Peak Oil is You
Donate Bitcoins ;-) or Paypal :-)
Page added on July 21, 2014
Tech Talk – and things continue to get worse
It is difficult to see any positive interpretation of the changes and conflicts that are increasingly filling the headlines of the press. Fluctuating optimism over the return to credible export production from Libya, to take but one example, is no sooner reported when the news comes of increased fighting in Tripoli, including the international airport. At the same time violence is spreading towards Egypt. Without a strong central government it is likely that the conflicts in that country will continue into the foreseeable future, with continued negative impacts on the export of oil from the country.
Transient attempts to maintain a cease-fire and stabilize South Sudan have apparently failed again. The fighting has shut down local oil production, while overall production from South Sudan has been cut to 165 kbd.
Capital continues to leave Russia (h/t Nick) and that flight is only likely to accelerate as the tensions over the shooting down of the Malaysia Airlines plane continue to grow. Given that investment continues to be required to sustain Russian oil production against the current transition into decline, and that such cash is not being spent only magnifies the concern that Russian export decline will be faster and sooner than the world anticipates. (And given the critical value of Russian oil and gas exports to their economy – it provides about half the budget revenue – President Putin desperately needs a scapegoat to blame as the economic gains of the past, and future growth targets of over 5% become unrealistic dreams for that future).
With the emphasis on the daily events in all these countries (not forgetting Iraq) it is more difficult to discern the overall medium term impact that this is likely to have on oil availability, and consequently on oil and gas prices. Europe cannot function at current economic levels without the 30% of its energy that it gets from Russian natural gas, which has to be a big consideration as they discuss whether to impose more sanctions on Russia. While a recent Total study shows that, with Gazprom co-operation, Europe could cope if flows through Ukraine were stopped, without that co-operation the EU would not be able to adequately replace the lost fuel. And the conflict in Ukraine is unlikely to be resolved fairly soon, so the degree of co-operation that Western Europe can expect from Gazprom next winter is likely to lead to some fairly tense negotiations over the next few months.
One of the frustrations with watching TV pundits muse on this is that there seems to be an assumption that wells, pipelines and other necessary infrastructure will magically appear to provide immediate solutions should things start to get worse. One such today commented that President Putin is now in total control, since should the west decide not to take all of the Russian oil and natural gas that they currently consume, that he could immediately increase sales to China to replace the lost income.
That neglects the time that it is going to take to get the wells drilled in Siberia, the pipeline connections made and the receiving network in place to meet the current amount that has been sold. Even with the current agreement to increase Russian exports to China it is going to take some four years for the new gas to flow, and it took years for this agreement to be signed.
By the same token Europe can’t turn around and expect the US to be able to replace any significant amount of Russian natural gas for about a similar period of time. Facilities cannot be created overnight, and permitting and construction take finite amounts of time.
I would expect that, if anything, the price that is charged for Russian oil and gas is going to go up for the Europeans, even as the oil supply starts to decline. As Euan Mearns has noted all the significant producers of natural gas in Western Europe are seeing declines in production and while the fall last year was not that significant, overall the continued cumulative decline will make the need for Russian gas that more critical, given that the pipelines are in place to deliver it.
Unfortunately as oil and natural gas supplies continue to tighten, the natural consequence is going to be an increase in price. And this will, in turn, affect the economic growth of the different countries around the world. The current price has slowed economic growth, but as it continues to ratchet up then the impact on global growth will become rapidly obvious, although differentiated by country depending on how dependent they are on fuel imports.
Complacency within the United States, given the assumptions of indigenous supply availabilities, is likely to be shaken as internal oil supplies stop there unsustainable growth rates, while the current low prices for natural gas will disappear as the available funds for future wells reduce on the increasing evidence that most of these wells are unprofitable at current gas prices.
It is difficult – well, to be honest, impossible – for most of us to be able to see how almost any of the growing conflicts around the world can be resolved in any short-term period. The consequent impact on oil production in the countries of the Middle East and North Africa (MENA) is going to lead to a tightening of the surplus between available supply and demand, particularly at current levels. And, unfortunately, when economic circumstances grow colder political rhetoric gets hotter, and there is less chance for negotiation and diplomacy to resolve the situation.
The main surprise, at the moment, is how rapidly the situation is deteriorating in so many of the countries that supply oil and gas to the world. Sadly the headlines will only cover one or two of these at a time. As a result the overall trends are missed as headlines instead focus on the very small changes driven more by sentiment and political perspective than by the realities of the medium, and even short-term oil and gas supply situation.
Bit Tooth Energy by Heading Out
10 Comments on "Tech Talk – and things continue to get worse"
paulo1 on Mon, 21st Jul 2014 8:17 am
Great synopsis, imho. Shaping up to be an interesting winter for Europe. Hope it’s a warm one. If gas supplies run down 30% the howling will begin and the NA meme of exports and surplus will be seen for what it is.
Paulo
Davy on Mon, 21st Jul 2014 8:29 am
ARTICLE SAID – Given that investment continues to be required to sustain Russian oil production against the current transition into decline, and that such cash is not being spent only magnifies the concern that Russian export decline will be faster and sooner than the world anticipates. (And given the critical value of Russian oil and gas exports to their economy – it provides about half the budget revenue – President Putin desperately needs a scapegoat to blame as the economic gains of the past, and future growth targets of over 5% become unrealistic dreams for that future).
