The Oil Drum | Prudhoe Bay Open Thread and News Dump 2

Prudhoe Bay Open Thread and News Dump 2

Posted by Prof. Goose on August 7, 2006 - 3:04pm
Topic: Supply/Production
Tags: alaska, corrosion, north slope, oil, oil prices, peak oil, pipelines, prudhoe bay [list all tags]

Prudhoe Bay may take months to come online.

BP expects to replace 73% of Prudhoe pipelines now.

Here's the first Prudhoe Bay thread.

185 comments on Prudhoe Bay Open Thread and News Dump 2

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optimist on August 7, 2006 - 3:15pm

Well, that's lovely news.

Being optimistic is getting harder everyday. I'm starting to get downright scared.

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davidsmi on August 7, 2006 - 3:29pm

On the other hand, an earlier and harder collapse of production would make it harder for all those desiring to prop up the corpse of western civilization to implement their plans. We just might be able to forestall the building of all those coal gasification plants (and the removal of all those mountain tops), the ramp up of nuclear waste production and the high jacking of ag land for fuel production.

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optimist on August 7, 2006 - 3:47pm

All true, but we would also have less time to prepare for the downfall, which means there will be more hardship and more deaths, and there is nothing whatsoever good about that.

I can't help but wonder what sort of world our children will live in. Assuming they live at all, which may be a big if. I do not yet have children, and I am beginning to wonder now if I ever will. I could not justify bringing a child into a world gone mad, and adoption may soon no longer be an option. By the time I finish grad school, it may be too late for that.

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odograph on August 7, 2006 - 5:11pm

The most interesting thing for me will be to see the response when we have a sold down month (or year!) for global oil production. Then we get to see if our nations can respond with a smart, half-assed, or totally stupid response.

I expect something half-assed to start, but hope that it will be forced toward the smart by hard reality, and that will be enough.

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odograph on August 7, 2006 - 5:18pm

meant to say "solid down month (or year!)"

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GreenEngineer on August 7, 2006 - 5:59pm

I'm with you on the matter of not wanting to bring a child into a world gone mad. For myself, I also wouldn't want to have my options (and my option to take risks, like switching careers to work in green building) constrained by having to be totally responsible for a dependent.

But I wouldn't worry about being able to adopt. There's always lots of unclaimed children around during any time of hardship and disaster.

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davidsmi on August 7, 2006 - 7:00pm

The number of people who will be able to prepare for the downfall will never be more than a handful. Most people in the world are too damn poor to have the option to prepare. Most people in the U.S. and other developed countries are too vested (financially and or psychically) in the way things are now to prepare. The more time until the collapse the more opportunity for people to screw up the environment. Yes, there will be lots of suffering, but a later collapse could well mean more suffering . At a minimum there would be more people to suffer and die.

On the issue of children, please do not succomb to fatalism. Even in the worst of times there are joys in being alive. Having children is one of those joys. My wife and I started a little late (in our forties), but recently adopted a little boy and have started paperwork on a second adoption. I know that they will not have the physical comforts in their adulthood that I had in mine. But that is not necessarily a bad thing. They will have opportunities to build a new world, if I can encourage them to gain the skills needed in a changed world. It is those who are most attached to our materialistic values who will have the hardest time surviving, them and the billions of very poor.
(Trying hard there to recognize my privelage in being born when and where I was.)

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shepseskaf on August 7, 2006 - 9:16pm

In my view, it will be the poor who will actually be better prepared for the crash. It is they who have to "make do" with very little, so for them not much will change.

I read a blog a few months ago written by a gentleman who lived for a few months in a rural area in Bangladesh. It was his assessment that they would be far better prepared for the advent of Peak Oil -- even though they weren't as informed as their western counterparts -- because they were almost completly self-sufficient. He stated that he would consider moving there when TSHTF rather than staying in the US.

I can't think of a population in history that will be more ill-prepared to deal with collapse than Americans. Completely pampered, with unreasonable expectations in terms of an acceptable standard of living, the stark reality of chronic deprivation is going to hit hard.

On kids: I'm in my early 40s and don't have any, nor do I plan to. I cannot in good conscience bring a life into the world with the realization of the brutal future that today's society faces.

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GreyZone on August 7, 2006 - 9:54pm

Moving to Bangladesh would be a mistake in my estimation purely due to population density. Aim for a lower population density to avoid the probability of infectious diseases and such if modern systems break down.

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Darwinian on August 7, 2006 - 10:30pm

I am wearing a baseball cap, the tag inside it reads: "Made in Bangladesh." Bangladesh is one of the most densley populated places on earth and most of the city dwellers live by manufacturing exports, mostly clothing.

If you are looking for a safe place after the crash, Bangladesh would be one of the worse places you could possibly choose.

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shepseskaf on August 7, 2006 - 11:18pm

I hear both of you. Bangladesh wouldn't be my choice either - I was just reporting what was said. I would tend to favor some of the less-densely populated Caribbean islands.

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Zanth on August 8, 2006 - 2:42am

Bangladesh is also a bad choice because the whole country is just a few feet above sea level. If the oceans rise 20 feet then most of the country will be below sealevel and possibly underwater. Ditto with most Caribbean islands. Sorry to burst your bubble there, buddy :P

The best choices, IMO, are countries that still have large surpluses of oil and gas. But they also run the risk of being invaded too, so it's a little give-and-take.

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shepseskaf on August 8, 2006 - 9:25am

Well, we have more than a few good estimates on when Peak Oil will occur (or when its already occurred), but are there any educated guesses as to when the oceans will rise 20' due to Global Warming? As I understand it, such an event isn't as imminent as Peak Oil, though I'm not as well informed on that subject.

I'll say this: if the oceans do rise 20', a lot more places than Bangladesh and the Caribbean islands will be in deep trouble. I guess we just have to pick our poisons. No place is going to be perfect in the coming collapse scenarios.

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odograph on August 8, 2006 - 2:03pm

I think the estimate used to be 20' over a century, but I don't keep up with this at all. I do know there is a bunch of good stuff at the RealClimate site:

http://www.realclimate.org/index.php?s=sea+level&submit=Search

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shepseskaf on August 8, 2006 - 5:01pm

I appreciate the link, odograph. That's a great source.

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Apuleius on August 8, 2006 - 12:58am

Bangladesh is the world's source of burlap, whose value is already increasing (because of people who prefer biodegradable burlap), and which will increase more post peak-oil. So long as some world trade is going on, the Bengalis will have a piece of the action.

Also, Bengali Islamic jurisprudence has reconciled itself to the necessity of stabilizing the population (although our Wahabbi Saudi friends are hard at work undoing that..), so the local culture has at least some chance of organizing their society to a stable condition.

I'm still not eager to join them, but they do have some chance.

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ThatsItImout on August 7, 2006 - 4:12pm

I took exactly the opposite mood....here's a post I have done on some other message boards....

We must be in better shape....
(44/M/KY) 08/07/06 03:31 pm
Msg: 65804 of 65807

Folks, we can look at this another way....

We must be in somewhat better shape than we thought....

Think about it...at the front of summer, those who saw the world darkly were predicting oil prices over $100 a barrel and gasoline at $4.50 by the 4th of July....

Since that time we have had everything but the kitchen sink thrown at us, and still have not gotten there yet....

We made the MTBE switch on gasoline additive with only minor disruptions, the switch to Low Sulfer Diesel, minor disruptions, the continued Iranian war hawk talk, minor price moves, the explosion of way in Lebenon and Gaza....minor moves....several refinery fires/accidents, minor moves, Iraq descent into civil war, minor moves, Nigerian and Venesualan tensions, met with a yawn, widespread rumors that Mexico is peaked and Canterell (third biggest oil field in the world) is dropping on production, no one noticed, labor and technical issues in Norway, did anybody even read it (?) and continued declines in the British North Sea, which we seem to see as their problem, even though only a couple of years ago they provided us with 3% of our oil, and now, the Prudhoe shutdown.....and a little buck and a half to two buck jump on a 42 gallon barrel, (the way people operate today, that's couch change money)....

You can look at it one of two ways.....

>Them damm oil boys is ROBBIN' US!! :-O
>or, We pay them oil boys pretty damm good but the sonza' biitches SEEM TO KNOW WHAT THEY'RE DOIN' :-)

Take your choice, but either way, we have to admit the oil market delivery system, love it or hate, has worked surprisingly well....I think now is about the right time to test it for strenth with another blow like a hurricane....by shiit we'll see how much she can take and keep tickin'!
:-)
-------------------------------------------------
I am starting to get ready to stake my bet....what we are seeing right now is a logistical peak, much like the 1980's. Leharre called right....peak on all liquids around 2020, and then down some 5% a year. By the way, the consensus on this would be VERY STRONG, almost across the board, with even CERA seeing the "bumpy plateau" period, and most major energy agencies growing very leery at the 2015 to 2020 mark.

That in NO WAY reduces the emergency, and still doesn't give us much time, and the logistical disruptions along the way (such as this one) will be very disconcerting. As Hirsch pointed, MITAGATION on a massive scale has to be underway NOW. Strategic storage and fuel diversity has to be widespread and NOW. WE ARE CUTTING IT RAZOR THIN, either way, not a catastrophe if we plan well and CHANGE AT THE PERSONAL LEVEL NOW, but cutting it very, very close.

I could be wrong, but that's my call, that's where my money and prep goes...and it's my money, and me up shiiit creek if I misguessed it....:-)
---------------------------------

Roger Conner known to you as ThatsItImout

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westexas on August 7, 2006 - 4:27pm

See Brown/Khebab articles for counterarguments:
http://www.energybulletin.net/news.php?author=jeffrey+brown&keywords=&cat=0&action=searc h

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ThatsItImout on August 7, 2006 - 10:42pm

Thanks for the counter argument Westexas, I actually had read that post some time ago, but the reminder is good. to do a bit of review.

