Archive for the ‘Energy’ Category

Break-even price for shale oil could be as low as $40 per barrel

November 28, 2014

UPDATE: Reuters – Saudi Arabia’s oil Minister Ali al-Naimi declares war on US Shale OIL


 

Yesterday Saudi Arabia got its way at the OPEC meeting and successfully resisted all calls for a cut in production to try and stop the decline of world oil prices.  It seems Saudi Arabia (which has the lowest oil production cost in the world) has chosen the strategy of maintaining an oil price low enough to put a cap on US shale oil production and provide a disincentive for new shale oil wells.

This strategy is premised on the break-even price for shale oil being at or above $80 per barrel for small production sites down to about $30 per barrel for large production sites. For example Credit Suisse estimated these levels as varying between $24 and $85 earlier this year.

shale oil break even estimates credit suisse

shale oil break even estimates credit suisse sep 2014

 

The US department of Energy puts sustainable break even values between $35 and $54. The Saudi calculations seem to be based on similar estimates. They appear to believe that with current oil prices moving down to about $70 per barrel, some of the smaller US oil shale wells are already uneconomic and that at this price new investment for further production sites will dry up.

But shale oil production costs are declining – fast. Costs are coming down following the learning curve for both capital costs and running costs. The analyst estimates are already out of date. My estimate is that actual break-even points are already down about 20% from those in the Credit Suisse estimate.

So I believe the Saudis have miscalculated. The average break-even world price for shale oil is probably – already – closer to $40 per barrel rather than $60-70 per barrel being assumed. While new investment in shale oil wells may well be toned down by world oil consumption, it will probably not be because world oil price is below some critical threshold. If the Saudis believe that any uptick in consumption will bring the oil price back up to over $80 per barrel, they are following a flawed strategy. We could be in for a decade of relatively low oil prices perhaps with a floor at around $40 per barrel and set by the average break-even for shale oil.

Consumers are still very wary. They are not sure that the reduction in oil price will be sustained and is not just a temporary dip which might lure them into a higher and more vulnerable consumption level. It will take a few months for them to see that OPEC has actually lost control over the world oil price but is still in denial about that. A sustained low oil price is what will trigger a new – and sustained – wave of global growth that is now so badly needed. The cartel is shrinking. New shale oil producers will all be outside the cartel – and the sooner Europe, China and India start production the better. But it is the beginning of the end of the OPEC cartel power.

History will – I think – show that the OPEC cartel lasted for 50 years. It will show that the cartel started in 1973 and that market forces of supply and demand were re-established around 2020.

Are shale oil and low prices the beginning of the end of the OPEC cartel?

November 24, 2014

Currently US crude is at just above $76 per barrel and Brent oil is at about $80. OPEC members are meeting this week in Vienna and it is thought that cuts to oil production of between 0.5 million and 1.5 million barrels per day (bpd) are possible. The drop in oil prices since June (from around $110 per barrel is due to a glut which in turn is due to over production, large quantities of US shale oil becoming available and simultaneously a reduced demand from China and others. Saudi Arabia is conspicuous by not having made any significant production cuts so far. This could be due to one of 3 reasons:

  1. Saudi Arabia is testing the breaking point for some of the shale oil producers since some of the smaller shale wells probably have a break-even level of around $60-70 per barrel, or
  2. Saudi Arabia and the US are targeting Russia and Iran whose economies are vulnerable and very dependent on the oil price (and the Russians alone would lose some $100 billion in oil revenues per year), or
  3. Saudi Arabia is tired of bearing the brunt of the production cuts and is forcing some of the smaller OPEC producers to take their share of the pain of production cuts.

If cuts of less than 0.5 million barrels per day are made it is thought that the prices are headed down to about $60 per barrel. One analyst estimates that a cut of 2 million bpd is needed to get back up to $80 per barrel. Something in between will be – well – something in between.

I just don’t like cartels and especially when they are state sponsored cartels. So far shale oil production is just from the US, and the OPEC strangle-hold on oil price has yet to be broken. But, over time, I expect this cartel to weaken as other countries produce oil and gas from shale. I remain of the opinion that the OPEC cartel has – no doubt – enriched the oil producing countries but has only done so at the expense of the rate of development of non-producers. OPEC has done the global economy a disservice by holding back the developing countries and the strongest correlation in geopolitics is the link between energy consumption and development (not just GDP but also virtually every development parameter).

It may cause some short term turbulence but in the long run it will be a “good thing” even if oil price were to collapse to below $50 per barrel. Some producers will be hard hit but the net result for the global economy will be positive. So I shall be quite happy if OPEC cannot reach agreement on how much oil production to cut or if they make just a small cut. It is time for some of the the developing countries to get a break from the oil price extortion which has been in place since 1973. The sooner the OPEC cartel is rendered obsolete the better.

