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Everything posted by zceb90

  1. ...not to mention the fact that N Sea production declines are moving UK from energy exporter to importing around 80% of our energy needs in a 15 year timespan from 2005 to 2020. At current prices that's pointing to a trade deficit in energy alone of £5bn per month by 2020. BAU is going to be awfully expensive in terms of foreign currency.
  2. Saudi Aramco has made extensive use of MRC wells in order to maximise extraction rates in the mid-life of their oilfields. The problem of water encroachment with ageing reservoirs is much worse with these horizontal wells than in the more traditional vertical wells in that the water tends to hit the horizontal wells 'all at once'. Rapid production collapses have already been observed in other regions using MRC wells, Yemen for example. If (or rather when) output declines rapidly in Saudi's Ghawar oilfield the world is going to take notice!
  3. The book by William Catton Jr entitled 'Overshoot', even though written over 20 years ago explains in detail the consequences of exceeding the carrying capacity of the biosphere. It seems likely that oil depletion will be one of the first symptoms of such overshoot....but there will be others.
  4. What really matters to the oil consuming world is how Saudi's oil exports will hold up in when their production is flat or declining against a background of rising internal consumption, see Export Land Model. Recent policy statement by Saudi Royal Family suggests that Jeffrey Brown's paper re oil exports has considerable merit.
  5. How can the economy grow with shrinking availability of cheap energy supplies, particularly oil?
  6. They are locked into believing that 'the market will provide' and that 'money creates energy'. Those theories might appear to work on the upswing (which as far as crude oil supply is concerned has been from 1859 until approx 2005). We are now embarking upon the downswing (or the right hand side of Hubbert's curve of oil production). It may take some years but we are going to learn that actually 'energy creates money'. Less oil = less wealth.
  7. It's hardly surprising that Saudi is indicating a change of policy whereby exploration activity is curtailed so as to preserve some of their oil reserves for future generations. Over the past 50 years population has risen 6 fold and Saudi now consumes around 25% of their oil production; trend to use more themselves is likely to continue and current gas shortages are forcing Saudi to use oil for electricity generation. Moveover, some of us argue that the majority of Saudi oil production is coming from a few giant fields which are many decades old - the Saudi statement might be somewhat of a 'softening up process' so that oil importing nations can become used to the idea that future volumes available on world market for import will be smaller. For the UK the Saudi statement has major implications given the rapid decline of N Sea output - where will we find the import volumes and how will we pay for them?
  8. Apart from difficulty in obtaining finance i.e. bigger deposit required and earnings multiple being more restricted I suspect lack of job prospects is also causing many to stay put. For the past few years there have been plenty of job opportunities, especially in the public sector and changing jobs is one of the major reasons to move house. In good economic times it was also commonplace for employers to assist with relocation expenses. The combination of very limited hiring in both private and public sectors and threat of further widespread job losses will cause many to pospone plans to move house, especially if they are having to fund their own moving fees which are not trivial. Furthermore the lack of confidence is removing another incentive to move, namely the formerly common practice of trading upwards to maximise gain from HPI. My view is that the downturn in the economy will be long lasting given the sheer scale of the debt to be addressed. It will be interesting to see what prices are obtained by those 'forced to move'.
  9. The main cost for UK tourists is not the flight, it's the cost of accommodation etc when one arrives at the budget airline destinations. In this respect matters have improved in recent weeks due to sterling's rally vs euro which has continued today with more debt worries in the eurozone. Even so I suspect worries about job security and debt at home will cause many to rethink foreign travel plans even if the 'pound goes further'. What the airlines really should be worrying about is falling net energy and increased energy consumption in the BRIC nations and, not least, by the oil producers themselves. These factors are going to have an increased impact with every year that passes and will make debt repayment and economic recovery ever more difficult. It would not be surprosing to see more airlines lease rather than buy aircraft.