The most compelling link is probably
http://www.energybulletin.net/13575.html
with it's excellent explanation of HL as applied to the top 4 world producers, Saudi, Russia, Norway, Iran. It is to be admitted that grouping these 4, of which real reliable information about 3 of which (Russia, Saudi Arabia and Iran) is almost impossable to obtain is interesting, in that it makes a bit of guesswork as to actually who's on first! It is to be noticed that a considerable amount of creaming has to be done to make the nice red bell curve fit! However, i don not argue with the chart, that is not my strong area

http://static.flickr.com/39/108519699_68c06e7df5_o.png

Also compelling is the recent work of Jean Laherre and the discussion of all liquids:

http://www.hubbertpeak.com/laherrere/EGUVienna2006.pdf

My contention is that "conventional crude oil" could well peak before 2020 (it could already be peaked, there is absolutely no way to know), but that "conventional crude" and in particular, conventional light sweet crude is becoming less of the energy picture anyway. All liquids is to me of more extreme importance, in particular as the grid and natural gas becomes a bigger part of the transportation enerrgy picture in the future (in my view, now due much sooner than previously expected)

The other issue is what can be called "data shift" due to extremely unreliable data. Even Colin Campbell himself expresses reverservations, as he shifts peak date further out in front:

From ASPO Newsletter, Sept 2005

"It is a summary of a depletion model and database that have been maintained for about 15 years, being subject to continual revision and refinement. It will be readily understood that public reserve and production data are grossly unreliable, and that even the industry databases show widely different estimates. Accordingly, it is necessary to look for trends and relationships, as well as apply common sense and geological knowledge, to try to come up with realistic assessments.

"Much interest devolves on the date of peak, but this really misses the point. It is not an isolated or high peak, merely the indicated maximum on a fairly gentle production curve."

But this in no way reduces the magnitude of the problem, Campbell's words again:

However, the importance is not so much in the date of peak itself but in recognition of the long, remorseless decline that follows."

Mitagating factors in my view
-Despite the recent concern about "plateau" by statistical experts such as Stuart Staniford and others, the "plateau" is almost at new highs, and not indicative of peak in and of itself. It is also not at all a new feature of the Saudi production history, as Saudi Arabia has been at "plateau" throughout the 1990's.
-Despite repeated and ongoing predictions of Saudi peak, the dates keep getting pushed further forward. The peak may, as I have said, already occured, (we know in fact that until 2003, the peak had indeed occured in 1981, however, through two decades no one noticed!
-The possibly false assumption that OPEC, Saudi Arabia, and in particular, Ghawar are being pumped flat out. Evidence indicates that since a period around 2001, when the 9/11 attack reduced consumption, that several large producers reduced production even more, to assure avoidence of complete price collapse. I am gaining in my belief that Saudi Arabia, while often talking a big game, has NOT raised production back to their capability, instead prefering a higher price lower production regime.
Some ask why they would not have done this in the 1990's. My assertion: That Saudi Arabia could not be sure that large producers Britain, Norway, and Canada could come in and fill the gap. They now seem more confident that these nations cannot.
-The fact that even with constant world emergencies, it has been almost impossible to get oil prices above $75 dollars per barrel. My assertion: That although that price may be painful, the great bulk of it can be accounted for by
inflation from the prior record lows of the 1990's, the need for infrastructure investment, geo-political interruptions, weather events, and demand increases from China and India. Despite a half decade of rumors and worry, at this moment, production has not seemed unable to meet a very high level of demand.
-The discovery peak. While the discovry rate did in fact peak in 1962 approx., this does not mean that discovery has ceased, and the decline from that old peak, when viewed in context, is not nearly as great as some would make it out. (indicated in the Vienna presentation by Laharre on page 3) and that the most profound collapse came after 1982, when the price of oil collapsed, thus collapsing expenditure on discovery efforts. There was a sizable recovery of discovery in 1995, but then a decline after 2001 and 9/11 back to the 1995 levels.
Willingness of the oil and gas industry to engage in discovery efforts is questionable, as companies like BP and others wish to pacify shareholders with large returns after the long drought of the 1990's, and whether they are open when they do make a discovery is questionable. Taxation and legal issues still impinge on discovery, for example, the often talked about Russian frontier which was once presumed to have large promise has been delayed in E/P by the turmoil in the Russian industry. Likewise, exploration off the coast of Greenland, Iceland, and Australia has been delayed by an array of economic and environmental concerns.
-Where efforts have been undertaken, the results have been fruitful, in particular in Brazil, which has for the time being essentially removed itself from the world competition for oil, in a very great success offshore.
There is promise in other areas along the coast of South America, the Pacific, the Gulf of Mexico, and the Outer Continental Shelf. At this moment, it is political/economic factors and not geological concerns that are keeping the world from E/P in these areas.
-Deep offshore oil E/P is much more promising than originally thought, mirroring the possibility of the "North Sea Miracle of the 1970's and 1980's. People forget that the bets were against the success of these ventures in the early days, and it completely altered the world oil markets.
-The fact that the oil and gas industry repeatedly seem to fear a price collapse much more than a supply shortfall. This creates a resistance to E/P that is badly needed ONLY IF the goal is to reduce price, which, as stated above, is not that high anyway (and shown virtually no real demand destruction due to price) when viewed from the priorities of the oil companies/producing nations. As in any business, the producer will charge what the market can bear as long is it does not destroy sales.

At this moment, we see depletion in the North Sea, (well known now for a half decade), and depletion in Mexico (expected by those in the industry). We some depletion in all the aging fields in OPEC, but none of these a surprise except possibly Bergen, which seemed to impact the oil markets very little.
Ghawar is unknown, but pre-remediation depletion is relatively certain. The effect of the remediation is important. Given that Saudi Arabian production has been flat throughout the 1990's, the Saudi fields cannot be viewed as overstressed, and in fact the production in Saudi Arabia has been turned up in volume, interrestingly, only when the need is present (and they have been making it quite clear that THEY will decide when the need is present.)

Conclusion: It is my conclusion, for purposes of my own planning, that there can be no real certainty of "peak" in the near future, although due to complete lack of information, no insurance against it, and no way to know that it has not already occurred. Thus, the complete onset of hysteria and panic we have seen in the last few monthes in some quarters is completely unwarrented. The need for mitagation by way of conservation, design, technology, and planning for fuel diversity and strategic emergency storage is ABSOLUTELY MANDATORY given the lack of information we have. The conclusion that there is going to be such a fantastic drop in oil/gas production that it renders the world too short of fuel to make remediation/restructering possible is overreaction to the wildest extreme, and frankly cannot be accepted as any type of logically supportable conclsuion given current evidence.

Just as production drops may surprise many, the drop in consumption through restructuring could be extremely great, and occur much sooner than expected, with no damage to the economy, if the consumption drops are done through efficient restructuring. The challenge to get people to break current habits will be great, but as oil and gas prices remain high, incentives for making needed changes will be apparent, and new, efficient technology will be coming into the market as old inefficient technology ages out.

Roger Conner known to you as ThatsItImout

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jim burke on August 8, 2006 - 12:55am

Whether it peaks last December or 2020, it is difficult to imagine that preparations a la Hirsch won't begin until some time afterwards.

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Nagorak on August 8, 2006 - 3:46am

You have some worthwhile arguments, and I tend to agree that it is not certain that oil has peaked or will peak in the near future. I personally am agonostic about whether the peak will be sooner or later, except to the extent I think it will be sooner than 2030 or whatever overly generous predictions have been made, and probably sooner than 2020.

That said, one argument I don't find the least bit compelling is the argument about oil not going over 75/barrel. First of all it's over that mark now, but I'll assume you mean the ballpark. But the reality is, we only hit that last year after Katrina, and at that time it was a crisis high. Now we have slowly creeped up to the point where it is commonplace, and the next crisis will most likely push us up to $80 or above. There's not a long enough track record of $75/barrel to say that oil cannot go higher, nor is there any evidence to support it being a top. On the contrary, more evidence seems to point to the $75 price point no longer being extraordinary.

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sofistek on August 8, 2006 - 6:47am

Thus, the complete onset of hysteria and panic we have seen in the last few monthes in some quarters is completely unwarrented.

Hold on, Roger; before this, you said:

no way to know that it has not already occurred

The two are incompatable. If it has already occurred, then there is every reason to panic!

Even oil company chiefs who deny a current peak in total oil say conventional oil has peaked. Of course, we keep our fingers crossed that production can grow enough to build alternative infrastructure (if the masses ever come to their senses).

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ThatsItImout on August 8, 2006 - 2:19pm

sofistek

Ah, you are on to something there, and I have addressed that in a great number of posts.....

I have come to the decision that the real reason for concern is not "Peak" per se but the absolute blindness we are are running in, and see as the ABSOLUTE first job of the energy aware crowd as letting the public how absolutely little real information, statistics, data, and transparency we actually have in the knowledge of our energy supply, souces, and world resources.....this is the greatest immediate danger.....whatever happens, good or bad, will be a complete and total surprise.
(brief aside: The biggest news about the Alaska pipeline was not that the pipeline needed maintainence and repair (gee, who'd a thunk it?) but that it seemed to catch the world by ABSOLUTE SURPRISE that the pipeline needed repair and maintainence!! :-0 How much are we paying these expert reporters in the engergy industry?

Roger Conner known to you as ThatsItImout

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sofistek on August 8, 2006 - 5:00pm

No, Roger, the surprise was that BP let it get so bad that they need to replace 70% of the pipeline. I don't think even the energy reporters think pipelines are impervious to damage and deterioration.

Tony

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odograph on August 8, 2006 - 6:49pm

Correct me if I'm wrong, but I would guess that a pipeline would corrode fairly uniformly along its length. And if maintenence consists of replacing sections (or inner surfaces), that would have to happen in many sections.

