Oily Thread II – Moon of Alabama

August 25, 2004

Oily Thread II

For reference you may want to read Oily Thread I.

Could we also put a bit of water into this one? Water is often essential to get oil out of the ground. It is as scarce as oil and is the cause of many conflicts. Like the oil industry, the water industry is an interesting field for investments.

Posted by b on August 25, 2004 at 17:01 UTC | Permalink

Comments

Copy of the most recent comment from Oily Thread I:
Another question for Jérôme
As we all know the price of a barrel of oil has gone up dramatically in the past months. My question is how much oil that is bought and sold every day is sold at the price we hear on TV. I know that different oils are sold at different prices and this is based on the quality of the oil but are there no long standing contracts to buy at fixed prices?
I ask because any increase in the price of crude is almost immediately matched by an increase at the pumps. I have always thought there was something smelly about that but am really interested to know in percentages how much oil is traded at $46 per barrel or whatever it costs today.
thanks in advance
Posted by: Dan of Steele | August 25, 2004 12:17 PM

Posted by: b | Aug 25 2004 17:04 utc | 1

Mark Thatcher arrested at Cape Town home in connection with coup plot
Thatcher has now been charged in connection with a coup attempt against oil rich Equatorial Guinea. It seems that the scramble for control of resources is being waged both overtly (e.g. Iraq) and covertly.

Posted by: Nemo | Aug 25 2004 17:12 utc | 2

Profile – Mark Thatcher

Posted by: Nemo | Aug 25 2004 17:16 utc | 3

@Dan – AFAIK, most of the oil is traded at the quoted price. Even long term contracts are usually sold using the current price reference.
But it is a forward price – i.e. it is the price for next months deliveries, which in turn are usually paid with a 30 days delay.
If you want to cover your exposure, you can buy longer term forward deliveries (i.e. buy next year’s oil at a price set today). This is done through what are effectively financial instruments, which still use the immediate price as their basic reference point.
The interesting thing is that the forward curve has increased by almost as much as the immediate delivery prices, i.e. the market is pricing in that prices will not go down in the near future (one year at least).
@Nemo. Equatorial Guinea is the newest oil province. Half way between Nigeria and Angola, similar geology, etc… But actually it is a very big natural gas play and not just oil. Marathon Oil is building a LNG plant there.
@Bernhard – I’ll feed the water topic as well. Some data from the Water Atlas that ties in with topics raised by DeAnander elsewhere:
Minimum quantity of water required to produce 1kg of food:
potatoes: 500litres (l)
wheat: 900l
sorghum: 1,100l
soybeans: 1,650l
rice:1,900l
poultry:3,500l
beef: 15,000l
Countries which are drawing more from the ground that is replenished annually:
USA
Algeria
Mauritania
Libya
Egypt
Israel
Saudi Arabia
UAE
Pakistan
India
China

Posted by: Jérôme | Aug 25 2004 20:00 utc | 4

thanks Jérôme for the lesson on oil markets.
Coming from a semi arid part of the US I know a little bit about dropping water tables. In many places the water table is going down at the rate of one foot per year. So far no one seems to be alarmed, they merely dig deeper wells.
Here in Italy, bottled water costs around 3 euro for a 750 cc bottle at most restaurants. I personally find that obscene and drink beer instead. I point out to friends that they complain about spending 1 euro or so for a liter of gasoline but never bat an eye for the water. Years ago when the big food companies were buying little companies that sold water I thought to myself, how can anybody make money selling something that falls out of the sky for free? Silly me!

Posted by: Dan of Steele | Aug 25 2004 20:54 utc | 5

AlJazeera: First signs of a global decline in oil?

New statistics are claiming that oil production in 18 producer countries has passed its peak and is declining faster than previously thought: At about 1.14 million barrels a day.
…
Another problem analysts are facing is that it appears countries can carry on expanding production until suddenly the decline sets in, never to be reversed.
Depletion could eventually make
current high prices seem cheap
“The UK expanded production each year until 1999,” Skrebowski continues. “Since then it has gone down every year by 5%, then 6% then 8% and this year, 2004, it looks set to be higher. This is even with the best technologies and techniques available.”
…
“If, however, it is going down in ‘stable’ country X and up in ‘unstable’ country Y, then you get the geo-political dimension. What happens if declines in safe countries can only be offset by increases from those less secure?” Skrebowski asks.
Because that is exactly what may be happening. For example Petrologistics, an oil industry firm which tracks tanker shipments, reported that Saudi Arabian output actually fell by 400,000 bpd last month.
…
Without gigantic and costly investment, that would itself inflate prices, squeezing more oil out of the ground may prove hard. Petroleum Review’s rigorous statistical analysis may just be the prologue to a bigger, more unsettling story.
“The phenomenon of multiple counties all declining is a new one for everybody. Up to 1990 only the USA and Romania had started declining. So, in the longer term, matching demand to the new capacity of producer countries may prove to be a very tough call, a very tough call indeed,” predicted Skrebowski.
And that may prove to be an understatement.

