Tag Archives: energy

Capitalism in the raw

You can’t help smiling sometimes, if it were not so serious.   We are told that Saudi Arabia, the OPEC leader, vows to maintain oil output even if the price hits $20.   That is a really inflammatory statement if ever there was one.   Previously the Americans have always looked to Saudi, which produces 12 million barrels per day (mbpd) to calibrate production up or down in order to keep the global price of oil in rough equilibrium.   For the first time Saudi/OPEC are defying the US, and instead of limiting oil output they have adopted a new policy of defending the cartel’s market share at all costs.   The are angered, rightly so, by the Americans’ point blank refusal to play their own part in limiting oil production, particularly the colossal surge currently underway in US shale oil production.   This is the classic capitalist ramp.
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Falling oil prices could scupper UK shale production

Last Tuesday the share price of Chesapeake Energy, one of the leading US shale oil producers, fell 29% in a single day.  With internationally traded Brent Crude now trading at below $88 a barrel, a 4-year low and down from $100 only a few weeks ago, and the US benachmark West Texas Intermediate at below $85, down from over $107 in June, the fabled miracle of US shale is facing a near-death experience.   The oil consultancies estimate that US shale production will break even at $75 a barrel, so there is still some leeway for survival.    But the impact of tensions over Ukraine and the gathering conflagration in the Middle East, plus above all the global market fears of secular stagnation kiboshing the world recovery from lengthy recession, are putting the market for unconventional energy production under strain as never before.
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Osborne’s fracking oasis will rapidly turn into a wilderness

The American story about fracked gas since 2007 and fracked oil since 2011 is that it will continue to surge for years, turning the US into a blissful energy Eden – and Osborne wants a slice of the action.   But research undertaken by US experts in the field independent of the big oil and gas companies have found a very different story.   That data shows high early decline rates in existing shale-gas and shale-oil wells, so that high levels of drilling are needed just to maintain production.   This problem is made worse in that ‘sweet spots’ which offer easier-to-reach deposits and higher returns are exhausted early in field development.   As a result shale-gas production has already peaked in every US region except the Marcellus Share in Pennsylvania, and production of shale oil in the top 2 US regions, Texas and North Dakota which comprise 74% of US shale-oil production, is likely to peak as early as 2016 or 2017.   The obvious conclusion is that the US oil and gas companies are leading the world towards an energy crisis by hyping the potential of what will be a short-lived phenomenon.
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The dreams peddled by the oil and gas industries turn out to be fantasies

The one thing Osborne loves to tell us, constantly, is that the future of energy production lies in fracking and that he will do everything in his power to maximise shale drilling in Britain, even to the extent of allowing drilling to be carried out on private land without permission.   However this oasis of future riches has received rather a knock from the latest information in the US.   It has now been reported that the top 15 players in US shale drilling have written off no less than $35bn since the boom started, and that investors are beginning to pull out.   It has also become clear from the big shale basins in the US that production rapidly peaks, but then equally rapidly falls away.   This has been the experience in all but one of the major shale-gas drilling regions in the US.   The boom shows ominous signs a bust before too long.   The energy industry’s narrative of plenty in long-term extractable unconventional gas has been proven wrong. Then there is another narrative of plenty, this time denying peak oil and insisting there are growing global supplies of affordable oil far into the future.   This is now turning out to be equally flawed.   The truth is that capital expenditure on finding new reserves has soared whilst at the same time discoveries by major oil companies has dropped, and is still dropping.  In fact crude oil production, which meets some three-quarters of global demand, peaked nearly a decade ago in 2005.  
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The downsides of stalling UK renewables are fracking and horrific human rights abuses