Reuters:

Some commodity fund managers believe oil prices could slide to $60 per barrel if OPEC does not agree a significant output cut when it meets in Vienna this week. Brent crude futures have fallen by a third since June, touching a four-year low of $76.76 a barrel on Nov. 14. They could tumble further if OPEC does not agree to cut at least one million barrels per day (bpd), according to some commodity fund managers’ forecasts. ….. 

Yet fund managers and brokerage analysts are divided over whether OPEC will reach an agreement on cutting output. Bathe put the likelihood at no more than 50 percent. Oil prices have been falling since the summer due to abundant supply, partly from U.S. shale oil, and because of low demand growth, particularly in Europe and Asia. As a result, some investors believe a small cut of around 500,000 bpd would not be enough to calm the markets. Doug King, chief investment officer of RCMA Capital, sees Brent falling to $70 per barrel even with a cut of one million bpd.

“With this, I would expect lower prices in the first half of 2015,” he said. If OPEC fails to agree a cut, prices will drop “further and quite quickly”, with U.S. crude possibly sliding to $60, he said. U.S. crude closed at $76.51 on Friday, with Brent just above $80. ……..

The market has been awash with conspiracy theories as to why Saudi Arabia has not already intervened. New York Times columnist Thomas Friedman hinted at “a global oil war under way pitting the United States and Saudi Arabia on one side against Russia and Iran on the other”. Hepworth argued that Saudi Arabia appeared pretty happy with current pricing levels and suggested they were waiting to see where the cut-off point for U.S. production was. “Time is on their side, they can afford to wait,” he said, stressing he was talking months, not years, but added if oil fell below $70 that waiting time “shrinks to weeks”.

Tom Nelson, of Investec Global Energy Fund, said he believed Saudi Arabia had allowed the price to fall to incentivise smaller OPEC producers, which often rely on the biggest producer to intervene, to join Riyadh in cutting output. “They (the Saudis) want to cut but they don’t want to cut alone,” Nelson said, adding that a cut of between one million and 1.5 million bpd should be sufficient to balance the market.

“The market really wants to see that OPEC is still functioning … if there is a small cut, with an accompanying statement of coherence from OPEC that presents a united front, and talks about seeing demand recovery, and some moderation of supply growth, then Brent could move up to $80-$90.”

Saudi attack on shale oil could backfire

November 12, 2014

If the recent drop in oil price has been engineered (even in part) by Saudi Arabia as an attempt to put some of the burgeoning shale oil production sites out of business they will need to go much further. A break-even for shale oil production is probably at less than $50 per barrel. In any event the drop so far (25%+ in 6 months) is just the fillip the world economy needs. Saudi Arabia is probably not as vulnerable as other oil producing countries but increasing production to drive down the oil price is a dangerous game which could be self-defeating. Whether the current glut is just due to reduced world (read Chinese) demand and increased shale oil (US) production or has also been exacerbated by increased Saudi production, the oil consumer wins. Consumption will increase – and that will automatically reduce the glut and further increase the production of oil from shale.

If the global economy is to come out of the doldrums it needs the Asian economies – the tigers, the dragon and the elephant – to start prowling in earnest. Increasing consumption in the developing world seems to be one of the most effective ways of stimulating the world economy. It inevitably leads to increased production of consumer goods in the developed countries. And this current step-reduction of oil price could be just the trigger that is needed.

Yesterday the price of crude (WTI) was at about $77 per barrel and that price is sufficient to keep even the small shale oil wells in operation.

crude oil price Nov 2014

crude oil price Nov 2014

 

Two years of $70 oil could be the boost the global economy needs desperately

October 27, 2014

There are two questions here of course:

  1. How will oil price develop over the next 2 years? And the only certain thing is that forecasts will be wrong, and
  2. Can the net difference between the positive effect on oil consuming countries and the negative effects on oil producing countries be sufficient to lift the global ecoonmy out of its doldrums?

