisis" as the industry is lashed by an unprecedented slump in trading conditions. Paal Kibsgaard, chairman and chief executive of Schlumberger used a conference call with investors over the weekend to detail 8000 job cuts at the services giant. One-third of Schlumberger's workforce, or roughly 42,000, has now been cleaved off since the worst crude-market crash in a generation began in mid-2014.... The International Energy Agency reiterated on Thursday it expects non-OPEC output to fall by about 700,000 barrels a day this year, which would be the sharpest drop in a quarter century. US production fell to 8.95 million barrels a day, the Energy Information Administration said on Wednesday.... Schlumberger's profit fell in the first quarter as the company, which helps explorers find pockets of oil underground and drill for it, adjusts to shrinking margins in North America as customers scale back work. Customers are slashing spending by as much as 50 percent in the U.S. and Canada."
`Full-scale cash crisis' in oil sector
Bloomberg, 24 April 2016

"Last year the Saudis announced a plan to drive a ship canal through Saudi desert, Oman and Yemen to the Gulf of Aden, bypassing the straits of Hormuz. This would reduce ship journeys by approximately 500 miles, and limit any potential physical threat to shipping from Iran. It is worth noting that Iran has stated it will not block the strait of Hormuz, and is a signatory to the UN Law of the Sea Convention which would make that illegal. .... The canal project is moving forward in the Saudi governmental system and has now formally been assigned to the Ministry of Electricity....  It is to be called the King Salman canal....given that the eastern Yemeni regions through which it would pass are predominantly Shia, this is a major problem for the Saudis. A problem that could only be resolved by taking effective military control of Yemen."
UK Killing Civilians for Oil Again in the King Salman Canal Project
Craig Murray Blog, 21 April 2016

"The collapse of OPEC talks with Russia over the weekend makes absolutely no difference to the balance of supply and demand in the global oil markets. The putative freeze in crude output was political eyewash. Hardly any country in the OPEC cartel is capable of producing more oil. Several are failed states, or sliding into political crises. Russia is milking a final burst of production before the depleting pre-Soviet wells of Western Siberia go into slow run-off. Sanctions have stymied its efforts to develop new fields or kick-start shale fracking in the Bazhenov basin.  Saudi Arabia’s hard-nosed decision to break ranks with its Gulf allies at the meeting in Doha - and with every other OPEC country  - punctures any remaining illusion that there is still a regulating structure in global oil industry. It told us that the cartel no longer exists in any meaningful sense. Beyond that it was irrelevant.... Market dynamics are changing fast. Output is slipping all over the place: in China, Latin America, Kazakhstan, Algeria, the North Sea. The US shale industry has rolled over, though it has taken far longer than the Saudis expected when they first flooded the market in November 2014. The US Energy Department expects total US output to drop to 8.6m barrels per day (b/d) this year from 9.4m last year. China is filling up the new sites of its strategic petroleum reserves at a record pace. Its oil imports have jumped to 8m b/d this year from 6.7m in 2015, soaking up a large part of the global glut.  Some is rotating back out again as diesel: most is being consumed in China.... The Saudi price war has several targets. A top official hinted at the hierarchy a month ago, listing Iran, Russia, the Arctic, Canada’s oil sands, Venezuela’s Orinoco tar, ultra-deep water wells, US shale, and renewables, in that order. The primary foe is obviously Iran, the leader of Shia Islam and arch-rival for strategic dominance of the Middle East.  The two countries are at daggers drawn in Syria, Yemen, and Iraq. Many suspect that the secondary undeclared foe is Russia, currently the world’s top producer at 10.8m b/d but short of money and running down its infrastructure. The Kremlin will exhaust its budget reserve funds by the end of the year, forcing Vladimir Putin to contemplate draconian budget cuts. The Saudis may think it worth going for the kill by trying to hold down prices for a few more months. The trouble for the Saudis is that their strategy has probably killed OPEC – the instrument that leverages their global power – and may set fire to their own strategic neighbourhood, if it has not done so already.... In Libya, ISIS has gained a foothold in the heart of the oil region around Sirte. It has vowed to ignite rebellion in Algeria, another state spiraling into financial crisis. Most of the Maghreb is now a powder keg. Any one of these countries could spin out of control. It is not far-fetched to imagine two or three occurring at the same time. This would change the dynamics of the oil markets in a heartbeat and would bring the ageing post-Lehman expansion of the global economy to an abrupt halt, exposing the nasty pathologies that have been building up. It never was cheap oil that threatened our economies. The scare earlier this year was misguided. It is the next oil supply crunch we should fear most."
Saudis are going for the kill but the oil market is turning anyway
Telegraph, 18 April 2016

"U.S. oil and gas companies have been hammered by collapsing crude prices, and now the banks that provide their lifeblood are under pressure to curb their lending to them. This month, the energy industry has entered a regular, twice-annual review period that will determine whether banks reduce their access to credit. The current period comes at a time when only the healthiest drillers are able to tap equity and bond markets. Banks and syndicates of lenders typically extend loans to drillers in the form of a revolving line of credit. That is the go-to financing option for day-to-day expenses. When exploration and production firms need more funding, they typically take out a second lien loan or issue new equity or bonds. Those credit lines are tied to the value of drillers' proved oil and gas reserves. Since those asset values fluctuate with commodity prices, banks re-evaluate their energy customers' creditworthiness twice a year in a process the industry calls the borrowing base redetermination. On average, lenders, borrowers and other stakeholders expect a 38 percent decrease in borrowing bases, according to a survey by Houston-based law firm Haynes and Boone. With U.S. crude futures down 62 percent from their 2014 high, the best most drillers can hope for is to have their existing borrowing ability left intact. In the worst-case scenario, the borrowing ceiling is slashed below the outstanding balance, and the company can't make interest payments, triggering bond covenants that lead to bankruptcy....Banks have been increasing their provisions for bad loans. Earlier this year, JPMorgan announced it was adding $500 million to an $815 million reserve to cover potential losses in its energy loan portfolio. Banks simply do not want to lend to oil and gas customers at this point, and they see an opportunity to reduce their exposure to unfunded energy loans by cutting borrowing bases, said Kim Brady, a restructuring specialist and partner at financial advisory firm Solic Capital. "To the extent that the borrowing base can be lowered without the company going out of business ... I think their goal is going to be to reduce their exposure as much as they can," he told CNBC. If a bank lowers a driller's borrowing base too much, it can push the company into bankruptcy and leave the lender holding depressed assets. Banks have already cut the borrowing bases of more than a dozen oil and gas companies by a total of $3.5 billion, or roughly a fifth of available credit, according to data compiled by Reuters."
Oil industry may see cash tighten as banks face pressure
CNBC, 15 April 2016

"A dramatic build-up in China’s strategic petroleum reserve and surging demand for imported crude oil are likely to transform the global energy markets this year, regardless of any production freeze agreed by OPEC and Russia this weekend. Chinese credit stimulus and a 20pc rise in public spending has set off a fresh mini-cycle of growth that is already sucking in oil imports at a much faster pace than expected. Barclays estimates that the country will import an average of 8m barrels per day (b/d) this year, a huge jump from 6.7m b/d last year. This is arguably enough to soak up a big chunk of the excess supply currently flooding global markets. Standard Chartered said Chinese imports could reach 10m b/d by the end on 2018, implying a supply crunch and a fresh spike in oil prices as the market is turned on its head. Energy consultancy Wood Mackenzie says $400bn in oil and gas projects have been shelved since the onset of the commodity slump. A great number of depleting fields will not be replaced. Feifei Li, Barclay’s oil analyst, said China is in a rush to fill four new storage sites of its petroleum reserve coming available this year. “It is an urgent priority of the government to fill up the tanks while the price of oil is cheap,” he said. Fresh storage is likely to average 250,000 b/d, five times the level last year. The pace will rise further in the second half of the year.  China is building vast underground rock caverns in the interior of the country as a top national security priority, fully aware of the way Japan was squeezed by the US fuel embargo in the late 1930s. It aims to boost reserves to 550m barrels and ensure a 90-day buffer to resist an external supply shock. China’s own output of oil has fallen by 200,000 b/d over the last year as PetroChina and Sinopec slash investment, while demand has continued to grow.  Car sales are expected to rise by 6pc this year and Chinese customers are switching to bigger models. The International Energy Agency forecasts that Chinese petrol demand will jump by 8.8pc this year, and jet fuel by 7.5pc. Some of China’s oil imports are rotating back out again into the world market in the form of diesel as the so-called ‘teapot’ refiners burst on the Chinese scene, but this may be less of a threat than originally feared...Ultimately what happens in China and matters far more than OPEC choreography. The country has overtaken the US this year to become the world’s biggest importer of crude and the authorities are once again injecting a huge stimulus into the economy."
Soaring oil demand in China rescues OPEC
Telegraph, 15 April 2016

"US coal giant Peabody Energy has filed for bankruptcy, the most powerful convulsion yet in an industry that is enduring its worst slump in decades. The company voluntarily filed petitions under Chapter 11 for the majority of its US entities in the United States Bankruptcy Court for the Eastern District of Missouri. All of Peabody’s mines and offices are continuing to operate in the ordinary course of business and are expected to continue doing so for the duration of the process, it said."
US energy giant Peabody crashes into bankruptcy as coal industry convulses
Telegraph, 13 April 2016

"The recent EIA drilling productivity reports show a peaking of shale oil production in the main production regions. We see that in 2015 production from new wells declined abruptly. The intersection point with old wells corresponds to the peak in production. The old wells decline has moderated suggesting that more and more old wells have entered their phase of final, flat production at very low levels."
US shale oil peak in 2015
Crude Oil Peak, 30 March 2016

"For oil companies, the legacy of $100 crude is starting to run dry.  A wave of projects approved at the start of the decade, when oil traded near $100 a barrel, has bolstered output for many producers, keeping cash flowing even as prices plummeted. Now, that production boon is fading. In 2016, for the first time in years, drillers will add less oil from new fields than they lose to natural decline in old ones. About 3 million barrels a day will come from new projects this year, compared with 3.3 million lost from established fields, according to Oslo-based Rystad Energy AS. By 2017, the decline will outstrip new output by 1.2 million barrels as investment cuts made during the oil rout start to take effect. That trend is expected to worsen. “There will be some effect in 2018 and a very strong effect in 2020,” said Per Magnus Nysveen, Rystad’s head of analysis, adding that the market will re-balance this year. “Global demand and supply will balance very quickly because we’re seeing extended decline from producing fields.”"
Drillers Can't Replace Lost Output as $100 Oil Inheritance Spent
Bloomberg, 22 March 2016

"The Asian Development Bank is confident that it can overcome by 2020 the challenges of building a $10-billion gas pipeline through Afghanistan's most violent areas. Shareholders of the planned Turkmenistan, Afghanistan, Pakistan and India (TAPI) project agreed on April 7 to invest $200 million in studies and engineering for the $10 billion project. The proposed underground pipeline will go through the southern province of Helmand, one of the most violence-hit in the country. Sean O'Sullivan, the Central and West Asia director general of the ADB, an adviser for the project, said on April 8 that, despite the challenges, the project is "doable." "If it happens, it will be quite an unprecedented example of regional cooperation, particularly in a region that finds it difficult to cooperate," he said in an interview with the Reuters news agency. Under current timelines, the pipeline could be operational by 2020."
TAPI Gas Pipeline Through Afghanistan 'Doable'
Radio Free Europe, 9 April 2016

"Russian Energy Minister Alexandr Novak says Russia is ready to freeze oil production at January's level of 10.9 million barrels a day in an agreement with other major producers this month. But he said other nations at a meeting of OPEC and non-OPEC producers on April 17 in Doha may propose freezes at different levels, such as February's output levels, and Russia is open to that as well."
Russia's Novak Says Ready To Freeze Oil Output At January Level
Radio Free Europe, 9 April 2016

"The US energy information administration last month released estimates showing coal production declining across the country by 29% in the first 10 weeks of 2016 compared with the same period last year. The agency said it anticipates natural gas will overtake coal as the country’s biggest source of electricity this year – a projection that is expected to result in hundreds more layoffs in the coming months. On the same day, Arch Coal announced it would stop pursuing the Otter Creek project in Montana, which would have been one of the biggest surface mines in the country, blaming capital costs and weakness in the coal markets. The Obama administration has also squeezed off prospects for future coal projects, overhauling the system of fossil fuel leases on public lands. In his final State of the Union address, Obama said he would push for changes to the leasing of public lands for oil, coal and gas leases at cut-rate prices, saying: “Rather than subsidize the past, we should invest in the future.” Meanwhile, the US coal industry’s efforts to find new markets in Asia and Europe have run into troubles. China is moving away from coal, and it is getting harder to get coal to the other big potential market in India. On 1 April, the company behind the proposed Gateway Pacific Terminal suspended the $700m project until the courts can rule on a challenge from the Lummi tribe."
The death of US coal: industry on a steep decline as cheap natural gas rises
Guardian, 8 April 2016

"The following is excerpted from The Oracle of Oil: A Maverick Geologist’s Quest for a Sustainable Future, by Mason Inman. Copyright © April 11, 2016. W .W. Norton & Co. Adapted from Chapter 17, “A Magical Effect.” Author’s Note: In the mid-1950s, M. King Hubbert was the first to explain correctly how a new technique known as hydraulic fracturing—or, for short, “fracking”—actually worked. This excerpt covers how he solved the puzzle, and (with the help of his assistant) convinced others of his explanation. The study of fracking he and his assistant published in 1957 is now considered a classic, still cited often today......"
How the Prophet of Peak Oil Explained Fracking in the 1950s
Scientific American, 8 April 2016

"The profitability of the North Sea oil and gas sector has plunged to lows not seen since 1997, according to official government data. Explorers active in the UK Continental Shelf (UKCS) have seen the rate of return on their investments fall from just 2pc in the third quarter of last year to 0.6pc in the last quarter of 2015, according to the Office for National Statistics. The rate of return expresses how much a profit a company makes as a percentage of the capital used to produce it. For the whole of 2015, the rate of return in North Sea oil was 3.5pc, the lowest since the ONS series began in 1997. The extent of the collapse in profitability is demonstrated by the fact that at its peak in 2007, North Sea oil was enjoying returns of up to 65pc, as Brent crude prices soared. This rally pushed prices to almost $140 a barrel by the summer of 2008. But since mid-2014 global oil prices have plummeted, reaching 12-year lows this year and piling pressure on the aging North Sea industry. “This is the lowest quarterly figure since the series began in 1997 and reflects falling oil and gas prices, which failed to be offset by increased quarter-on-quarter sales,” the ONS said.... Earlier this year the Office for Budget Responsibility (OBR) found that the North Sea oil industry made a £100m loss for the public purse in the current financial year, the first in more than four decades, thanks to the collapse in oil prices. In addition, the OBR said tax receipts would remain negative by up to £1.2bn a year between 2016 and 2021 because of repayments of corporation tax and petroleum revenue tax to loss-making operators."
North Sea oil profitability plunges to near 20-year lows
Telegraph, 6 April 2016

"UK renewable electricity output in 2015 grew by a further 29% year-on-year to 83.3 terawatt-hours (TWh), following a 20% increase over the previous 12 months. According to government statistics released this week, renewables accounted for 24.7 per cent of all electricity produced on an annual basis, more than both coal (23 per cent) and nuclear (21 per cent). Total renewable electricity installed capacity at the end of 2015 reached 30 gigawatts, maintaining an annual growth rate of more than 20 per cent, and now accounts for nearly one-third of all UK power stations. Even more remarkably, renewables’ share of electricity generation increased to a new high of 27 per cent in the fourth quarter of 2015 (October to December), closing the gap with gas generation (at 29.7%, currently the main source of UK electricity)."
A quarter of all UK power from renewables in 2015
NFU Online, 1 April 2016

"United States crude oil production fell for the fourth consecutive month in January, but rising output from shale formations in Texas highlighted United States producers’ ability to keep output near record levels in the face of low prices. Production in January fell by 56,000 barrels per day to 9.179 million b.p.d., according to monthly data from the United States Energy Information Administration released on Thursday. The level was the lowest since October 2014. Shale producers have proved more resilient to low prices than the market initially anticipated, as producers last month began to lock in crude hedges at just $45 a barrel, indicating that their break-even prices have gotten even lower."
Crude Oil Production Falls to Lowest Level Since 2014
Reuters, 31 March 2016

"A surprisingly high 48% of U.S. oil production from the contiguous states came from wells drilled since 2014. The vast majority is from unconventional formations such as shale. They went from providing 500,000 barrels a day in 2009 to a peak of 4.6 million last May, but output has been declining since then as spending was slashed. Based on geology alone, that decline should have been worse. Production from a shale well typically falls by half during the first year in operation and then by another quarter to one-third in the following year. The reason it hasn’t is a significant rise in productivity per well—a modest additional investment squeezed out extra barrels. That trend is reaching its limits, though.... But a large number of uncompleted wells colloquially referred to as a “fracklog” stands ready to come on stream fairly quickly once prices rise by another $20 a barrel or so. By keeping its financial powder dry, a leaner U.S. shale patch can storm back soon after prices become more attractive and enjoy the last laugh."
Shale Is the Odd Man Out in Oil Reckoning
Wall St Journal, 30 March 2016

"Iranian oil flows to Europe have begun to pick up from a slow start after sanctions were lifted in January, but trading sources say a lack of access to storage part-owned by Tehran's Gulf Arab rivals now looms large on a list of obstacles. European countries accounted for more than a third of Iran's exports, or 800,000 barrels a day, before the European Union imposed sanctions in 2012 over its nuclear program. Since January, Tehran has sold 11 million barrels to France's Total (TOTF.PA), 2 million barrels to Spain's Cepsa and 1 million to Russia's Litasco, according to Iranian officials, traders and ship-tracking data. Some of these cargoes will not arrive in Europe before mid-April. With most U.S. sanctions still in place, there is no dollar clearing, no established mechanism for non-dollar sales and banks are reluctant to provide letters of credit to facilitate trade.A new initiative by international ship insurers has helped, but traders say exports have been hampered by Iran's unwillingness to sweeten terms for potential European buyers. Iranian oil officials and international traders have also grown increasingly concerned by a delay regaining access to storage tanks in Egypt's port of Sidi Kerir on the Mediterranean coast, from where it supplied up to 200,000 bpd to Europe back in 2011. 'As of now, there is no tankage for Iran there. Before sanctions, it was Iran's main terminal for supplies to Western nations,' one Iranian oil source said. Four traders with western oil majors and major trading houses told Reuters Iranian officials have notified them Iran cannot get access to the SUMED-owned terminal for now and so could not supply them with crude from there."
Iran's oil storage struggle holds back exports to Europe
Reuters, 24 March 2016