Britain as an island off the mainland of Europe potentially has greater capacity for production of renewable energy than almost the whole of the rest of Europe put together, mainly from onshore and offshore wind, wave and tidal power, and Scottish hydropower.   Yet UK electricity production from renewable energy, though it has increased in the last decade, is still very low and indeed still one of the lowest in the EU.   This is despite the mandatory EU requirement that Britain must generate at least 15% of its primary energy use from renewables by 2020 (whilst most other EU countries are obliged to meet a 20% target) which means that, since renewables make little contribution to transport or space heating, UK use of renewables for electricity production needs to rise to some 35% by 2020.    It is now about 8%, and if Cameron and Paterson have anything to do with it, that small figure may even begin to fall now.   But apart from such shockingly benighted foolishness in throwing away such a potentially world-beating British opportunity for our energy future, there is another darker side to this folly.
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George (Fracking) Osborne may be in for a big shock in 2014

Significant doubts are now emerging in many key areas about the real benefits of fracking.   Two months ago Peter Voser made public that his biggest regret as boss of Shell was the $24bn his firm invested in North America’s shale beds.   Over the months before it had caused his company to take a big write-down on this investment and slash its production targets.   Also in October BHP Billiton, which spent $20bn in 2011 on a bet on shale, announced it would auction half its oil and gas acreage in Texas and New Mexico.   Then in November economists at Goldman Sachs published a report arguing that even at its current cheap price, shale gas would provide only a ‘modest boost’ to the US economy as a whole. They also noted that the energy industry creates relatively few jobs, and they doubted both the pace of innovation in fracking and the degree to which cheap energy will prompt other industries to invest more.

It goes further.   There are real fears about the rate at which shale-bed wells run dry.   The combination of the low price of gas and the heavy spending needed to keep it flowing casts doubt on whether the exploitable reserves of unconventional oil and gas are as big as they are fracked up to be.   Moreover, while gas prices remain at historic lows, it will remain unattractive to invest in wells producing only gas, as opposed to ones that produce oil or a mix of gas and ‘natural-gas liquids (NGLS) like butane and propane.
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Cameron: corrupt and unscrupulous slave to commercial forces

Several recent events have cast Cameron in a new light.   He constantly denounces Labour as subservient to its union paymasters, when in fact over the last 30 years it is almost impossible to identify anything that Labour governments have done to please the unions.   There is almost nothing on the other hand that Cameron won’t do, no commercial interest he will disdain, no policy he will refuse to alter if it will ingratiate himself with the sources of money and power.   He was quite prepared, indeed determined, to keep Andy Coulson the phone hacker at No.10 and to hand over BSkyB to Murdoch in order to buy the support of the Murdoch for the next election.   It is now clear that via Lynton Crosby he has prostrated himself before a wide range of commercial interests by changing government policy to suit them in order to recruit their money and power for himself and his party in the lead-up to 2015.   Five examples of this have come to light in recent weeks.  
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Does anybody know where the long-term growth is to come from?

If the 1% growth in the third quarter is a blip (caused by a once-in-a-lifetime Olympics surge plus a catch-up on deferred production from the previous quarter), where is genuinely sustainable growth going to come from?   This is a much more worrying question than whether the double-dip has really ended.   The usual sustainable growth drivers are population increase and rising incomes, development of new markets, and innovation and productivity increases.   None of these apply today.   Incomes are shrinking, foreign markets are subdued worldwide, and there are no large-scale industrial innovations on the horizon.   Worse still, some policy measures, notably quantitative easing (electronically printing money) and competitive currency devaluations, are actually driving up commodity prices, and thus shrinking disposable purchasing power even further.
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Libya on the cusp

Libya is now at the point which is most dangerous in revolutions.   It’s not just the contesting claims for power between the rebel forces from Benghazi, Misrata and the mountainous west of the country, it’s even more the intrusion of foreign powers looking for their reward for their close involvement at every stage in the upraising.   Originally there were to be no Nato boots on the ground, then it would just be special forces, then close British-French air support not just protecting civilians but decimating Gadaffi’s armoury and keeping open the crucial coast road, and now British troops may be deployed to ‘help keep order’.   A massive total of 20,000 bombing missions plus huge arms supplies and massive logistical support, Western intelligence fully engaged in planning and co-ordinating rebel operations, funding the Transitional National Council, and Nato drawing up the stabilisation plan for post-Gadaffi governance – all this is not expended without a clear objective of gain.   This is where the danger of takeover of the revolution lies.
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