  10. There was a comprehensive study re risks of inaction which concluded that a major program of mitigation to avoid the worst consequences of oil production going into decline needed to commence 20 years in advance of the declines setting in...or economies would face major dislocation. It's a 2005 study with a US focus but, if anything even more relevant today: Hirsch Report (there's a link on this page to the full report). According to many analysts we've already missed the 20 year target and there are numerous recent suggestions that production declines within the next few years are much more likely due to recent BP disaster having the effect of slowing down deepwater oil production (and deepwater is one of the few options left to offset declining conventional oil). In the meantime local authorities, at least in my area, behave as if 'none of this is happening' - plans are well advanced for a major new highway scheme and an airport runway extension. Not least a large new business park has recently been developed 'in the middle of nowhere', albeit with cycle lanes...but it's nowhere near where people live and there are only a handful of bicycles even on fine days. There are many hundreds of cars parked there all day with, I'd expect, around 80% of them being used for commuting with just a single occupant. My reckoning is that UK is spending around £20bn pa on oil and gas imports, an amount that's set to double within 5 years due to further N Sea declines....and that's assuming energy prices don't rise. All this new infrastructure assuming cheap oil will be with us forever is a disaster in the making and yet very few seem to appreciate the situation.
  11. The problem we face with oil is not about 'running out'; it's about oil not flowing in sufficient quantities and / or at a price that our economies can fully afford. OECD economies are designed around cheap and abundant oil and all the known substitutes for conventional oil are more problematic / expensive than what we've become accustomed to over many decades. Falling net energy (or ERoEI) is the crux issue.
  12. BP have many assets and a strong cashflow; with oil price around $77/bbl and likely to rise further due to increased demand in China etc it would be possible for BP to raise very substantial sums via asset disposals. Furthermore the costs of the clean-up will not all be up-front i.e. some will be incurred in year 2, year 3 etc thus, for example, next year's dividend could be cancelled thus raising well over $10bn. Imo of more concern than the OP's quote from financial analysts is the impact this incident will have on future oil prices. Regulatory authorities in US and other oil producing countries are exercising much more caution re deepwater oil projects; several already have imposed moritoria on deepwater drilling. A number of energy analysts have estimated oil output by 2015 will fall by between 400k and 900k bbls/day as a result. Quite a small amount relative to global demand of 85m bbls/day but price is extremely sensitive to small changes in supply / demand balance.
  13. Those with BTL portfolios were only too happy to 'go for big profits' on the upswing and should have put funds aside for the downswing (which inevitably follows asset 'bubbles'). Why should taxpayers now subsidise them indirectly via HB rates to enable them to continue charging rates which no longer relate to what the current market will bear? Those BTL's now underwater should be allowed to default and the properties will then be onpassed to new owners at realistic prices and which can then deliver returns to their owners at reasonable rents which tennants can afford. There's really little choice in the matter - Gov't and taxpayers have run out of money to support such activity.
  14. One point she probably hasn't considered is just how long the (inflated) salaries for this type of entertainment will hold up. There's been recent talk that C5 is up for sale, likely at a very hefty loss due to lack of advertising revenue; ITV has also experienced big fall in revenue and I'd assume C4 (which shows Hollyoaks) has seen similar downturns. This week's budget will hit consumer spending hence further falls in advertising revenue would appear to be on the cards. The combination of BTL and income from the day job going south together will present a challenge.
  15. Projections re volumes and cost of future energy imports are subject to many variables including: 1) Demand which is affected by economic activity and, in case of gas, how cold the winter is. 2) Supply from N Sea (how fast the decline rates are). 3) Price of energy. 4) Sterling / US Dollar exchange rate. My take is that the author made a good estimate of these variables at the time when graph was prepared (18 months or so ago). Based on current numbers I'm looking at UK's energy import costs rising by around £4bn pa. Actual numbers over time are less important than the trend....which is for UK energy imports to increase inexorably. Alistair Darling was chancellor at the time...if another graph is prepared in due course I'd expect George Osbourne to feature. The point the author was trying to depict, both in this graph and in presentations (some of which I attended) was that the Gov't was more or less 'sitting back while UK energy security slipped away' and believed that 'the market would provide'. There's a fundamental clash here - energy planning has to be considered in terms of decades whereas the market only thinks short term. If future energy imports don't show up in sufficient quantities, or at prices the UK economy can afford, any economic recovery will derail far quicker than it would if, for example, yesterday's budget had 'cut too far too soon'.