Oil prices have dropped 25% since June and currently WTI crude is at $81 and Brent crude is at $86 – down from around $110 – 115 in June. How far can prices drop and for how long? Of course this depends on supply and demand. But I think there is a new paradigm here and created by the injection of shale oil into the mix. I suspect that shale oil production now establishes a new floor price which means that the prices cannot drop lower than about $60 or possibly even $70. Oil from the traditional, large oil wells can still be produced profitably at much lower prices. But shale oil is more expensive to produce partly due to the costs of fracking but also due to smaller individual wells which last for shorter periods than the large oil wells. This in turn means that there is both a higher investment cost and a higher operating cost for shale oil compared to “traditional” oil. It is thought that as shale oil increases its contribution to the total mix, this production cost will set a floor for all oil at around $60-70 instead of the $30-40 needed for break-even (zero exploration) with traditional oil. The oil companies will maintain profits and dividends by scaling down jobs and their new exploration costs which is the variable they can play with . It is the oil producing countries who will lose tax revenues (offset by increased production – if any).

oil price 2710214 oil-price.net

oil price 27102014 oil-price.net

Goldman Sachs have forecast in a new research report that prices could drop to $70 by the second quarter of 2015.

Reuters 27/10: Brent crude futures fell below $86 a barrel on Monday after Goldman Sachs cut its price forecasts for the contract and for U.S. oil in the first quarter of next year by $15.

The U.S. investment bank said in a research note on Sunday that it had cut its forecast for West Texas Intermediate to $75 a barrel from $90 and that for Brent to $85 from $100, with rising production in non-OPEC countries outside North America expected to outstrip demand.

The bank expects WTI to fall as low as $70 a barrel and Brent to hit $80 in the second quarter of 2015, when it expects oversupply to be most pronounced.

Even Saudi Arabia now seems to have accepted that a regime of low prices will last  1 – 2 years.

Reuters 26/10The recent decline in global oil prices will prove temporary even if it lasts a year or so, since population growth will ultimately bring higher consumption and prices, the chief executive of Saudi Basic Industries Corp said on Sunday.

Mohamed al-Mady was speaking to reporters after the company, one of the world’s largest petrochemicals groups and the Gulf’s largest listed company, reported a 4.5 percent drop in third-quarter net income, missing analysts’ forecasts.

At these price levels for 2 years almost $3 trillion will shift from the “few” producers to the “many” consumers.  But most of this could fuel consumer growth (which it would not do to the same extent when in the hands of the oil producers). The consumer countries will also lose the foreign exchange constraints they must operate under for purchase of oil in US Dollars. It could release monies desperately needed for infrastructure projects. But the consumer countries need the prices to stay low for some time – and I would guess that 2 years is a minimum – for the public funds released to be utilised in “growth” projects.

The EconomistFor governments in consuming countries the price fall offers some budgetary breathing-room. Fuel subsidies hog scandalous amounts of money in many developing countries—20% of public spending in Indonesia and 14% in India (including fertiliser and food). Lower prices give governments the opportunity to spend the money more productively or return it to the taxpayers. This week India led the way by announcing an end to diesel subsidies. Others should follow Narendra Modi’s lead.

Producer countries will be hit. Russia has actually been helped by the fall in the rouble which has cushioned – a little – the rouble values of the dropping oil revenue.

The most vulnerable are Venezuela, Iran and Russia.

The first to crack could be Venezuela, home to the anti-American “Bolivarian revolution”, which the late Hugo Chávez tried to export around his region. Venezuela’s budget is based on oil at $120 a barrel. Even before the price fall it was struggling to pay its debts. Foreign-exchange reserves are dwindling, inflation is rampant and Venezuelans are enduring shortages of everyday goods such as flour and toilet paper.

Iran is also in a tricky position. It needs oil at about $140 a barrel to balance a profligate budget padded with the extravagant spending schemes of its former president, Mahmoud Ahmedinejad. Sanctions designed to curb its nuclear programme make it especially vulnerable. Some claim that Sunni Saudi Arabia is conspiring with America to use the oil price to put pressure on its Shia rival. Whatever the motivation, the falling price is certainly having that effect.

Compared with these two, Russia can bide its time. A falling currency means that the rouble value of oil sales has dropped less than its dollar value, cushioning tax revenues and limiting the budget deficit.

There are a number of other effects of $70 per barrel for oil.

Bio-fuels and bio-diesel, which are fundamentally unsound, have stayed alive on the back of subsidies on the one hand and a high oil price on the other. If the prices stay at $70 for 2 years or longer, land currently being wasted on bio-fuels could revert to food production. With lower fertiliser and transport costs in addition, a great deal of pressure on food prices go away. If the floor price is set by shale oil production costs, it may be too low for oil production from tar sands to take off in any big way. Electricity production costs will be bench-marked against the cost of gas turbine combined cycle plants.

But most importantly, another 2 years or longer with the public spending pressures reduced will allow a number of other countries to get their own shale oil (and gas) production going. And that will make Opec and the oil cartel obsolete. Oil and gas price speculation will no longer be possible.

