North Sea gas production falls 25%

North Sea gas production has slumped by 25% in the second quarter of the year, an alarming increase in the rate of decline that will cut tax revenues and could put more pressure on government to agree controversial shale gas developments.

Figures from the Department of Energy and Climate Change (DECC) also show a 36% rise in coal imports, but a leap from 6.3% to 9.6% for the amount of electricity generated by wind and other renewables.

The department records that the output of oil and associated gas liquids fell by 16% in the three months to the end of June, compared with a year earlier – the biggest decline since records began 16 years ago.

But the largest fall was in the amount of gas produced from the southern North Sea, where operators have been arguing that projects may have to be shut down because of a rise in government taxes in the last budget.

In a typical year, the annual rate of gas decline has been closer to 15%, and the increase may partly be put down to field maintenance being brought forward, but it comes as domestic prices have been raised by British Gas and others.

Link -
http://www.guardian.co.uk/business/2011/sep/29/north-sea-gas-production-falls-by...
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Economic theory and the Real Great Contraction

The contemporary debate over the future of natural resources features two competing theories of economics.

The view that dominates all economic policy and theory today is rooted in the work of Adam Smith, published from 1759 to 1776. It holds that self-interest, if unimpeded by regulation, can be harnessed and trusted to produce socially desirable outcomes. His argument was that free trade maximizes the utility of producers to ration the demand of scarce resources and allocate them via an “invisible hand” to consumers with the highest marginal demand more efficiently than allocation by dictate could. History proved him right: the world’s supply of energy has continued to increase steadily ever since.

Smith wrote his seminal book, The Wealth of Nations, after becoming enamored of the Physiocracy theory emerging in France. It viewed the entire economy as being built upon agricultural output, which it mostly was. In Smith’s time, the world was primarily powered by our most ancient energy sources: plants, wind and water. The exploitation of coal had only just begun, and the steam engine had only just been invented. The age of oil wouldn’t even begin for another 140 years.

The competing view holds that the world is approaching “peak everything.” Peak oil, peak coal, peak gas, peak food, peak water, and ultimately, peak population. At some point the supply of these critical resources can no longer be increased; they will peak, and then decline, taking economic productivity down with them. Or in economic terms, the price at which new supply can be offered to the market will be a price that the market can’t support.

Being of a scientific mind, I prefer data over faith, which puts me in the latter camp.

When oil got to $120 per barrel in 2008 it cut into real productivity, and forced the world’s most developed economies to shrink. At $147, it wreaked serious damage. The subsequent economic crash took oil prices all the way down to $33 a barrel within six months. U.S. petroleum demand declined by nearly two million barrels per day (mbpd) from 2007 through 2009, of which 85 percent was lost in the commercial and industrial sector.

Every dollar of gross domestic product up until 2005 was generated on the back of cheap and easy oil. Without energy, there can be no economic activity. When global conventional crude oil production hit its peak-plateau in 2005, ending its 150-year-long trajectory of growth, it appears that global GDP per capita did too. Further, the last three major recessions in the U.S. all occurred after petroleum expenditures rose to more than 5.5 percent of GDP.

At more than nine percent of GDP, we are well above that threshold again today.

But under modern laissez-faire economic theory, perpetual economic growth is axiomatic and mandatory. It is built into all our assumptions and our generally accepted accounting practices. It is presumed by the issuance of sovereign debt and the printing of money, both of which are essentially claims on future productivity. Growth must be maintained, at all costs. This presumption justified the creation of financial instruments like mortgage-backed securities based on no-money-down loans, to juice up a housing sector that would have gone flat if only truly creditworthy borrowers could buy a house. It justified trillions of dollars worth of Keynesian stimulus since 2007, and many economists argue that trillions more are needed still.

In short, when the gas tank on the engine of economic growth ran low, we turned to inflating monetary bubbles, and stuffed those in the tank. It created the temporary illusion of a bit more economic growth, but it came at the cost of several future generations’ worth of debt.

Despite these obvious facts, the entire world still assumes that growth will continue. Everyone thinks the world will get to nine billion people by 2050, when seven billion today are already encountering fierce competition for food and fuel. Every economic model offered by government agencies projects at least a 1.5 percent annual growth rate for another two decades.

