Peak Oil?

[HenryTo]

Dear all,

I would like to start a discussion/argument on the validity of the Peak Oil theorists on this board. One of my subscribers had asked me to do this - and I believe it will be a very well worthwhile discussion!

I know there has been a lot of literature written about this - including recent books - but one thing that I find lacking is the fact that many of the commentators talk about the industry in VERY BROAD terms. That is, economists who are working with questionable data - questionable because of the lack of transparency in the oil markets, not because it is their fault.

I feel that Matt Simmons had done a great job in his efforts to focus on the Saudi oil machine. He spent an entire book just writing about the Saudi oil industry, and makes a very good argument which discredits the Saudis' claims that they can ramp up to 15 mm barrels a day in a few years. In all likelihood, he argues, Saudi oil output has peaked or is near peaking. We need similar analyses for the Russian oil industry, the North Sea, Iranian, and Venezuelan oil production.

Going forward, this author is bullish on the price of oil in the long-run, as I believe oil demand growth in both China and India will surpass the ability of the world to pump more oil - given current constraints and the lack of new, impressive discoveries.

I would definitely like everyone to chime in.

Best,

Henry



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[HenryTo]

Yardeni still short-term bearish on oil prices.

http://blog.yardeni.com/2012/05/crude-oil-stock-prices.html

[rffrydr]

Long time coming:

http://www.bloomberg.com/news/2012-05-13/iraq-oil-output-beating-iran-ends-saddam-legacy-energy-markets.html
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Ahhh... the best of all possible worlds, including the diminished possibility of an Israeli air strike on Iran.

http://blog.yardeni.com/2012/05/global-energy.html

[HenryTo]

Yardeni bearish on oil prices.

http://blog.yardeni.com/2012/04/crude-oil.html

[rffrydr]

Another gift to US:

http://www.bloomberg.com/news/2012-04-25/mexico-oil-opening-first-time-since-1938-shows-revival-energy.html
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

Only five years with bigger inventory builds than this one. Saudi Oil Minister in FT saying, "no reason for these prices..." China crash can't even scare down prices. I plan no position.
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Arctic to attract $100 billion in investments in the coming decade, per study.

http://www.worldoil.com/Arctic_likely_to_attract_100_billion_investments_in_coming_decade.html

[rffrydr]

By "foreign ownership" they really mean the US. Look for further developments tying in (socialist acceptable) Brazil. Money will rule out.
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

FYI--courtesy Stratfor.
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In Mexico, Obstacles To Developing Offshore Oil Fields

Summary

On Feb. 20, Mexican and U.S. officials signed the Transboundary Hydrocarbon Agreement. Though the agreement is a step toward resuming oil drilling along the maritime boundary between Mexico and the United States, its passage in Mexico is not assured. In the long term, doubts about the viability of Mexican state-owned energy firm Petroleos Mexicanos (Pemex) as a deep-sea drilling partner could hurt the firm's chances of using this agreement as a stepping-stone toward needed technological development.

Analysis

Mexican President Felipe Calderon and U.S. Secretary of State Hillary Clinton on Feb. 20 signed the Transboundary Hydrocarbon Agreement. The agreement is the first step in more than a decade toward resolving the status of joint oil drilling along the U.S.-Mexican maritime boundary.

In the short term, there are significant political barriers to the agreement's passage in Mexico. In the longer term, doubts about the viability of Mexican state-owned energy company Petroleos Mexicanos (Pemex) as a deep-sea drilling partner may lower the chance that Pemex can use the deal to achieve sorely needed gains in technology. Pemex's lack of development poses direct challenges to the Mexican government; its budget relies heavily on oil revenues. Pemex will probably need to provide substantial financing if it is to use this agreement to develop its offshore drilling technology. Though upcoming presidential elections promise a new administration and the potential for some policy changes, the underlying challenges to Pemex's development will persist.

Maritime Border Area

The maritime border between Mexico and the United States was originally demarcated in a bilateral treaty in 1978, but the United States did not ratify the treaty until 1997. In 2000, the neighbors agreed to a 10-year moratorium on drilling along the border. This addressed Mexican concerns that U.S. drilling could pull oil from Mexican subterranean deposits in instances where oil fields overlapped the border. It also came at a time of rising oil exploration and production on the U.S. side of the border. The moratorium was extended in 2010 pending a new framework agreement.

If approved by the Mexican Senate and the U.S. legislature, the Transboundary Hydrocarbon Agreement would end the drilling moratorium and would open to oil exploration a 2.8-nautical-mile-wide buffer zone along the roughly 885 kilometers (550 miles) of the binational maritime boundary. It also would open up an area of international waters known as the Western Gap, which covers 17,190 square kilometers (6,637 square miles) and is bounded by the 200-nautical mile exclusive economic zones of Mexico and the United States. Sixty-two percent of the territory in the Western Gap belongs to Mexico and 38 percent belongs to the United States.

The new agreement would also provide a negotiating framework designed to promote exploration in the boundary area, either in collaboration between the two countries or independently. This framework appears to serve as a resolution mechanism for disputes both between the countries and between the countries and interested commercial parties. The agreement is specifically designed to facilitate cooperation between Pemex and companies operating on the U.S. side of the boundary.

A number of promising geologic features mark the area around the maritime border, though only limited exploration has been performed. With the exception of a sliver of nearshore maritime territory near Brownsville, Texas, the vast majority of the boundary area has deep and ultra deepwater exploration zones. The largest area by far is the Western Gap, which is located near the Mississippi Fan fold belt and the Perdido fold belt. Onshore and offshore geologic formations similar to those at the fold belts have been known to contain substantial oil reserves. Much like the promising fields off the coast of southern Brazil, the Western Gap sits on the edge of a salt canopy. Additionally, seismic data from an area east of the Western Gap indicates the presence of minibasins of hydrocarbons above the salt canopy, and more reserves could lie underneath the salt layer.