It could provide the start for a long sustained period – perhaps even a decade or two – with oil prices stable at around $70 per barrel.

Bats attracted to wind turbines because they think they are tall trees?

October 26, 2014

A new study published in PNAS has used thermal imaging to test the the hypotheses that wind speed and blade rotation speed influenced the way that bats interacted with turbines.  They found that the air currents around slow speed turbines could be fooling the bats into thinking they were the air currents associated with tall trees. It is suggested that around trees the air currents led to the bats searching for roosts and nocturnal insect prey that could accumulate in such air flows. Thus bat behaviour which had evolved as being advantageous around tall trees might now be the reason why many bats die at wind turbines.

“Fatalities of tree bats at turbines may be the consequence of behaviors that evolved to provide selective advantages when elicited by tall trees, but are now maladaptive when elicited by wind turbines”.

Paul Cryan et al, Behavior of bats at wind turbines, PNAS, Vol. 111 no. 42,  15126–15131, doi: 10.1073/pnas.1406672111

Significance

Bats are dying in unprecedented numbers at wind turbines, but causes of their susceptibility are unknown. Fatalities peak during low-wind conditions in late summer and autumn and primarily involve species that evolved to roost in trees. Common behaviors of “tree bats” might put them at risk, yet the difficulty of observing high-flying nocturnal animals has limited our understanding of their behaviors around tall structures. We used thermal surveillance cameras for, to our knowledge, the first time to observe behaviors of bats at experimentally manipulated wind turbines over several months. We discovered previously undescribed patterns in the ways bats approach and interact with turbines, suggesting behaviors that evolved at tall trees might be the reason why many bats die at wind turbines.

Fig. 1.

Fig. 1 Still images of night-flying bats (green arrows) at wind turbines that were detected in thermal-infrared video footage. Cameras were positioned 12 m from the base of the turbine, looking up the 80-m monopole toward the nacelle (rectangular machinery enclosure) and rotor, to which three 40-m blades attach. Red circles represent the object identified as a bat by the automated software used for finding their presence in nightly (∼10 h) video recordings. A variety of detection conditions are illustrated, including a bat approaching fast-rotating (14 rpm) …

Abstract

Wind turbines are causing unprecedented numbers of bat fatalities. Many fatalities involve tree-roosting bats, but reasons for this higher susceptibility remain unknown. To better understand behaviors associated with risk, we monitored bats at three experimentally manipulated wind turbines in Indiana, United States, from July 29 to October 1, 2012, using thermal cameras and other methods. We observed bats on 993 occasions and saw many behaviors, including close approaches, flight loops and dives, hovering, and chases. Most bats altered course toward turbines during observation. Based on these new observations, we tested the hypotheses that wind speed and blade rotation speed influenced the way that bats interacted with turbines. We found that bats were detected more frequently at lower wind speeds and typically approached turbines on the leeward (downwind) side. The proportion of leeward approaches increased with wind speed when blades were prevented from turning, yet decreased when blades could turn. Bats were observed more frequently at turbines on moonlit nights. Taken together, these observations suggest that bats may orient toward turbines by sensing air currents and using vision, and that air turbulence caused by fast-moving blades creates conditions that are less attractive to bats passing in close proximity. Tree bats may respond to streams of air flowing downwind from trees at night while searching for roosts, conspecifics, and nocturnal insect prey that could accumulate in such flows. Fatalities of tree bats at turbines may be the consequence of behaviors that evolved to provide selective advantages when elicited by tall trees, but are now maladaptive when elicited by wind turbines.

 

Shale gas in Europe worries Putin

October 25, 2014

It might seem counter-intuitive for Russia to be against the advent and development of shale gas in Europe since they themselves have huge quantities of oil and gas bearing shale in SiberiaBut Russia has a very large investment in conventional natural gas production and pipelines (through Gazprom) which must be protected and nurtured. Putin needs to ensure revenues and that exports of conventional natural gas gives them a reasonable return on the investment before moving onto shale gas. About 30% of Europe’s gas comes from Russia. Russia needs Europe to go slow with its own shale gas production and to continue buying Russian gas at reasonably high prices for as long as possible. So much so that Russia has even been supporting anti-fracking groups in Europe. (It is a little ironic when the European anti-fracking alarmists take well disguised Russian funds and play into Russian hands).

The MotleyFoolNow there are accusations that Russia is working hard to keep Europe dependent on its gas supplies. According to Nato chief Anders Fogh Rasmussen, Russia is doing this by funding anti-fracking groups. That’s something that some of the larger groups deny, but it would be hard to suss out where all of their donations come from in the anti-fracking movement.