So why stop the hope pipeline repeatedly, each time just to repair a short section? Might not the optimal approach to run it until it breaks, fix everything broke, and run it again?

... now maybe they got the timing wrong on the "when" but assuming the "run it until it breaks" stategy results in minimum total downtime, maybe it was worth it.

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odograph on August 8, 2006 - 6:50pm

s/hope/whole/

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odograph on August 8, 2006 - 7:18pm

Update: just heard on the tv news that they are talking about criminal investigations of BP for something to do with inspections or maintenance ...

http://www.chron.com/disp/story.mpl/ap/fn/4103225.html

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sofistek on August 7, 2006 - 5:31pm

Yes, you could be wrong. I think the optimistic predictions (i.e. after 2010) all require a fairly stable set of oil producing nations and not much extended disruption from natural causes (or from corroding pipelines). None of these seem to be sensible assumptions. Such disruptions might extend the tail but they are also likely to bring the peak nearer and lower.

Tony

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GreenEngineer on August 7, 2006 - 6:05pm

Yes to everything you say, but a nearer, lower peak is a good thing, insofar as it permits a longer plateau and a more gradual decline.

We're not at worldwide geological peak (i.e. the peak as imposed strictly by geological factors) quite yet. So I really think that our best bet is to hope for lots of logistical/geopolitical/weather impacts. It means more pain sooner, which will hopefully translate into less pain later. The danger, of course, is that too much stress could shatter the economy and the production systems that we need to use to build the transition infrastructure. But so far the economy has been more resilient against high oil/gas prices than I would have expected.

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expat on August 7, 2006 - 6:11pm

Hello,
well, my opinion remains unchanged - peak is here, now. We can certainly discuss various aspects, and this is merely an opinion, but what is coming out of the pipeline is less than a year ago - and essentially, that is the reality we will be living with for the next several decades.

It is entirely possible that it will take years for that truth to set in for a majority of people after peak - whenever that may be.

At what point does a logistical peak become the real one? In other words, where are the major discoveries to replace what we have drained from the now tattered kings and queens?

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Gunga2006 on August 7, 2006 - 3:23pm

Is anyone familiar enough with the geology of Prudhoe Bays reservoir to guess if there will be any negative impacts on future production with a quick shutdown like this?

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GreyZone on August 7, 2006 - 3:30pm

I'm not a geologist but isn't this no different than "resting" a field? This might actually be good for Prudhoe Bay (in the long run). Perhaps Dave, Heading Out, westexas or someone else in the industry can comment.

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westexas on August 7, 2006 - 4:00pm

I don't think that there will be any negative effects from the shutdown (with one caveat, see below), but the physics here is the same as Cantarell and Ghawar--the remaining oil column is between a water leg and the gas cap. Prudhoe Bay produces from a very porous and permeable sandstone, in contrast to the carbonate reservoirs in Cantarell and Ghawar. I don't have the exact number, but I think Prudhoe Bay production is down by about 75% or so from its peak production.

The one caveat is that I think that they have been injecting water into the gas cap in order to boost the pressure in the field. I don't know if months of no production might have some longer term negative impact if it gives more time for the water to reach the oil leg through gravity drainage.

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step back on August 7, 2006 - 4:47pm

I think Prudhoe Bay production is down by about 75% or so from its peak production.
....Conspiracy thought: What if Pudhoe decline is worse than reported and this a convenient way to cover it up?

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Triffin on August 7, 2006 - 5:13pm

I was researching BPT ( Prudhoe Bay Royalty Trust )
And came across these figures for depletion
from the 2005 Annual Report ..

Historical Production
Production from the Prudhoe Bay field began on June 19, 1977, with the completion of the Trans-Alaska Pipeline System. As of December 31, 2005 there were about 1,111 active producing oil wells, 33 gas reinjection wells, 82 water injection wells and 136 water and miscible gas injection wells in the Prudhoe Bay field. Production from the Prudhoe Bay field has declined over the past five years. The average well production rate was about 546 barrels of oil per day in 2001, 375 barrels per day in 2002, 350 barrels per day in 2003, 317 barrels per day in 2004 and 293 barrels per day in 2005.

Triff ..

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step back on August 7, 2006 - 5:23pm

So that puts us on an 8% per year down slope?

But then again, what is the dollar value up slope?

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sofistek on August 7, 2006 - 5:39pm

More like 14% on these figures. 31% in 2002, 6.5% in 2003, 9.5% in 2004 and 7.5% in 2005.

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rwmcalister on August 7, 2006 - 6:05pm

Do we know if the number of wells was constant over that period? If not, we can't tell what the actual decline rate was for the field overall.

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ggg71 on August 7, 2006 - 6:06pm

293 * 1,111 = 325523/bpd.

Where's the other 75,000 bpd coming from?

And that's a 2005 number. 2006 would probably be 7% less then that.

Garth

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Gunga2006 on August 7, 2006 - 6:42pm

Here is some info from the BPT 2005 10-k Filing.
"The net proved remaining reserves of oil and condensate associated with the BP Working Interests is approximately 1,043 million barrels as of Dec 31, 2005."

Also re. Field Geology:
"Gross reservoir thickness is 550', with a maximum oil column thickness of 425'.The original oil column is bounded on the top by gas-oil contact, originally at 8,575 feet below sea levelacross the main field, and on the bottomby an oil-water contactat approximately 9,000' below sea level. A layer of heavy oil and tar overlays the oil -water contactin the main field and has an average thickness of around 40'."

re. Oil characteristics:
"The oil produced from the Prudhoe Bay (Permo-Triassic) Reservoir is medium grade, low sulfur crude with an average specific gravity of 27 API degrees. The gas cap composition is such that, upon surfacing, a liquid hydrocarbon phase, known as condesate is formed."

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Triffin on August 7, 2006 - 7:17pm

Here's the link to the text of the 2005 10-K

http://yahoo.brand.edgar-online.com/fetchFilingFrameset.aspx?FilingID=4282125&Type=HTML

Triff ..

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Mad Maxout on August 7, 2006 - 5:40pm

Watch for a Prodhoe Bay layoff. A layoff of the workers indicate the shutdown. No layoff would be s symptom of a probable coverup. Or the layoff could go unreported, which is why I say probable coverup.

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Nagorak on August 8, 2006 - 3:50am

Aren't they going to need workers to replace the pipelines and also keep everything else in operational shape? It seems to me that it's unlikely we'll see layoffs, since BP would just have to hire them all back on again when the field starts producing again. It seems more likely they would put them to work somehow while the field is offline, maybe making other optional repairs that have been put off for some time now.

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fallout on August 8, 2006 - 9:05am

Refinery and wellhead workers generally don't do miles of pipe replacement work. Different skill sets. What we're more likely to see is layoffs of some, while hiring more welders and pipefitters. All in all, a wash.

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Magnus Redin on August 8, 2006 - 1:54pm

You mean its normal to layoff parts of the run-the-facilities staff for 3-9 months of maintainance and then to hire and train new staff?

Seems quite suboptimal. It should be better to get them to do other maintainance or do simple supportive tasks for the pipe replacement workers such as supplying local knowledge and handle stuf for them and then restart the facilities withouth any retraining costs.

But what do I know? I have never been CEO.

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fallout on August 8, 2006 - 3:26pm

Sorry, I have no experience with refineries or oil wells in general. But from an industrial manufacturing experience standpoint.....what do oil workers do for 6 months, while not extracting or pumping oil? Learn to be pipefitters and welders?

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xxxburb on August 7, 2006 - 3:24pm

"a response from the Organization of Petroleum Exporting Countries, which said it would be able to cover the shortfall of 400,000 barrels a day."

The market isn't so sure.

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steverino on August 7, 2006 - 3:24pm

from the marketwatch article:

...U.S. Energy Secretary Samuel Bodman said oil from the nation's Strategic Petroleum Reserve could be shipped to West Coast refiners by barge or could be utilized in swaps. In such an exchange, a refinery owner in the Gulf Coast could receive SPR crude and then send crude from a different location to the West Coast...

...oohhh sammy, i din' know you could pump oil like dat!

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kvenlander on August 7, 2006 - 3:24pm

I fully expect that this will be used to drum up support for drilling in the Arctic National Wildlife Refuge.

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kvenlander on August 7, 2006 - 3:26pm

And, of course, off-shore California.

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shepseskaf on August 7, 2006 - 10:08pm

And off-shore Florida.

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louGrinzo on August 7, 2006 - 4:53pm

It doesn't matter. Any and all recoverable reserves of oil and natural gas will be tapped, eventually. It's an inescapable conclusion once you accept the basic notion of peak oil (or NG), that the age of cheap energy from those sources is over, they'll only get more expensive, etc.

Whether this particular incident is used as an excuse to drill ANWR or the OCS or the CA coast or anywhere else is academic. The real battle will be how much effort we can put into minimizing the environmental damage from the extraction and use of those resources.

I've mentinoed this several times over on my site, and every time I do I get at least one e-mail from a reader talking about how we "can't" drill in these pristine areas. I think that view is laudable but flawed.

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odograph on August 7, 2006 - 5:16pm

I've been taking the "it's inevitable" position myself for some time. Sometimes, when I argued with "drill now" folks it was obvious that they'd never considered that it was really a question of timing. I guess it's mirror-image mental traps. Some environmentalists think they can decide to leave some areas aside forever, and the other folks think "drill now" rather than leave them aside, forever.

FWIW, I oppose drilling in those areas, on the theory that we will need it more later, and we'll drill it then.

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step back on August 7, 2006 - 5:41pm

Where are we on that darn offshore drilling bill and how soon until Washington finds the will power to get it to the President for signature? Hmmmm

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Don in Colorado on August 7, 2006 - 5:54pm

Are we absolutely sure there is any recoverable oil in ANWR?