"Despite its ongoing fracking boom, the U.S. added more new wind capacity in 2015 than natural gas, according to new data. The Energy Information Administration indicated it was the fourth time since 2006 that this has occurred. The U.S. added more than 8,000 megawatts of new wind capacity, compared with about 6,000 megawatts of new natgas capacity."
Despite fracking boom, the U.S. added more wind than natural gas power last year
Fusion, 23 March 2016

"Rystad Energy estimates that the crash in oil prices has cut into upstream investment so severely that natural depletion rates will overwhelm the paltry new sources of supply in 2016. Existing fields will lose about 3.3 million barrels per day (mb/d) in production this year, while new fields brought online will only add 3 mb/d. This does not take into account rising oil demand, which will soak up most of the excess supply by the end of the year. But the 3 mb/d of new supply in 2016 will mostly come from large offshore projects that were planned years ago, investments that were made before oil prices started crashing. The EIA sees four offshore projects starting up in 2016 – projects from Shell, Noble Energy, Anadarko, and Freeport McMoran – plus two more in 2017. The industry completed eight projects in the Gulf in 2015. U.S. Gulf of Mexico production will climb from 1.63 mb/d in 2016 to 1.91 mb/d by the end of 2017. However, outside of these large-scale multiyear offshore projects, the queue of new oil fields is starting to be cleared out. By 2017, the supply/depletion balance will go deeper into negative territory. Depletion will exceed new sources of production by around 1.2 mb/d before widening even further in 2018 and 2019. A few months ago, Wood Mackenzie estimated that around $380 billion in planned oil projects had been put on ice due to the crash in oil prices. Wood Mackenzie says that between 2007 and 2013, the oil industry greenlighted about 40 large oil projects on average each year. That figure plunged to fewer than 10 in 2015. The coming supply crunch stands in sharp contrast to the short-term picture. The EIA reported on March 23 that crude oil storage levels once again increased, surging by 9.4 million barrels last week to break yet another record. Total inventories in the U.S. now stand at 532.5 million barrels. Record high storage levels, which continue to climb, are signs of short-term oversupply. The IEA expects supply to continue to outstrip demand by about 1.5 mb/d until later this year. Oil storage levels will have to fall to more normal levels before oil prices can rise substantially."
Why We Could See An Oil Price Shock In 2016
Oil Price.com, 23 March 2016

"A wave of projects approved at the start of the decade, when oil traded near $100 a barrel, has bolstered output for many producers, keeping cash flowing even as prices plummeted. Now, that production boon is fading. In 2016, for the first time in years, drillers will add less oil from new fields than they lose to natural decline in old ones. About 3 million barrels a day will come from new projects this year, compared with 3.3 million lost from established fields, according to Oslo-based Rystad Energy AS. By 2017, the decline will outstrip new output by 1.2 million barrels as investment cuts made during the oil rout start to take effect. That trend is expected to worsen. 'There will be some effect in 2018 and a very strong effect in 2020,' said Per Magnus Nysveen, Rystad’s head of analysis, adding that the market will re-balance this year. 'Global demand and supply will balance very quickly because we’re seeing extended decline from producing fields.' A lot of the new production is from deepwater fields that oil majors chose not to abandon after making initial investments, Nysveen said in a phone interview. Royal Dutch Shell Plc is scheduled to start the Stones project in the Gulf of Mexico’s deepest oil field this year after approving it in May 2013. Benchmark Brent crude averaged $103 a barrel that month compared with about $41 on Monday. Stones will add about 50,000 barrels a day to Gulf of Mexico output at a peak rate, according to Shell. Two other deepwater projects, run by Noble Energy Inc. and Freeport-McMoran Inc., are due to commence this year, the U.S. Energy Information Administration said in a Feb. 18 report. Anadarko Petroleum Corp. started the Heidelberg field in January. That will help boost production in the Gulf of Mexico by 8.4 percent this year to a record annual average of 1.67 million barrels a day, according to the U.S. Energy Information Administration....'There is a wide range of upstream projects coming online in 2016, and that is a function of the high levels of investment deployed back when we were in a $100 a barrel world,' said Angus Rodger, a Singapore-based analyst at energy consulting firm Wood Mackenzie Ltd. 'In the short term, they will generate far lower returns than originally envisaged.' Yet, these developments won’t be enough to counter the natural decline in oil fields that are starting to suffer from lower investment. A little more than a year after Shell approved the Stones project in 2013, oil prices began their slump, with Brent dropping to a 12-year low below $28 a barrel in January. That has squeezed budgets of oil producers and project approvals have dwindled. From 2007 to 2013, companies took final investment decisions on an average 40 mid- to large-sized oil and gas projects a year, Wood Mackenzie’s Rodger said. That fell to below 15 in 2014 and to less than 10 last year. Neither Rodger nor Rystad’s Nysveen expect an upturn this year. Morgan Stanley estimates nine projects are in contention to get the green light this year, including BP’s Mad Dog Phase 2 in the Gulf of Mexico and Eni SpA’s Zohr gas field in Egypt. These are among 232 projects, excluding U.S. shale, awaiting approval following deferrals over the past two years, according to a Jan. 29 report. Companies cut capital expenditure on oil and gas fields by 24 percent last year and will reduce that by another 17 percent in 2016, according to the International Energy Agency. That’s the first time since 1986 that spending will fall in two consecutive years, the agency said Feb. 22. 'We see oil investments are declining substantially,' IEA Executive Director Fatih Birol said in Berlin on March 17. 'That we’ve never seen in the history of oil.' Even after reducing costs for conventional projects by an average of about 15 percent last year, many still aren’t competitive, Wood Mackenzie’s Rodger said. Shell approved the Appomattox oil field in the Gulf of Mexico last year at a break-even oil price of $55 a barrel, still above current market rates of $41.15 a barrel at 9:59 a.m. in New York Tuesday."
Drillers Can't Replace Lost Output as $100 Oil Inheritance Spent
Bloomberg, 22 March 2016

"The Gatwick Gusher has produced the highest flow rates of any onshore wildcat well in the UK, matching the kind of levels normally seen in the North Sea, its majority owner UK Oil & Gas said. The exploration company said it had completed its final test at Horse Hill, just north of Gatwick Airport, and that the aggregate flow from three layers of oil-bearing rock had been 1,688 barrels per day.  'The flow test results are outstanding, demonstrating North Sea-like oil rates from an onshore well,' said UKOG executive chairman Steve Sanderson. 'This simple vertical well has achieved an impressive aggregate oil rate equivalent to 8.5 per cent of total UK onshore daily oil production."
‘Outstanding’ oil flow produced by Gatwick Gusher
Indepdenent, 22 March 2016

"The US shale revolution may already be capping the price of gas in the UK, months before the first gas exports are set to arrive at European terminals. Fresh data from energy market analysts shows that the price of summer gas in the UK has fallen in line with the estimated cost of exporting US liquefied natural gas (LNG) to Europe, representing a major shift in global energy market dynamics. Jefferies analysts said that US could now become the price-setter for the UK market 'even before actual cargoes arrive'. 'If this apparent convergence becomes established, it would represent one of the most significant developments in the UK - and wider European - energy market for more than a decade. 'In effect it would mean that the UK gas price would be set by [the US]. And therefore a direct pricing link would be established between US shale gas production and the UK market,' the analysts said."
US shale already setting UK gas prices, say analysts
Telegraph, 21 March 2016

"About 600 people packed on to the Machinery Auctioneers lot on the outskirts of San Antonio, Texas, last week to pick up some of the pieces shaken loose by the oil crash. Trucks, trailers, earth movers and other machines used in the nearby Eagle Ford shale formation were sold at rock-bottom prices. One lucky bargain hunter was able to pick up a flatbed truck for moving drilling rigs — worth about $400,000 new — for just $65,000. Since the decline in oil prices began in mid-2014, activity in the Eagle Ford, one of the heartlands of the shale revolution, has slowed sharply. The number of rigs drilling for oil has dropped from a peak of 214 to 37, and businesses, from small 'mom and pop' service providers to venture capital companies, are trying to offload unused equipment.... From 2006 to 2014, the global oil and gas industry’s debts almost tripled, from about $1.1tn to $3tn, according to the Bank for International Settlements. The smaller and midsized companies that led the US shale boom and large state-controlled groups in emerging economies were particularly enthusiastic about taking on additional debt.... Borrowers and lenders alike were reassured by the consensus that the world had entered an era of persistently high oil prices. In June 2014, a barrel of Brent crude for 2020 delivery was $98. And central banks’ post-crisis monetary policies pushed investors towards riskier assets, including oil and gas companies’ equity and debt. 'Two things happened: we had high oil prices, and central banks had zero interest rates and quantitative easing policies,' says Spencer Dale, the chief economist of BP, who formerly held that role at the Bank of England. 'That was a potent mix.' From 2004 to 2013, annual capital spending by 18 of the world’s largest oil companies almost quadrupled, from $90bn to $356bn, according to Bloomberg data. The assumptions used to justify that borrowing were fuelled by a textbook example of disruptive technological innovation: the advances in hydraulic fracturing and horizontal drilling that made it possible to produce oil and gas from previously unyielding shales. The success of those techniques added more than 4m barrels a day to US crude production between 2010 and 2015, creating a glut in world markets that has sent prices down 65 per cent since the summer of 2014. The expectations of sustained high prices have vanished: crude for 2020 delivery is $52 a barrel. Oil is now back to where it was in 2004, but most of the debt that was taken on in the boom years is still there....Many analysts expected US shale oil production to fall rapidly if prices went below $70, but the companies slashed costs while raising productivity, so total US output is declining only gently. Russia’s oil production hit a post-Soviet record in January. Saudi Arabia also hit record output last year. The decline in the industry’s cash flows has prompted huge cuts in investment, with about $380bn worth of projects delayed or cancelled according to Wood Mackenzie, the consultancy. Sooner or later production will fall and the market will come back into balance. But a long period of volatility in oil prices may persist even after the oversupply is worked off. The decision by Saudi Arabia, Opec’s de facto leader, not to cut its output amid surging US oil production means that prices are being set by market forces, not political decisions. Daniel Yergin, vice-chairman of IHS, the research group, says shale has made the US 'the inadvertent swing producer' in world oil markets. Shale wells are much faster to drill and complete than large developments such as offshore oilfields. 'How production goes down and up is determined not by an oil minister, but by thousands of decision makers across the economy,' he says....Falling production costs mean that if oil rises much above $50, drilling shale wells in the US will start to look attractive again. New wells can break even in all the main shale regions with prices from about $40 to the low $50s, according to Rystad Energy, a consultancy. What has yet to be tested is how keen banks and bond investors will be to finance that drilling. Mr Dale is one of many in the industry who suspects they will be cautious.... Mr Yergin agrees. 'Company directors and bankers will not forget that prices can go down as well as up,' he says. 'So we’re not going to see the same 100-miles-per-hour development that we saw when oil was at $100.'"
Oil and gas: Debt fears flare up
Financial Times, 21 March 2016

"A Wirral ecohome so energy efficient it only costs £15 a year to run has been nominated for an award. The ‘passivhaus,’ designed by John McCall Architects is so well designed that it runs on the same amount of energy as one 40w lightbulb and has been nominated for an award from the Royal Institution of Chartered Surveyors. Colin Usher, who is a director at John McCall, designed the home in Lang Lane, West Kirby for himself and his wife, Jenny. The pair now pay less than the price of an average takeaway for their years supply of energy for heating, lighting, cooking and hot water. The total cost of the build - including purchasing the land and demolishing the existing property - was £500,000, which is the going rate for four bedroom properties in the area, meaning the couple have technically spent no more than buying an ‘average’ house on the road. High ceilings, carefully positioned glass and big open spaces allow natural light into the property to provide heat. It is designed to maintain an even temperature year round by using insulated concrete and a high-tech heat pump that takes in heat from the outside air and uses it to warm the house."
How one couple's yearly energy bills cost less than a take away
Liverpool Echo, 20 March 2016

"The North Sea oil industry, once a huge moneyspinner for the Treasury, is set to become a £1bn burden for the taxpayer next year as the plunging crude price hits revenues. New forecasts from the Office of Budget Responsibility (OBR) show oil companies that were providing £11bn of tax revenues as recently as 2012 will contribute zero in 2015-16, moving to minus £1.1bn in 2016-17 - a loss that will be repeated annually until at least 2021. 'Payments of offshore corporation tax and petroleum revenue tax (PRT) will be lower and are likely to be dwarfed by repayments relating to [platform] decommissioning costs,' said the OBR, adding that the burden would be made worse by oil companies posting losses."
Oil price plunge 'will lead to £1bn burden on taxpayers'
Guardian, 16 March 2016

"Russian central bankers have fewer reasons to offer relief to their recession-wracked economy than you might think.Their decision whether to resume an interest rate-cutting cycle this week is almost beside the point as the government of Vladimir Putin lubricates the economy in the background with oil wealth amassed in better times. Russian banks are sitting on the most cash in five years, allowing them to lend to each other at a lower rate than they borrow from the central bank. In the eurozone and in the U.S., money market rates are higher than benchmarks.....The Finance Ministry transferred 2.6 trillion rubles ($37 billion) of accumulated oil riches from the $50 billion rainy-day sovereign wealth fund into the economy last year to cover a fiscal gap. It’s budgeting another 2 trillion-ruble drawdown from the Reserve Fund in 2016. The influx of cash is allowing Russian banks to wean themselves off the central bank loans they were relying on to help them weather international sanctions. Those obligations fell to 1.57 trillion rubles as of March 10 from 7.8 trillion rubles at the end of 2014."
Putin's $50 Billion Oil Cache Gives Russia Luxury to Ignore ECB
Bloomberg, 13 March 2016

"Oil Minister Bijan Zanganeh said Iran would join discussions between other producers about a possible freeze of oil production after its own output reached four million barrels per day (bpd), Iran's ISNA news agency reported on Sunday. Zanganeh said Iran saw $70 per barrel as a suitable oil price, but would be satisfied with less, ISNA reported.... Iran has rejected freezing its output at January levels, put by OPEC secondary sources at 2.93 million barrels per day, and wants to return to much higher pre-sanctions production. It is working to regain market share, particularly in Europe, after the lifting of international sanctions in January. The sanctions had cut crude exports from a peak of 2.5 million bpd before 2011 to just over 1 million bpd in recent years. Iran's oil exports are due to reach 2 million bpd in the Iranian month that ends on March 19, up from 1.75 million in the previous month, he said. A meeting between oil producers to discuss a global pact on freezing production is unlikely to take place in Russia on March 20, sources familiar with the matter said last week, as OPEC member Iran is yet to say whether it would participate in such a deal."
Iran set to join oil freeze talks after output at 4 mbpd: ISNA
Reuters, 13 March 2016

"The slide in oil prices has paused after crude fell more than 70% from its 2014 peak. Now the question is whether the recent rise itself could spark another downward spiral. U.S. oil prices are up more than 45% from a 13-year low in February, boosted by talks among Saudi Arabia, Russia and other major producers about capping their output. A temporary reduction in global crude supply following outages in Nigeria and Iraq also helped buoy the market. On Friday, the International Energy Agency said that oil prices may have bottomed out, and it forecast U.S. output to decline by nearly 530,000 barrels a day this year. The report seemed to support the market’s increasingly bullish mood, pushing U.S. oil prices up 1.7% to $38.50 a barrel. But this rally could lead to its own demise, many analysts warn. Higher prices will likely encourage shale producers to ramp up output again, muddying any forecasts for shrinking U.S. supply. Shale wells can be drilled and fracked within a matter of months, compared with the years it can take to complete other types of oil wells. “My concern is if the market surges right back to $50 a barrel…we just end up with another problem six months from now,” said Jeffrey Currie, head of commodities research at Goldman Sachs Group Inc. “You’d be taking a lot of risk entering this market early,” he said, because a rally could be self-defeating.... The oil surplus may be easing compared with a year ago. U.S. production fell on a yearly basis in December for the first time since 2011, according to the Energy Information Administration. Global production dropped 0.7% in the first two months of this year, the International Energy Agency said on Friday. But Iranian production is expected to rise this year by several hundred thousand barrels a day, analysts say, as international sanctions are lifted."
Oil-Price Rise Could Be Its Own Undoing
Wall St Journal, 13 March 2016

"Markets have been waiting for U.S. energy producers to slash output during a period of depressed crude prices. But these companies have been paying their top executives to keep the oil flowing. Production and reserve growth are big components of the formulas that determine annual bonuses at many U.S. exploration and production companies. That meant energy executives took home tens of millions of dollars in bonuses for drilling in 2014, even though prices had begun to fall sharply in what would be the biggest oil bust in decades. The practice stems from Wall Street’s treatment of such companies’ shares as growth stocks, favoring future prospects over profitability. It has helped drive U.S. energy producers to spend more unearthing oil and gas than they make selling it, energy executives and analysts say. It has also helped fuel the drilling boom that lifted U.S. oil and natural-gas production 76% and 31%, respectively, from 2009 through 2015, pushing down prices for both commodities. 'You want to know why most of the industry outspent cash flow last year trying to grow production?' William Thomas, chief executive of oil producer EOG Resources Inc. said recently at a Houston conference. 'That’s the way they’re paid.' Lately, though, some shareholders are asking companies to reduce connections between pay and production, saying such incentives don’t make sense since abundant supplies have caused commodity prices to crash."
Key Formula for Oil Executives’ Pay: Drill Baby Drill
Wall St Journal, 11 March 2016