Just as a fish has no concept of water, the faith that technology will somehow produce enough food and fuel to feed those nine billion is so embedded into our thoughts, so intrinsic to the economic theories we have been taught, that it isn’t even questioned. There is no need to worry about the declining energy content of our fuels, and the declining supply of basic agricultural nutrients like phosphorus. We needn’t bother with the fact that the net energy (the energy left over after subtracting the energy expended in production; also known as energy return on investment, or EROI) of all our major fuels is in long-term decline. The invisible hand will provide! Always!

I maintain that all of these beliefs are wrong. They are based on faith, not current realities, and they misconstrue what Adam Smith actually believed. They are as bankrupt intellectually as our economy is financially.

On November 5, an earthquake measuring 5.6 rattled Oklahoma and was felt as far away as Illinois.

Until two years ago Oklahoma typically had about 50 earthquakes a year, but in 2010, 1,047 quakes shook the state.

Why?

In Lincoln County, where most of this past weekend's seismic incidents were centered, there are 181 injection wells, according to Matt Skinner, an official from the Oklahoma Corporation Commission, the agency which oversees oil and gas production in the state.

Cause and effect?

The practice of injecting water into deep rock formations causes earthquakes, both the U.S. Army and the U.S. Geological Survey have concluded.

The U.S. natural gas industry pumps a mixture of water and assorted chemicals deep underground to shatter sediment layers containing natural gas, a process called hydraulic fracturing, known more informally as "fracking." While environmental groups have primarily focused on fracking's capacity to pollute underground water, a more ominous byproduct emerges from U.S. government studies; forcing fluids under high pressure deep underground produces increased regional seismic activity.

As the U.S. natural gas industry mounts an unprecedented and expensive advertising campaign to convince the public that such practices are environmentally benign, U.S. government agencies have determined otherwise.

According to the U.S. Army's Rocky Mountain Arsenal website, the RMA drilled a deep well for disposing of the site's liquid waste after the U.S. Environmental Protection Agency "concluded that this procedure is effective and protective of the environment." According to the RMA, "The Rocky Mountain Arsenal deep injection well was constructed in 1961, and was drilled to a depth of 12,045 feet" and 165 million gallons of Basin F liquid waste, consisting of "very salty water that includes some metals, chlorides, wastewater and toxic organics" was injected into the well during 1962-1966.

Why was the process halted? "The Army discontinued use of the well in February 1966 because of the possibility that the fluid injection was "triggering earthquakes in the area," according to the RMA. In 1990, the "Earthquake Hazard Associated with Deep Well Injection--A Report to the U.S. Environmental Protection Agency" study of RMA events by Craig Nicholson, and R.I. Wesson stated simply, "Injection had been discontinued at the site in the previous year once the link between the fluid injection and the earlier series of earthquakes was established."

Twenty-five years later, "possibility" and "established" changed in the Environmental Protection Agency's July 2001 87-page study, "Technical Program Overview: Underground Injection Control Regulations EPA 816-r-02-025," which reported, "In 1967, the U.S. Army Corps of Engineers and the U.S. Geological Survey (USGS) determined that a deep, hazardous waste disposal well at the Rocky Mountain Arsenal was causing significant seismic events in the vicinity of Denver, Colorado."

There is a significant divergence between "possibility," "established" and "was causing," and the most recent report was a decade ago. Much hydraulic fracturing to liberate shale oil gas in the Marcellus shale has occurred since.

According to the USGS website, under the undated heading, "Can we cause earthquakes? Is there any way to prevent earthquakes?" the agency notes, "Earthquakes induced by human activity have been documented in a few locations in the United States, Japan, and Canada.

Link -
http://www.minyanville.com/businessmarkets/articles/earthquake-natural-gas-Rocky...
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Crude-oil futures closed below $95 a barrel Wednesday, with strength in U.S. dollar contributing to a more than 5% drop in prices, as comments from a group of major oil producers and broad losses in global stock markets raised concerns about prospects for oil demand.