There are good reasons for Russia to undertake such a covert operation. For starters, Gazprom would suffer greatly if its European business started to slip away. Second, by keeping Europe hooked on Gazprom gas, Russia maintains a strong bargaining position in world politics.

That, however, just gives the United States more reason to come to the aid of its European allies. Right now, the export of U.S. natural gas is severely limited. With the combination of horizontal drilling and hydraulic fracturing (fracking) in the U.S., however, the flow of gas has outstripped demand and pushed U.S. domestic gas prices to record low levels.

While being able to sell natural gas to Europe would be a huge win for Europe politically and U.S. gas drillers financially, it would also be a big win for pipeline operators like Kinder Morgan (NYSE: KMI  ) . Moving natural gas from where it’s drilled to where it’s used made up roughly 50% of Kinder Morgan’s business last year. The business isn’t about natural gas prices, either; it’s about providing a service. CEO Richard Kinder describes it this way: “We operate like a giant toll road.” So, if natural gas starts going overseas, Kinder Morgan will be involved in the process and make money doing it.

The possibility of surplus shale gas from the US entering Europe and depressing sales of Russian natural gas is a nightmare economic scenario for Vladimir Putin. Even the recent drop in oil prices has seriously unbalanced the Russian budget which needs an oil price of over $100 to be in balance.

Putin takes part in final session of 11th Valdai International Discussion Club meeting

Putin at the 11th Valdai International Discussion Club meeting in Sochi

Putin is clearly worried. Russian President Vladimir Putin took part at the plenary session of the Valdai International Discussion Club in Sochi. He talked up the risks with US shale gas to Europe and talking up the benefits of Russian gas.

TassPutin: Europe’s transition to American shale gas will be suicidal for EU economies

Russian President Vladimir Putin believes that transition to shale gas will be suicidal for the EU economies. In his speech at the Valdai discussion club on Friday, Putin said that Russia’s trade turnover with the European Union stood at 260 billion dollars in the first half of 2014 even despite sanctions. He assumed, however, that the trade volumes could fall if Russia stopped all gas and oil supplies to Europe.

“We assume that it can happen at the will of our partners in Europe. But it’s hard to imagine,” Putin said, explaining that alternatives to Russian gas and oil supplies were worse.

It is either the crisis-hit Middle East where the “Islamic State” militants have stepped their operations or deliveries of shale gas and shale oil from the United States.

“We can imagine that /deliveries/ of shale oil and shale gas from the United States are possible. But how much it will cost?” Putin asked.

“This is going to be a direct way to reducing their own competitive ability because it is going to be more expensive than our pipe gas or oil delivered from deposits in Russia,” the Russian president went on to say.

“They are simply going to kill their competitive ability. What kind of a colony Europe should be to agree to this option. But I believe that common sense will prevail. The same is true of Asia,” Putin said in conclusion.

For very many reasons the very best thing that Europe (and Asia) could do would be to expedite the production of their own shale gas. It would bring down energy prices, stimulate growth, increase jobs, increase independence from Russia, increase exports, increase competitiveness against the US and consolidate energy intensive industries which are moving out. But this would have to overcome the opposition of the alarmist, European green parties who have a remarkable facility for being counter-productive.

Opposing the development of shale gas in Europe gives Russia the edge on the geopolitical playing field.

Germany needs to dump the profligate Energiewende

October 22, 2014

The German economy is export driven.

As long as Greece and Spain and the weaker Euro zone countries were holding back the value of the Euro, German exports and its economy boomed. Unemployment reached extremely low levels. There was a shortage of qualified labour. But now the German economy is stagnating and the high cost for energy, resulting from the misguided, self-mutilating Energiewende, is one of the chief contributors. The total cost to German consumers and German industry is comparable to the bailouts of the weak Eurozone countries. For no benefit.

Der Spiegel (2013): German consumers already pay the highest electricity prices in Europe. But because the government is failing to get the costs of its new energy policy under control, rising prices are already on the horizon. Electricity is becoming a luxury good in Germany, and one of the country’s most important future-oriented projects is acutely at risk. …..

….. For society as a whole, the costs have reached levels comparable only to the euro-zone bailouts. This year, German consumers will be forced to pay €20 billion ($26 billion) for electricity from solar, wind and biogas plants — electricity with a market price of just over €3 billion. Even the figure of €20 billion is disputable if you include all the unintended costs and collateral damage associated with the project. Solar panels and wind turbines at times generate huge amounts of electricity, and sometimes none at all. Depending on the weather and the time of day, the country can face absurd states of energy surplus or deficit.