"On a freezing afternoon in Paris, Thomas Piquemal, the 46-year-old finance director of French state-backed utility EDF, prepared to tell his boss the unthinkable: that their company was on the road to ruin.The former investment banker walked into the office of Jean-Bernard Lévy, EDF’s chief executive, and told him that an £18bn nuclear project they were planning to build at Hinkley Point in the UK had to be delayed to avert financial disaster. The risks of it going wrong were too great, he said over a black coffee, and EDF’s finances were too weak to absorb the blow if it did....Hinkley Point C is integral to the energy strategy of the French and UK governments for the next 30 years. When completed, it will provide 7 per cent of electricity in the UK. China General Nuclear Power Corp (CGN) is set to have a one-third stake in the project. On Monday, EDF announced that Mr Piquemal had resigned, without saying why. Mr Lévy simply said: “I regret the haste of his departure,” adding that a final investment decision on the project was coming in the “near future”. On Friday, he said EDF will not go ahead with Hinkley Point unless it obtains “commitments from the state to help secure our financial position”, according to a leaked memo by the chief executive seen by the Financial Times. It is hard to imagine that EDF, a company that has built 58 reactors in France and is a national champion, could be brought to its knees by a single project in Somerset, south-west England. The 70-year-old former monopoly is almost a wing of the French state, employing 110,000 people in France alone. It provides more than two-thirds of the country’s electricity, and is one of the UK’s biggest power generators. But Mr Piquemal was simply adding his voice to a growing number who believe there is a risk of failure for the company. Several unions with board seats sounded the alarm this year, saying the project puts EDF “in grave danger”. .... Dissenters inside EDF have harboured two concerns over Hinkley Point. First, they say, the reactor technology due to be used — the so-called European Pressurised Reactor — is so complex that the construction risk is immense. The EPR, dreamt up in the 1990s and early 2000s by Areva and Germany’s Siemens, is designed to be one of the most powerful reactors and also the safest. One of its selling points after the terror attacks on September 11 2001 was its supposed ability to withstand a direct hit from a commercial aircraft.  But this level of sophistication has proved to be a challenge for engineers. The first EPR to be commissioned, an Areva-led project in Finland, has been delayed by nine years and is €5.2bn over budget. Losses on the project eventually brought down Areva. The company is being broken up as part of a government-backed bailout, with parts of the business sold off to EDF and other companies. The second EPR project, in Flamanville, France, has faced similar problems. The EDF-led project is six years behind schedule and €7.2bn over initial budget estimates. It is now set to come online in 2018. Given EDF’s construction risks and the expense of building Hinkley Point, the UK government has guaranteed a price of £92.50 per megawatt hour of electricity — more than twice the current market cost — for 35 years. Francis Raillot, from the CFE-CGC union, which has a seat on the board, says the Hinkley project is so large that EDF will struggle to finance it. Construction delays could be ruinous. “If it goes badly like all the other EPRs, it could be the end of EDF,” he told the Financial Times. There are also safety concerns at Flamanville. The French nuclear regulator said last April that “very serious anomalies” had been found in its reactor vessel. A full report on the issue will be delivered this year, but if the reactor vessel does not meet safety standards it could mean that the entire project would have to be scrapped or completely overhauled, say safety experts."
EDF: At breaking point
Financial Times, 11 March 2016

"China aims to keep energy consumption within 5 billion tonnes of standard coal equivalent by 2020, it said in its five-year plan published on Saturday, marking the first time the world's second-biggest economy has set such a target. China has long been considering an energy consumption cap in a bid to improve industrial efficiency, tackle smog and control greenhouse gas emissions, which are the highest in the world. Beijing is also pushing structural reforms to decouple economic growth from energy consumption.... Yang Fuqiang, senior advisor at the U.S.-based think tank, the Natural Resources Defense Council, said the 5 billion figure was calculated by combining China's 6.5 percent economic growth projections for 2016-2020 with its target to cut energy intensity by 15 percent over the same period. "Based on my experience the government plans are conservative," he said. "There could be a higher 18 percent cut in energy intensity, and that means energy consumption could be kept at about 4.8 billion tonnes.... China is aiming to eliminate as much as 500 million tonnes of surplus coal capacity from the market in the next five years. China also aims to cut carbon intensity - the amount of emissions per unit of GDP growth - by 18 percent over the same period. As part of its global climate change commitments, China has already pledged to reduce carbon intensity to 40-45 percent below 2005 levels by 2020."
China sets cap for energy consumption for first time
Reuters, 5 March 2016

"U.S. oil prices rose for a third consecutive week as drilling continued to decline. The number of rigs drilling for crude in the U.S., which is viewed as a rough proxy for activity in the oil industry, dropped by eight in the past week to 392, the lowest level since 2009, oil-field-services company Baker Hughes Inc. said Friday. The combined number of oil and natural-gas rigs fell by 13 to 489, just above the record low of 488 rigs in 1999, according to Baker Hughes data starting in late 1948. “We’re starting to see a lot of erosion in U.S. production,” said Carl Larry, director of oil and gas at Frost & Sullivan. “We’re inching our way back to $40.” U.S. oil output has fallen from a peak in April as companies sharply cut spending on new drilling, but it hasn’t declined as much as some investors expected because producers increased their efficiency and lowered drilling costs. Some analysts say U.S. production is due to drop more quickly this year because companies have announced new budget cuts in recent weeks."
Oil Prices Jump as Drilling Drops
Wall St Jouranl, 4 March 2016

"Fossil fuel millionaires collectively pumped more than $100m into Republican presidential contenders’ efforts last year – in an unprecedented investment by the oil and gas industry in the party’s future. About one in three dollars donated to Republican hopefuls from mega-rich individuals came from people who owe their fortunes to fossil fuels – and who stand to lose the most in the fight against climate change. The scale of investment by fossil fuel interests in presidential Super Pacs reached about $107m last year – before any votes were cast in the Republican primary season. Campaign groups said the funds raised questions about what kind of leverage the fossil fuel industry might enjoy if the Republicans were to take the White House. Ted Cruz, the Texas senator seen as having the best chance of stopping Donald Trump from clinching the Republican nomination, was among the biggest beneficiaries of fossil fuel support to his Super Pac. Cruz, who more than any other Republican candidate openly rejects mainstream science on climate change, banked some 57% of the funds to his Super Pac, or about $25m, from fossil fuel interests, according to campaign filings compiled by Greenpeace and reviewed by the Guardian... [Greenpeace's Jesse] Coleman suggested that Republicans were unlikely to give up climate denial even if Cruz does not win the nomination. “While Donald Trump, also a climate change denier, is mostly self-funded for now, he will look to the fossil fuel industry for political support if he wins the nomination. Mr. Trump also has millions of dollars directly invested in the fossil fuel industry.”... Fossil fuel donors traditionally have favoured Republican candidates many times over their Democratic counterparts. However, Hillary Clinton, the Democratic frontrunner, appears to have made inroads into the ranks of the favoured. Mega-rich fossil fuel donors pumped about 7% of the funds into Clinton’s Super Pac last year, according to the filings. Clinton was criticised by Bernie Sanders and Martin O’Malley, her erstwhile rival, for taking funds from fossil fuel lobbyists. The findings revealed the largely unseen power players behind the Republicans’ presidential hopefuls – led by the Wilks family in Texas. The family, which made its fortune from making equipment used in fracking oil and gas wells, gave about $15m to a Cruz-supporting Super Pac in 2015. Next in line among the big fossil donors to Cruz was Toby Neugebauer, the son of Texas Republican congressman Randy Neugebauer and cofounder of an energy investment firm which has invested heavily in the Barnett Shale – ground zero of oil and gas fracking in Texas. The younger Neugebauer donated about $10m to Cruz’s Super Pac last year. Cruz also won big from groups associated with the Kochs, the oil billionaires who have emerged as major funders of ultra-conservative causes in the US. Cruz’s Super Pac took in $11.9m from donors who have supported Koch causes or its Freedom Partners organisation – compared to $7.8m for Rubio."
Oil and gas industry has pumped millions into Republican campaigns
Guardian, 3 March 2016

"Russian oil companies back the idea to freeze output at near-record levels reached in January, but did not support any proposals to cut oil production to lift global prices, Energy Minister Alexander Novak said. Russian President Vladimir Putin met the heads of the country's top producers, including Rosneft (ROSN.MM) Chief Executive Igor Sechin, Lukoil (LKOH.MM) CEO and co-owner Vagit Alekperov and others, to hear their views on last month's proposed output freeze. Novak, who was negotiating the first potential global oil pact in 15 years in Doha, said Putin and the oil firms, which pumped at a new post-Soviet high in January at 10.88 million barrels per day (bpd), discussed the deal at the Kremlin. ... If Russia keeps average oil output this year at January levels, this will represent a 1.5 percent increase over 2015, also a post-Soviet high. Novak said the global oil market was currently oversupplied by around 1.5 million bpd, but if the freeze was implemented then the surplus would be curbed and the period of low oil prices would be reduced by one year. He did not say when the market may rebalance but said prices were unlikely to return to levels above $100 per barrel, calling prices in the range of $50 to $60 as optimal.  Benchmark Brent crude futures LCOc1 traded around $37 per barrel on Tuesday. Novak added that 73 percent of oil exporting nations were ready to join the deal but a lot depended on other countries' position toward Iran. It is true that Iran has a special situation as Iran is at its lowest levels of production. So in my opinion, it (Tehran) may be approached individually with a separate decision," said Novak, who will visit Iran later this month. Non-OPEC Oman and some OPEC sources have floated the idea of exempting Iran from any output freeze, an approach taken toward Iraq in the past when it was subject to international sanctions. But so far Tehran has not been offered any special terms, according to OPEC sources."
Russian oil bosses voice support for oil output freeze, not cut
Reuters, 1 March 2016

"Britain's energy supply forecasts have plunged "into the red" next winter for the first time on record, suggesting the country will be forced to rely on imports and costly emergency interventions to prevent blackouts. Figures from National Grid show that on current plans there will not be enough power plants operating in the UK market to keep the lights on for most of December, January and February. The supply gap has emerged because a series of old, polluting power stations have been shut down, while hardly any replacement plants are being built. A separate, "last resort" reserve of back-up power plants is highly likely to be called upon to bolster supplies through much of the winter, adding tens of millions of pounds to consumer energy bills, experts have warned.  National Grid confirmed that next winter is the first time since the published data system began in 2001 that it has not forecast a surplus margin of spare power plants in the UK market, and has instead forecast "negative margins". In mid-December and early January the figures show a shortfall of more than two gigawatts (GW) – roughly equivalent to the electricity needs of two million homes. The forecasts exclude power imported on undersea cables, which can bolster supplies if the UK is willing to pay a higher price than the continent. However, they also assume only average weather conditions, while a cold spell could further increase demand. The forecasts also assume that UK wind farms will be generating more than 3GW of power, despite the fact they could produce almost nothing on a still day. Jon Ferris, of energy consultants Utilitywise, warned it was a "leap of faith" to assume that level of wind power would be available when needed. He said he believed National Grid would be forced to call upon its emergency measures "for much of December and January" in what would be its "most challenging winter for decades"."
UK energy supply forecasts 'into the red' for first time next winter
Telegraph, 26 February 2016

"The US shale oil industry, which helped precipitate the collapse in oil prices with a debt-fuelled production boom, is in dire financial straits. Continental Resources and Whiting Petroleum, the two largest producers in the Bakken formation of North Dakota, one of the heartlands of that boom, said this week they were stopping bringing any new wells into production in the region....David Hager, chief executive of Devon Energy, an independent production company, says that at $55 to $60 oil, “the vast majority” of US shale fields are economically viable. ... Others put the number rather higher. Scott Sheffield, chief executive of Pioneer Natural Resources, another leading independent, suggests oil would need to be $60 to $70 for US shale production to grow. No one, however, is talking about $90 or $100. Everyone in the industry is going to have to learn to compete at prices influenced by US shale. And given the uncertainties involved — the US shale business is so new, it has still not yet been through one full cycle of growth, downturn and recovery — it makes sense to take a cautious view of how far prices can rebound. .... Statoil, the Norwegian oil company, is aiming to cut the price needed for its US shale oil operations to break even from $90 per barrel in 2014 to $50 in 2018. Marvin Odum, the head of Royal Dutch Shell’s US business who announced his departure this week, says the company has a similar approach for its North American shale oil and gas operations. “The cost structure is coming down in a very sustainable way,” he adds. “As we get down into the low 50s and now into the 40s in terms of the break-evens......in the sweet spots [shale is] a globally competitive resource.”"
Oil sector aims for profits at $50 crude
Financial Times, 25 February 2016

"The US has exported its first shipment of natural gas in a historic move that shifts the balance of power in the global energy market and kicks off a struggle with Russia for market share. Surging US supply over the next five years threatens to break the Kremlin's dominance over Europe's gas market, and is already provoking talk of a "Saudi-style" counter attack by Moscow to drive US shale gas frackers out of business before they gain a footing. At the very least, it sharpens a global price war as liquefied natural gas (LNG) bursts onto the scene, and closes the chapter on the 20th century system of pipeline monopolies. Gas is starting to resemble the spot market for crude oil, with the same wild swings in prices and boom-bust cycles. A seven-year, $11.5bn project by Cheniere Energy finally came to fruition this week as the first LNG cargo left Sabine Pass in Louisiana - in a special molybdenum-hulled ship at -160 degrees Centigrade - destined for Petrobras in Brazil. "It is a big day for our natural gas revolution," said Ernest Moniz, the US energy secretary. Speaking at the IHS CERAWeek summit in Texas, he said the emergence of the US as a gas superpower is a geopolitical earthquake, though he has always been coy about the exact intention. "It is a change in the energy security picture," he said. The US is ramping up LNG exports to almost 130bn cubic metres a day (BCM) by the end of the decade, roughly equal to Russia's gas exports to Europe. This may rise to 200 BCM and possibly beyond as the shale industry keeps finding once unthinkable volumes of gas....Martin Houston, chairman of Parallax Energy, said the US may account for a quarter of the world's LNG market within a decade, and is so efficient that it can deliver gas to Europe for as little as $5 per million British thermal unit (Btu) despite the high cost of liquefaction and shipping...The US shipments are aimed directly at Europe, where there is a large and unused infrastructure of LNG terminals, including Lithuania's new "Independence" plant designed to end reliance on Russian pipelines. The mere prospect of American LNG deprives Russia of its pricing power and political leverage in Europe, spoiling its gas cash cow. Just as US shale oil has turned global crude markets upside-down, LNG from shale is now doing the same to the gas markets - beaching countless projects around the world launched in the pre-shale era. Alexander Medvedev, deputy chairman of Gazprom's management committee, made light of the US challenge. "There is room enough for all in this gas market. Europe needs another 70 BCM of gas by 2020," he said at the CERAWeek forum... Russia faces a dilemma. Gazprom can easily undercut LNG from the US, able to deliver gas for just $3.50. It has 100 BCM of idle capacity in west Siberia, according to the Oxford Institute for Energy Studies (OIES). James Henderson, a senior research fellow at the OIES, said it is tempting for Russia to "crater" the price until it falls below the break-even cost of shale frackers, much as Saudi Arabia is doing to oil frackers. “There may be some logic for Gazprom in adopting a Saudi-like strategy in order to reinforce its long-term competitive advantage,” he said. Russian gas prices in Europe have already fallen so far - to $5.80 today from $11.20 in 2013 - that it may be worth the pain of pushing it a little lower to defend Moscow's 30pc share of the market. The OIES said Gazprom could lose $25bn to $40bn in revenues over the next five years if it fails to act. The question is whether to strike a pre-emptive blow now while the first US cargoes are still modest. America's huge ramp-up occurs after 2018.  Bud Coote, a former chief energy analyst at the US Central Intelligence Agency and now a senior fellow at the Atlantic Council, said the Kremlin may try to knock out America's LNG industry but that too would be very costly. For the US, the start of LNG exports is a bitter-sweet victory. The first cargoes come just as the market crumbles. The price of LNG in Europe has dropped from $12 to $5.35 over the past three years. In Asia it has dropped from $17 to $6 as Japan's nuclear power plants restart after the 2011 Fukushima crisis, and discounted Indonesian LNG is currently selling for $4.50. The glut has undermined the whole calculus behind the dash for LNG, at least for now."
Energy price war spreads to gas as US shale storms global market, stalks Russia
BBC Online, 25 February 2016

"Shale producers may not snap back quite as fast as hoped if oil prices stay in the $30-per-barrel range for much longer. Energy drillers say the U.S. is finally beginning to see real declines in production, and the longer prices stay low, the longer it will take to reverse the effects across the industry of cutbacks in production, capital spending and staffing....financing is no longer easy, and some producers face real hardship, including fire sales or bankruptcy..... There was some hope in the industry that a proposed production freeze between Russia and Saudi Arabia could lead to talks of output cuts, but the industry learned at the IHS CERAWeek conference that cuts are not on the agenda. ..... Hager said innovation has become much more important, and for instance, his company is using a higher sand concentration in fracking to increase output. "Thirty dollars (per barrel ) is not working at this point. I think you're going to see a lot of plays that work in $45 to 50 range. At $60, most work. We certainly don't need $90," Hager said. Sheffield said $50 per barrel oil would not be enough for growth in the industry, because there would not be enough cash flow."
At $30 oil price, shale rebound may take much, much longer
CNBC, 25 February 2016

"The U.S. shale boom was fueled by junk debt. Companies spent more on drilling than they earned selling oil and gas, plugging the difference with other peoples’ money. Drillers piled up a staggering $237 billion of borrowings at the end of September, according to data compiled on the 61 companies in the Bloomberg Intelligence index of North American independent oil and gas producers. U.S. crude production soared to its highest in more than three decades. Oil prices have now fallen more than 70 percent from a 2014 peak, and banks and bondholders are fighting for scraps. Bond prices reflect investors’ fears. U.S. high-yield energy debt lost 24 percent last year, the biggest fall since 2008, according to Bank of America Merrill Lynch U.S. High Yield Indexes. Investors are now demanding a yield of 19.6 percent to hold U.S. junk-rated energy bonds, after borrowing costs for these companies exceeded 20 percent for the first time ever this month, according to data compiled by Bank of America Merrill Lynch....Most of the shale industry’s debt is in the form of bonds, according to data compiled for the Bloomberg Intelligence index. Of those $197 billion of securities, $101 billion is junk-rated....Banks are setting aside more money to cover potential losses on souring energy loans. JPMorgan Chase & Co said on Wednesday that it would need to boost reserves for impaired loans to the sector by $1.5 billion if oil prices hold at about $25 a barrel over 18 months. S&P estimates that credit lines to energy companies could be cut by 30 percent by April, when banks conduct one of their twice-yearly evaluations of their loans."
Biggest Wave Yet of U.S. Oil Defaults Looms as Bust Intensifies
Bloomberg, 25 February 2016

