The Oil Drum

It's a beautiful day here in Eastern Canada. Time to take a walk or ride a bike!

It's not new today but here's an article I wrote a couple of weeks ago on the problems looming this winter for the UK gas and electricity supply:
UK Gas and Electricity Crisis Looming.
http://www.vitaltrivia.co.uk/2005/08/27

It goes well with the Matthew Simmons interview yesterday on Channel 4 News (UK) where he predicts an energy crisis this winter if we had any kind of a winter.
http://edge.channel4.com/news/2005/09/week_2/10_oil.wmv

Bloomberg: U.K.'s Brown Asks Non-OPEC Nations to Lift Oil Output

Sept. 11 -- U.K. Chancellor of the Exchequer Gordon Brown said he's talking to Russia and other non-OPEC oil producing nations about boosting output should the cartel fail to stem further price increases.

``You need either to have an agreement on increased production capacity from the OPEC countries or we've got to provide increased production elsewhere,'' Brown said on the British Broadcasting Corp.'s Sunday A.M. program. ``That's why we're talking to Russia, we're talking to Norway, we're talking to all the other oil producers outside OPEC as well.''

Isn't there a problem here? The rear-view mirror suggests non-OPEC and non-FSU production is a good 4 or 5 years past peak. I guess he wants to test this notion, but who can come to the rescue? Is Brown saying openly that OPEC's swing role is OVER for good?

 

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I've got a new calculation on what it would take to power the US transportation network using zinc-air fuel cells, with the zinc regenerated using carbon from biomass.  It's here.

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My first post.  Question - The Futures Market, where this oil price escalation has taken place, actually bids to purchase a small fraction of all oil sold.  I believe something like 1% or less of all oil actually sold.  However, the entire energy market uses this highly speculative pricing to determine today's crude oil prices.  Correct me if I am wrong, but this is the same oil that was profitable at $20 to $30 a barrel when it was first extracted.  It is the same oil that a company like Shell (big oil) extracts, pipes, ships, refines, pipes again, trucks and sells all within their own domain - either companies they own outright or that their products drive a company's profitability.  So, ultimately the gasoline I purchase today at $3.04 per gallon from my local Shell station provides lots and lots of profit to Shell.  It is a product that is being sold at a seemingly obscene profit (based on it's original and continued costs).  Am I wrong in my fundamental thoughts (Futures Market's pricing influence, big oil's ownership or influence on all aspects of crude oil to final product production and sales, obscene profits).  Correct me if I am off base as I would like to use these points to foster discussion in my classroom.
 

If the Gulf of Mexico oil production is slow coming back on line,
the Port of New Orleans, through which a huge fraction of US trade
flows, looks to be even slower. According to a Associated Press report
http://www.detnews.com/2005/business/0509/10/biz-309674.htm

"Still, port officials say, it is imperative to reopen the port hard along
the Mississippi River, even if that promises to be painstaking. When it
does reopen, officials say, the port will only do so at about 10 percent of
its normal capacity. The hope is to reach 25 percent after 3 months."

The telemovie 'The Oil Storm' aired on Australian commercial TV last night.  While the fictional hurricane Julia was very close to the real Katrina the program deteriorated after this.  There was no mention of oil supplies actually running low.  No real emphasis on alternatives or raising fuel efficiency.  The Hollywoood happy ending was really bad.

The program seemed to give the message that the oil supply is infinite and as long as we keep it flowing into America we will be OK.  It also reinforced the idea that anything is OK to keep the oil flowing and that Russia is the big hope for 4WD(SUV) and V8 owners.

In Australia a TV economist/commentator introduced the program just to reassure the people that all was well and this was only fiction.

What will it take to wake people up???

Our pellet stove was delivered yesterday, so now I have to install a tile base and an exhaust flue.  The dealer was very frazzled; he's being deluged with buyers, and can't restock fast enough.

We've invested in the unit, so it will be interesting to see what happens with gas heating prices.  Last winter, we kept the heat low, but our gas bill was over $200 a month anyway.  I've been telling friends that gas is probably headed way up, and many have heard predictions of a 71% increase on the news, but one woman showed me a newsletter from a financial advisor.

"If sustained, these energy price increases could seriously damage the economy.  The key phrase is 'if sustained'.  IMO, the best information on that question is in the energy futures market.  So far, energy futures have been relatively quiet.  The three-month ahead futures price for West Texas crude oil has risen only 3% over the last three days, gasoline futures are up "only" 13%, natural gas up 11% and heating oil up 10%.  I take some comfort from the relatively tranquil futures market that the soaring prices we are seeing at the gas pump will be short-lived and not add much more damage to the economy.  It is important to note that MSM have a completely different opinion.  TV and major newspapers today are saying gasoline futures are up 26%.  They are quoting the future that is less than 30 days to expiration, which is practically not a future at all, but makes for a great scare story."