Will that pipeline hold up long enough to get it delivered if it does exist?

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oldhippie on August 7, 2006 - 10:46pm

LOL

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fallout on August 8, 2006 - 9:06am

No, and probably not, respectively.

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petersburger on August 7, 2006 - 9:49pm

If we had a responsible, forward-thinking federal government, we would preserve oil and NG resources in ANWR/off the Florida's gulf coast for future generations of Americans, who will probably never be as wasteful and profligate as our generation. However, we have the system of government that does not care to look beyond the next election cycle, so expect drilling in two years.

P.S. Book your trip to Florida's gulf coast this year (after the hurricane season) to enjoy those pristine white sand beaches while they last. Pretty soon it will look like Texas.

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bjj on August 7, 2006 - 10:10pm

Pretty soon it will look like Texas.

That would be an enormous shame. Inevitable it would seem. But a shame, nonetheless. We ate at Crab's the other night (right on the beach by the water tower) and the view was superb. Light breeze, white sand, the whole bit.

I agree with two themes above:

we should save some petroleum for the next century.
we won't

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Nagorak on August 8, 2006 - 4:01am

I don't really think we need to save petroleum, we just need to figure out how to get beyond it. We're going to have to figure out how sooner or later. If our society can't adapt to find ways to survive on renewable resources, then we are screwed either way.

Once (or if) we come up with a viable alternative way of doing things, then there's no reason to go back to using oil anyway. So, realistically if we "saved" oil it would only be never to be used, because we'll have made a transition by that point. And even if we haven't saving a few drops of oil to stretch out our current society a bit longer would be just pointless if it's become clear we can't operate without oil.

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Nagorak on August 8, 2006 - 3:57am

Well, in all fairness, drilling those places isn't going to do any good in the long run. It's not going to be enough to counter the downtrend in oil production, and thus it's not going to ameliorate the need to move over to a non-oil based (preferably non-carbon) energy system. If we were smart and started developing alternatives, then we might indeed never need to drill in those places. The need to drill there as a stopgap measure will only be an indication of our utter failure in planning for the future.

I will not be surprised if we end up drilling there and basically everywhere else in a desperate attempt to find more oil. But the end result will be the same, and if we were smart and working for a faster transition, we could easily just skip on drilling in those areas. As it is, maybe we'll have environmentalism to thank for buying us a little bit more time. Wouldn't that be an ironic turn of events from the standpoint of all parties?

Anyway, hopefully we'll never drill there, but realistically, the way things are going, it's basically inevitable.

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davet on August 7, 2006 - 8:53pm

I love it. We are well past peak in US production and our response to an 8% disruption in supply? Dig up whatever we have left even faster! This is the thinking of utterly abject addiction, total enthrallment to a chemical mistress. And when she abandons us, then what?

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step back on August 7, 2006 - 9:13pm

Then we pray to The Market god and he shall provide.
(It is foretold.) ... ;-)

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Essex Land Rover Man on August 7, 2006 - 3:27pm

I think my comment on the Alaskan winter and working through it is more relevant now. Do workers work outside from November onwards or do they effectively hibernate until April/May time?
Or is this a big enough problem that safety issues don't come into it and they have to work through it.

The SPR will need to release about 12 million barrels per month to replace the Alaskan oil shut in at the momemt. Will SPR oil be released now if it is estimated to take 3 months or longer to effect all repairs? I guess that is the $64 quesion.

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GreyZone on August 7, 2006 - 3:31pm

At the moment it appears to be a $77 question. ;)

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Ben on August 7, 2006 - 4:09pm

The only time the tundra is hard enough for heavy equipment is winter (historically, at least) so all constuction happens then. So next spring they'll have to stop if they don't have the repair/replacement done.

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westexas on August 7, 2006 - 7:32pm

Very good, but long, article on a previous spill, and why they think the corrosion started suddenly getting worse:

http://www.petroleumnews.com/pntruncate/573947058.shtml

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Bnjmn on August 7, 2006 - 10:16pm

Interesting note from that article- BP expects to be in Alaska another 50 years (nat. gas extraction given as the reason).
That timeframe would seem to justify replacing 73% of the pipeline and take things out of the "conspiracy" realm.

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Stoneleigh on August 7, 2006 - 10:39pm

Could a geomagnetic storm have caused a failure of cathodic protection? I know there has been concern about (and studies done on) the potential effects of such storms on the cathodic protection for the proposed MacKenzie Valley pipeline.

The paper I have on my desk is called Telluric Current Effects on Pipelines by DH Boetler and L Tritchenko of the Geomagnetic Laboratory, Geological Survey of Canada:

Telluric current effects on pipelines have been observed for nearly half a century. The first extensive investigation of telluric currents was made in the mid-west US by Gideon and co-workers, for the American Gas Association. Construction fo the Alaska pipeline in the high latitude region noted for enhanced telluric current activity prompted further investigations. Subsequently other high latitude pipelines were shown to be affected and reports of telluric current effects were also obtained for pipelines in New Zealand, Africa and Germany, as well as on the seafloor. Most telluric currents are produced by geomagnetic disturbances, although tidally-induced effect have also been reported. As well as pipelines, other systems such as power lines and phone cables are affected and these ar just one class of technological system that is affected by geomagnetic disturbances.

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karlof1 on August 7, 2006 - 3:32pm

Here's an interesting item about the UNSC debate, http://www.atimes.com/atimes/Middle_East/HH08Ak01.html

Further, Lebanese living in Scotland are feverishly working to get Blair for war crimes, http://www.informationclearinghouse.info/article14393.htm

There's also a massive revolt going on in Labour, http://news.independent.co.uk/uk/politics/article1214560.ece

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GreyZone on August 7, 2006 - 3:34pm

Democrats demand hearings about BP pipeline shutdown.

Again, perhaps someone in the industry can comment but I can't see any way to repair a pipeline where pipe itself needs replaced without shutting it down. If that is the case, then this is pure demagoguery.

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Smush on August 7, 2006 - 5:02pm

ditto.

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Nagorak on August 8, 2006 - 4:06am

It is pure demagoguery. But oil companies are an easy target. I am really quite disappointed with the response most people have to higher oil prices. They just want to find someone to blame. But the person they need to blame is staring right back at themselves in the mirror. No one forced us to build a society in which cars are the only practical form of transportation. No one forced us to drive big gas guzzlers. Even the small "fuel efficient" cars available today (Honda Fit, etc) are not available with the small engines they offer in Europe, nor are they even as fuel efficient as the small cars from 10-20 years ago. People here have been living in denial, while slowly moving to larger and larger vehicles, and not coming up with any alternatives.

Let's not kid ourselves, or look for scape goats, that is the reason we are facing the crisis we are now.

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Ricko on August 7, 2006 - 3:35pm

Repeat from earlier post.

Score another one for Simmons. He has been warning about our ageing energy infrastructure for several years. I know this problem is not directly related to Peak Oil, but the more I see his various warnings come true the more I am heeding his warning that we have peaked.

http://www.simmonsco-intl.com/research.aspx?Type=msspeeches

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Ben on August 7, 2006 - 3:40pm

I'm sure y'all covered this in one of the threads, but perhaps what the Dems are wanting to hear is why the company didn't test / assess / maintain their pipeline better, allowing it to get to the point where 70% needs to be replaced in a time of record-breaking cash flows and profits.

I'd kinda like to know, too, why they let their golden goose get the flu.

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Gunga2006 on August 7, 2006 - 3:46pm

I'm not an apologist for the major oil companies but BP would get crucufied no matter what they did. If it's not leaking like a sieve and they stop production everyone would scream bloody murder. Now, it's leaking and they stop to fix it so everyone is screaming bloody murder.

Stop for preventive maintenance- price gougers
Stop for corrective maintenance- incompetent a**holes

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Prof. Goose on August 7, 2006 - 3:51pm

yep, Gunga, I think you're right about that. Seems to be the way of politics at the moment at lot of damned if you do, damned if you don't.

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Don Sailorman on August 7, 2006 - 5:46pm

Looking on the brighter side, there is going to be a lot of overtime pay at very high rates for more workers who are suddenly going to have to go fix or replace those old pipelines.

Some Alaska oil/pipeline/specialty-construction workers I know work half the year in Alaska, make more than a hundred grand in six months, then come to to their Hawaiian condos for a winter of R and R. Not a bad life . . . .

("R and R" stands for "Rest and Recuperation," but the military version is I and I, and what those letters stand for I'll just have to let you guess;-)

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fleam on August 7, 2006 - 5:59pm

Inactive and Incontinent? :-P

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Dryki on August 8, 2006 - 10:24pm

Having a robust system with redundant paths is uneconomical. I see in this everywhere - a system/paycheck/resource leveraged to the max, running at the smallest possible margin, without a net. Just in time (or better if a little late because one can charge more....). Same story for every sector of society under monopoly control: the costs are not born by the producer, but by the consumer. Let alone the citizen.

My thinking is capitalism as currently implemented cannot cope with limits. It's a giant entropy machine, converting natural wealth to waste. At least compared with membership owned cooperatives, it seems a poorer choice for a world with limits.

cfm

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wkwillis on August 7, 2006 - 7:29pm

It's not that they are shutting down the pipeline, it's that they are shutting down the pipeline without the repair workers standing by with the spare pipe neatly piled by the side of the pipeline so they can start replacing the corroded pipe right now, not when the pipe from the Korean steel mills gets there next spring.

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Magnus Redin on August 8, 2006 - 3:17am

Very good point, they are are not running their operation in a competent manner if it is correct. Being undecided about continuing to operate due to high demand or doing preemptive maintainance is not in the way for prepairing to maintain.