"Big Oil must thwart the movement to leave fossil fuels in the ground, the world’s most powerful oilman said on Tuesday. Addressing executives in Texas, Saudi oil minister Ali Al-Naimi said the industry had to shed its “Dark Side” image and show it was a “force for good”. The growing divestment campaign bids to blacklist the industry as others shunned tobacco producers or Apartheid-era South Africa. By last December, over 500 institutions including large insurers, funds and banks managing US$3.4tn of assets pledged to move out of fossil fuels for climate reasons. That’s a 70-fold rise on September 2014. Fossil fuels were not the problem, but their “harmful emissions,” said Al-Naimi, who represents the hydrocarbon-rich Middle Eastern kingdom at UN climate talks and stepped down as chairman of national oil company Aramco in 2015. The world must scale up technologies that capture carbon dioxide, instead of replacing the polluting fuels with renewable sources, he added. The US now leads Saudi Arabia as the world’s top oil producer following a revolution in techniques to extract it from shale rock, according to BP data."
Oil industry must thwart 'misguided' divestment campaign, says Saudi minister
Guardian, 25 February 2016

"One day after Saudi Arabia’s oil minister said it was time for high-cost producers to call it quits, two Bakken shale drillers announced they’re doing just that. Continental Resources Inc., the shale oil pioneer controlled by billionaire wildcatter Harold Hamm, halted all fracking in the Bakken shale formation in the U.S. Williston Basin after posting its first annual loss since the company’s public debut in 2007. Whiting Petroleum Corp. estimates it will leave 73 uncompleted wells in the region by year-end, and another 95 in the Niobrara shale area in the Denver-Julesburg Basin. Hamm, owner of 76 percent of Continental’s common stock, has responded to plummeting crude prices by slashing his drilling budget and shutting down rigs in the Bakken, where the company is one of the dominant explorers. After spending $1.27 billion on acquisitions to expand its footprint in the region since late 2011, Continental is now seeking to raise cash by attracting investments from joint-venture partners in an Oklahoma discovery known as the Stack....Continental said it has no fracking crews currently working in the Bakken. The company continues to drill there, focusing on areas with the highest returns, but will leave most wells unfinished this year."
Shale Drillers Halt Bakken Fracking as Saudis Send Gloomy Note
Bloomberg, 24 February 2016

"Feb 24 North Dakota oil producer Whiting Petroleum Corp said on Wednesday it will suspend all fracking and spend 80 percent less this year, the biggest cutback to date by a major U.S. shale company reacting to the plunge in crude prices. Shares of Whiting jumped 7.7 percent to $4 per share in after-hours trading as investors cheered the decision to preserve capital. During the trading session, Whiting had slid 5.6 percent to $3.72. Whiting's cut is one of the largest so far this year in an energy industry crippled by oil prices at 10-year lows. The cuts will have a big impact in North Dakota, where Whiting is the largest producer. Denver-based Whiting said it will stop fracking and completing wells as of April 1. Most of its $500 million budget will be spent to mothball drilling and fracking operations in the first half of the year. After June, Whiting said it plans to spend only $160 million, mostly on maintenance. Rival producers Hess Corp and Continental Resources Inc have also slashed their budgets for the year, though neither has cut as much as Whiting."
Whiting slashes budget, suspends fracking; shares jump
Reuters, 24 February 2016

"Saudi Arabia won’t cut oil production because it doesn’t trust other countries to share the sacrifice, [Saudi Arabia oil minister] Al-Naimi said. Instead it will keep output where it is now and let low prices kill off higher cost production. "It may sound harsh, and unfortunately it is, but it is the most efficient way to rebalance markets," he said. Saudi Arabia’s decision not to cut production shouldn’t be seen as a war on U.S. shale or an attempt to chase greater market share at the expense of other producing nations, Al-Naimi said. "I have no concerns about demand, and that’s why I welcome new additional supplies, including shale oil."...Shale drillers are "grievously wounded" and are about to be "decimated" in the coming months, said Mark Papa, the former EOG Resources Inc. chief executive officer who helped create the shale industry more than a decade ago. Companies will rise from those ashes with more conservative leadership, and eventually make U.S. shale the leading oil supplier in the world."
Lessons From IHS CERAWeek: What We Heard on Conference's Day 2
Bloomberg, 23 February 2016

"This week, Saudi Oil Minister Ali Al-Naimi will for the first time face the victims of his decision to keep oil pumps flowing despite a global glut: U.S. shale oil producers struggling to survive the worst price crash in years. While soaring U.S. shale output brought on by the hydraulic fracturing revolution contributed to oversupply, many blame the 70-percent price collapse in the past 20 months primarily on Naimi, seen as the oil market's most influential policymaker. During his keynote on Tuesday at the annual IHS CERAWeek conference in Houston, Naimi will be addressing U.S. wildcatters and executives who are stuck in a zero sum game. "OPEC, instead of cutting production, they increased production, and that's the predicament we're in right now," Bill Thomas, chief executive of EOG Resources Inc (EOG.N), one of the largest U.S. shale oil producers, told an industry conference last week, referring to 2015.  It will be Naimi's first public appearance in the United States since Saudi Arabia led the Organization of Petroleum Exporting Countries' shock decision in November 2014 to keep heavily pumping oil even though mounting oversupply was already sending prices into free-fall. Naimi has said this was not an attempt to target any specific countries or companies, merely an effort to protect the kingdom's market share against fast-growing, higher-cost producers. It just so happens that U.S. shale was the biggest new oil frontier in the world, with much higher costs than cheap Saudi crude that can be produced for a few dollars a barrel. "I'd just like to hear it from him," said Alex Mills, president of the Texas Alliance of Energy Producers. "I think it should be something of concern to our leaders in Texas and in Washington," if in fact his aim is to push aside U.S. shale producers, Mills said. Last week's surprise agreement by Saudi Arabia, Qatar, Russia and Venezuela to freeze oil output at January levels - near record highs - did not offer much solace and the global benchmark Brent crude LCOc1 ended the week lower at $33 a barrel and U.S. crude futures CLc1 ended unchanged at just below $30. Prices fell sharply on Tuesday after Iran, the main hurdle to any production control in its zeal to recapture market share lost to sanctions, welcomed the plan without commitment. Iraq was also non-committal. Many U.S. industry executives understand that all is fair in love, war and the oil market, but "the Saudis have probably overplayed their hand," said Bruce Vincent, former president of Houston-based shale oil producer Swift Energy (SFYWQ.PK), which filed for bankruptcy late last year.... Texas, where oil production has more than doubled over the past five years thanks to the Eagle Ford and Permian Basin fields, is feeling acute pain. The state lost nearly 60,000 oil and gas jobs between November 2014 and November 2015, according to the Texas Alliance's most recent data. Only 236 rigs are still actively drilling wells in the state, down from more than 900 in late 2014, Baker Hughes data showed. Financial distress among U.S. producers has deepened. More than 40 U.S. energy companies have declared bankruptcy since the start of 2015, with more looming as lenders are set to cut the value of companies' reserves, often used as collateral for credit. Anadarko Petroleum Corp (APC.N) and rival ConocoPhillips (COP.N) both cut their dividends this month, unusual moves that showed financial stress."
Saudi oil minister to face rival U.S. producers as price rout bites
Reuters, 21 Reuters 2016

"The Saudi Arabian Foreign Minister has said the kingdom will not cut oil production, following talks in Doha earlier this week. The development, reported by the AFP news agency, comes after an agreement with Russia on Tuesday in which they agreed to freeze output."
Saudi Arabia says it 'will not cut oil production'
Independent, 18 February 2016

"A growing number of energy firms are at risk of filing for bankruptcy this year as debt pressure mounts, Deloitte's John England said Tuesday. Nearly 35 percent of publicly traded oil and gas exploration and production companies around the world — about 175 firms — are at high risk of falling into bankruptcy, the auditing and consulting firm reported. Not only do these companies have high debt levels, but their ability to pay interest on those loans has deteriorated, according to the firm. "Clearly, this is the year of hard decisions I think for a lot of these companies. They were kind of sheltered in 2015 through hedges and some access to equity and debt markets," England, Deloitte's U.S. oil and gas leader, told CNBC's "Fast Money: Halftime Report." Those tough choices include selling assets that are core to drillers' portfolios, cutting shareholder payouts, laying off more workers, and further slashing capital spending plans, he said. Oil and gas companies canceled or postponed about $380 billion in projects between the start of the oil price rout in 2014 and the beginning of this year, according to consultant Wood Mackenzie. The probability of bankruptcy is high for 50 members of the roughly 175 companies, said Deloitte. That is because their assets are worth less than the outstanding balances on their loans or their leverage ratios have crept into the danger zone. Some 160 companies are also in danger because, while less leveraged, they are facing cash-flow constraints, Deloitte said. Those groups include both micro-cap companies and firms with market capitalizations in excess of a billion dollars, England told CNBC. .... Wolfe Research senior oil & gas analyst Paul Sankey said Tuesday he expects to see bankruptcies almost daily. On the other hand, Wolfe is most optimistic about Pioneer Natural Resources, Sankey said, noting that the company remains heavily hedged. The firm also likes Occidental Petroleum on the strength of its balance sheet, he said. Almost every other company is in trouble at current crude prices below $30 a barrel, including oil major Exxon Mobil, which faces risk to its credit rating, he said. "Our analogy at these prices is that you've got a landslide of the whole industry basically slipping down the slope, and Exxon's mansion is cracking at the top of the hill," he told CNBC's "Squawk on the Street." "
35% of drillers at high risk of bankruptcy: Report
CNBC, 16 February 2016

"UK Oil & Gas (UKOG), the company behind the plan to extract oil from the Gatwick area, says oil has flowed to the surface at a faster rate than expected. UKOG said light sweet oil rose from 900 metres below ground level at a rate of 463 barrels per day. Its shares rose 38% to 1.9p following the flow test at the Horse Hill site in the Weald basin, West Sussex. Executive chairman Stephen Sanderson said the test was significant. "Importantly, tests so far show oil has flowed to the surface under its own pressure and has not, so far, required artificial lift," he said. The company says it could produce up to 500 barrels of oil a day. According to Mr Sanderson, additional extraction techniques could further increase flow rates.  David Lenigas, the former chairman of UKOG, had claimed that there could "multiple billion" barrels of oil across the Weald, which stretches across the South East corner of England. It was originally suggested there could be as much as 100 billion barrels of oil in that region. However, the most recent assessment by Schlumberger, the oil services company, predicted there were 10.9 billion barrels of oil in the 55 square mile area covered by UKOG's licences. UKOG has a 30% direct investment in Horse Hill Developments, which is drilling the site.""
UK Oil & Gas says oil is flowing fast at its Gatwick site
BBC, 16 February 2016

"Israel’s $6.5bn Leviathan offshore gas project has been thrown into doubt after the country’s supreme court challenged Benjamin Netanyahu’s decision to circumvent the Knesset by drafting a framework to jump-start investment. Shares in energy companies fell by 3 per cent in Tel Aviv on Monday, a day after the rightwing Israeli prime minister made an unprecedented appearance in the Supreme Court to defend the gas plan, which has faced stiff resistance. Left-of-centre opposition parties and non-governmental groups had petitioned the court to block it....The gasfield, one of the largest in the eastern Mediterranean, was discovered in 2010. However, its development has been delayed by regulatory red tape — including a challenge in 2014 from Israel’s antitrust commissioner — and a political backlash from Israelis who accuse their government of giving investors too generous a deal at a time when gas prices are low."
Israeli supreme court puts Leviathan gas project at risk
Financial Times, 15 February 2016

"New gas fields off Shetland could supply 100% of Scotland's gas needs, analysts say. Advice provided to the Scottish Parliament Information Centre said peak production at the Laggan and Tormore fields could satisfy average demand across the whole of Scotland. Operator Total started production at its new Shetland plant on Monday. Highlands and Islands MSP Mike MacKenzie said it was "good news" for the country and the industry. In total, the two new fields, which have a lifespan of 20 years, will produce about 8% of the UK's gas needs. The Laggan and Tormore fields lie about 125km (77 miles) north west of the Shetland Islands, in an area where almost one fifth of the UK's remaining oil and gas reserves are thought to be held."
New Shetland gas fields 'could supply whole of Scotland'
BBC Online, 14 February 2016

"...profitable sustainability is coming of age, at least as far as renewable energy is concerned. With the value of fossil fuel holdings plummeting and the profitability of renewables growing, investors and companies are increasingly looking to sustainable investments for good long term bets. At January’s UN Investor Summit on Climate Risk – an event attended by 500 global investors representing an estimated $22tn in assets – most of the presenters shunted aside the standard public relations and millennial hire arguments in favor of an old fashioned look at profits and losses. And, as they made clear, companies and investors that shun sustainable, low-carbon assets stand to lose a lot of money. Michael Liebreich, chairman of Bloomberg New Energy Finance, explained the new math of fossil fuels. Coal, he pointed out, is losing value in every country except India. Gas prices have also fallen sharply, leading to a steep drop in investment. A recent Citibank report predicted that oil is likely to “bottom out” in 2016. And Bloomberg recently quoted Vitol oil holding group CEO, Ian Taylor, as saying that crude oil will likely stay at $60 a barrel for at least 10 years. On the other hand, renewable energy is becoming increasingly viable, a trend that could potentially be a game-changer for investors, particularly large scale, global investors like the ones attending the UN summit. The falling prices of renewables-generated electricity are pulling the rug out from under fossil fuels, which are getting priced out of the market. According to former vice president Al Gore, who also spoke at the UN Investor Summit on Climate Risk, solar power has been dropping by 10% per year. If this curve continues, Gore said, then its price is going to fall “significantly below the price of electricity from burning any kind of fossil fuel in a few short years”. In some places, Liebreich said, this is already happening. A year ago, a solar project in Dubai went online, and offered electricity at a rate of $0.058 per KwH. “This was the solar equivalent of the shot that was heard around the world,” he explained. “In the Middle East, a solar project was producing electricity more cheaply than you could produce it using natural gas.” This month, Liebreich said, Morocco announced an offshore wind farm that will produce electricity for $0.03 per KwH. “This is probably the cheapest new electricity that you could build anywhere in the world,” he said. And not only is this a boon for consumers, but it also sends a clear message to utilities. “When you get electricity this cheaply, you have to buy some.” The same thing is happening in the US. Gore pointed out that in Nevada, energy generators are selling solar electricity to utilities for $0.3 cents per KwH, a price well below that of coal-based electricity. And some utilities are even giving electricity away for free. Gore cited TXU, a utility in Texas. “Here’s their new rate plan: your rates will go up a little bit during the peak use periods during the day, but from 9pm until 6am the next morning, you can use all the electricity you want for free,” he said. “They have to get rid of it because it’s too hard to turn off the turbines. And in south Australia and parts of Germany, they’ve gone to negative rates for renewable electricity.”"
Have we reached the tipping point for investing in renewable energy?
Guardian, 13 February 2016

"The UK could face gas supply shocks and spiking prices as the oil rout accelerates the decline of North Sea reserves, former energy minister Charles Hendry has warned. The Privy Council member said that the UK’s increasing dependence on imported gas meant that without investment in gas storage, the UK could become increasingly exposed to supply interruptions. In 2012 a cut in gas supply from Russia and Ukraine caused prices to spike, and a year later a Belgian pipeline outage in early spring led to record highs in the UK gas market because domestic storage facilities were already empty. In the past the UK has relied on the North Sea for a predictable gas supply, but crashing gas prices could speed the region's decline as firms are forced to scale back investment in new projects - resulting in a supply shortfall within five years, industry experts warn. “The risk of course is that it takes five years to build gas storage,” Mr Hendry said. “So if you want to see them built on the time scale that is necessary, then you need to see more investment come through more quickly.... The government is banking on the booming liquefied natural gas (LNG) market to play a greater role in the UK’s range of gas supply options. LNG is gas converted into liquid for easier transportation.  The UK currently relies on the North Sea for around 35pc of its gas supply, with 25pc imported from Norway and 10-15pc each from LNG deliveries and storage tanks. The rest is sourced from pipelines to neigbouring markets. Ed Cox, gas market expert at Icis, said that in the short term Europe's gas demand growth would not be enough to absorb the huge increase in global LNG as the US begins to export its shale reserves this year. But the UK will still be exposed to potentially volatile pricing from 2025 when global demand begins to catch up with the strong supply."
North Sea crisis raises UK gas supply risk, former energy minister warns
Telegraph, 12 February 2016

"Oil prices are rebounding Friday after hitting a low not seen since 2003. But a new report suggests oil producers may not be hurting as much as the historically bad prices suggest. The report, from the energy research firm Wood Mackenzie, says just 4% of the world's oil is unprofitable at $35 a barrel, a price oil was trading near just a few weeks ago. Oil prices were up about 10% Friday after a tweet from a Wall Street Journal reporter indicated that the oil cartel OPEC may be considering production cuts. In response to that news, WTI crude, the US benchmark, was trading near $29 a barrel, while Brent crude, the international benchmark, was sitting near $32. Wood Mackenzie's report, cited by the energy news service Platts, said about 3.4 million barrels' worth of oil a day was not profitable below $35 a barrel. According to the International Energy Agency, the world's supply is 97.07 million barrels a day. While today's oil prices are below this threshold, the report suggests the price at which US shale and other producers would be forced out of the market is lower than previously thought. As Platts writes, "For many producers, being cash negative is not enough of an incentive to shut down fields as restarting flow can be costly and some are able to store output with a view to selling it when prices recover." This falls in line with a report from Citi in December showing that the amount per barrel that most producers needed to receive just to keep the lights on, referred to as the cash cost point, was well under $30. And as we wrote earlier this week, the way these projects are financed most likely has an impact on the stubbornness of production levels. Because so much of US shale production has been financed by debt, not equity, companies have a reason to continue getting whatever cash they can for their production to meet debt repayments. In theory, losses from production pauses that were aimed at goosing prices higher could be inflicted on equity investors over a period of time."
Just a fraction of the world's oil supply isn't profitable at $35 a barrel
Business Insider, 12 February 2016