Gasoline futures also fell sharply, as a U.S. government report showed that supplies last week climbed more than expected, pulling prices for the fuel down by nearly 5%.

Crude-oil futures for January delivery CL2F -5.24%  dropped $5.19, or 5.2%, to close at $94.95 a barrel on the New York Mercantile Exchange after tapping a low of $94.21.

Prices marked their lowest settlement level and first close below $95 since Nov. 4.

At a meeting in Vienna on Wednesday, the Organization of the Petroleum Exporting Countries said members will maintain their current, total production of 30 million barrels per day, including production from Libya, which has been ramping up to pre-civil-war levels.

“This decision was made because of elevated concerns about decelerating global growth,” said Jason Schenker, president at Prestige Economics.

“As such, we continue to affirm that equity and commodity markets are exposed to significant downside risks in the first two quarters of 2012,” he said in a report.

Indeed, the cartel noted that downside risks facing the global economy continue to include “the sovereign debt crisis in the euro zone, persistently high unemployment in the advanced economies and inflation risk in the emerging economies.”

It also warned that planned austerity measures in the euro zone and in other Organization for Economic Cooperation and Development countries are “likely to contribute to lower economic growth in the coming year.”

Link -
http://www.marketwatch.com/story/oil-futures-edge-back-below-100-a-barrel-2011-1...
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The Decline in the Oil Price is being driven by a lower expectation of Demand for Oil, arising from a slowing Global Economy & from a recent rise in the value of the US$, as seen in the chart embedded in the following site.
http://www.marketwatch.com/investing/index/DXY

I expect that the Decline in Oil Prices will continue, in the short term, until the markets come to realise that Production/Supply is not keeping up, even with the reduced Demand levels and then the Prices will again start to rise!

Chris Martenson, "If we're at Peak Oil we might have 10 or 5 Years"

Claiming there is an oil limit on the economy and why peak oil is inevitable is usually talked down by saying its an unsure theory at best, and controversial, fear mongering or defeatist at worst. The totally simple numbers which prove it are however not Einstein-type mathematics and are not impossible to understand - - only by the badly intentioned or plain stupid.

We can start with the average oil consumption of OECD countries of about 14.4 barrels/capita/year, and try extending that to China and India. Presently they consume about 3 barrels per head in China and less than 2 barrels per head in India with recent growth rates as high as 6% per year.

This answer is simple: this is not possible. This will not happen. To be sure Chinese and Indian oil demand will increase, to be sure OECD oil demand will decrease. How this happens is the problem.

Daniel Yergin writing in 'Wall Street Journal' in Sept 2011 said: "Since the beginning of the 21st century, a fear has come to pervade prospects for oil (sic), fueling anxieties about the stability of global energy supplies. It has been stoked by rising prices and growing demand, especially as the people of China and other emerging economies have taken to the road".  His article was titled "There Will Be Oil". There are no worries !

Yergin like other technological and market optimists argues tight supplies lead to high fuel prices, and high fuel prices will make previously uneconomic and inaccessible oil resources, and any other limited-reserve or non-renewable resources extractable and producible. The trouble is that high prices are not just a symptom of the supply problem; high prices are the problem.

The Conventional Wisdom is the economy keeps bulldozing ahead, Titanic-style, maybe with some frictional inflation and a temporary blip upward in unemployment and company insolvencies, sovereign debts might rise a little, or a lot, but basically there is no oil shortage. No problem.
However, certainly since oil prices "bounced back" near the 100-dollar range for WTI, and as much as $125 a barrel for Brent, in October 2011, there has been a predictable flurry of outpourings from the No Worry school, where the logic is always contortionist.

CONTORTIONIST LOGIC
What we get from the No Worry school is a stock of one-liners. The premium one-liner is that thanks to deep offshore oil and shale oil, and falling oil consumption per unit of GDP, and other factors (even including green energy) we now have a realistic possibility that North America will be able to "declare oil independence", possibly within 10 years, but the exact date is eluded. The next is that Chinese and Indian oil demand will grow, to be sure, but supplies will be ample even if high priced - and because oil is high priced.