  16. If the trade deficit is bad already what's it going to look like by around 2015 when the systemic shock due to UK's turnaround in just 15 years from energy exporter to major energy importer really kicks in? I was talking to the author of following graph the other day and we don't think it will be that long before UK has to find £4bn or so per month to fund energy imports:
  17. The problem with such short 'school runs' is that the distance is so short i.e. for many even £5/litre wouldn't deter them. How about a 1km 'no stopping' zone around schools at start and quitting time (with exemptions in case of disabled pupils)? If I were talking to your neighbour I would be hinting at moving closer to work or working closer to home. Based on what I believe is headed our way such long commutes with (presumably) single occupancy vehicles are going to become unsustainable....and soon.
  18. In the Thatcher years most economies were still growing and N Sea oil and gas production was ramping up i.e. UK was about to be able to export substantial amounts of energy for almost a couple of decades. I would also suspect some of the increase in unemployment then was due to accelerating trend of manufacturing moving 'offshore' i.e. to China etc. It's very different this time - we don't have energy exports from the N Sea to help us; on the contrary UK is headed for £50bn pa currency outflow to fund energy imports within a few years....and that's assuming energy prices don't rise from current levels. There are also systemic trade deficits in areas such as food, electronic goods, clothing and tourism. Against this background Gov't has little choice but to implement substantial deficit reduction measures - if they don't the markets will (as they have for Greece).
  19. I agree there's quite a discepancy - unleaded in my area is around £1.18/litre but a few days ago I was in a friend's car and he needed fuel at Kinlochewe where price was £1.30/litre which is pretty high for the mainland. It's more expensive still on some of the islands such as Harris, Shetland etc, the latter reported to be charging £1.37/litre recently. The oil companies themselves could eliminate the differential given that only a fraction of 1 percent of the population live in the Highlands and Islands, for example. An extra 0.2p/litre on the national price wouldn't really be noticed and could smooth out the price 'spikes' in remote areas. Regardless of whether the oil co's or Gov't introduced a scheme to eliminate large differentials it would not encourage fraud as the price would then be more or less national with no economic benefit to 'fill up elsewhere'. To me it appears likely that the price will need to rise significantly within a few years as indigenous N Sea oil is replaced by imports to offset the ongoing (steep) declines....UK is on track to require £50bn pa in foreign currency to fund energy imports alone within a few years. Including other factors such as China adding 1m+ vehicles to their roads each month and a significant loss of oil output within a few years due to new drilling constraints following recent BP disaster make it likely that world prices will rise further. Against this background it makes one wonder how long the current practice whereby around 80% of vehicles at peak hours contain just a single occupant can continue.
  20. What should be of particular note is that 4 out of the 5 nations with lowest gasoline cost on this graph are key oil exporters which brings us to the Export Land Model. A combination of low (heavily subsidised) fuel prices in the oil producer states combined with huge inflows of petrodollars lead to rapid growth of internal energy consumption. When nation's oil output goes flat or enters its decline phase internal consumption is still rising hence a disproportionate rate of collapse of their oil exports. This factor is going to have a major impact on our economies in future given that some estimates show that China will be capable of requiring (and be able to pay for) all available global oil exports within a few years. Export Land Model in more detail (pdf).
  21. Exactly the point made in OilDrum paper I referred to in OP - last time we hit just under double current price ($147/bbl) it coincided with start of banking crash. I don't think it was a total coincidence that the 2 events more or less coincided - the rise in US gasoline price from $1/gal(US) to $4/gal had a lot to do with subsequent sub prime defaults. The long time aim of US presidents has been 'more energy security' and the US lower 48 onshore production has been in decline since 1971 hence big push to drill offshore including deepwater, Alaska etc. A key source of oil for the US, Mexico, is experiencing steep decline in output of it's key Canterall field and may well cease to be an oil exporter within a few years. Without deepwater oil US would be forced to rely more heavily on the Gulf states, including Iran as there aren't that many other options to supply US oil imports which are in the order of 14m bbls/day. The more one looks at this situation the more one tends to agree with Matt Simmons - 'peak oil is ugly'.