So my friend believes that prices are only going up slightly this winter.

I've exchanged emails with the fellow selling Twikes in the US.  He told me that the classic Twike Active, the one with pedals that charge the batteries, is being throttled back to to moped speed to qualify as an e-bike in the US.  The Twike Easy, which is being sold as a motorcycle, will have full power.  I advised that Twike add a spec sheet to their web site; something that lists available colors, standard equipment and options, as you would find on any automobile, motorcycle or bicycle website.  If I was contemplating spending $14K to $15K for a vehicle, I'd want to be very sure what I was getting.  He told me to do a web search on Twike.

Looks like Wall Street is realizing that Katrina caused much more damage than Ivan.

Excerpts from Wall Street Journal article:

http://online.wsj.com/article/0,,SB112648415036137581,00.html?mod=home_whats_news_us

Gulf Energy Firms Cope With Blows to Service Sites

As the energy industry attempts to restart its damaged platforms, pumps and pipelines in the Gulf of Mexico, efforts are being hampered by damage to the coastal facilities that serve as the staging area for offshore operations.

The Louisiana coast is home to a huge concentration of service companies -- from family-owned outfits to operations run by publicly traded corporations -- that bore the brunt of Hurricane Katrina's landfall late last month. The assessment of offshore facilities is still a work in progress, but industry officials said it will take considerably longer to recover from Katrina than it did a year ago after Hurricane Ivan, which skirted the eastern edge of the Gulf energy fields.

Nearly half of oil and natural gas normally produced in the Gulf still remains idled, according to the federal Minerals Management Service, as service companies struggle to right themselves and help their customers assess and repair damage. In the same amount of time after Ivan's landfall, only one-quarter of production was still shut down. But the effects of Ivan lingered. In February, five months after Ivan's impact, 4% of daily oil and gas production was still idled. Katrina's destruction, which has sent prices for natural gas and refined petroleum products like gasoline surging, appears likely to linger even longer. (See related article.)

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What's more, the permanent damage this time could be greater. The U.S. Coast Guard reports 52 platforms were sunk by Katrina, compared with only seven by Ivan. Many of these platforms won't be rebuilt, meaning the pockets of oil and gas they were tapping could end up out of reach.

Katrina also appears to have permanently washed away part of a crucial peninsula used by oil companies as a staging area for work in the Gulf of Mexico, slowing down repair work and raising questions about where to rebuild. Simone Theriot Maloz, executive director of Restore or Retreat, a local nonprofit group that studies the delta, believes the storm turned the course of the Mississippi River westward near Venice, Louisiana, and took part of the town with it. A shift would further complicate oil-industry efforts to restore exploration and production from the Gulf of Mexico, which supplies one-quarter of the U.S.'s oil and natural gas.

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Before Katrina, Venice, located about halfway down the peninsula as it juts into the Gulf, was full of boats, offices and sleeping quarters for offshore contractors. "Venice is no longer there," said Eric Johns, operations manager for Specialty Offshore Inc., a closely held diving-service firm that used Venice as an operational hub for docking boats and accommodating divers. He has been forced to line up temporary facilities further west.

Venice is also home to a gas-processing plant operated by Dynegy Inc. that took in 1.3 billion cubic feet of natural gas a day, stripping it of butanes and other liquids before sending it into distribution pipelines. The company was still assessing whether the plant was viable, but said it was too early to make a determination.

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If the land continues to melt away, Port Fourchon, situated on the tip of a peninsula west of Venice, could one day be erased from maps. Normally, the port services some 1,000 trucks and 200 ships daily. But, according to projections, all the land surrounding the port will flood in the coming decades, leaving no road link for the oil companies to the port. "You can't re-create southern Louisiana the way it was 20 years ago, or even today," said Ted Falgout, director of the Port of Fourchon. "All you can do is sustain it."

Just in case anyone was wondering why on Earth a "horse farmer" got appointed head of FEMA, this just might make a little sense....

http://jasonleopold.blogspot.com/2005/09/exclusive-fema-chief-brown-paid.html

And here is a few tons of salt thrown into the wound Katrina dealt the Gulf Coast:

http://www.cnn.com/2005/POLITICS/09/10/katrina.contracts.reut/index.html

I'm not sure where is the best place to post this, but Raw Story has done an excellent job summarizing the American Red Cross and their misuse of emergency relief funds.  The ARC was incorporated in 1905 "to act under government supervision" and has many close ties to the government, including the fact that 8 of the 50 board members are appointed by the US President, one of which is the "principal officer" (CEO) of the ARC.  do we really know where and how our money is being used?