Posted by: b | Aug 25 2004 21:07 utc | 6

b – I am still skeptical about claims that we cannot increase production in the medium term. Remember that oil prices have been pretty low in the past 18 years and that CFOs of oil companies, shareholders and outside financiers expect investments to make money at 15$/b (and to break-even at 10$/b) for an investment to be given the green light. Even with today’s prices, that mindset has not changed yet – people are still expecting investments to make it with 20$/b oil or less. (there was an article about this in yesterday’s FT but I cannot find the link). Wyhen this mindset changes (i.e. when these people are convinced that oil will stay above 30$/b for a bit of time, then you will suddenly see a new burst of investment.
In the short term, expect more problems: fewer wells dug last year in OPEC countries, Oil investment reduced despite record prices.

Some of the world’s biggest oil-producing countries have reduced their investment in new capacity despite record oil prices. The Organisation of Petroleum Exporting Countries this week revealed its members drilled 6.5 per cent fewer wells in 2003, suggesting the global supply crunch and high oil prices could last longer than expected, analysts said. The numbers appear to contradict statements by Opec members that they are actively building extra capacity.
“Oil demand has been booming since quarter one 2003, offering Opec – along with rising oil prices – a clear enough signal of tightening market conditions, which the organisation seems to disregard,” the Centre for Global Energy Studies (CGES), a London-based consulting firm, said recently.
“Opec has tried to get prices to stay high and now with nearly two years of very strong demand for oil we are really capacity constrained,” said Leo Drollas, CGES deputy executive director and chief economist.
Opec’s latest annual statistical report, published this week, shows that the number of wells completed in 2003 fell by more than 10 per cent in Kuwait, Venezuela, Qatar, Nigeria and Iran.
Opec members rarely give out complete data on the amount of money they invest in their oil industry, viewing it as a national strategic secret. Information on the number of oil wells completed per year is one of the best rough guides to future oil production as well as to overall investment trends.
Part of the explanation, in particular for Nigeria and Qatar, lies in the fact that companies are drilling fewer but more sophisticated wells. In Iran, Kuwait and Venezuela, investment has been stifled by political disagreements and leaders’ eagerness to spend the additional petrodollars on other investments or the enrichment of a powerful minority. But as big consumers such as the US become more desperate for oil, the pressure is growing for countries such as Saudi Arabia and Kuwait to open their doors to international oil companies.
Mohammad Hadi Nejad Hosseinian, Iran’s deputy oil minister, blamed Opec’s lack of investment on past weak oil prices. “Most Opec countries have been unable to supply extra oil as a result of inadequate investment during the period when oil prices were weak,” he said. “Iran expects to rely heavily on foreign investments to implement its ambitious plans [to increase oil production by nearly 2m b/d].”
Opec’s capacity has remained at about 31.5m b/d since autumn 2000, though demand increased by 6m b/d and prices recovered from the Asian crisis of the late 1990s during that time, the CGES said. During that time almost three-quarters of the increased capacity needed to satisfy the extra demand came from outside Opec.
But ageing fields, a difficult investment climate in Russia and a dearth of discoveries in other parts of the world mean that consumers will not be able to rely on countries outside Opec for additional oil.
Meanwhile, US demand, which is expected to grow 4 per cent in the next four years, and that of China, forecast to increase 30 per cent, mean the world could be in for a longer period of high oil prices than expected, analysts said.
The International Energy Agency, the Paris-based industry watchdog, expects Opec capacity, excluding Iraq and Venezuela, to grow 2.1m b/d in 2005-2007. But work to achieve this does not appear to have begun.
It can take two years for countries to act on higher oil prices, but this time countries hurt by past boom and bust cycles appear to be taking longer. Opec’s hesitancy means it has squandered its spare capacity, the trump card that allows it to play the role of the world’s central bank of oil. It has also increased the likelihood that prices will fall only after they have climbed enough to stifle economic growth and, therefore, demand.