Wonder if it will be run in a Soviet manner in a few years? Only patching up the biggest spills and fuck the rest. Our long term environmental care depends on the short term problems being manageable, freezing or starving changes the prorities to here and now.

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Nagorak on August 8, 2006 - 4:08am

BP really did drop the ball on this somehow. How did the corrosion catch them by surprise like this? Why weren't they slowly replacing sections of pipeline, taking each feeder section offline one at a time. There really is no excuse for them to find 70% of all the pipes need to be replaced.

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optimist on August 7, 2006 - 3:51pm

I'd kinda like to know, too, why they let their golden goose get the flu.

Their 'golden goose' has been in decline for some time, and they may simply have concluded it was cheaper and easier to let it rust than perform expensive maintenance operations.

I won't be surprised at all if BP comes out once the markets calm down from this and announces that it's not economical to replace that much pipeline on a declining field, and therefore they intend to shut the field down permanently.

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Hurin on August 7, 2006 - 3:54pm

Might it be more economical to go back to using oil tankers than replacing the pipes.

Any opinion on this.

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steverino on August 7, 2006 - 4:16pm

i'm not an oil guy, but i don't think oil tankers would much like travelling through the gulf of alaska and the bering sea, on the way to the artic icepack. hence, the need for the alaska pipeline to valdez, an open water port near the inland passage to the west coast.

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fleam on August 7, 2006 - 5:40pm

Icepack? You're worried about icepack?

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optimist on August 7, 2006 - 5:57pm

Most ships can't get through the winter icepaks of the Arctic. It takes an icebreaker to make the trip, and even with an convoy of icebreaker followed by tanker, the trip would probably marginal and might be impossible; oil tankers are much larger than ice breakers!

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fleam on August 7, 2006 - 6:01pm

Yeah, and with GW coming on the way it is, you're worried about that? :-P

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steverino on August 7, 2006 - 6:44pm

even with global warming, the winter ice pack in the artic still exists, contrary to popular opinion.

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fleam on August 7, 2006 - 7:31pm

Well, I'm kind of saying..... Not for long!

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oldhippie on August 7, 2006 - 10:50pm

Pretty old drawing. Sea of Okhotsk doesn't freeze anymore.

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fallout on August 8, 2006 - 9:13am

Good catch, oldhippie. The artic ice pack is about 70% of the illustrated size today.

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karlof1 on August 7, 2006 - 4:03pm

"I won't be surprised at all if BP comes out once the markets calm down from this and announces that it's not economical to replace that much pipeline on a declining field, and therefore they intend to shut the field down permanently."

Then the markets would go bonkers. Temporary removal of 400KBP can be accepted, although prices will go higher. Permanent removal would be very different. Although, at current and probable future prices, I don't see BP shutting it down. If it did, I would think its lease would be pulled and resold to some other IOC.

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Ben on August 7, 2006 - 4:03pm

Ah, thanks for the responses everyone. I know that it's a no-win for the company. I expect lots of hand-wringing in Washington:

"We can't let our pipelines fall apart!"

"How about a tax break to motivate the companies to maintain their assets?"

"What a great idea!" etc.

To me this is not much different from the "we don't have enough refinery capacity because it doesn't make economic sense to build a new refinery" issue.

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westexas on August 7, 2006 - 4:06pm

I suspect the reason that they have been having problems with corrosion is rising water cuts. All of these big fields are on their way to where East Texas is now--99% saltwater and 1% oil.

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raymond on August 7, 2006 - 4:46pm

An industry insider told me that it was due to CO2 corrosion.

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Fire Temple on August 7, 2006 - 11:28pm

CO2 without water won't corrode carbon steel.

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fallout on August 8, 2006 - 9:12am

Nope, but sulfur and salt water sure will.

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Jon Kutz on August 7, 2006 - 4:50pm

Am I correct that the pipelines we are talking about being shut down are the wells to the oil/water separation facility only. Not the Trans-Alaska Pipeline?
So these are smaller local transit pipelines? I do assume that they are also insulated against the cold temps up there in the frozen North? Does the insulation make it more difficult to check on the condition of the oil carrying pipe? (I would think they have to remove the insulation to be able to run wall thickness tests - And that must be time consuming and expensive and difficult?)

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Ben on August 7, 2006 - 4:55pm

According to one of their press releases (at bp.com):

BP is identifying and mobilizing additional resources from across Alaska and North America in order to speed inspection of remaining Prudhoe Bay oil transit lines. BP operates 22 miles of oil transit pipeline at Prudhoe Bay. Smart pigging inspection has been completed over about 40 percent of that length.

FWIW

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Ben on August 7, 2006 - 4:57pm

Sorry, I neglected to link to the press release.

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xxxburb on August 7, 2006 - 5:17pm

Here's another

http://money.cnn.com/2006/08/07/news/international/oil_alaska/index.htm?cnn=yes

BP spokesman says '16 miles of major pipeline in the field' will need to be replaced.

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joule on August 7, 2006 - 5:20pm

Jon Kutz -

I don't know for sure it that is indeed the case. But it would certainly make a lot of sense, because a crude oil/water mixture that hasn't been yet been fully degassed will contain not only saline water but also some hydrogen sulfide and carbon dioxide, both of which can cause serious corrosion in the presence of water.

If the pipe in question is above a certain size, I don't think the presence of insulation would interfere with inspection (at least internally), as that would be likely done by running an inspection 'pig' down the inside of the run of pipe in question.

This whole thing smacks of maintenance knowingly deferred in order to keep production at maximum levels. Pipes don't corrode overnight, so BP must have long been aware that the margin of safety on its pipe walls was getting thinner and thinner but kept on putting off the needed repairs.

This no different than having an old high-mileage car that you know is in need of major repairs but which you keep running and running until it finally craps out.

All we need now to hit the trifecta is a category 4 hurricane in the Gulf of Mexico and war with Iran.

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TheDave on August 7, 2006 - 7:10pm

I may be wrong, but I believe that the insulation involved with arctic oil pipelines is there to keep the permafrost from melting, rather than to keep the pipes from freezing.

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Darwinian on August 7, 2006 - 10:58pm

Nah, the insulation is to keep the viscosity low. The oil must travel all the way across the state, about 800 miles I think. The oil would be like molasses if it were to drop to ambient temperature in the middle of the winter. It would be impossible to pump.

They do have to take measures to keep the permafrost from melting where the pipeline supports stand but I am not sure what they are. Too bad we don't have an old pipeline worker to explain all this to us. When I worked in Saudi Arabia I worked with several people who helped build the Alaska pipeline but I have lost touch with them.

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Zanth on August 8, 2006 - 2:47am

I know most of the pipeline is built above ground in Alaska in order to prevent permafrost from melting (I read a placard that said that when i visited the pipeline last year, heh), so maybe its just simple elevation?

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fallout on August 8, 2006 - 9:19am

The oil is heated at pumping stations along the length of the pipe.
The pipe itself is not insulated.....impossible in a 800 mile pipe.

More info:
http://www.theoildrum.com/comments/2006/4/17/135253/457/201#201

The problem is astoundingly simple: BP hasn't pigged the affected transit pipelines since 1992, relying on x-ray inspection and anti-corrosion treatments instead. They made a mistake, and now it's come back to bite them.

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Francois on August 7, 2006 - 3:58pm

1 pm on the West Coast (Rancho Cucamonga, near Los Angeles - all is calm. Gas sells for $3.15 a gallon - diesel for $3.28. Nobody seems to be rushing to fill yet.

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PnDsCm on August 7, 2006 - 4:16pm

$2.94 in South Seattle and went ahead and took advantage of it at 1pm. I almost expected to see many others out doing the same, but they weren't. I guess a pipeline in Alaska seems a long ways away even if it could directly effect the west coast.

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Nate Hagens on August 7, 2006 - 9:02pm

gasoline futures went up a penny Monday and are giving much of that back in monday night session (so are about equal to where they were before this Prudhoe Bay news hit).

In other words, there is something we are missing to this story.

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odograph on August 7, 2006 - 9:27pm

I tend to agree. The markets could just be preoccupied with the wars in the middle east ... but I'd say that every day my retail prices in California don't budge, the lower the odds they'll do anything wild.

FWIW, we had a one-cent uptick in a long down-trend yesterday:

http://www.orangecountygasprices.com/retail_price_chart.aspx

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brutus on August 7, 2006 - 4:04pm

At some point, the price of oil collapses the global economy as inflation rampages and Fed raises rates. Remember money might not understand PO, but it does hate inflation.

When that happens there will be serious drop in oil demand, many other things will come to fore, but it will buy a little time.

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sofistek on August 7, 2006 - 4:13pm

From the top article:

could prompt producers with spare capacity such as Saudi Arabia, which has about 1.5 million-2 million barrels a day extra it could access, to release more oil into the market

Isn't this now known to be pie in the sky spare capacity? SA output has been falling recently. Does anyone really expect SA to bring on another 400,000 barrels per day, at short notice?

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Prof. Goose on August 7, 2006 - 4:43pm

they have all of the heaviest, sour-est crude any country could want...but it ain't gonna be light sweet that they throw at us. Ergo, it's meaningless..

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Jon Kutz on August 7, 2006 - 4:56pm

I thought I read somewhere that the Prudhoe Bay crude was heavy sour crude? And that the west coast oil refineries were able to handle heavy sour crude for that reason.
If that's so, then a couple of those Saudi tankers that are crusing around the oceans looking for a buyer should be able to fill the west coast needs <RGBG> [sarcasm]

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Darwinian on August 7, 2006 - 11:05pm

Prudhoeoe Bay oil is intermediate crude. Or at least that's what they have been saying all day on CNBC. That means not really light sweet and not really heavy sour but somewhere in between.