"At least 67 U.S. oil and natural gas companies filed for bankruptcy in 2015, according to consulting firm Gavin/Solmonese. That represents a 379% spike from the previous year when oil prices were substantially higher. With oil prices crashing further in recent weeks, five more energy gas producers succumbed to bankruptcy in the first five weeks of this year, according to Houston law firm Haynes and Boone. "It looks pretty bad. We fully anticipate it's only going to get worse," said Buddy Clark, a partner at Haynes and Boone and 33-year veteran in the energy finance space. This bleak outlook highlights one of the flip sides to cheap energy prices. Sure, it's great for drivers filling their tanks with cheap gas. But it's also fueling the demise of dozens of drilling and servicing companies -- and killing thousands of jobs in the process. Even Chesapeake Energy (CHK), one of the better known winners from the shale boom, was forced to deny bankruptcy rumors earlier this week as its stock tanked. The dramatic increase in bankruptcy filings corresponds with the plunge in oil prices from over $100 a barrel in mid-2014 to below $27 today. It also reflects the drop in natural gas prices, which are near 14-year lows. When oil prices were comfortably in the $90-$100 range and the shale oil boom took off, companies took on tons of debt to fund expensive drilling. But the ensuing surge in U.S. oil production created an epic supply glut that caused crude to crash. ... 'We saw the low hanging fruit already happen. Now the ones that were able to survive this long are going to start teetering,' said Ted Gavin, founding partner of Gavin/Solmonese, which did the bankruptcy analysis from data compiled by The Deal. Even the oil drillers that survive face an uncertain future. "The companies that are just making it today may not have the cash to invest in their future. That's a recipe for disaster three or four years from now," said Gavin."
U.S. oil bankruptcies spike 379%
CNN Money, 11 February 2016

"BP has predicted a bright future for the oil and gas industry with crude prices spiking at $100 a barrel again, huge increases in shale output and new production from Canadian tar sands. The British oil company believes fossil fuels will still be providing 80% of total energy supply in 2035 and admits that under this scenario, carbon emissions will rocket. The forecasts were immediately attacked by critics who accused BP of deliberately talking up the prospects for its own business while providing a downbeat assessment of future demand for wind and solar power. The predictions are contained in the latest annual BP Energy Outlook, which looks at long-term trends and develops projections for world energy markets over the next two decades.... The outlook predicted that “tight oil” – mainly US shale – would rise from around 4m barrels of oil equivalent to 8m in the 2030s. It added that US shale gas could provide almost 20% of the world’s supplies within 20 years. BP also forecast a major future increase in output from non-Opec production in deep water Brazilian fields and the Canadian tar sands, even though the latter is very expensive and involves high carbon production methods."
BP upbeat about oil industry and expects prices back at $100
Guardian, 10 February 2016

"...experts say the UK’s shale industry is threatened less by planning protests and environmental campaigns and more by simple economics: the tumbling price of gas. “There could not be a worse time to be embarking on challenging gas projects,” said Howard Rogers, director of gas research at the Oxford Institute for Energy Studies. “UK shale might [become] commercially successful but I struggle to see that it is going to be of material scale.” The price of wholesale gas in the UK on the spot market has come down from about $1.20 per therm — the unit in which prices are generally measured — in late 2013 to about $0.40 now. Ahmed Farman, an oil and gas analyst at Jefferies, said: “There is a global glut of gas and we continue to see gas supply everywhere. That is why prices have come down so much. It means there is a big economic challenge for shale producers in the UK.” Estimates for how much it would cost to extract shale gas in the UK and Europe more broadly vary, but most price it at between $0.70 and $1.20 per therm — 40 per cent above current spot prices. More worrying for UK gas producers, say analysts, is that US prices have come down so much it could soon be cheaper to import gas from there rather than buy domestically produced supplies. “The price setting is being done increasingly by US shale gas,” said Mr Farman. “That is a big negative for domestic producers in the UK.”"
Tumbling gas price blows hole in UK shale industry’s ambitions
Financial Times, 9 February 2016

"Worldwide, the fall in the oil price since 2014 has transferred $2 trillion from oil producers to oil consumers. Oil is the largest and most indispensable commodity on which society depends, the vital energy-amplifier of our everyday actions. The value of the oil produced every year exceeds the value of natural gas, coal, iron ore, wheat copper and cotton combined. Without oil, every industry would collapse - agriculture first of all. Cutting the price of oil enables you to travel, eat and clothe yourself more cheaply, which leaves you more money to spend on something else, which gives somebody else a job supplying that need, and so on.... The shale revolution is the dominant reason for the fall... The Price of Oil, a book by Roberto Aguilea and Marian Radetzki (fellow and professor of economics at universities in Australia and Sweden respectively,) predicts that this shale revolution has a long way to go. Although the current low oil price is bankrupting many producers and explorers in North Dakota and elsewhere, and many rigs are now standing idle with jobs being lost, there has only been a modest fall in production. That is because the technology for getting oil out of the ground is improving rapidly and the cost is falling fast, so some producers can break even at $30 or even $20 a barrel and it takes fewer rigs to generate more oil..... This means the shale industry can now put a lid on oil prices in the future. Aguilera and Radetzki argue that not only is the US shale industry still in its infancy, but that there is another revolution on the way: when the price is right, conventional oil fields can now be redrilled with the new techniques developed for shale, producing another surge of supply from fields once thought depleted."
Matt Ridley - Cheap oil is here to stay thanks to fracking
London Times, 8 February 2016, Print Edition, P21

"Almost 150 oil platforms in UK waters could be scrapped within the next 10 years, according to industry analysts. Douglas Westwood, which carries out market research and consultancy work for the energy industry worldwide, said it anticipated that “146 platforms will be removed from the UK during 2019-2026”, around 25% of the current total. The North Sea has been hit hard by plummeting oil prices, with the industry body Oil and Gas UK estimating 65,000 jobs have been lost in the sector since 2014."
A quarter of North Sea oil platforms 'could be scrapped in 10 years'
Guardian, 7 February 2016

"The last leg of the bear market that began in mid-2014 is probably in sight, as marginal producers fall by the wayside. Supply cutbacks should bring a rebound in the price of crude by the second half of 2016. But before a rebound, West Texas Intermediate crude will probably continue to fall, perhaps as low as $20 a barrel, before vaulting to the mid-$50s by year end...The worldwide oversupply of oil is evident from the buildup of inventories. Storage-tank capacity outside the U.S. is virtually exhausted. Edward Morse, head of global commodity research at Citigroup, who was cited in our first story, says that warm weather in December caused a buildup of heating-oil supplies in Europe that is being stored on ships, since there’s nowhere else to put the stuff....“We think,” says Morse, “that the world is poised to lose a lot of oil production in the U.S., Colombia, Mexico, Venezuela, China, and then potentially in Russia, Brazil, and the United Kingdom sector of the North Sea.”"
Here Comes $20 Oil
Barron's, 6 February 2016

"After a year of low oil prices, only 0.1 percent of global production has been curtailed because it’s unprofitable, according to a report from consultants Wood Mackenzie Ltd. that highlights the industry’s resilience. The analysis, published ahead of an annual oil-industry gathering in London next week, suggests that oil prices will need to drop even more -- or stay low for a lot longer -- to meaningfully reduce global production. OPEC and major oil companies like BP Plc and Occidental Petroleum Corp. are betting that low oil prices will drive production down, eventually lifting prices. That’s taking longer than expected, in part due to the resilience of the U.S. shale industry and slumping currencies in oil-rich countries, which have lowered production costs in nations from Russia to Brazil. The Wood Mackenzie analysis provides an estimate for the amount directly impacted by low prices -- to the tune of 100,000 barrels a day since the beginning of 2015 -- rather than output affected as new projects build up and aging fields decline. Canada, the U.S. and the North Sea have been affected the most by closures related to low prices. The International Energy Agency does estimate year-over-year change, and says global production in the fourth quarter was 96.9 million barrels a day. It forecast that outside the Organization of Petroleum Exporting Countries, output will fall this year by 600,000 barrels a day, the largest annual decline since 1992. Last year, non-OPEC output rose 1.4 million barrels a day. “Since the drop in oil prices last year there have been relatively few production shut-ins,” according to the report. The company, which tracks production and costs at more than 2,000 oilfields worldwide, estimates that another 3.4 million barrels a day of production are losing money at current prices, of about $35 a barrel. It cautioned against expecting further closures, because “many producers will continue to take the loss in the hope of a rebound in prices.” For major oil companies, a few months of losses may make more sense than paying to dismantle an offshore platform in the North Sea, or stopping and restarting a tar-sands project in Canada, which may take months and cost millions of dollars. “There are barriers to exit,” said Robert Plummer, vice president of investment research at Wood Mackenzie."
How Much Oil Output Halted Due to Low Prices? Just 0.1%
Bloomberg, 5 February 2016

"The decline in the number of rigs drilling for oil in the US accelerated sharply this week, as companies adjusted to the latest slump in the price of crude. Baker Hughes, the oilfield services group, said 467 rigs were drilling oil wells in the US this week, down 31 from last week. It was the steepest drop for 10 months. The number of working US oil rigs has dropped 71 per cent from its peak in October 2014, to its lowest level in almost six years. The slowdown in activity is expected to contribute to a decline in US oil production over the coming months. RT Dukes of Wood Mackenzie, a consultancy, said the sharp drop was a sign that the slowdown in the rig count was “not over yet”. He expects the number of rigs drilling the more productive horizontal oil wells in the US to drop from 372 this week to less than 250. Until now, the drop-off in drilling has had little effect on US crude production, which peaked last April at 9.7m barrels per day, and by November had dropped just 376,000 b/d to 9.3m. However, forecasters including the government’s Energy Information Administration expect the decline in US production to continue this year. The cutbacks in drilling follow a 16 per cent drop in benchmark US crude this year to about $31 per barrel, taking its total decline since June 2014 to 71 per cent. Several US oil producers have said in recent weeks that they expect their output to decline this year, after announcing another round of capital spending cuts as they attempt to conserve cash...Wood Mackenzie on Friday published an analysis showing that although about 3.4m b/d of production worldwide was losing money with Brent at $35 per barrel, most of it was not being shut down. The largest share of that, about 2.2m b/d, is in Canada’s oil sands, where if operations are shut down they are expensive to restart, and there is a risk of damage to equipment or the reservoir. About 96.5 per cent of global oil production can cover its operating costs with Brent crude at $35 per barrel, including most of the US shale industry, but that does not include the cost of drilling and completing new wells. Analysts say very few US shale wells can cover their full costs with oil at $30. As production from existing wells declines, and fewer new wells are brought into production, US oil output is expected to decline. Mr Dukes said production from countries not in Opec was likely to drop this year, and the US would contribute a “supermajority” of that decline."
Fall in number of oil rigs drilling in US speeds up
Financial Times, 5 February 2016

"Iran wants to recover tens of billions of dollars it is owed by India and other buyers of its oil in euros and is billing new crude sales in euros, too, looking to reduce its dependence on the U.S. dollar following last month's sanctions relief. A source at state-owned National Iranian Oil Co (NIOC) told Reuters that Iran will charge in euros for its recently signed oil contracts with firms including French oil and gas major Total (TOTF.PA), Spanish refiner Cepsa CPF.GQ and Litasco, the trading arm of Russia's Lukoil (LKOH.MM). "In our invoices we mention a clause that buyers of our oil will have to pay in euros, considering the exchange rate versus the dollar around the time of delivery," the NIOC source said. Lukoil and Total declined to comment, while Cepsa did not respond to a request for comment. Iran has also told its trading partners who owe it billions of dollars that it wants to be paid in euros rather than U.S. dollars, said the person, who has direct knowledge of the matter."
Iran wants euro payment for new and outstanding oil sales - source
Reuters, 5 February 2016

"SSE has announced plans to shut most of its Fiddler's Ferry coal-fired power plant in April, wiping 1.5 gigawatts of power capacity from the UK grid and worsening the looming energy crisis next winter. The energy giant said it intended to shut three out of four units at the loss-making Cheshire power station, reneging on a Government subsidy contract to keep them running until 2018-19 and putting 213 jobs at risk. The move, which the Telegraph revealed SSE was considering last week, was condemned as "extremely disappointing" by the Government, which sought to reassure households the lights would stay on."
UK energy crisis deepens as SSE plans early plant closure
Telegraph, 3 February 2016

"The world's biggest offshore wind farm is to be built 75 miles off the coast of Grimsby, at an estimated cost to energy bill-payers of at least £4.2 billion. The giant Hornsea Project One wind farm will consist of 174 turbines, each 623ft tall - higher than the Gherkin building in London - and will span an area more than five times the size of Hull. Developer Dong Energy, which is majority-owned by the Danish state, said it had taken a final decision to proceed with the 1.2 gigawatt project that would be capable of powering one million homes and create 2,000 jobs during construction. First electricity from the project is expected to be generated in 2019 and the wind farm should be fully operational by 2020. The wind farm was handed a subsidy contract by former energy secretary Ed Davey in 2014 that will see it paid four times the current market price of power for every unit of electricity it generates for 15 years."
World's biggest offshore wind farm to add £4.2 billion to energy bills
Telegraph, 3 February 2016

"More bad news for oil investors and workers: BP is cutting thousands of jobs after it sank to a huge loss in 2015. The company posted an annual loss of $5.2 billion, compared with a profit of $8.1 billion in 2014.Much of the reversal was due to charges relating to the fallout from the 2010 Gulf of Mexico disaster, but the steep fall in oil and gas prices played a big part too. Stripping out one-off charges, profits slumped by 50% to $5.9 billion. BP is the first big European oil company to report 2015 results after prices of crude dropped 35% last year. The earnings were worse than expected and shares in BP slumped more than 8% in London. The company also announced plans to cut 7,000 jobs by the end of 2017, 3,000 more than it was expecting to shed just three weeks ago."
BP to cut 7,000 jobs after posting huge loss
CNN, 2 February 2016

"Plunging oil prices are a massive problem for a tiny state like North Dakota. The shortfall, released in new budget estimates on Monday, represents more than 20% of its tax revenues for the budget cycle that started last July. The state is scrambling to come up with spending cuts, and dipping into savings in order to keep its government up and running. More than 200 oil rigs were up and running in North Dakota during the boom times a few years ago. But that figure has dwindled to just 44 rigs operating today, and that's been a huge drain on the state's sales tax revenue. "A lot of the materials the rigs use -- the fracking sand, the piping, the cement -- all that is subject to sales tax," said state budget analyst Allen Knudson."
North Dakota's oil boom has gone bust, leaving the state government with a gaping $1 billion hole in its two-year budget
CNN, 2 February 2016

"A peak in global oil demand is unlikely to occur before 2040 in a sub-$70 oil world, according to a research report from Bank of America Merrill Lynch (BoAML). Over the medium-term, low oil prices will influence the trajectory of demand growth in three key ways, the report entitled “Global Energy Weekly: Oil is back to the future” explained... Income inequality has been a major political topic around the world in the past decade. Now the massive drop in oil prices from $115 in mid-2014 to $30 per barrel (/bbl), if sustained, will push back $3 trillion a year from oil producers to global consumers, setting the stage for one of the largest transfers of wealth in human history. This figure equates to an average net transfer of $400 per capita to the global consumer, likely having a long-term positive effect on global growth. Naturally, the price drop will have long-lasting effects on petroleum demand too."
No peak oil demand until 2040: BoAML report
TradeArabia News Service, 3 February 2016

"Saudi Arabia wants to cooperate with other oil producers to support the oil market, Saudi-owned Al Arabiya television reported on Sunday, quoting an unnamed Saudi source. The source also told the Dubai-based satellite channel that the kingdom was not the source of a proposal to cut production that Russia was studying. Russia said on Thursday that OPEC had proposed oil production cuts of up to 5 percent in what would be the first global deal in over a decade to help reduce a glut of crude and prop up sinking prices. Russian Energy Minister Alexander Novak also told reporters that there was a proposal of a meeting between Organization of the Petroleum Exporting Countries (OPEC) members and non-OPEC countries, and that Russia was ready for the meeting. So far, OPEC powerhouse Saudi Arabia has withstood pressure from other cartel members to cut output, instead sticking to a strategy of allowing the price of oil to drop to levels that were likely to force rivals such as U.S. shale producers out of business. The prospect that Saudi Arabia could relent helped oil prices rebounding on Friday, gaining more than 25 percenton the 12-year lows hit earlier in the month. .... But experts were skeptical of Russia's claims and a number of media outlets reported denials from unnamed Saudi sources that the crude giant was the source of the proposal to slice 5 percent from production levels. Arabiya reported on Saturday that it was Venezuela that had proposed a February meeting of oil producers to discuss steps to prop up prices. Arabiya also reported that another oil producer, Iraq, would accept a decision by OPEC and non-OPEC members to cut output....Meanwhile, Reuters reported that a senior Iranian oil official told Shana, the Iran oil ministry's news agency, that the country aimed to boost crude oil production capacity by 160,000 barrels a day once it had completed expansion projects at two oilfields."
Saudi Arabia will cooperate on oil output, didn't propose production cut, says Arabiya
CNBC, 31 January 2016