ARTICLE SAID – That neglects the time that it is going to take to get the wells drilled in Siberia, the pipeline connections made and the receiving network in place to meet the current amount that has been sold. Even with the current agreement to increase Russian exports to China it is going to take some four years for the new gas to flow,
This sums up my point on the supposed Bric ascension that some on this board subscribe to. Russia is a resources driven economy relying on imports of vital consumables. Its economy is not diversified in anyway. This is true of the rest of the global system but the degree to which Russia is dependent is remarkable. No region or country can decouple from the global and maintain a modern economy. Russia is driving the Bric movement and this movement will fail with Russia economic mismanagement. China, SA, and India all have their own internal issues. China has a debt spiral and stagnating vital growth and SA and India normal horrible mismanagement. Only Brazil has some decent life in its economy. The Bric NWO is dead on arrival IMHO. Nothing but talk and nice pictures. Putt is in trouble. This may be his grand plan to force an economic isolation that will force a regional economic confederation he dreams of. One that encompasses his neighbor at the expense of the US/European dominated global system. A confederation of isolation of the former parts of the USSR with Bric association. The problem with this dream is Russia is not capable of delivering a self-sustaining economic trade area. This should not be cause for optimism within the US. What the DC mafia fails to realize is the vital importance of Russian oil and gas to the current BAU. I am happy for all this because I am ready for a forced power down. I just hope we can manage a gentle power down with just enough liquid fuels to keep life going but not enough to return to growth. This may be wishful thinking but I see no hope in status quo BAU for mitigation of all of the predicaments today that have morphed into a Mega predicament of multiple predicaments.
JuanP on Mon, 21st Jul 2014 8:42 am
Excellent article! Davy, I so much want you to be right about that hope you have and I lost. Hang on to your hope, life becomes much harder if you lose it. “Just enough liquid fuels to keep life going but not enough to return to growth” sounds like a best case scenario to me. I would love it, if it played out that way.
Davy on Mon, 21st Jul 2014 9:17 am
Juan, I think many here are ready for a power down. I remember getting married way back and wishing the wedding would finally be over with. I hope I can at least enjoy the beginnings of the power down. I am not naive to think the initial power down will not lead to pain and hardship as the severity intensifys. I am just ready to get off the train and start a new life.
JuanP on Mon, 21st Jul 2014 9:33 am
Davy, I don’t like weddings or crowds as a rule. Got married in court and celebrated at a friend’s house with only our closest friends. No unnecessary expenses or unwanted people. I liked it that way. Personal choices.
Yes, there will be pain and hardship, like you say. But I take it philosophically, the Buhdda’s most important teaching is ” Life is suffering”, the key is learning to accept and appreciate it. We have a front row seat for what’s coming.
GregT on Mon, 21st Jul 2014 10:35 am
Strange, how we continue to focus so much on economics and growth, when both will become a thing of the past, in the not so distant future. Survival, coming to a location near all of us, soon. Capitalism will not survive in a time of economic collapse, resource scarcity, and degrowth. Socialism, or communism, in it’s truest form, can.
If we do not learn how to take care of each other, as opposed to exploiting one another, our futures will be very bleak indeed. Perhaps the capitalists (1%) will be able to find places to ride out the coming storm, but I wonder how long they will survive without the other 99% to keep them alive?
shortonoil on Mon, 21st Jul 2014 11:10 am
As the ERoEI of the world’s petroleum reserve declines, the world’s economic situations will decline with it. This will result in the development of increasing stresses that will first become evident in the less stable regions of the world. The Middle East, and the Ukraine are not unique, just presently more violent. Europe, for the most part, is a basket case, and the US is seeing one city after another file for bankruptcy, as her national debt spirals into the stratosphere. Her middle class is rapidly being transferred to the ranks of the proletarian.
We have already reached the end of growth. The abysmal 1-2% growth that is being reported by various government agencies results from the voluminous money printing taking place to keep the financial system from choking on its loan losses. As the economy continues to deteriorate those losses will only increase until printing can no longer fill the deficiencies.
The last stage will be when we can no longer afford to maintain our depreciating assets. Roads, and bridges will not get repaired, airports will be closed. Schools, libraries, hospitals and government services will follow. Personal transport will come to halt. The end of the age of oil will not be a period of jubilation. Time frame, 20 years.
http://www.thehillsgroup.org/
Dredd on Mon, 21st Jul 2014 12:23 pm
Cacophony is the life blood of the media.
Dredd on Mon, 21st Jul 2014 12:27 pm
“Davy on Mon, 21st Jul 2014 8:29 am
ARTICLE SAID – Given that investment continues to be required to sustain Russian oil production against the current transition into decline, and that such cash is not being spent only magnifies the concern that Russian export decline will be faster and sooner than the world anticipates.”
Look past falling airliners and whodunnit into history to see that what was is what is.
Russia just got more for a song and dance (The Peak Of The Oil Wars – 10).
Makati1 on Mon, 21st Jul 2014 9:08 pm
China has Russia’s back. Now that dollars are not needed in trade, the way will be easier. The Chinese have several Trillion dollars to burn before it is totally worthless. They know that. They can gamble on projects that may never get finished. What can they lose? So they are using them to buy up and import all the resources they can.
They can build cities and let them stand empty while we play war and deplete our resources. How many cities would the cost of Iraq and Afghanistan have built in the US? With 2-3 trillion dollars, you could build 2-3 New York Cities, per Bloomberg. (2010 value.)
They can play with their USDs like Monopoly money until the whole system crashes. Then they will offer gold. What will 10,000+ tons be worth after? Today it is worth about 1/2 trillion US dollars. Then? Maybe much, much more than the Charmin dollars they hold now?
Interesting future coming. Are you ready?