Contortionist oil logic actually welcomes the greatest recession since the 1930s by callling its stark effects - falling oil demand - the result of energy efficiency gains. We now have a new model for levering up innovation: Economic crisis and recession now equals innovation in energy ! If you didnt use your car to go to work because you dont have a job anymore - you are "innovating" in energy.

PEAKS AND SILLS
All the parameters can be stretched if world oil demand falls from its ultimate peak set by the depletion of conventional oil resources at around 90 - 92 Mbd. Current demand is about 89.5 Mbd.

Peak demand is therefore what matters, because peak supply is getting better known: possibly 92 Mbd and probably before 2015.  Conversely and in the totally hypothetical scenario of China and India ever consuming as much oil per head as the USA, South Korea, Japan, Germany and other OECD countries, they would need a combined 90 Mbd all to themselves to satisfy their demand. This is so luridly impossible it is amazing "nobody talks about it".

Falling global oil demand is totally possible - recession proves it.

FANTASIES AND FOIBLES
We get shunted into fantasy land because the Oil Future is so bleak. The green energy option, or so-called option is wheeled on stage, despite it being impossible to substitute current per capita fossil energy consumption in the so-called "postindustrial" countries consuming every imaginable type of industrial good and service. Green energy is in fact a bolt-on to the fossil energy pyramid, promoted by the media and communicated using every trick in a game where the public doesn’t know the rules. The "switch" to green energy would first need a massive shrink of energy use in the economy, in a fact a totally different economy, society and culture. Wecome to the future but lets not talk about it !

The basic problem is that Oil Independence for the USA, Europe, Japan and South Korea - or China and India - is a pure and simple myth unless the global economy disappears or these countries totally restructure their energy economies.

SHORT RUN LONG RUN
Put in simple numbers, world oil demand at 90 Mbd or 32.8 billion barrels a year makes it necessary to find, and then produce so-called mega fields or provinces very fast. The USA's Alaska North Slope and the Norwegian-UK North Sea province which both started production at serious rates in the 1975-80 period, with annual growth of output often topping 15%, doubling in 5 years, are now in irremediable and permanent decline. In the 1980s, these 2 provinces did at least as much as Saudi Arabia and Russia, and the economic recession through 1979-83, to collapse oil prices in 1985-86 and hold them low right through to year 2000.

Related to these numbers (Prudhoe Bay + North Sea = 2.4 years world oil demand), the rush for shale oil is understandable ! We therefore have the Bakken shale oil formation wheeled on stage by the optimists, estimated by the US Geological Survey to contain a supposedly "impressive" 4 billion barrels of technically recoverable oil in place - but this is peanuts compared with Prudhoe Bay or the North Sea.

Put another way and even more simply, Bakken production has at best covered the decline in Alaskan oil production, and since 2006 wells in the Montana section of the Bakken formation are in decline themselves.

Increasing gas supplies, because political deciders refuse to enable its greater use, will not slow the Peak Oil countdown, driven by the ultra simple reality of declining conventional oil reserves (and resources), which are not compensated by growing unconventional oil reserves (and resources), world oil demand will have to decline very soon.

In this real world, oil prices can only react and will react, exploding any time the right mix of daily news enables the traders to do this. This will be despite global economic recession and because oil-motivated political action by the world's biggest oil consumer countries will become more naked, open and aggressive.

Link -
http://www.marketoracle.co.uk/Article32402.html
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How Global Oil Supplies Could Fall 40% Overnight

You’d never know it from the oil price, but the global seaborne oil supply might face a 40% cut. In the last few days the Brent Crude price has dropped from $115 to $110 a barrel, where it has spent much of the last three months.

So why could the global oil supply fall by 40% overnight?


Iran has threatened to block the Strait of Hormuz in response to US sanctions.

The Strait of Hormuz is the narrowest part of the Persian Gulf. Oil from producing countries like Saudi Arabia, Qatar, and the United Arab Emirates also ship their oil through the strait. All up, 40% of the oil produced around the world each day goes through this narrow channel.


So what sanctions would trigger Iran to block the Strait?

The US has asked the world to stop buying Iranian oil.