How the Energiewende has increased German electricity price graphic notrickszone

These are unsustainable costs. Industries dependent on high electricity consumption have found it increasingly difficult to compete against the lower electricity costs especially in the US. Investment and jobs have started shifting to areas with lower operating costs.

WSJ (sep 2014):

The project is the linchpin of Germany’s Energiewende, or energy revolution, a mammoth, trillion-euro plan to wean the country off nuclear and fossil fuels by midcentury and the top domestic priority of Chancellor Angela Merkel.

But many companies, economists and even Germany’s neighbors worry that the enormous cost to replace a currently working system will undermine the country’s industrial base and weigh on the entire European economy. Germany’s second-quarter GDP decline of 0.6%, reported earlier this month, put a damper on overall euro-zone growth, leaving it flat for the quarter.

Average electricity prices for companies have jumped 60% over the past five years because of costs passed along as part of government subsidies of renewable energy producers. Prices are now more than double those in the U.S.

Now the business climate is sharply down, orders are falling and costs are still increasing.

Graphic: German Economy Weakens.

Der Spiegel (Oct 2014)The problem, though, is that Europe’s motor is losing steam, with a slew of bad news about the German economy in recent weeks. The latest business climate index published by the respected Munich economic think tank Ifo, which is considered to be a reliable early indicator, fell for the fifth straight month in September to its lowest level in almost a year and a half. Furthermore, German factory orders are down and exports are collapsing. And last week, the country’s leading economic research institutes issued downward revisions of their economic forecasts for this year and next.

Merkel’s new government have been on a give-away spree and that has not helped. Now finding funds to spur investment is becoming increasingly difficult. Meanwhile the ludicrous subsidies for renewable energy continue to drain the economy. The Energiewende is profligate, has no measurable benefits and has only led to more coal being burnt.

At the very beginning of its term, Merkel’s current government approved an expensive package of what amounted to pension gifts for women and older workers that is now consuming up to €9 billion a year in public finances. In their autumn economic forecast released last week, the country’s leading economic think tanks warned that the German government has “already given away a substantial amount of its room for maneuver.”

Compounding the problem is that measures taken by the government — a coalition of Merkel’s CDU and the center-left Social Democrats (SPD) — are contributing to weak growth. The think tanks predict that projects undertaken by the coalition, including allowing people to retire at the age of 63 and the introduction of Germany’s first-ever national minimum wage, will cause around 300,000 jobs a year to disappear. The CDU and SPD haven’t done much to fuel investments to counter that trend either. Interest rates in Germany may be lower than they’ve ever been before, but few companies have plans to build new factories or buy additional heavy machinery, they warn. The report states that while the many international crises do play a role — from the Middle East to Ukraine — homegrown factors do as well, especially the hostile environment created by (the government’s) economic policies.”

In Poland a different kind of energy revolution is taking place. Two new nuclear plants are being planned. Shale gas development is inevitable but is being hampered by the environmentalists. So more coal is being burned as in Germany.

The world has more to gain from a Germany with a strong economy exporting its excellent products. The pointless and profligate Energiewende needs to be dumped. Germans and Germany and the world are paying the price of pointless political correctness.

Lockheed-Martin and compact fusion – a long way away but more credible than the E-Cat cold-fusion hype

October 21, 2014

Andrea Rossi and his E-Cat cold fusion claims still smell like a fraud. It has been hyped for over 4 years now with little to show. I am somewhat surprised that there are still a few gullible academics and journalists around who keep the circus going.

The Lockheed-Martin development of a compact fusion reactor has a long way to go but I find it much more credible. I could consider betting some money on the compact fusion reactor but would not touch the E-Cat with a very, very, long barge pole.

Th availability of a fusion reactor of any kind would revolutionise the availability of electrical energy but always subject to cost. Mere availability would not be enough to cause a paradigm shift. The availability of gas (natural gas, shale gas and gas from methane hydrates) now extends to about 1,000 years. The use of gas turbine combined-cycle power plants, which have a 2 year construction period, will provide the cost benchmark for electricity production. Where fusion might place in the power generation mix will depend on its operating cost but the level to which it may penetrate will depend on the capital cost and the construction time.

A compact reactor as envisaged by Lockheed- Martin however would be a game changer not only for electricity generation but also for desalination, electrical vehicles and even space travel. The beauty of “compact” if achieved is that it “automatically” leads to low-cost and modular construction.

The probablity of success in the time-frame envisagesd is still low. It is a high risk development and it will not be cheap. But the potential reward is immense.