  22. Given collapse of sterling vs dollar in past 2 years price in UK is now £53/bbl or around 33.5p/litre and that's before refining and delivery costs - some of us without mains gas know all about the cost of heating oil. With China reported to be adding over 1m vehicles a month to their roads and engaged on a big program of airport expansion it's not hard to figure why the price is resiliant despite the downturn elsewhere. I've read various reports in past few days about the impact of the disaster in GOM. A combination of drilling / development moritoriums in deepwater areas, tighter regulatory regimes and difficulty (and cost) of obtaining finance and insurance are pointing to estimated loss of capacity of between 400k and 900k bbls/day by 2015. Given that BP is liable for costs (with estimates varying between $20bn and $100bn plus) it's not hard to conclude that few companies are going to have much of an appetite for deepwater drilling. The oil might be there and society might want it....but the risks and costs involved may put these marginal barrels beyond the reach of most economies in recessionary times. One cannot escape the thought that peak oil may well be more or less at hand otherwise why would the oil majors incur the costs and risks of drilling in such places?
  23. I see it as a consequence of the UK having virtually no gas storage facilities combined with a total belief in market forces. 3 decades of N Sea gas abundance and multiple platforms / pipelines with landing points geographically well separated (Bacton, Easington, St Fergus etc) meant no economic case for storage. Of course the gas peak around 2001 was somewhat predictable as was the steep decline thereafter (gas btw declines faster than oil near end of reservoir life); Gov't did not appear to worry about it and markets still wouldn't fund storage facilities. Not least it's been next to impossible to obtain planning permission for such facilities. Economics is everything in the privatised energy market - companies would rather have 50 cents in the dollar now rather than wait until next winter for a better price hence summer exports via the interconnector. Incidentally your reference to Bacton brings back memories - I used to work at the gas site there.
  24. I couldn't find it in any format other than R1. Major retailers such as Play.com and Amazon UK don't list it at all. If you run a search on e-bay you'll find an option to purchase the US disk without any extra postage costs but with around a 2 week delivery time.
  25. The editor of 'The Oildrum' has published a new paper this weekend entitled 'What Happens When Energy Resources Deplete?' Since publication it's attracted so many comments that it's been relisted; for those who want to read thru the hundreds of earlier comments link is here. Since the banking crisis occurred there's been quite a switch in opinion re energy price trends away from 'ever rising prices due to increased demand and developing scarcity' to 'much greater price volatility due to marginal costs of energy during price spikes exceeding what our economies seem able to afford'. This paper has a good summary of this situation and this quote contained in one of the comments sums up the dilemma with regard to vehicle fuel prices: Given that energy is such a key input to our economies it's hard to see how economic growth, which the politicians and business leaders keep referring to, can occur without increased energy availability and yet fossil fuels are finite....and subject to ever increasing demand from the BRIC nations and, not least, from the oil producers themselves. The UK is in a particularly difficult position as we have become complacent re energy security after 3 decades of strong output from the North Sea. Our exports of energy collapsed very quickly after peaking of N Sea oil production in 1999 with gas peak following shortly thereafter; UK is now on track in order to maintain a BAU (business as usual) scenario to have to fund oil and gas imports costing £50bn pa in foreign currency within a few years. I and others keep questioning how the markets are going to take to such a systemic shock to UK's energy trade balance especially in view of the pre-existing large trade deficit which seems to be a permanent feature. Any economic recovery therefore is likely to stall as we come up against twin barriers of limited supply and higher price; these factors will then (temporarily) go away as we enter another downturn....the cycle then repeats itself. I don't see any quick solutions in sight - a major energy crisis is coming to the UK and soon. Within a few years China alone is predicted by some to be able to absorb most of the oil available on world export markets and unlike indebted OECD nations it has huge currency reserves to fund energy imports. I don't think the UK will have much choice but to use less energy as renewables are starting from a tiny base and cannot fill the gap in time; new nuclear capacity is barely in the planning stage and would take a decade to start making a difference. Society in the UK (and even more so in the US) is designed around 'cheap and abundant oil'. If I were looking to move house today I would be very reluctant to take on a large mortgage as staying clear of debt has to one of the key priorities in an energy-scarce world. Furthermore long commutes in single occupancy vehicles which are typical in many areas today are soon going to become unsustainable for many on 'normal' wages.
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