Despite the boundary area's positive geologic features, there will be significant hurdles to development, particularly in the Western Gap. The primary issue will be depth. The mean water depth for the Mississippi Fan fold belt measures 1,898 meters (6,227 feet). Outside the uplift zones associated with the folds, the mean subsea depth is 5,186 meters. To fully explore the Western Gap region may require the use of deep-sea and ultra deep-sea drilling, as well as pre-salt drilling technologies.

Pemex's Problems

A number of major international companies are capable of deep-sea, ultra deep-sea and pre-salt drilling, but Pemex lacks all of these capabilities. Once a more flexible and technologically advanced company, Pemex has fallen far behind global developments in offshore drilling. Mexico has no commercial deep-sea drilling (Mexico's main oil field, Cantarell, is offshore but in relatively shallow water) and only a handful of exploratory wells. To exploit the Western Gap and other, deeper boundary regions without assistance, Mexico would first need to develop deep-sea drilling capabilities and then pre-salt drilling technology.

However, under the terms of their recent agreement Mexico and the United States can explore and produce in the offshore area either independently or collaboratively. This could give Pemex crucial hands-on experience under the guidance of more advanced companies. But there are major obstacles. Offshore exploration and production is expensive and not guaranteed to yield results. Because of the high financial risks, major oil companies with advanced drilling technology demand an ownership stake in the oil they are attempting to exploit.

But the Mexican Constitution strictly forbids foreign ownership of mineral resources. Under the current legal framework, any company investing in exploration and production in Mexico must do so under the auspices of a fee-based contract, meaning the company has no actual ownership of the oil. This reduces the potential assets available to exploring companies and lowers the incentive to take risks on technologically challenging deposits. To date, this stipulation has hampered Mexican efforts to explore the Gulf of Mexico. Not even a bilateral agreement with the United States can fully preclude legal disputes about the unclear nature of oil ownership in deposits that straddle the maritime border.

There are more than just legal challenges to partnering with Pemex. In the first place, any company partnering with Pemex for deep-sea exploration and production would have to bring the majority of the technological expertise. Furthermore, Pemex is plagued by persistent corruption and a lack of financial and operational transparency.

Political Deadlock and Barriers to Change

Pemex and the Mexican government are under increased pressure to change the status quo. Mexico's oil production is declining and there is little greenfield exploration under way in Mexico. The Mexican government, which relies on oil revenues for about 30-40 percent of its income, is most affected by the decline in domestic oil production. Despite the danger, inflexibility resulting from competition among the three main political parties and persistent nationalism surrounding public ownership of natural resources make it unlikely that Mexico will be able to change its petroleum ownership structure in the short term.

It is not even clear if or when the Mexican Senate will approve the agreement signed this week; indeed, senators are currently protesting the way the Calderon administration handled negotiations. Mexico's left-wing Revolutionary Democratic Party will probably oppose the agreement in the Senate, while Calderon's National Action Party (PAN) can be expected to vote for it. However, the PAN lacks a majority in the Senate and will have to find allies in the Institutional Revolutionary Party (PRI), whose presidential candidate is currently the frontrunner for the July 1 election. Considering electoral competition between the PAN and the PRI, a compromise on the transboundary agreement is unlikely to occur before the election.

This kind of deadlock is exemplary of the political conditions that have sent Pemex scrambling for ways around the constitutional restrictions. These include a recent failed attempt to take over the board of Spanish energy company Repsol YPF and a briefly floated idea to create a third-party company with Brazilian state-controlled oil firm Peroleos Brasilieros. Most recently, Pemex announced its intention to spearhead its own offshore drilling, with up to 30 wells planned in the next four years. Given the company's state, such projections seem optimistic.

Opportunities Ahead

Despite the many reasons for doubt, there are ways the transboundary agreement could help Pemex develop. If Pemex were able to find enough funds to serve as a financier in exchange for the opportunity to learn deep-sea, ultra deep-sea and/or pre-salt drilling, potential partners may overlook the other difficulties. In order to accomplish this, Pemex would need a significant change in its political environment.

With elections approaching, such a change could be close. No matter who wins, the first three years of a Mexican president's six-year term tend to be the most politically dynamic. In other words, the election of a new Mexican president in less than a year will usher in a period in which far-reaching policy changes may become more possible than in recent years. Such change may not extend to the constitution, but certainly a renewed vigor for reviewing energy policy will be at the forefront of the next administration. However, much like energy reforms spearheaded by the Calderon government in 2008, whatever the incoming government is able to negotiate may not be enough to set Pemex on a path to more rapid technological development. The problems of corruption, operational inefficiency and lack of available funds will remain serious issues in the immediate future.

[HenryTo]

Falkland Islands may become famous for... oil.

http://www.garp.org/risk-news-and-resources/risk-headlines/story.aspx?newsid=43875

[HenryTo]

Oil companies slowly but surely getting back into Libya:

http://www.garp.org/risk-news-and-resources/risk-headlines/story.aspx?newsid=36552

[rffrydr]

Brent premium finally getting taken down.
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Update on Alberta's oil sands:

http://www.technologyreview.com/energy/38888/?nlid=nldly&nld=2011-10-25

[rffrydr]

It's really not all that complicated:

http://ftalphaville.ft.com/blog/2011/10/20/707451/the-wti-brent-anomaly/
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

720,000 barrels of diesel this year alone sent out. As Mississippi barge/train develops out (ahead of the pipeline) look for this stat to continue to flatter the trade figures. Nothing is clearly obvious.

http://www.laedc.org/eedge/index.html#1
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Today is the Tomorrow you worried about Yesterday!