Some of the characteristics of their high-beta, compact reactor are:

  • The device is cylindrical and 2×2×4 meters in size.
  • The magnetic field increases the farther out that the plasma goes, which pushes the plasma back in.
  • It also has very few open field lines (very few paths for the plasma to leak out; uses a cylinder, not a Tokamak ring).
  • Very good arch curvature of the field lines.
  • The system has a beta of about 1.
  • This system uses deuterium and tritium.
  • The system heats the plasma using radio waves.

L-M Press Release: 

PALMDALE, Calif., Oct. 15, 2014 – The Lockheed Martin [NYSE: LMT] Skunk Works® team is working on a new compact fusion reactor (CFR) that can be developed and deployed in as little as ten years. Currently, there are several patents pending that cover their approach.

While fusion itself is not new, the Skunk Works has built on more than 60 years of fusion research and investment to develop an approach that offers a significant reduction in size compared to mainstream efforts.

“Our compact fusion concept combines several alternative magnetic confinement approaches, taking the best parts of each, and offers a 90 percent size reduction over previous concepts,” said Tom McGuire, compact fusion lead for the Skunk Works’ Revolutionary Technology Programs. “The smaller size will allow us to design, build and test the CFR in less than a year.”

After completing several of these design-build-test cycles, the team anticipates being able to produce a prototype in five years. As they gain confidence and progress technically with each experiment, they will also be searching for partners to help further the technology.

 

US shale oil boom visible from space

October 21, 2014

The drop in oil prices continues though somewhat slowed down by Chinese import demand:

WSJU.S. and global crude benchmarks ended lower Monday amid choppy trading and concerns that member nations of the Organization of the Petroleum Exporting Countries will maintain high production levels in a bid to compete for market share despite growing global crude supplies.

The current drop in oil prices is put down to a glut on the market caused by the boom in shale oil production in the US and the slow-down in the global economy.

The boom in shale oil production is even visible from space.

Satellite Images Reveal How the U.S. Oil Boom Is Creating New Cities

bakken shale field shows up from space Image NASA/io9

io9This image from NASA reveals a massive cluster of lights in what was — until recently — desolate prairie. This is the Bakken Shale, an oil-rich rock formation stretching across parts of North Dakota, Montana and Canada. The lights are from the illuminated derricks, local boomtowns and gas flares of the oil fields.

Misguided alarmists who have demonised fossil fuels don’t like this. But I find the picture and the visibility of the shale production greatly encouraging. Carbon dioxide has no significant deleterious impact on climate and the availability of fossil energy is what will ensure continued human development.

The Bakken Shale field is a vast resource across Montana, North Dakota, Sasketchewan and Manitoba and a significant contributor to the game changing advent of shale oil and shale gas.

The Bakken Shale ranks as one of the largest oil developments in the U.S. in the past 40 years. The play has single-handedly driven North Dakota’s oil production to levels four times higher than previous peaks in the 1980s. As of 2012, ND is second to Texas in terms of oil production and boasts the lowest unemployment rate in the country at ~3%.

The Bakken Shale Play is located in Eastern Montana and Western North Dakota, as well as parts of Saskatchewan and Manitoba in the Williston Basin. Oil was initially discovered in the Bakken play in 1951, but was not commercial on a large scale until the past ten years.

… The Bakken is estimated to hold as much as 400 billion barrels of oil equivalent in place.

US shale fields map EIA

 

Can consumer countries fuel global growth with sharply reduced oil prices?

October 20, 2014

Oil prices have “crashed”.

Currently prices are at less than $80 per barrel compared to over $110 in June and the peak of $147 just before the financial bubble burst in 2008. It seems that it is due to the oil glut brought about by the shale oil revolution in the US together with a downturn in global growth. The $147 peak was, I think, more of a trial balloon by the oil producers to test where the resistance lay and the producers concluded that a level of a little over $100 would maximise profits and was sustainable. But I suspect that this $100 level itself has contributed to delaying and prolonging the recovery. Not only because of the increased direct costs to the oil consumer but also due to its knock-on effects which have unnecessarily raised the cost to all electricity consumers. The prolongation of the path to recovery in Europe is certainly – if only partly – due to the very high energy prices that prevail. But right now it is the abundance of shale oil and gas which seems dominant.

BloombergBut the bigger factor appears to be surging global oil production, which outpaced demand last year and is shaping up to do so again in 2014. To try to keep prices high, Saudi Arabia, the world’s biggest petroleum exporter, has reduced its oil production from 10 million barrels a day—a record high—in September 2013 to 9.6 million as of Sept. 30. That hasn’t done much to raise prices, mostly because other OPEC countries are pumping more crude as the Saudis try to slow down. Sharply higher production increases from Libya and Angola, along with surprisingly steady flows out of war-torn Iraq, have pushed OPEC’s total output to almost 31 million barrels a day, its highest level this year and 352,000 barrels a day higher than last September. Combined with the continued increase in U.S. oil production, the world has more than enough oil to satisfy current demand.

crude oil price history 2000-2014

crude oil price history 2000-2014

But this crash in oil prices is probably a “good thing”.