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westexas on August 7, 2006 - 4:14pm

Simmons/Kunstler Event Last Year

Prior to the Simmons/Kunstler sysmposium last year in Dallas, Matt and Jim did a one hour talk show on the local PBS station. I have been trying for months to get a copy of it, and I finally called the right person. They are supposed to be sending it to me within a week. It was a very good talk show. Matt and Jim, who had not met each other until that day, were basically finishing each other's sentences.

I'll see about getting it posted, and I'll see how much it will cost to get it transcribed.

Matt Simmons: "If we don't do something to address Peak Oil, Jim Kunstler will have turned out to be an optimist."

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stevel on August 8, 2006 - 8:35am

related to this, Unilever UK just issued a warning that a move to biofuels is bad news for europe: http://business.timesonline.co.uk/article/0,,9065-2302045.html

Well, they complain that even making 5% of the EU petrol/diesel out of biofuels will use up 50% of the rapeseed stock, and that will affect their margins in the "yellow fats" market segment. But the underlying message is "the EU not only lacks enough oil and gas for its inhabitants, we dont have enough landmass for growing things, not once we lose the petroleum based fertilizers". biofuels just aggregates a problem.

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Dave Cohen on August 7, 2006 - 4:24pm

From No need to hurry Alaska gas deal, Browne says

The visiting BP executive said his main reason for coming to Alaska was to check on repairs and upgrades at BP's North Slope operations. The repairs and upgrades were needed after a corroded Prudhoe Bay crude oil pipeline the company operated leaked about 200,000 gallons earlier this year.
Browne said BP has launched an aggressive program to fix corrosion on its ageing pipelines.
"I take full responsibility for ensuring that those steps are carried through," Browne said.

BP Moves Beyond Petroleum
on the US West Coast

No Physical Shortage of Supply

The price of oil has soared because of political anxieties, not because of any physical shortage of supplies at the moment, Browne, chief executive of BP PLC, said in a wide-ranging interview in the company's Midtown offices here Wednesday, a day after his company reported another jump in quarterly earnings and a day before Exxon Mobil Corp. is expected to set new records.
"The explanation probably lies in this balance of anxiety and stability. Are people anxious? They look at the news, and they see issues with Iran, issues with Iraq, issues with Lebanon, issues with Venezuela, issues with Nigeria, issues with Bolivia," Browne said. "And so we get some geopolitical drive on the price of oil, and that seems to be fueling this rather dramatic increase that's taken place recently."

Are People Anxious? No Physical Shortage

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ggg71 on August 7, 2006 - 4:43pm

Please.

The price of oil has soared because of rising demand in the face of inelastic supplies. Econ 101.

And I don't know if people aren't anxious. The truckers in Colorado sounded anxious to me the other day. Hell, I went and filled up my tank this morning on the Alaskan news.

People won't get anxious untill it effects them directly. Either shortages at the pump, or another big jump at the pump. Then you'll see complaints for 4-6 weeks, then it'll die down and things will be business as usual.

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Dave Cohen on August 7, 2006 - 5:02pm

Aside from the fact that you've missed the sarcasm and the point, and aside from the fact that someone needs to lecture me on Econ 101, rising demand, inelastic supply or lack of spare capacity -- and finally aside from the fact that Browne's complacency irritates me no end...

Oh, never mind !

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ggg71 on August 7, 2006 - 6:17pm

Dave,

That comment was directed at the CEO from BP. In hindsight I probably could have let the sarcasm speak for its self, but I was just so flabbergasted after reading that quote...

It wasn't a good day in the Oil patch.

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Dave Cohen on August 7, 2006 - 6:21pm

Sorry, I misunderstood you. No, not a good day.

-- best

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Squalish on August 7, 2006 - 6:01pm

And aside from the fact that Colorado was about problems with the switch to low-sulfur...

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stalkylittleboy on August 7, 2006 - 5:05pm

I do not understand how "political anxieties" can have more than a small effect on the price of oil. There are X barrels of oil available for sale. People would like to buy more than X barrels if they were available; they are not, so the price rises until demand is X.

In order for the price to be driven higher, buyers must be willing to spend more to acquire their share of X. Why would political anxieties affect the day-to-day demand? Political anxieties lead to hoarding, not increased consumption.

So, does he mean that such anxieties are leading to higher-than-expected consumption by SPRs around the world?

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Dave Cohen on August 7, 2006 - 5:25pm

Re: I do not understand how "political anxieties" can have more than a small effect on the price of oil

Political axieties don't have more than a small effect on oil prices, that's the point. See the Israeli/Hezbollah war. You might have expected a sharp increase in price if anxiety were all there was to it. In fact, there was only a modest gain. Nonetheless, anxiety plays a role but no one agrees about what it is and how can you quantify anxiety?

Browne is talking about the geopolitical "risk premium" on oil prices and blaming the resultant anxiety -- remember, this means A state of uneasiness and apprehension, as about future uncertainties -- for high prices. What he is not acknowledging is that price may be based on the supply & demand fundamentals of the marketplace. This is his sly way of reassuring all of us that if oil traders and all the rest of us would just a take some tranquilizers, everything is going to be OK. In his self-serving view, there is no supply problem.

Since BP has screwed up the Prudhoe Bay pipeline maintenance -- I mean, c'mon! how could they let those pipelines get into such an advanced state of decrepitude? and permitted a 200 thousand barrel oil spill a few months ago -- they have just effectively reduced American supply by 400/kbd indefinitely. That's not something to get anxious about. It's a done deal. The result is even more pressure on price. I wonder what Lord Browne has to say now? What a hypocrite.

Now that I've told you this, maybe you can explain it to ggg71.

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stalkylittleboy on August 7, 2006 - 7:50pm

Browne is talking about the geopolitical "risk premium" on oil prices and blaming the resultant anxiety -- remember, this means A state of uneasiness and apprehension, as about future uncertainties -- for high prices.

What is a risk premium? How can increased risk lead to increased demand, other than demand for long term storage?

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enviro attny on August 7, 2006 - 8:38pm

"What is a risk premium? How can increased risk lead to increased demand, other than demand for long term storage? "

The increase price from a risk premium has nothing to do with increasing demand. Instead, petroleum users and traders are betting that supply disruptions may occur in the future. They would rather pay a slightly higher amount (the risk premium) to lock in supplies than a potentially much higher price if there is a production loss.

The real issue with the risk premium argument for why prices are so high is the fact that risk premiums only exist because supplies are so limited. If there was a substantial excess capacity in the world, then supply disruptions would not be able to cause a significant effect upon price. By saying that there is a risk premium, the PO naysayers are admitting that there is no excess world production capacity.

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Don Sailorman on August 7, 2006 - 10:48pm

Um, I think reality may be a bit more complicated than you indicate, because

Changing expectatations shifted the whole demand curve and
The changing expectations that shifted the supply curve also in this case tend to shift the demand curve up and to the right. Why?

Because, not only has the situation on the ground changed, the risk premium (which is part of the demand curve, not only the supply curve) has also changed in a way that makes crude worth more than it was yesterday.

In GENERAL factors that affect supply curves do not also affect demand curves. Expectations are the huge elephant that is an execption to this generalization. Note that both supply curves and demand curves are based on opportunity costs, and in this case the opportunity costs affecting supply have shifted the supply curve up and to the left, while the demand curve has been shifted up and to the right.

This goes a bit beyond the way Econ 101 is usually taught, but we leave a whole lot out from the introductory class so as not to confuse students with the truth.

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Agnostoman on August 7, 2006 - 4:41pm

Don't worry about it! People will just charge it! The numbers from last month show that's what they have been doing! Why stop now?

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ggg71 on August 7, 2006 - 4:44pm

If it works for the government why can't I do it??? :)

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egl9sun on August 7, 2006 - 4:55pm

I am guessing that judging from the fact that oil from the pipeline, and oil from barges and trucks run by two very different time tables, there is a massive shortage between supply and demand heading our way on the west coast and replacement supplies will arrive too late, and be too little. I do not think until the shortage actually hits will you see anyone putting two and two together.

400,000 real barrels of oil are now going away for what appears to be a long time. Where will the real replacement come from and how will it really get here? Sound bites for for a while, but they are not oil/ or gasoline.

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BabyPeanut on August 7, 2006 - 5:12pm

I fully respect DantesPeak's statements:

After further review of the situation, I think the Prudhoe Bay collection system stoppage is much worse than I originally thought.
To review: this shutdown concerns only the pipeline collection system for Prudhoe Bay so far - which is about half of the total input to the Alaskan pipeline. It is now being revealed that there was severe corrosion - possibly across the entire collection system due to a significant amount of sludge. Sludge is partly water and compounds, such as sulfur, which causes internal corrosion. The sludge may also have traveled into the Alaska pipeline system over time and also corroded that. However, no one at this time is saying that the main Alaska Pipeline is corroded, but it may be at least partially.
It is conceivable most of the Prudhoe Bay collection system will have to be replaced or repaired, and even with more efficient pipeline construction methods and favorable weather, this could take one year. Logically, if there is corrosion damage to the main Alaskan pipeline, it would be better to fix it now while half of all the collection fields are closed - rather than close the entire pipeline down later for repairs. However logic may not prevail in the post peak oil US (if anything, IMO we have passed the worldwide peak in extractable light sweet crude), and due to the need for gasoline along the western coast of the US, the main pipeline may not be shutdown.
I anticipate starting in about 5 days (3 days to shut down, 3 to refine/ship, less one day past already), a gasoline shortage in the western states and Hawaii will materialize and last for about 10 to 20 days. After then, the first shipments of new barge/tankers contracts will arrive in the West. Wholesale gasoline prices in the west may go 20, 30, or even 40 cents higher than the east for a few weeks until supplies even out across the country.
Welcome to the slippery down slope of PO.