The US has lobbied China and Europe to buy their oil elsewhere. The US stopped buying Iranian oil years ago. China, Spain, Italy and Greece are still big buyers. Iran still makes up 5% of global production.

The US has put the pressure on Iran in this way to get Iran to give up its nuclear ambitions.

This reeks of hypocrisy. How can the US, which has the world’s largest store of nuclear weapons, tell other countries not to develop them? It is also inconsistent. The US let Israel develop its nuclear capacity with minimal interruption.

Iran is not happy being told what to do by a financially and morally bankrupt foreign power. And in response it threatens to close off the Strait, which would cause the oil price to soar.

The World’s Most Valuable Commodity
Oil has a long history of triggering conflicts. There is a great quote in the movie Blood Diamond that puts it well. A villager stands in front of his burning village, with dead bodies scattered everywhere, and says “…let’s hope they don’t find oil. Then we will have REAL problems.”

Because the Strait is an obvious flash point, the US has a strong military presence in the region. The US Navy has a fleet moored off the coast of Dubai. Right now, the US has positioned two aircraft carriers in the Strait, and a third is on its way. Of course, Iran has a powerful military of its own. And while Iraq had few friends, Iran has powerful allies in Russia and China. Conflict needn’t be naval either. Soldiers can launch powerful anti-ship missiles just as easily from small trucks hidden in nearby desert.

Is the US drawing the world back into war?

If you look to the calmly trading oil market for answers, it doesn’t seem likely. Oil prices have been falling, not rising.

And there are a few good reasons for this.

For one thing, the US can’t afford a conflict. Its last two conflicts have cost $1 trillion each. Obama has asked Congress to raise the US debt ceiling (again) by $1.2 trillion to $16.4 trillion. And that’s just to pay for the yawning gap between tax revenues and government expenses.

More importantly, the US knows conflict would lead to oil prices high enough to freeze economic growth in its tracks.

But Iran has rephrased its threat slightly over the weekend. Ahmad Valid, Iran’s defence minister, has back-pedaled and said Iran did not actually say “it will close the strait”.

Making sure everyone understands each other would be a good start.

The US has lobbied China and Europe to drop Iranian oil, but has not made much progress. China doesn’t seem interested. Europe has asked for six months to consider its options. Japan, South Korea and India have said they would only reduce their use. Sanctions are only partly in place.

So far it seems the US has stirred up Iran, without achieving anything.

Quite rightly, the countries that buy oil from Iran would like to know where they could get oil from instead. 5% of global supply is not easy to replace. Saudi Arabia, the world’s largest oil exporter, is confident it can bridge the shortfall. Ali Naomi, Saudi Arabia’s oil minister said, “Whatever customers want, we will give it to them.”

But it is widely believed that Saudi Arabia is already at peak production, and doesn’t have anywhere near the reserves it claims to have. So whether it can bridge the shortfall is to be seen.

Needless to say, this kind of talk has drawn Saudi Arabia into the fray. Iran has said, “Such moves are not considered friendly, and that the consequences…could not be predicted.”

The US would prefer to avoid conflict. But Iran could be unpredictable when backed into a corner. How this will pan out is impossible to say.

The Strategy Ahead
It does point to the increasing importance of sourcing energy from less volatile regions, preferably from your own doorstep. For example, the shale gas revolution in the US has given it an entirely new home-grown energy source. Shale gas projects in Australia are having some success as well.

Being self-sufficient will become more important as global tensions build over energy supplies. But it’s not just the Strait of Hormuz that we should focus on.

The South China Sea is a bit closer to home. And it could be a more important flash point. About 30% of the world’s seaborne oil is shipped through the 2 km wide Straits of Malacca (between Singapore and Sumatra), into the South China Sea.

China has been throwing its weight around much more in the last few years, claiming disputed territories and islands.

The US has recently stepped up its footprint in the area. It has promised to divert its military resources to police the region in the 21st century.

This military build-up in our backyard could have big implications for energy stocks in the future. And there will be some highly profitable investing opportunities on the back of it.

Link -
http://www.moneymorning.com.au/20120116/how-global-oil-supplies-could-fall-40-ov...
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Dilemma's, the world is full of Dilemma's!