Posted by: Jérôme | Aug 25 2004 21:36 utc | 7

Energy and environmental policies
Bush and science – members of the scientific community speak out

Posted by: Nemo | Aug 25 2004 21:56 utc | 8

Saboteurs attack multiple Iraqi pipelines
Aftermath of an attack on an oil pipeline in al-Barjisiya, southwest of Basra, August 26th
Asphalt bridge melts after attack on oil pipeline, in al-Barjisiya, August 26th
al-Barjisiya, August 26th

Posted by: Nemo | Aug 26 2004 9:24 utc | 9

US vs Russia – Pipeline wars

Posted by: Cloned Poster | Aug 26 2004 14:45 utc | 10

Have you seen that?:The Thirty-Year Itch
only 887 hits in Google for Miles Ignotus seems to be a relatively obscure topic
Seizing Arab Oil — How the U.S. can break the oil cartel’s stranglehold on the world Kissinger’s Plan

Posted by: Anonymous | Aug 26 2004 15:27 utc | 11

@Posted by: | August 26, 2004 11:27 AM
Great Link http://www.punjabilok.com/iraq_war/thirty_year.htm – 28k
I love the last sentence regarding the oil companies opinion of the war now.
“They think it has ‘fiasco’ written all over it.”

Posted by: Cloned Poster | Aug 26 2004 15:39 utc | 12

An underestimated crises coming?
Science Magazine: Asia Farmers Sucking Continent Dry

Asian farmers drilling millions of pump-operated wells in an ever-deeper search for water are threatening to suck the continent’s underground reserves dry, a science magazine warned on Wednesday.
“This little-heralded crisis is repeating itself across Asia and could cause widespread famine in the decades to come,” London-based New Scientist said in a report on scientists’ findings at a recent water conference in Sweden.
The worst affected country is India.
There, small farmers have abandoned traditional shallow wells where bullocks draw water in leather buckets to drill 21 million tube wells hundreds of meters (yards) below the surface using technology adapted from the oil industry, the magazine said.
Another million wells a year are coming into operation in India to irrigate rice, sugar cane and alfalfa round-the-clock.
…
..there was no control over the expansion of pumps and wells.
“When the balloon bursts, untold anarchy will be the lot of rural India,” he said at the annual Stockholm Water Symposium.
…
In China’s breadbasket, the northern plain, 30 cubic kilometers more water is pumped to the surface each year than is replaced by rain, it said. Officials have said water shortages will soon make China dependent on grain imports.

Posted by: b | Aug 26 2004 16:41 utc | 13

The following numbers were Posted by: Jérôme | August 25, 2004 04:00 PM and I would like to further evaluate on them, as there is much more to these numbers.
Minimum quantity of water required to produce 1kg of food:
potatoes: 500litres (l)
wheat: 900l
sorghum: 1,100l
soybeans: 1,650l
rice:1,900l
poultry:3,500l
beef: 15,000l
Now consider that an average American or Canadian meat-eater (I do not have numbers for Europeans) consumes 11 beef steers, 1 calf, 3 lambs, 23 hogs, 45 turkeys 826 fish per year!!! Now multiply them with the water being needed to produce them.
I would like to add a few excerpts from Gabriel Cousins book ‘Conscious Eating’.
Livestock use approx. 50% of all the water in the US. Livestock produce 20 times the excrement as the human population of the US. This increases the nitrate/nitrite water pollution. Extensive water use for livestock is pushing us closer to a clean water shortage. It requires 60-100 times more water to produce a pound of beef than a pound of weath. Livestock require excessive water usage because the land needed to grow grain for livestock takes up about 80% of the grain produced, and because water is needed for the animals.
When one considers the water needed for this extra grain and for the care of the livestock, a flesh-food diet creates a need for 4500 gallons per day per meat-eater as compared to 300 gallons per day for a vegan. A vegan saves approx. 1’500’000 gallons per year as compared to the a flesh-eater.
I think it is important to realize that we can influence water consumption not only by the amount of showers we take, or by how often we wash our car. We actually can affect it everyday by how we eat. Now I do not say everyone should become a vegetarian, but maybe by just reducing the amount of meat eaten by half, would safe a lot of water. In addition, it would free grains to feed the hungry people. I don’t think we need to produce more food; we just have to use it more wisely. Then there is the additional benefit of vegetarians or people who eat little meat of being healthier, as more and more studies show. However, I don’t want to go into this aspect here, as the post is already getting somewhat long.
I would like to add an other excerpt of the book, and while reading it, please keep the numbers of water consumption in mind that Jérôme posted:
The ‘Vegetarian Times’ estimates that rain forest destruction causes the extinction of 1000 species per year. For each fast-food, quarter-pound hamburger, 55 square feet of rain forest are destroyed. One hundred species become extinct for every 2 billion fast-food burgers sold.
The ratio of food productivity per acre of land from livestock versus vegetarian food reveals tremendous disparity from the same amount of natural resources. For instance, one acre of land yields 20’000 pounds of potatoes versus 165 pounds of beef. An acre of grain gives five times more protein than beef.
US livestock regularly eat enough grain and soy to feed the US population five times over. More than 80% of the grain grown in the US is to feed livestock. The total world livestock regularly eat about twice the calories as the human world population receives.
Now, to return to the oily thread, here the last excerpt:
A vegetarian diet also helps to conserve the world’s fuel energy and total raw material resources. 78 calories of fossil fuel are required for each calorie of protein from feedlot-produced beef. Grains and beans require approx. 0.6 to 3.9 calories of fossil fuel to produce each calorie of vegetarian food.
I do not know if the calorie numbers include the energy and oil needed to transport the grains from, for example Thailand to the US or Europe. All this longdistance transportation is a crazy idea anyway.
Well, I could go on and on. Maybe this topic would be worth a thread of its own. But then I do think it is connected to our energy consumption and former environmental posts and discussions.
I do not say, as I mentioned before, that everyone should become a vegetarian, but the simple thing as choosing more consciously what we eat, might affect our water and oil resources. And as I mentioned in other posts before. Every drop counts, the ocean is made of little drops – no drops, no ocean.