I would like to add that the ensuing fuel shortages will perhaps have an impact on industrialized food production in California which may cause a ripple effect into food production and availability.

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Ben on August 7, 2006 - 5:19pm

BP operates 22 miles of transit pipeline in Prudhoe Bay (link).

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Prof. Goose on August 7, 2006 - 6:31pm

and 16 mi of it has to be shut down, no one's said yet how much has to be replaced.

salt water cut. wow.

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Biologyfool on August 7, 2006 - 6:50pm

5 days? This guy had never heard of inventories? Oil isn't a JIT business as far as I can tell.

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totoneila on August 7, 2006 - 5:19pm

Hello TODers,

http://news.yahoo.com/fc/Business/Oil_and_Gas

----------------
BP PLC said Monday it will replace 73 percent of the pipelines from the nation's largest oil field and that production could be closed for weeks or months, crimping the nation's oil supplies at a time of peak demand. BP, the world's second-largest oil company, began shutting down the pipelines on Monday and said it would replace 16 miles of the 22 miles of transit pipeline it operates in the Prudhoe Bay field following a leak discovered Sunday.
--------------------
Does anyone know how much spare pipe of the right dimensions and carbon content is available in Alaska now-- or does it have to come on a 'slow boat from China'? The Chinese military is probably already ordering that any request for Alaskan replacement pipe goes to the back of the line, no matter the profits to be gained!

Replacing this loss of Alaskan crude to the West Coast by shipments from OPEC in a timely matter may be difficult. Does anyone have stats on how many spot-market VLCC-tankers ply the Pacific? Or would it be easier to send Venezuelan crude through the Canal to resupply the West Coast? Or do Mexican oil exports to the US go to TX, LA by pipeline or boat? I am not aware of any Mex exports going by pipeline to CA refineries--or am I mis-informed?

Anybody know how much oil prices have to rise to cost/justify the entire Alaska pipeline replacement for the remaining crude? Or do the economics of Canada oil-sands make sending this steel to Athabasca a better decision?

Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?

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Tsulio on August 7, 2006 - 6:14pm

Bob,

I can't give you any information regarding pipeline materials in Alaska, but I can assure you that they're readily available in the Lower 48. If BP starts to discuss the replacement of pumpstation components, however, this outage will last some time. Pumps can require months to manufacture, and that doesn't count the time required for placement, tie-in to the line, and hydro-testing. Luckily, I have yet to see any mention of this. A bigger factor than material availability may be the weather.

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Brudaimonia on August 7, 2006 - 5:44pm

This is to elaborate on my last comment in the first Prudhoe Bay thread regarding the threat to the state of Alaska specifically in terms of revenues, and the contentious issues of oil production tax reform and the very-related natural gas pipeline contract discussions/debacle.

----

There was widespread disagreement in the regular AK Legislative session (winter and early spring) about what the exact production tax rate and tax credit for capital investment should be. There was a lot of bickering and hair splitting around the number 20% tax rate, i.e. some said 21, some said 22.5, etc, and on the second to last day of the session (which lasted until 4am or so, which I attended to the bitter end) they were still bickering about the exact rate and tax credit.

This was all when all of Murkowski's expert consultants (including the internationally renowed energy consultant Pedro van Meurs) recommended a rate of at least 25%, and state Democrats (in a pretty slim minority, esp. in the House) advocated for 30%. Murkowski, having had closed-door discussions with reps from BP, ConocoPhillips, and Exxon on the gas pipeline and the oil tax (which the corps wanted included as a term in the gas pipeline contract discussions, a potentially unconsitutional measure), tried to hold firm at 20%, giving the oil companies as low of a tax rate as he figured would fly with Alaskan citizens, who gradually became more disenfranchised with the machinations of the oil companies (and their related PR campaigns, which were resounding failures).

On the last day of the session it looked like Murkowski's legislative cronies were going to muscle through a rate of around 21 or 22 percent, I believe, but then there was a major schism amongst the Republican majority, between some older establishment Republicans and Murkowski's legislative proxy, Senate President Ben Stevens (son of Ted). The bill didn't pass and the regular session ended.

Into the second special session oil tax reform still hasn't been resolved. In a way what I wrote above was a long-winded way of saying how big of an issue oil tax is in Alaska right now, and some of the controversy and contention that have gotten into the legislative debate so far this year.

The bottom line is that reforming this archaic production tax, along with a natural gas pipeline to be built some day, was hailed as the future revenue generator for the state of Alaska, and a way of ensuring that the suckle of Alaskans' PFDs (that's Permanent Fund Dividends to you - a lump sum of cash every Alaskan who signs an intent-to-stay form receives every year from oil and gas revenues, right now around $900 or so) continue into the future.

The problem, as we are now seeing, is that expected revenue does not always pan out, like for instance when a major oil producer shuts down a field that produces half of Alaska's oil. From the Seattle PI:

According to forecast figures from the Alaska Department of Revenue, a production drop of 400,000 barrels of oil per day would mean about $4.6 million per day lost to the state. That is money going to both the state treasury and the state's oil wealth savings account, the Alaska Permanent Fund.

Like I said before, in anticipation of these and future revenues, the Alaska legislature (led by ostensibly fiscal conservatives) spent like a drunken sailor in its capital budget. The infamous "bridges to nowhere" and Juneau "road to nowhere" were not wholly federally funded. The state has to pony up matching funds in each case, over $45 million in the case of the Juneau road.

So if this Prudhoe Bay shutdown draws out for a long period of time, it could become, at worst, a spark in a room of dynamite for Alaska. I hope not, and I hope this changes the collective mindset in Alaska to focus more on finding alternative sources of government revenue (say, income taxes) for the future.

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kenny on August 7, 2006 - 5:58pm

Q. 400,000 bpd of lost Alaska production is equal to

a) more than
b) a quarter
c) a third
d) half

of the world's spare production capacity.

No matter how you answer that question, you have to believe that the crisis will dramatically increase the near-term volatility of oil prices/magnify the price impact of any perceived threat to supply.

Consequently, even if the Alaska news doesn't send prices into record territory tomorrow, any additional bad news from Iraq, Nigeria, Iran or Venezuela will really, truly rock the boat, baby.

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Nagorak on August 8, 2006 - 4:24am

Does Alaska even need income tax? Sounds like if you just stopped paying people just for living there, Alaska would have a lot of money to throw around.

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fleam on August 7, 2006 - 6:04pm

Israel just knocked down the last bridge over the Litani river in Lebanon, as the BBC newsreader said, "Lebanon is for all practical intents cut off from the outside world" now.

Isreal will allow "humanitarian traffic" though, yeah, right.

I never thought things would go this way - Israel is really "screwing the pooch" here. Translation: utterly fucking up. The world, and in this I include a large portion of the US public, is appalled by their actions.

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tom deplume on August 7, 2006 - 8:45pm

The Isrealis know that it is logistics that win or lose wars. They feel a dire need to stop the rockets of Hezbollah from falling on Isrealis. That means doing the job the Lebanese army couldn't.

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Nagorak on August 8, 2006 - 4:25am

Yeah, but they aren't fighting a standard war. Therefore their actions largely make no sense whatsoever.

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Jack on August 7, 2006 - 9:43pm

Leave it alone Fleam. You may be obsessed with Israel, but the topic of the thread is Prudhoe Bay. Your analysis is kneejerk and your frequency oppressive.

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BrianT on August 7, 2006 - 10:39pm

95% of US politicians and persons of influence appear to be pretty satisfied with the military adventure. The US public has no say in this one.

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totoneila on August 7, 2006 - 6:21pm

Hello TODers,

Let's examine the West Coast supply logistics as Prudhoe Bay is shut down, bearing in mind that this loss of crude was relatively light and sweet compared to what is coming from elsewhere to replace it. So, right off the top of my head: I want to know the future status of West Coast refineries reduced outputs as they process more heavy, sour [if they can!]. What is the probable gasoline shortfall--10, 20, 40%?

Consider that the West Coast's supply chain has doubled or tripled in length overnight due to the Prudhoe shutdown. What use to be a relatively short run down the coast now will require these tankers to go to OPEC to fill up instead, then turn around for a long haul back to LA, Frisco, and Puget Sound. IF these tanker-ships were designed to have small bunker-fuel holds for the short West Coast run [normally refilling in WA, OR, CA], then it may require mid-Pacific refueling for them to make the whole trip.

Another consideration: how many of these former West Coast tankers will fit through the Panama Canal as they try to bring crude from the SPR or Venezuela westward? If they are too big, then PanaMax tankers can charge outrageous prices for the traverse from the GoM and Carribean to the West Coast! If there are not enough spare PanaMax tankers-- then we may be looking at very large tankers having to transfer their loads to barges on one side of the Canal, then repumping the fuel from the barge into another ocean-going tanker on the opposite side of the Canal. These extra steps and time will cost BIG $$$ if the West Coast refineries have to have a minimal percentage of light, sweet in order to optimize their refinery production.

If the Canal cannot handle this sudden jump in shippng traffic-- will we see tankers actually going around South America desperately trying to get crude of the proper API to the West Coast refineries? Will it get so bad that the Nigerian light, sweet will go all the way to the West Coast?

Hopefully, some experts will weigh in to answer these questions. Hopefully the shortages won't get so bad that the West Coast crops rot in the fields because the trucks and trains cannot get them to the markets all over the country. Nevada, being 100% dependent on CA refinery supplies, could shutdown the casinos and dissuade tourist gambling: this would allow more fuel to be diverted to food harvesting and shipping. Yikes! I sure hope it doesn't get this ugly too quick.

Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?

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GreenMan on August 7, 2006 - 7:58pm

Bob:

I believe that there is a pipeline across Panama for just such uses, but I don't know its capacity or utilization level.