"The UK is facing an unprecedented “energy gap” in a decade’s time, according to engineers, with demand for electricity likely to outstrip supply by more than 40%, which could lead to blackouts. New policies to stop unabated coal-fired power generation by 2025, and the phasing out of ageing nuclear reactors without plans in place to build a new fleet of gas-fired electricity plants, will combine to create a supply crunch, according to a new study. Under current [government] policy, it is almost impossible for UK electricity demand to be met by 2025,” said Jenifer Baxter, head of energy and environment at the Institution of Mechanical Engineers (IMechE), which published the report, entitled Engineering the UK’s Electricity Gap, on Tuesday. As many as 30 new gas-fired power stations are likely to be needed to make up the supply deficit, according to the report, but these are not being built. Reforms to the electricity market brought in under the previous coalition government are also not helping to encourage construction. Attempts to encourage energy efficiency, such as the “green deal” to insulate houses, which was scrapped, have not been enough. Although a new nuclear reactor could be built at Hinkley Point by 2025, there is little chance of any more being constructed by that date. In addition, the government has slashed subsidies for onshore wind and solar power, making future growth in those energy sources doubtful. The government has also abandoned plans for pioneering carbon capture and storage technology, which could have given an extension to some coal-fired power plants. “The UK is facing an electricity supply crisis,” Baxter warned. “As the population rises, and with greater use of electricity in transport and heating, it looks almost certain that electricity demand is going to rise. However, with little or no focus on reducing electricity demand, the retirement of the majority of the country’s ageing nuclear fleet, recent proposals to phase out coal-fired power by 2025, and the cut in renewable energy subsidies, the UK is on course to produce even less electricity than it does at the moment.” She said: “We have neither the time, resources, nor enough people with the right skills to build sufficient power plants. Electricity imports will put the UK’s electricity supply at the mercy of the markets, weather and politics of other countries, making electricity less secure and less affordable.” The supply gap could be equivalent to about 40% to 55% of electricity demand by the middle of the next decade, according to the study. Only four new gas-fired power stations have been built in the last 10 years."
Engineers warn of looming UK energy gap
Guardian, 26 January 2016

"China has detailed its plans to build floating nuclear plants amid Beijing's drive to double its atomic energy capacity by the end of this decade. The buoyant power stations will be a first once completed in 2020. Chinese authorities on Wednesday confirmed the Asian country's resolve to build floating nuclear power stations. The chairman of the China Atomic Energy Authority, Xu Dazhe, said the marine stations would be needed to exploit the oceans. "China is devoted to becoming a maritime power, and so we will definitely make full use of ocean resources," Xu told reporters in Beijing. The offshore power plants are meant to provide energy for offshore oil and gas drilling platforms as well as to island development projects."
China to build floating nuclear power plants
Deutshce Welle, 27 January 2016

"The Opec oil cartel has issued its strongest plea to date for a pact with Russia and rival producers to cut crude output and halt the collapse in prices, warning that the deepening investment slump is storing up serious trouble for the future. Abdullah al-Badri, Opec’s secretary-general, said the cartel is ready to embrace rivals and thrash out a compromise following the 72pc crash in prices since mid-2014. "Tough times requires tough choices. It is crucial that all major producers sit down and come up with a solution," he told a Chatham House conference in London. Mr al-Badri said the world needs an investment blitz of $10 trillion to replace depleting oil fields and to meet extra demand of 17m barrels per day (b/d) by 2040, yet projects are being shelved at an alarming rate. A study by IHS found that investment for the years from 2015 to 2020 has been slashed by $1.8 trillion, compared to what was planned in 2014. Mr al-Badri warned that the current glut is setting the stage for a future supply shock, with prices lurching from one extreme to another in a deranged market that is in the interests of nobody but speculators. "It is vital that the market addresses the stock overhang,” he said.  Mr al-Badri warned that the current glut is setting the stage for a future supply shock, with prices lurching from one extreme to another in a deranged market that is in the interests of nobody but speculators. "It is vital that the market addresses the stock overhang,” he said. Leonid Fedun, vice-president of Russia’s oil group Lukoil, said Opec policy had set off a stampede, comparing it to a “herd of animals rushing to escape a fire”. He called on the Kremlin to craft a political deal with the cartel to overcome the glut. “It is better to sell a barrel of oil at $50 than two barrels at $30,” he told Tass. This is a significant shift in thinking. It has long been argued that Russian companies cannot join forces with Opec since the Siberian weather makes it hard to switch output on and off, and because these listed firms are supposedly answerable to shareholders, not the Kremlin. Mr Fedun said Opec will be forced to cut output anyway. “This could happen in May or in the summer. After that we will see a rapid recovery,” he said. He accused the cartel of incompetence. “When Opec launched the price war, they expected US companies to go under very quickly. They discovered that 50pc of the US production was hedged,” he said.  Mr Fedun said these contracts acted as a subsidy worth $150m a day for the industry though the course of 2015. “With this support shale producers were able to avoid collapse,” he said. The hedges are now expiring fast, and will cover just 11pc of output this year. Iraq’s premier, Haider al-Abadi, was overheard in Davos asking US oil experts exactly when the contracts would run out, a sign of how large this issue now looms in the mind of Opec leaders. Mr Fedun said 500 US shale companies face a “meat-grinder” over coming months, leaving two or three dozen “professionals”. Claudio Descalzi, head of Italy’s oil group Eni, said Opec has stopped playing the role of “regulator” for crude, leaving markets in the grip of financial forces trading “paper barrels” that outnumber actual barrels of oil by a ratio of 80:1. The paradox of the current slump is that global spare capacity is at wafer-thin levels of 2pc as Saudi Arabia pumps at will, leaving the market acutely vulnerable to any future supply-shock. “In the 1980s it was around 30pc; 10 years ago it was 8pc,” said Mr Descalzi. Barclays said the capitulation over recent weeks is much like the mood in early 1999, the last time leading analysts said the world was “drowning in oil”. It proved to be exact bottom of the cycle. Prices jumped 50pc over the next twenty days, the start of a 12-year bull market. Mr Norrish said excess output peaked in the last quarter of 2015 at 2.1m b/d. The over-supply will narrow to 1.2m b/d in the first quarter as of this year as a string of Opec and non-Opec reach “pain points”, despite the return of Iranian crude after the lifting of sanctions. By the end of this year there may be a “small deficit”. By then the world will need all of Opec’s 32m b/d supply to meet growing demand, although it will take a long time to whittle down record stocks. Mr Norrish said the oil market faces powerful headwinds. US shale has emerged as a swing producer and will crank up output “quite quickly” once prices rebound. Global climate accords have changed the rules of the game and electric vehicles are breaking onto the scene. Yet the underlying market is tighter than in 1999, when there was ample spare capacity, the geopolitical risks are much greater in a Middle East torn by a Sunni-Shia battle for dominance. Barclays said extreme positioning on the derivatives markets has prepared the ground for a short squeeze. “Unhedged short positions held by speculators are huge so there is certainly the potential for a steep move up in prices at some point,” it said. "
Opec pleads for Russian alliance to smash oil speculators
Telegraph, 25 January 2016

"Hedge funds and private equity groups armed with $60bn of ready cash are ready to snap up the assets of bankrupt US shale drillers, almost guaranteeing that America’s tight oil production will rebound once prices start to recover. Daniel Yergin, founder of IHS Cambridge Energy Research Associates, said it is impossible for OPEC to knock out the US shale industry though a war of attrition even if it wants to, and even if large numbers of frackers fall by the wayside over coming months. Mr Yergin said groups with deep pockets such as Blackstone and Carlyle will take over the infrastructure when the distressed assets are cheap enough, and bide their time until the oil cycle turns. “The management may change and the companies may change but the resources will still be there,” he told the Daily Telegraph. The great unknown is how quickly the industry can revive once the global glut starts to clear - perhaps in the second half of the year - but it will clearly be much faster than for the conventional oil.  “It takes $10bn and five to ten years to launch a deep-water project. It takes $10m and just 20 days to drill for shale,” he said, speaking at the World Economic Forum in Davos. In the meantime, the oil slump is pushing a string of exporting countries into deep social and economic crises. “Venezuela is beyond the precipice. It is completely broke,” said Mr Yergin. Iraq’s prime minister, Haider al-Abadi, said in Davos that his country is selling its crude for $22 a barrel, and half of this covers production costs. “It’s impossible to run the country, to be honest, to sustain the military, to sustain jobs, to sustain the economy,” he said. This is greatly complicating the battle against ISIS, now at a critical juncture after the recapture of Ramadi by government forces. Mr al-Albadi warned that ISIS remains “extremely dangerous”, yet he has run out of money to pay the wages of crucial militia forces. .... Mr Yergin is author of “The Prize: The Epic Quest for Oil, Money and Power”, and is widely regarded as the guru of energy analysis. He said shale companies have put up a much tougher fight than originally expected and are only now succumbing to the violence of the oil price crash, fifteen months after Saudi Arabia and the Gulf states began to flood the global market to flush out rivals. “Shale has proven much more resilient than people thought. They imagined that if prices fell below $70 a barrel, these drillers would go out of business. They didn’t realize that shale is mid-cost, and not high cost,” he said. Right now, however, US frackers are in the eye of the storm. Some 45 listed shale companies are already insolvent or in talks with creditors. The fate of many more will be decided over the spring when an estimated 300,000 barrels a day (b/d) of extra Iranian crude hits an already saturated global market. .... Output per rig has soared fourfold since 2009. It is now standard to drill multiples wells from the same site, and data analytics promise yet another leap foward in yields. “$60 is the new $90. If the price of oil returns to a range between $50 and $60, this will bring back a lot of production. The Permian Basin in West Texas may be the second biggest field in the world after Ghawar in Saudi Arabia,” he said. Zhu Min, the deputy director of the International Monetary Fund, said US shale has entirely changed the balance of power in the global oil market and there is little Opec can do about it. “Shale has become the swing producer. Opec has clearly lost its monopoly power and can only set a bottom for prices. As soon as the price rises, shale will come back on and push it down again,” he said. The question is whether even US shale can ever be big enough to compensate for the coming shortage of oil as global investment collapses. “There has been a $1.8 trillion reduction in spending planned for 2015 to 2020 compared to what was expected in 2014,” said Mr Yergin. Yet oil demand is still growing briskly. The world economy will need 7m b/d more by 2020. Natural depletion on existing fields implies a loss of another 13m b/d by then. Adding to the witches’ brew, global spare capacity is at wafer-thin levels - perhaps as low 1.5m b/d - as the Saudis, Russians, and others, produce at full tilt. “If there is any shock the market will turn on a dime,” he said. The oil market will certainly feel entirely different before the end of this decade. The warnings were widely echoed in Davos by luminaries of the energy industry. Fatih Birol, head of the International Energy Agency, said the suspension of new projects is setting the stage for a powerful spike in prices. Investment fell 20pc last year worldwide, and is expected to fall a further 16pc this year. “This is unprecedented: we have never seen two years in a row of falling investment. Don’t be misled, anybody who thinks low oil prices are the ‘new normal’ is going to be surprised,” he said. Ibe Kachikwu, Nigeria oil minister and the outgoing chief of Opec, said the ground is being set for wild volatility. “The bottom line is that production no longer makes any sense for many, and at this point we’re going to see a lot of barrels leave the market. Ultimately, prices will shoot back up in a topsy-turvey movement,” he said...Saudi Arabia has made it clear that there can be no Opec deal to cut output and stabilize prices until the Russians are on board, and that is very difficult since Russian companies are listed and supposedly answerable to shareholders."
Saudis ‘will not destroy the US shale industry’
Telegraph, 24 January 2016

"Oil has rebounded to about $31 in the past couple of days but is still down around 16 per cent this year. The price slump contributed to the brutal sell-off in global equity markets that shaved off $4tn in value this year before stocks began staging a rebound on Thursday. Investors have been concerned not only about oil companies but also the knock-on effects on suppliers, jobs and banks. There are also signs of financial strain in oil-producing countries. At around $30 a barrel, a level that Saudi Aramco chairman Khalid al-Falih described as “irrational” at the World Economic Forum in Davos, there is very little US shale production that is economically viable. Companies have achieved remarkable gains in productivity by optimising production techniques and drilling only in the “sweet spots” that generate the most. They have also been driving down the prices they pay their suppliers and contractors. Jim Burkhard of IHS, the research group, says the cost of drilling and completing a typical shale well fell 35-40 per cent last year..... “The cost of drilling new wells has plummeted in US shale, but not by as much as the oil price,” Mr Burkhard says. “$30 oil is suffocating.” The effect of that is to call into question the entire business model that made the US shale oil boom possible. US crude production rose from 5.1m barrels a day at the start of 2009 to 9.7m b/d in April last year, a surge that has few parallels in the industry’s history. This is in part because of advances in the techniques of hydraulic fracturing and horizontal drilling, but also because of the easy availability of financing. The small and medium-sized companies that led the shale revolution raised $113bn from selling shares and $241bn from selling bonds during 2007-15, according to Dealogic.  Colin Fenton of Blacklight Research says the US Federal Reserve’s near-zero interest rate policy, which started from late 2008, “overstimulated debt-driven investment in energy supply”. Low rates drove investment in marginal US shale projects “that are uncompetitive at lower prices and now need to be unwound”, he wrote in a recent note. The boom years left the US oil industry deep in debt. The 60 leading US independent oil and gas companies have total net debt of $206bn, from about $100bn at the end of 2006. As of September, about a dozen had debts that were more than 20 times their earnings before interest, tax, depreciation and amortisation. Worries about the health of these companies have been rising. A Bank of America Merrill Lynch index of high-yield energy bonds, which includes many indebted oil companies, has an average yield of more than 19 per cent. Almost a third of the 155 US oil and gas companies covered by Standard & Poor’s are rated B-minus or below, meaning they are at high risk of default....Eventually, declining output in the US will help rebalance the global oil market. Once the price returns to $50-$60 a barrel, it will stimulate enough new drilling in the US to stop the decline in production, according to Skip York of Wood Mackenzie, the consultancy. However, there are reasons to believe the growth rates seen in the first shale boom will not be back for a long time.  First, some long-term damage will have been done to the industry’s infrastructure and its skills base. The US oil and gas industry has lost 86,000 jobs over the past year, about 16 per cent of its workforce, and many of those people will never return. When the industry does want to expand again, it will need to offer attractive wages and training, which will raise costs."
Oil: US shale’s big squeeze
Financial Times, 22 January 2016

"Oilfield services giant Schlumberger has cut 10,000 jobs in the past three months amid the plunge in oil prices. News of the near-10% jobs cull came as the firm unveiled a net loss for the last three months of $1bn - its first quarterly loss in 12 years. Revenues fell 39% to $7.74bn, with chief executive Paal Kibsgaard warning that there was "no signs" of an oil price recovery on the horizon.... Oil prices have dipped below $28 a barrel in a drawn-out slump since mid-2014. Many analysts have slashed their 2016 oil price forecasts, with Morgan Stanley analysts saying that "oil in the $20s is possible." Economists at the Royal Bank of Scotland say that oil could fall to $16, while Standard Chartered predicts that prices could hit just $10 a barrel."
Schlumberger reveals 10,000 recent job losses amid oil price slump
BBC Online, 22 January 2016

"For the oil markets what worries me the most is that: last year we have seen oil investments in 2015 decline more than 20%, compared to 2014, for the new projects. And this was the largest drop we have ever seen in the history of oil. And, moreover, in 2016, this year, with the $30 price environment, we expect an additional 16% decline in the oil projects, investments. So, we have never seen 2 years in a row oil investments declining. If there was a decline 1 year, which was very rare, the next year there was a rebound.... this leads me to the very fact that in a few years of time, when the global demand gets a bit stronger, when we see that the high cost areas such as the United States start to decline, we may well see an upward pressure on the prices as a result of market tightness. So my message, my 1st message is: don’t be misled that the low oil prices will have an impact on the oil prices in the market in a few years’ time... If oil prices remain at $30 in 2016, an equivalent of 20% of the Middle East GDP will be erased. It’s a big thing. For Russia, about 10% of Russian GDP will be erased if the prices remain at this level. At the same time for Europe, for China, for India it’s an economic stimulus....these low oil prices and the unprecedented low investments mean we are having a fertile ground in the future for strong rebound in the prices. Second, topic of our discussion, transformation of energy, low oil prices are complicating the transformation."
Fatih Birol, Executive Director of International Energy Agency
World Economic Forum: The Transformation of Energy, 21 January 2016

"If you are waiting for Saudi Arabia to save the oil market, don't hold your breath. The country will not cut production and give up its market share in order to prop up prices, the chairman of Saudi Aramco said at the World Economic Forum in Davos "We are not going to accept to withdraw our production to make space for others," Khalid al-Falih said at a panel hosted by CNN's emerging markets editor John Defterios. Saudi Arabia is the world's second biggest oil producer and the top crude exporter. "This is the position that we've earned...we are not going to leave that position to others," al-Falih said. He said Saudi Arabia has in the past played the role of a "reserve bank" in the oil market, smoothing short terms shocks. The country has acted during the financial crisis and during civil unrest and wars in oil producing regions that have disrupted supplies. But it will not step in to fix the hugely oversupplied market. "Saudi Arabia has never advocated that it would take the sole role of balancing market against structural imbalance," he said at the CNN panel."
Defiant Saudi Arabia says it can handle low oil prices 'for a long, long time'
CNN, 21 January 2016

"Russia's former finance minister and the head of the Civic Initiatives Committee thinktank Alexey Kudrin does not rule out oil prices could plunge to $16-18 per barrel. "Today there is a wide range of factors putting pressure on [oil] price. It will be lower than today. It may reach 18 and even 16 [dollars per barrel] but for a short period of time. Indeed, it will be the lowest point," Kudrin said."
Russia’s ex-finance minister says oil price may plunge to $16-18 per barrel
Tass, 21 January 2016

"Winners and losers are emerging from the energy bust. ....The four biggest U.S. banks -- Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. -- have set aside at least $2.5 billion combined to cover souring energy loans and have said they’ll add to that if prices stay low."
Some Bankrupt Oil and Gas Drillers Can't Give Their Assets Away
Bloomberg, 20 January 2016