Posted by: Fran | Aug 26 2004 19:35 utc | 14

thanks Fran – well said
On oil and the strategy Putin may play with Yukos.
Houston, we have a Yukos problem from Asia Times.
My take Yukos and with it much of the Russian oil rent was in the process of being sold out to the US. Putin just cannot allow this – his people would hang him if he would – fine with me, they have suffered much and need the money.
For a stragic energy partnership (i.e. where to build the next pipeline) Putin has to decide his countries future. China is to dangerous, as it is looking to interested at Siberia, the US is a nono after the recent Bush years – you can trust them. Japan may be a good choice but hard to predict the devlopments there. Europe is not united enough to make a clear picture of it. Tough call for Putin.

Posted by: b | Aug 26 2004 21:32 utc | 15

Fran
thanks for reacting to my numbers. Did you have a chance to read this article: The Oil we Eat referenced in an earlier thread (maybe at the Annex) by DeAnander? It was also quite critical of our reliance on the main cereals (wheat, rice). I’d need to check if the numbers are coherent between the two (in terms of oil per calorie), which i have not done yet.
@b – re Yukos. There is no grand strategy. It is only gangsters stealing from other gangsters, nothing much. Yukos could have become the controlling shareholder of ChevronTexaco – now that would have given Putin, indirectly, real power on the US oil scene…

Posted by: Jérôme | Aug 26 2004 22:19 utc | 16

Jérôme, thank you for the link. I haven’t seen this article before and it is worth reading.
from ‘The Oil we Eat’ – All well and good, except that per capita protein production in the United States is about double what an average adult needs per day. Excess cannot be stored as protein in the human body but is simply converted to fat.
I do not quite agree with that. Not all the proteins are turned into fat. There are also ‘Abbauprodukte’, according to my dictionary in English breakdown products. These are also stored in our joints and muscles, and form the basis for gout, arthritis, rheumatisme, they can clogg our arteries, hardening the excess cholesterol and fat in the heart and the brain and so on, basically what in German is called ‘Wohlstandskrankheiten?, literally translated meaning affluency-diseases.
So in a sloppy way, one could also say, reducing our energy consumption would also reduce our health inscurance fees. But I guess these insurance companies wouldn’t be to happy about that.

Posted by: Fran | Aug 27 2004 5:43 utc | 17

As I understand it, many communities have sold their water utilities to large water companies. Some have even bought the water back, or sued to get it back.
In dreams, water is said to represent the soul, the spiritual. So if some politicians can suck the water out of a community, then we need to know the answer to an old question – vampires are real.
If this is happening where you live, tell the truth about vampires.

Posted by: Citizen | Sep 3 2004 3:23 utc | 18

@Citizen:
Not happening, where I’m at fortunately. Apparently happening other places.

Posted by: Dr. Van Helsing | Sep 3 2004 3:37 utc | 19

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