The additional revenues from increasing oil price to the few in the oil producing countries have not been sufficient to counter the hit to the many in the consuming countries. Much of the additional revenue has gone not to fuelling growth but in blowing up new real-estate bubbles.

The additional spending power in consumer countries with reducing oil price is spread among the many (at the lower end of the wealth scale) whereas the reduction in producer oil revenues is generally spread among an affluent few. My contention is that the additional revenues with high oil price in – for example –  the Middle East does not need to be spent on real things which could fuel growth. Revenues in Saudi Arabia and Qatar and other countries have fuelled bubbles and jihad instead of just growth. A great deal went instead into very high margin, weapons systems and to the imaginary values of real estate. In Russia the oil revenue did contribute to some growth but there was still a large proportion spent on imaginary values of various bubbles (which by definition cannot contribute to growth). My simple calculation tells me that 1000 people buying washing machines in China contribute more to global growth than one person spending the same amount on an apartment (his second or third home) in London. A $10 drop in oil price is said to shift 0.5% GDP growth from producer countries to consumer countries. But the pattern of consumption where the “few” fuel the bubbles of imaginary value while the “many” consume mundane goods and services means that the real effect on growth is greater than a net zero. It is shifting an ineffective 0.5% to a more efficient consumption for growth. The net effect is probably a growth in global GDP of 0.2 – 0.3%. Similarly the purchase of large-volume, low-margin goods and services provides more growth and jobs than spending the same amount on low-volume, high margin goods and services. Spending $1000 on an 80% margin Gucci handbag provides less direct growth and fewer direct jobs than buying ten $100, 10% margin travel bags.

Historically – though it is a relatively crude generalisation – low oil price has usually given – or coincided with – consumer-led growth and stability.

crude oil price history 1970-2014

crude oil price history 1970-2014

Some oil producers are more vulnerable than others to the fall in expected revenues. Russia’s budget needs an oil price of over $100 to be balanced. Venezuela spends nearly all of its revenues as it is generated and has nothing put by. The war-torn areas of the Middle East also have nothing put by. Saudi Arabia and the Gulf States have put by vast reserves though some of it is in “bubble” values. A pricking of some of the bubbles they have inflated is probably no bad thing. It is also no bad thing if they have to fall back on reserves and have less excess cash to fund jihadists from Afghanistan to Libya.

Most Asian countries are oil importers and gain from a low oil price.

Clarion Ledger: The picture is reversed in Asia, where most countries are major importers and some subsidize the price of fuels.

China is the second-largest oil consumer and on track to become the largest net importer of oil. Falling prices will provide China’s economy some relief, according to Huang Bingjie, professor from the School of Economics and Management at China University of Petroleum. But lower oil prices won’t fully offset the far wider effects of a slowing economy.

India imports three-quarters of its oil and analysts say falling oil prices will ease the country’s chronic current account deficit. Samiran Chakraborty, head of research in India for Standard Chartered Bank, also says the cost of India’s fuel subsidies would fall by $2.5 billion during its current fiscal year if oil prices stay low.

Japan imports nearly all of the oil it uses. Following the accident at the Fukushima Dai-Ichi nuclear power plant in 2011, Japan has turned more to oil and natural gas, which is priced based on oil, to generate electric power.

The picture is a little more mixed in the Americas and Europe:

Low prices could eventually threaten the boom in oil production in such countries as the U.S., Canada, and Brazil because that oil is expensive to produce. Investors have dumped shares of energy companies in recent weeks, helping to drag global stock markets lower.

For now, lower crude oil and fuel prices are a boon for consumers. In the U.S., still the world’s biggest oil user, consumer spending accounts for two-thirds of the U.S. economy, and lower energy prices give consumers more money to spend on things other than fuel.

The same is true in Europe. Christian Schulz, senior economist at Berenberg Bank, says that a 10 percent fall in oil prices would lead to a 0.1 percent increase in economic output. That’s meaningful because the 18-country currency union didn’t grow at all in the second quarter.

There could be another market crash coming though it is not likely to be as deep as the 2008 crash. But to get back onto a solid, sustainable growth path again it does need the oil consumer countries to grow. And that probably needs a steady oil price at less than $70 per barrel. The oil producer countries will have to revamp their economies to live with the loss of their monopoly as the production of oil from shale spreads.


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