"Back in 2008, with gas prices averaging nearly $4 a gallon, President Barack Obama set a goal of getting one million plug-in electric vehicles on the roads by 2015. Since then, his administration has backed billions of dollars in EV subsidies for consumers and the industry. Yet today – with gas prices near $2 a gallon - only about 400,000 electric cars have been sold. Last year, sales fell 6 percent over the previous year, to about 115,000, despite the industry offering about 30 plug-in models, often at deep discounts.  Such challenges are part of the backdrop for Obama’s Wednesday visit to Detroit, where he’s expected to discuss the state of the auto industry. Despite slow plug-in sales, the industry continues to roll out new models in response to government mandates and its own desire to create brands known for environmental innovation. At the Detroit Auto Show last week, General Motors Co(GM.N) showed off its new electric Bolt EV; Ford Motor Co(F.N) unveiled a new plug-in version of its Ford Fusion; and Fiat Chrysler Automobiles NV(FCHA.MI) unveiled its first plug-in hybrid, a version of its new Pacifica minivan. Ford CEO Mark Fields said last week that EVs "are a difficult sell at $2 a gallon.” Plug-in vehicles accounted for fewer than 1 percent of the 17.4 million cars and trucks sold last year, according to data from HybridCars.com and Baum & Associates, a Michigan-based market research firm.... The main obstacles for electric vehicles are their high cost and short driving range. The Chevy Bolt promises a breakthrough on both fronts, with a 200-mile range and a price starting at about $30,000 - after government incentives. Still, that’s a steep buy-in compared to increasingly efficient gasoline-powered economy cars that can sell for less than $20,000."
Electric vehicle sales fall far short of Obama goal
Reuters, 20 January 2016

"Oil is so plentiful and cheap in the U.S. that at least one buyer says it would pay almost nothing to take a certain type of low-quality crude. Flint Hills Resources LLC, the refining arm of billionaire brothers Charles and David Koch’s industrial empire, said it offered to pay $1.50 a barrel Friday for North Dakota Sour, a high-sulfur grade of crude, according to a corrected list of prices posted on its website Monday. While the near-zero price is due to the lack of pipeline capacity for a particular variety of ultra low quality crude, it underscores how dire things are in the U.S. oil patch. U.S. benchmark oil prices have collapsed more than 70 percent in the past 18 months and fell below $30 a barrel for the first time in 12 years last week. West Texas Intermediate traded as low as $28.36 in New York. Brent, the international benchmark, settled at $28.55 in London....High-sulfur crude in North Dakota is a small portion of the state’s production, with less than 15,000 barrels a day coming out of the ground, said John Auers, executive vice president at Turner Mason & Co. in Dallas. The output has been dwarfed by low-sulfur crude from the Bakken shale formation in the western part of the state, which has grown to 1.1 million barrels a day in the past 10 years. Different grades of oil are priced based on their quality and transport costs to refineries. High-sulfur crudes are generally priced lower because they can only be processed at plants that have specific equipment to remove sulfur. Producers and refiners often mix grades to achieve specific blends, and prices for each component can rise or fall to reflect current economics."
The North Dakota Crude Oil That's Worth Almost Nothing
Bloomberg, 18 January 2016

"Europe's top gas suppliers Russia and Norway both reported higher pipeline gas exports last year, but the market is braced for imports of liquefied natural gas (LNG) from the United States, which could add pressure to prices and sales.   "It is likely that (U.S.) LNG volumes could primarily be heading to Europe," Anfinnsen said. The first LNG cargo from Cheniere Energy's (LNG.A) landmark Sabine Pass terminal in Louisiana, however, will be delayed until later February or March, its subsidiary said last week. Norwegian exports peaked at a record 108.4 billion cubic metres (bcm) "a result of higher demand from Europe", the Norwegian Petroleum Department said last week.... Statoil, which markets about 80 percent of gas to Europe at prices linked to spot prices on the European gas hubs, such as British NBP and Dutch TTF, also plans to move away from oil-indexation completely.  "We believe that we will be moving closer towards the 100 percent mark through this year," Anfinnsen said. Statoil has come under pressure to move away from indexation as buyers want a pricing system that better reflects the market and the higher availability of LNG imports.   Low gas and oil prices weighed on Statoil's results in the third quarter, when the company posted less than expected operating profit and further cut capital spending. On Monday oil prices hit the lowest level since 2003 as the market braced for additional Iranian exports after sanctions against the country were lifted over the weekend."
Statoil expects higher gas demand in UK, Germany in 2016
Reuters, 18 January 2016

"Firms on Wall Street helped bankroll America's energy boom, financing very expensive drilling projects that ended up flooding the world with oil. Now that the oil glut has caused prices to crash below $30 a barrel, turmoil is rippling through the energy industry and souring many of those loans. Dozens of oil companies have gone bankrupt and the ones that haven't are feeling enough financial stress to slash spending and cut tens of thousands of jobs. Three of America's biggest banks warned last week that oil prices will continue to create headaches on Wall Street -- especially if doomsday scenarios of $20 or even $10 oil play out. For instance, Wells Fargo (WFC) is sitting on more than $17 billion in loans to the oil and gas sector. The bank is setting aside $1.2 billion in reserves to cover losses because of the "continued deterioration within the energy sector." JPMorgan Chase (JPM) is setting aside an extra $124 million to cover potential losses in its oil and gas loans. It warned that figure could rise to $750 million if oil prices unexpectedly stay at their current $30 level for the next 18 months."....The oil crash has already caused 42 North American oil companies to file for bankruptcy since the beginning of 2015, according to a list compiled by Houston law firm Haynes and Boone. It's only likely to get worse. Standard & Poor's estimates that 50% of energy junk bonds are "distressed," meaning they are at risk of default."
Big banks brace for oil loans to implode
CNN, 18 January 2016

"In December, Carbon Tracker, a financial think-tank that promotes the green energy market, told Sputnik that China aimed to become the world’s largest green economy due to Beijing’s determination to move away from coal to wind and solar energy. "The most proximate forecast is that China…will consume some 45 percent less of traditional energy sources, with the way it is creating alternative energy," Gref, who is also the former minister of economic development of Russia, said at the Gaidar Forum. Given the development of electric cars, Gref noted that, "we can say that the oil age is over."
'Age of Crude Oil Over' as China Develops Alternative Energy Sources
Sputnik, 15 January 2016

"On December 20, a low-pressure weather system crossed through the Texas panhandle and created sustained wind speeds of 20 to 30 mph. The burst of wind propelled Texas to surpass its all-time record for wind energy production, with wind providing 45 percent of the state’s total electricity needs — or 13.9 gigawatts of electric power — at its peak. That’s 13,900,000,000 watts: enough electricity to power over 230 million conventional 60 watt incandescent light bulbs, or more than 11 times the 1.21 gigawatts that Doc Brown’s time machine needed in Back to the Future. In other words, a heck of a lot of power. The latest record is news not only because wind provided nearly half of Texas’s electricity needs, but also that it did so for so many hours in a row. The sustained winds brought on by the low-pressure front caused wind energy production to exceed 10 gigawatts for essentially the entirety of December 20."
Texas Sets New All-Time Wind Energy Record
Scientific American, 14 January 2016

"Shale-oil billionaire Harold Hamm is calling for oil prices to double by year-end to $60 a barrel, a call in contrast to analyst projections that have crude sliding toward $20 or below. In an interview with The Wall Street Journal, the founder and chief executive of Oklahoma-based Continental Resources Inc. CLR, -2.02%  predicted the global glut of crude will ease as U.S. shale producers scale down production. Hamm also reiterated his charge that Saudi Arabia and its partners in the Organization of the Petroleum Exporting Countries, or OPEC, are making a costly mistake in flooding the world with oil in an effort to force higher-cost producers, including those in the U.S. shale regions, out of business. U.S. oil production, which grew sharply as the so-called shale revolution took hold around five years ago, has slowed, but not as sharply as had been anticipated, in response to falling oil prices. Hamm told the Journal that producers are now cutting output at a rate of 1.6 million barrels a year, which would take U.S. production back to levels seen three years ago. Once the world falls back into a supply deficit, producers can’t reverse course quickly, he said. And with Saudi Arabia already pumping at close to full capacity, it will be difficult to make up the shortfall, Hamm argued."
Shale billionaire says oil to rebound to $60 a barrel by year-end
MarketWatch, 14 January 2016

"Police have detained 55 people after protests over rising food prices in Azerbaijan. At least one person was treated in hospital and several were hurt as police used tear gas and rubber bullets to disperse protesters in Siyazan. The demonstrators were angry at worsening economic conditions sparked by the fall in the price of oil. Azerbaijan's economy is heavily dependent on oil. Nearly half its GDP in 2014 came from the oil sector. Oil prices have slumped by 70% in the past 15 months, down to $31 a barrel on international markets. Azerbaijan's currency, the manat, has also fallen dramatically in value. The interior ministry said the protests were organised by the opposition and religious extremists. The government has ordered a cut in the price of flour in response to the crisis, effective from Friday, according to Reuters news agency.VAT was being waived on wheat imports and the sale of bread and flour, it said. In a further move to prop up the faltering manat, Azerbaijan's central bank has banned the sale of foreign exchange in bureaux de change run by commercial banks, Reuters adds."
Azerbaijan hit by price protests amid oil slump
BBC Online, 14 January 2016

"An estimated $380 billion worth of oil and gas projects have been cancelled since 2014, according to a new estimate from Wood Mackenzie. The downturn in oil prices have hit projects all around the world, and Wood Mackenzie says that 68 major projects were scrapped in 2015, which account for around 27 billion barrels of oil and natural gas. In the latter half of 2015 when oil prices fell once again following a modest rebound in the spring, the industry pushed off 22 major projects worth 7 billion barrels of oil equivalent. “The impact of lower oil prices on company plans has been brutal. What began in late-2014 as a haircut to discretionary spend on exploration and pre-development projects has become a full surgical operation to cut out all non-essential operational and capital expenditure,” Wood Mackenzie analyst Angus Rodger said in a statement. The cancellations will lead to dramatically lower oil production in the years ahead. An estimated $170 billion in capex spending was slashed for the period between 2016 and 2020. All told, industry cuts will translate into at least 2.9 million barrels of oil production per day (mb/d) that will not come online until at least sometime next decade.... The average breakeven costs for all the projects that Wood Mackenzie surveyed stood at around $60 per barrel. Most of the projects that suffered cuts were in deepwater, which tend to suffer from much higher development costs. For example, projects in the Gulf of Mexico, offshore Nigeria and Angola will be deferred until the 2020s. Canada’s expensive oil sands has also seen investment dry up. The $380 billion in spending cuts identified far exceeded the $200 billion that Wood Mackenzie totaled in June 2015. More cuts could be forthcoming in 2016. The report also finds that 85 percent of the greenfield projects on the drawing board have internal rates of return of 15 percent or less. The chances that they will move forward are “bleak.”.... Energy analysts are falling over each other with new estimates for where the price of oil will bottom out. Goldman Sachs was one of the first to call for $20 oil last year, but now everyone is jumping on the bandwagon. Morgan Stanley says $20 oil is possible, with much of the blame put on the strength of the dollar. Standard Chartered, not to be outdone, says oil could fall to $10 per barrel. RBS issued perhaps the most panic-inducing warning of them all, mostly because it applied to the broader state of the global economy: “sell everything except high quality bonds,” because the world is facing a “fairly cataclysmic year ahead.” The consensus suddenly seems to be that oil will remain in the $30s, or even lower, for much of the year, despite the incessant optimism from some oil executives. But the extended slump for oil is setting up the world for a situation in which a supply fails to meet demand in the not-so-distant future. The Wood Mackenzie report shines a spotlight on this phenomenon, which is becoming increasingly likely. The world is oversupplied right now, by some 1 mb/d. But the industry is shelving nearly 3 mb/d in future output because of conditions today. Lasting financial damage will lead to a shortfall in investment, a slowdown in spending that could outlast the oil bust. As the years pass and that production fails to come online, demand could start to outstrip supply, potentially leading to a price spike. The difference between the 1980s, the last time the world had to work through a supply-side oil bust, is that today the oil markets are not as oversupplied as they seem. OPEC had several million barrels per day sitting on the sidelines in the 1980s, which were ramped up over the course of several years to incrementally match demand needs. At this point, OPEC is producing flat out. Spare capacity hit 1.33 mb/d in the 3rd quarter of 2015 – the lowest level since 2008. It is hard to imagine a shortage when oil is dipping below $30 per barrel. But global supplies could very well tighten in the next few years."
27 Billion Barrels Worth Of Oil Projects Now Cancelled
OilPrice.com, 14 January 2016

"The first signs of a thaw are emerging for the battered oil market after Russia signalled a sharp fall in exports this year, a move that may offset the long-feared surge of supply from Iran. The oil-pipeline monopoly Transneft said Russian companies are likely to cut crude shipments by 6.4pc over the course of 2016, based on applications submitted so far by Lukoil, Rosneft, Gazprom and other producers. This amounts to a drop of 460,000 barrels a day (b/d), enough to eliminate a third of the excess supply flooding the world and potentially mark the bottom of the market. Russia is the world’s biggest producer of oil, and has been exporting 7.3m b/d over recent months. Transneft told journalists in Moscow that tax changes account for some of the fall but economic sanctions are also beginning to inflict serious damage. External credit is frozen and drillers cannot easily import equipment and supplies. New projects have been frozen and output from the Soviet-era fields in western Siberia is depleting at an average rate of 8pc to 11pc each year. Russia's deputy finance minister, Maxim Oreshkin, told news agency TASS that the oil price crash could lead to “hard and fast closures in coming months”. What is unclear is whether the production cuts are purely driven by markets or whether it is in part a political move to pave the way for a deal with Saudi Arabia. Opec stated in December that it is too small to act alone and will not cut production unless non-Opec states join the effort to stabilize the market, a plea clearly directed at Russia." Kremlin officials insist publicly that they cannot tell listed Russian companies what to do, and claim that Siberian weather makes it harder to switch supply on and off. Oil veterans say there are ways to cut quietly if president Vladimir Putin gives the order. Helima Croft, from RBC Capital Markets, said the expected cuts could be the first steps towards an accord. “As the economic reality of lower oil prices begins to bite, perhaps Putin will push for a course correction and reach a deal with the Saudis. It would certainly upend the current conventional wisdom that Opec is down for the count," she said. Russia has a strong incentive to strike a deal. Anton Siluanov, the finance minister, said the Kremlin is drawing up drastic plans to slash spending by 10pc, warning that the country’s reserve fund may run dry by the end of the year. “We have decided not to touch defence spending for now,” he said.... The oil markets have so far shrugged off the news from Moscow, focusing on the more immediate glut. Short positions on the derivatives markets remain extremely stretched, but this creates the conditions for a vicious "short squeeze" if sentiment turns. Brent crude is hovering near 11-year lows at $30.50, while Saudi Arab light is trading in Asia at $24.57, and Basra heavy is down to $17.77. The cheapest West Canadian is selling at $16.30."
Glimmers of hope for oil as Russia poised to slash output
Telegraph, 14 January 2016

"While oil prices flashing across traders’ terminals are at the lowest in a decade, in real terms the collapse is even deeper. West Texas Intermediate futures, the U.S. benchmark, sank below $30 a barrel on Tuesday for the first time since 2003. Actual barrels of Saudi Arabian crude shipped to Asia are even cheaper, at $26 -- the lowest since early 2002 once inflation is factored in and near levels seen before the turn of the millennium. Slumping prices are a critical signal that the boom in lending in China is “unwinding,” according to Adair Turner, chairman of the Institute for New Economic Thinking. Slowing investment and construction in China, the world’s biggest energy user, is “sending an enormous deflationary impetus through to the world, and that is a significant part of what’s happening in this oil-price collapse,” Turner, former chairman of the U.K. Financial Services Authority, said in an interview with Bloomberg Television. The nation’s economic expansion faltered last year to the slowest pace in a quarter of a century. “You see a big destruction in the income of the oil and commodity producers,” Turner said. Saudi prices would be less than $17 a barrel when converted into dollar levels for 1998, the year oil sank to its lowest since the 1980s."
The Real Price of Oil Is Far Lower Than You Realize
Bloomberg, 14 January 2016

"Despite the market focus on an oil supply surplus, demand side pressures are also hurting prices, as world trade growth slows, a top HSBC economist said on Thursday. "You have a situation where emerging markets in general are extremely weak, that in turn is causing commodity prices to decline rapidly, including oil prices, so rather than saying lower oil prices are a stimulus for the commodity consuming parts of the world, I think you should see lower oil prices as a symptom of weakness in global demand," HSBC's senior economic advisor Stephen King told CNBC. Oil prices, already at 12-year lows, extended their decline in Asian hours, with both U.S. WTI around $30.50 a barrel while Brent crude has plunged to a fresh 12-year low below $30 a barrel. The 19-month plunge in oil has mostly been blamed on the Saudi Arabia-led OPEC policy of keeping production high even in the face of global oversupply, in an attempt push out higher production-cost rivals such as U.S. shale oil producers. But King said that the forces moving oil were more nuanced than that. "If it's a situation where it's a reflection of weaker global demand, you get lower oil prices and at the same time, much weaker low trade growth," King said. "If it were simply a supply-side beneficial shock, then you get lower oil prices, higher real incomes in the west, maybe higher world trade growth. So it's not just the fall in the oil prices itself but world trade growth which is extremely weak - both of which is symptomatic of this broad deflationary trend.""Investment in various parts of the world has been much, much weaker than expected. Exports are a lot weaker than expected. More importantly, around the world, there has been very, very high level of debt," he said. "The problem with very low inflation or deflation, (when) interest rates are already at zero, the more the inflation falls, the higher your debt level becomes, the more difficult it is to deleverage and you end up with with grinding constraint on the ability of the global economy to expand." "
Weak demand as global trade slows has hit oil price, says HSBC's Stephen King
CNBC, 13 January 2016

"BP is cutting 600 jobs from its North Sea operations, a fifth of its workforce in the region, after oil prices slid to a near 12-year low. The energy giant currently employs 3,000 people in the region, including 1,800 in Aberdeen and 500 offshore. Most of the lost jobs will go this year with the rest in 2017. The cuts are among more than 4,000 posts being cut across the company's "upstream" exploration and production divisions over the next couple of years, reducing the number employed in this part of the company from 24,000 to below 20,000. BP's announcement came as a sustained slump in the oil price showed no signs of abating, with the cost of a barrel of Brent crude hitting a new near-12 year low as it slid below $31. It has tumbled by nearly three-quarters from a peak of more than $115 in the summer of 2014 amid a glut of supply and slowing demand from emerging markets, particularly China."
BP Cuts 20% Of North Sea Workforce
Sky, 12 January 2016

"Ever since the EU restricted sales of traditional incandescent light bulbs, homeowners have complained about the shortcomings of their energy-efficient replacements. The clinical white beam of LEDs and frustrating time-delay of ‘green’ lighting has left many hankering after the instant, bright warm glow of traditional filament bulbs. But now scientists in the US believe they have come up with a solution which could see a reprieve for incandescent bulbs. Researchers at MIT have shown that by surrounding the filament with a special crystal structure in the glass they can bounce back the energy which is usually lost in heat, while still allowing the light through. They refer to the technique as ‘recycling light’ because the energy which would usually escape into the air is redirected back to the filament where it can create new light. "It recycles the energy that would otherwise be wasted," said Professor Marin Soljacic. Usually traditional light bulbs are only about five per cent efficient, with 95 per cent of the energy being lost to the atmosphere. In comparison LED or florescent bulbs manage around 14 per cent efficiency. But the scientists believe that the new bulb could reach efficiency levels of 40 per cent. And it shows colours far more naturally than modern energy-efficient bulbs. Traditional incandescent bulbs have a ‘colour rendering index’ rating of 100, because they match the hue of objects seen in natural daylight. However even ‘warm’ finish LED or florescent bulbs can only manage an index rating of 80 and most are far less."
Return of incandescent light bulbs as MIT makes them more efficient than LEDs
Telegraph, 11 January 2016

"Half of U.S. shale oil producers could go bankrupt before the crude market reaches equilibrium, Fadel Gheit, said Monday. The senior oil and gas analyst at Oppenheimer & Co. said the "new normal oil price" could be 50 to 100 percent above current levels. He ultimately sees crude prices stabilizing near $60, but it could be more than two years before that happens. By then it will be too late for many marginal U.S. drillers, who must drill into and break up shale rock to release oil and gas through a process called hydraulic fracturing. Fracking is significantly more expensive than extracting oil from conventional wells. "Half of the current producers have no legitimate right to be in a business where the price forecast even in a recovery is going to be between, say, $50, $60. They need $70 oil to survive," he told CNBC's "Power Lunch.""
Half of US shale drillers may go bankrupt: Oppenheimer's Gheit
CNBC, 11 January 2016

"Saudi Aramco, the world’s biggest oil producer, is studying plans to privatise some of its subsidiaries as well as offering shares in the main business. The news follows comments made by Deputy Crown Prince Mohammed bin Salman on Thursday that he supported the trillion-dollar company being prepared for an initial public offering (IPO). If the float goes ahead it will be the world’s most valuable quoted company, dwarfing Apple, Exxon and Google. The moves have astonished the oil sector and led to speculation about whether a share float would change the Saudi strategy of driving down oil prices by refusing to cut back on production. Analysts believe the world’s most valuable business will attract a lot of interest from potential investors, but warn that the Saudis could underestimate western concerns about Aramco’s traditional secrecy and the impact of falling oil prices. A statement from the oil group said: “Saudi Aramco confirms that it has been studying various options to allow broad public participation in its equity through the listing in the capital markets of an appropriate percentage of the company’s shares and/or the listing of a bundle its downstream subsidiaries."
Saudi Aramco privatisation plans shock oil sector
Guardian, 8 January 2016

"The global economy is slipping into recession. The evidence is showing up in all the usual ways: slowing output growth, slumping purchasing-manager indexes, widening credit spreads, declining corporate earnings, falling inflation expectations, receding capital investment and rising inventories. But this is a most unusual recession—the first one ever caused by falling oil prices. We’ve had plenty of recessions caused by rising oil prices: 1973-75, 1980-81, and 1990-91. In these recessions, the oil price ultimately fell as demand collapsed. But this time oil prices have fallen more than 70% since mid-2014, while demand has been rising. The drop is entirely the result of America’s supply-side technology breakthrough with horizontal drilling and hydraulic fracturing—“fracking.” This has given consumers world-wide what amounts to a tax cut of $7.8 billion every day, or about $2.9 trillion over a full year. So shouldn’t there be an economic boom, rather than a bust? Yes, eventually. But first, because of its magnitude and speed, the technology revolution that drove down oil prices has also threatened the important institutions that benefited from high prices. Collectively, these institutions are down $2.9 trillion. .... According to bank regulators, U.S. banks have syndicated leveraged loans for the oil and gas industry of $276 billion, 15% of which are now regarded as distressed, up from less than 4% a year ago. And in our hyper-cautious, Dodd Frank-saddled world, such distress drives a tightening of lending conditions system-wide. And that drives recession. Energy company earnings have collapsed. In the U.S., earnings of the energy sector of the S&P 500 have fallen by 76%. The same is happening in energy around the world. And over the past quarter, earnings for companies in all sectors have started to slump, too. Every recession in a generation has been preceded by such an earnings rollover. The public finances of oil-producing nations—corrupt kleptocracies-cum-welfare-states, from Russia to Venezuela to Saudi Arabia—are also collapsing. When petrodollars dry up at the source, they dry up downstream as well, across the whole global economy. U.S. capital investment—which never really recovered from the housing bust—has been hit particularly hard by cutbacks in oil-field capital expenditures. That took 44 basis points off real U.S. output in the first quarter of 2015, 88 basis points in the second, and 33 basis points in the third. There are more cutbacks to come. China—an economy with rapidly increasing oil consumption—ought to be a beneficiary of low prices, but instead it is a victim, and potentially a globally systemic one. That’s because the foreign-exchange value of the U.S. dollar has surged, as it always does when oil prices fall. After substantially revaluing the yuan over a decade in response to protectionist threats, China now finds the strong dollar has left its currency grossly uncompetitive with the euro, the yen and all the rest. The alarming recent devaluation of the yuan, while a sensible response for China, is creating strains throughout emerging economies and deep uncertainty through all global supply chains. Maybe no single one of these oil-driven stresses would be enough to trigger a global recession. But a recession is often a death by a thousand cuts, not a single blow. Today’s reverse oil-shock has made a lot of cuts. And it’s not as though the world economy was all that robust to begin with. There has never been a recession caused by low oil prices, so there is no playbook for how this one might evolve. It is critically dependent on how the global consumer responds. If the rigors of recession reduce demand for oil—as happens in a typical recession—then we’d have a vicious cycle in which further oil price declines would make the recession worse."
The Recession Caused by Low Oil Prices
Wall St Journal, 7 January 2016

"Oil prices on Thursday slid to their lowest level in more than a decade — so low that black gold now costs less than spring ­water. At Thursday’s close at $33.27 a barrel, oil now costs 79 cents a gallon. By comparison, Shop-Rite on Thursday was selling three cases of 500-ml. bottles of Poland Spring water for $10. That works out to roughly $1.05 a gallon."
Oil is now cheaper than water
New York Post, 7 January 2016

"Oil went down to $7.00 a barrel in 1985, and that low figure is where the US government is now trying to drive the price down. Yet today the global glut is less than three percent of the oil supply, not 20 percent as in 1985. The surplus today is only 2.2 million barrels a day, according to Petroleum Intelligence Weekly. Iran will bring on initially around 600,000 barrels a day of new oil in 2016. That means later this year we will have a 2.8-million potential surplus. The problem is, according to Persian Gulf traders, an annual oil depletion of seven million barrels a day, and that cannot be replaced with the collapse in drilling. What this means is that all surplus oil could be wiped out in the first or second quarters of 2016. By mid-2016, oil prices should start surging dramatically, even with additional oil from Iran."
Saudi-Iranian spat: Another skirmish in the oil war
RT, 6 January 2016

"The United States government is frantically trying to hold the oil price down to destroy the Russian economy, using their proxy Persian Gulf producers who are pumping all out. That amounts to no less than seven million barrels a day over the OPEC quota, according to Persian Gulf traders. The US government believes it can destroy the Russian economy - again - as if the clock had been turned back to 1985, when the global glut was 20 percent of the oil supply and the Soviet Union was bogged down in Afghanistan and internally bleeding to death. Oil went down to $7.00 a barrel in 1985, and that low figure is where the US government is now trying to drive the price down. Yet today the global glut is less than three percent of the oil supply, not 20 percent as in 1985."
Saudi-Iranian spat: Another skirmish in the oil war
RT, 6 January 2016

"Overall, capital expenditure in the oil and gas industry shrank dramatically last year and is set for another 25 percent contraction this year, figures Moody’s, the ratings agency. Years of back-to-back belt-tightening are almost unheard of in the industry; the last time it happened was during the oil-price collapse of the mid-1980s. “It may take several years, but all those capex reductions will really start to bite,” said Jason Bordoff, a former energy advisor to President Barack Obama’s administration and now director of Columbia University’s Center on Global Energy Policy......... OPEC’s spare capacity is at historically low levels because everybody is pumping flat out to make what money they can with low prices. Estimates vary, but the amount of extra oil that OPEC, essentially Saudi Arabia, could quickly get to the market is estimated at between 1.25 million barrels a day and 2.3 million barrels a day, a hairbreadth margin in a global oil market that pumps almost 100 million barrels a day."
Oil Prices Have Hit a 10-Year Low. They’re Not Going to Stay There.
Foreign Policy, 6 January 2016

"Would you pay £36,000 extra for your next home if you knew it would cost just £1 a day to run? Packed with energy-saving gadgets including the latest- technology solar panels and intelligent temperature controls, some new "eco-homes" have ultra-low running costs. And, for that reason, they sell at a hefty premium. Energy-saving properties are cropping up across Britain, typically in small, newly-built developments. Some have virtually no running costs. Currently 11pc of UK homes are rated highly energy-efficient, achieving an "Energy Performance Certificate" rating of A or B. This is double the number of four years ago, according to the Department for Communities and Local Government. But the Government's support for renewable energy devices, including solar panels and energy-efficient measures, are falling (read on for further explanation). One couple who narrowly escaped the cuts are Graeme and Zoe Bidmead, both teachers from Lincolnshire, who say they have cut their energy and water bills to under £400 per year - or just £1 a day. The house generates much of its own energy through solar photovoltaic cells installed on the roof. The couple receive "feed-in-tariff" payments for the energy these panels generate and return into the grid, which is offset against all their energy spending. The £1 per day figure "includes all our water and energy use", said Mr Bidmead, who moved in this August with his partner, Zoe, and their two dogs, Sampson and Charles. Rainwater from the property's sloping roofs is harvested in tanks and used to flush the toilets. A water heating device also draws on further solar energy. It feeds into a boiler which supplies hot water fr showers and also powers underfloor heating. Ultra-efficient glazing, however, means there is little need for additional heating. "We haven't yet turned on the heating even once," said Mr Bidmead, "as the house is practically airtight." If their £1-per-day costing proves accurate over time, they are saving almost £1,000 per year compared to the average household. By comparison, the typical duel fuel energy bill in a three-bedroom family home costs upwards of £1,200 a year, according to official figures. This does not include water bills. ... However, the cost of buying a house with advanced technology adds up to 20pc to the property price, experts say. The Bidmeads bought their three-bedroom, Lincolnshire property for £365,000 – around 10pc above the cost of buying a similarly-sized property in the region."
'Extreme green' homes where energy costs £1 per day
Telegraph, 6 January 2016

"Pressure for British troops to be deployed against Islamic State militants in Libya grew on Monday after the terror group attempted to seize the country's largest oil depot. At least two people were killed when Isil fighters launched a combined gun and suicide car bomb attack on the Sidra oil port on Libya's Mediterranean coast. A rocket fired into a 420,000 barrel oil tank also sparked a huge blaze. Sidra lies around 130 miles east along the coast from the late Colonel Gaddafi's home city of Sirte, where Isil first raised its black jihadist flag a year ago. The prospect of Isil also grabbing lucrative oil facilities will increase pressure on Britain to press ahead with a plan to send troops to help Libya's fledgling government push Isil out. Under the plan, up to 1,000 British troops would form part of a 6,000-strong joint force with Italy - Libya's former colonial power - in training and advising Libyan forces. British special forces could also be engaged on the front line."
Islamic State battles to seize control of key Libyan oil depot
Telegraph, 4 January 2016

"Islamic State militants launched attacks near oil facilities in northern Libya on Monday but were pushed back, an army official has said. The jihadis carried out a suicide car bomb attack on a military checkpoint at the entrance to the town of al-Sidra, killing two soldiers, said a colonel in the army loyal to the internationally recognised government. “We were attacked by a convoy of a dozen vehicles belonging to Isis,” Bashir Boudhfira said. “They then launched an attack on the town of Ras Lanouf via the south but did not manage to enter.” For several weeks Isis has been trying to push east from the coastal city of Sirte under its control to reach Libya’s “oil crescent” where key oil terminals such as al-Sidra and Ras Lanouf are based."
Isis launches deadly attack on Libyan oil towns
Guardian, 4 January 2016

"The chief executive of Oil & Gas UK has welcomed the first increase in production on the UK continental shelf for over 15 years. Deirdre Michie, however, has warned the industry will be "extremely challenged" to sustain growth in 2016. Oil & Gas UK predicts oil and gas production increased by 7% in the past twelve months."
Oil and gas production rises for first time in 15 years
BBC Online, 4 January 2016

"A rise in Iran's crude oil exports once sanctions against it are lifted depends on future global oil demand and should not further weaken oil prices, senior officials were quoted as saying. Oil Minister Bijan Zanganeh said Iran did not plan to exacerbate an already bearish oil market.   "We are not seeking to distort the market but will regain our market share," said Zanganeh, quoted by oil ministry news agency Shana. Oil prices are likely to come under further pressure this year, when international sanctions on Iran are due to be removed under a nuclear deal reached in July. Brent crude settled at $37.28 a barrel on Thursday. Iran has repeatedly said it plans to raise oil output by 500,000 barrels per day post sanctions, and another 500,000 bpd shortly after that, to reclaim its position as the Organization of the Petroleum Exporting Countries' second-largest producer... sanctions have halved Iran's oil exports to around 1.1 million bpd from a pre-2012 level of 2.5 million bpd, and the loss of oil income has hampered investments."
Iran says boosting oil exports depends on future demand
Reuters, 4 December 2016

"Oil output in Russia, one of the world's largest producers, hit a post-Soviet high last month and in 2015 as small- and medium-sized energy companies cranked up the pumps despite falling crude prices, Energy Ministry data showed on Saturday. The rise shows producers are taking advantage of lower costs due to rouble devaluation and signals Moscow's resolve not to give in to producer group OPEC's request to curb oil output to support prices. But the rise will contribute to a global oil supply glut and exert continued downward pressure on oil prices which hit an 11-year low near $36 per barrel last month, having fallen almost 70 percent in the past 18 months. For the whole of 2015, Russian oil and gas condensate output rose to more than 534 million tonnes, or 10.73 million barrels per day (bpd) from 10.58 million bpd in 2014. In December, Russian oil output rose to 10.83 million bpd from 10.78 million bpd in November. In tonnes, oil output was 45.782 million last month versus 44.115 million in November. The increase in production defied many expectations of a fall in Russian oil output which has been on a steady rise since 1998 apart from a small decline in 2008. The Energy Ministry had expected output to fall to 525 million tonnes in 2015 due to the exhaustion of mature oilfields in Western Siberia, which account for over a half of the country's total oil production. But medium-sized producers, such as Bashneft, cranked up production. And Gazprom, the world's top natural gas producer, increased production of oil, mainly gas condensate, by 5.3 percent for the year. However, oil output at Russia's leading producers declined. Production at Rosneft edged down by 0.9 percent, while output at Lukoil's Russian assets fell by 1.1 percent last year. According to a Reuters poll, Russian oil production in 2016 is expected to rise to a new post-Soviet yearly average high of 10.78 million bpd despite price falls as new fields come online and producers enjoy lower costs due to rouble devaluation."
Russian oil output hits post-Soviet record high in December, 2015
Reuters, 2 January 2016

"Iraq said it exported 1.097 billion barrels of oil in 2015, generating $49.079 billion from sales, according to the oil ministry. It sold 99.7 million barrels of oil in December, generating $2.973 billion, after selling a record 100.9 million barrels in November, said oil ministry spokesman Asim Jihad. The country sold at an average price of $44.74 a barrel in 2015, Jihad said. Iraq, with the world’s fifth-biggest oil reserves, needs to keep increasing crude output because lower oil prices have curbed government revenue. Oil prices have slumped in the past year as the Organization of Petroleum Exporting Countries defended market share against production in the U.S.  OPEC’s second-largest crude producer is facing a slowdown in investment due to lower oil prices while fighting a costly war on Islamist militants who seized a swath of the country’s northwest. The nation’s output will start to decline in 2018, Morgan Stanley said in a Sept. 2 report, reversing its forecast for higher production every year to 2020."
Iraq Says It Exported More Than 1 Billion Barrels of Oil in 2015
Bloomberg, 1 January 2016


".... if you look around and see what the world is now facing I don't think  in the last two or three hundred years we've faced such a concatenation of  problems all at the same time.....[including] the inevitability, it seems to me, of resource wars....  if we are to solve the issues that are ahead of us,
we are going to need to think in completely different ways. And the probability, it seems to me, is that the next 20 or 30 years are going to see a period of great instability... I fear the [current] era of small wars is merely the precursor, the pre-shock, for something rather larger to come... we need to find new ways to be able to live together on an overcrowded earth."
Paddy Ashdown, High Representative for Bosnia and Herzegovina 2002 -2006

BBC Radio 4, 'Start The Week', 30 April 2007

"Individual peace is the unit of world peace. By offering Consciousness-Based Education to the coming generation, we can promote a strong foundation for a healthy, harmonious, and peaceful world.... Consciousness-Based education is not a luxury. For our children who are growing up in a stressful, often frightening, crisis-ridden world, it is a necessity."
Academy Award Winning Film Producer David Lynch (Elephant Man, Blue Velvet, etc)
David Lynch Foundation

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