A quick google yields:

http://www.photius.com/countries/panama/economy/panama_economy_oil_pipeline.html

The trans-isthmian oil pipeline served as a transshipment point for Alaskan North Slope oil en route to the east coast of the United States. The pipeline, completed in October 1982, was 81 kilometers long and had a capacity to move 850,000 barrels of oil a day. The pipeline joined two terminals owned by Petroterminales de Panamá, a joint venture between the Panamanian government and a United States company, Northville Industries.
In 1982 the pipeline generated US$69 million, a figure that rose to US$138.8 million in 1986. The pipeline accounted for 7.4 percent of Panama's GDP in 1985, when value added peaked at US$158.7 million; in 1986 its share of GDP fell to 6 percent. In fact, the pipeline's net contribution to GDP has been small. Despite the increase in activity since 1982, the pipeline has never reached capacity; its daily throughput in mid-1987 was 575,000 barrels. Moreover, if the pipeline had not been built, the transportation of oil across the isthmus could still be accommodated by the canal. The pipeline did, however, free up the canal, and was expected to make a greater net contribution to GDP.
Panama's oil pipeline faced competition from the All American Pipeline, which extended from Santa Barbara, California, to McCarney, Texas, where it connected with other pipelines that led to the east coast of the United States and to the Gulf of Mexico. Nearly completed in 1987, the new pipeline, owned by Celeron Oil Company, was the longest in the United States. Whether the American pipeline would be able to compete effectively with Panama remained uncertain; overland pipeline transport was generally more expensive than sea transport in large tankers.
Data as of December 1987

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totoneila on August 7, 2006 - 11:20pm

Hello Greenman,

Kudos, excellent find! Now does anyone know if this is operational today-- or is it inactive, corroded, and clogged with sludge like the BP transit pipes feeding into the Alaskan Pipeline? Does Panama have sufficient kilowatts and skilled techs to power this Isthmus transit system?

Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?

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earldaily on August 7, 2006 - 9:28pm

bob
these are the best questions on this thread and I don't hear the big dogs chiming in. Cali, the world's sixth largest economy, needs to start asking these questions like nine hours ago.
thanks again

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Will on August 7, 2006 - 9:46pm

I am wondering what happens to long range air travel from any of the west coast facilities: example L.A. to Hong Kong, or L.A. to New York and vice-versa. Does everyone begin flying legs from Denver?

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Don in Colorado on August 7, 2006 - 11:01pm

I started wondering today about Japan? Will they have replacement oil for what they can no longer get from Alaska?

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DavidM on August 8, 2006 - 12:50am

My first post, pointing to today's Bellingham Herald:

Whatcom County's BP Cherry Point refinery gets about half its crude oil supply from Alaska's North Slope, but BP's shutdown of North Slope production won't affect refinery operations here immediately.
Refinery spokesman Mike Abendhoff said crude oil stockpiles at Cherry Point and in Valdez, Alaska, can keep things up and running normally for a few days, along with crude already aboard tankers bound for Cherry Point. But if the oil field remains out of production for more than a week or two, the company will have to scramble to find new sources of crude on world markets.
Ten years ago, the Cherry Point refinery got all of its crude oil supply from Alaska. Since then, the company has diversified its supplies, and now about 115,000 of its 230,000 barrel-a-day input comes from Alaska, Abendhoff said.
http://www.bellinghamherald.com/apps/pbcs.dll/article?AID=/20060807/NEWS03/60807004

Cherry Point is the largest refinery in Washington State
http://bpcherrypoint.com/external/index.cfm?cid=67&fuseaction=EXTERNAL.docview&documentID=26 95

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xxxburb on August 8, 2006 - 1:26am

"BP Cherry Point Refinery is the largest marketer of gasoline and jet fuel on the West Coast. One out of every five cars in Washington state runs on BP/ARCO gasoline. Three out of four planes at SEA/TAC Airport uses BP/ARCO jet fuel"

From your 2nd article. Great info! Esp. today.
BTW How come gasoline seems to average higher in the B'ham area than most other places in Wa.?

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Woilf on August 8, 2006 - 1:45am

"BTW How come gasoline seems to average higher in the B'ham area than most other places in Wa.?"

It seems that Canadians, who are paying significantly more for fuel just a few dozen miles north, may be contributing to a run-up of prices in the Bellingham area as they travel through Whatcom County on their various endeavors in the U.S. Instead of filling up in, say, Vancouver, why not wait and fill up south of the border, where it's a whole lot cheaper? I suspect that this is just part of the story, however...

-best

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DavidM on August 8, 2006 - 12:35pm

"BTW How come gasoline seems to average higher in the B'ham area than most other places in Wa.?"

No one's been able to adequately explain why Bellingham has the highest prices in the state. I've found lower prices even in Lynden which is even closer to the Canadian border.

BTW, I haven't yet noticed a significan uptick in prices here since the announcement. Regular gas has been selling for $2.99 to $3.22
http://www.washingtongasprices.com/Bellingham/index.aspx

The Bellingham Herald has updated the article I pointed to last night on the BP Cherry Point refinery:

Abendhoff expressed confidence that BP could keep the refinery operating at capacity with new fuel sources. But energy analyst John Kilduff of Fimat USA, a global financial services firm in New York, said that could be a challenge.
"I'm skeptical of the argument that they can get the oil from elsewhere," Kilduff said. "In the current environment ... it's all spoken for."
Kilduff said the crude oil supply disruption likely means that motorists will face spikes of about 10 cents per gallon in this region, and could also mean spot fuel shortages. While severe shortages probably won't develop, Kilduff would not rule them out either.
"This is uncharted water for us," he said.

http://www.bellinghamherald.com/apps/pbcs.dll/article?AID=/20060808/BUSINESS/608080350

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Nate Hagens on August 7, 2006 - 6:34pm

This is a classic example of why net energy matters. The sludge that caused the corrosion was because of heavier oil OR lack of maintenance on the pipeline. In the early days of Prudhoe oil, neither of these would have been a problem, yet as time goes by, the 'energy' required to update, clean, etc these lines increases. This is lower 'net'

For those that think in economic terms, this increased the price of oil over $2 today and might help accelerate substitutes. But its a real time example of net energy.

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ThatsItImout on August 7, 2006 - 7:24pm

True, and is exactly where Matt Simmons hit the nail on the starting in the late 1990's. The first time I ever heard of him back at the turn of the century he had written a white paper on the need for massive infrastructure investment in ALL ASPECTS of energy exploration/production/transport and research. The remark that struck me and caused me to go to his website was something close to "for those who argue about renewables vs. fossil fuels, there is no argument. We will need both of everything we can get."

At that time, Simmons was calling for a trillion dollar investment in energy infrastrure in all the areas above over the next half decade. We are now six to seven years past the time he started saying this. Has anyone seen that kind of investment? Either way, that alone would have driven the oil/gas price up, with or without peak fears....

Roger Conner known to you as ThatsItImout

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fallout on August 8, 2006 - 9:28am

Another case of diminishing marginal returns on investment. More effort for less reward, the classic definition of a declining system.

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totoneila on August 7, 2006 - 11:44pm

Hello TLS,

Good point! I wonder if Skrebowski, Campbell, and Laherre are incorporating ever-increasing downtime allowances for infrastructure replacement due to maintenance issues.

Hey Freddy Hutter--you out there? Can you email these 'Peakoil topdogs' and ask them how problems like Prudhoe affect their timelines? Big Thxs.

Has Yergin & CERA held a press conference yet on how Alaska being one-half offline helps drive crude to $38/ barrel soon? <GRIN>

Bob Shaw in Phx,Az Are Humans Smarter than Yeast?

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fallout on August 8, 2006 - 9:31am

Freddy is apparently hiding, no doubt to avoid appearing a fool. =P

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Robert Rapier on August 7, 2006 - 7:19pm

Check out the blistering expose of Xethanol at Sharesleuth:

Xethanol

I especially enjoyed these quotes:

Detractors say cellulosic ethanol has yet to prove economically feasible, despite three decades of trying.
"Sometimes I compare the difference between ethanol from corn and ethanol from cellulose as the difference between traveling to the moon and traveling to Mars,'' said Robert Rapier, a chemical engineer who works in the petroleum industry and has done research on alternative fuels. "We have traveled to the moon several times, and while not cheap, the feasibility has been demonstrated. There is no doubt that we could travel to Mars, just like we can make cellulosic ethanol, but the costs of both are prohibitive, and the barriers to commercialization are huge.''
"The proponents always downplay the challenges, and just presume they will be solved,'' said Rapier, who writes about ethanol issues on his blog, R-Squared. "They seem to think they can just legislate their way to commercial viability. That hasn't worked with hydrogen, and I don't believe it will work with cellulosic ethanol.''

I have got to work on my quotability. I think I can do a bit better than that. :-)

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Nate Hagens on August 7, 2006 - 7:45pm

The readers of theoildrum (and the nation for that matter) should count their lucky stars you are a better chemical engineer and energy analyst than a one-on-one basketball player....;)

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Robert Rapier on August 7, 2006 - 7:51pm

Not one-on-one. I was pretty good at one-on-one. I suck at H-O-R-S-E.

But at least I know to hold my tongue when under the influence of alcohol and with a video camera rolling. :-)

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Nate Hagens on August 7, 2006 - 8:42pm

OK. 'Nuff said...;)

Back on topic - why did oil go up so much today and gasoline futures were only up one penny? (Sep basis). Do we have plenty of crude to refine to end product for Sep irrespective of 400,000 bbl shortfall?

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Robert Rapier on August 7, 2006 - 9:22pm

I will get back to you in a moment. I am on the phone with Khosla again.

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Robert Rapier on August 7, 2006 - 10:13pm

Do we have plenty of crude to refine to end product for Sep irrespective of 400,000 bbl shortfall?

It would appear that we do, because crude inventories are a good 50 million barrels higher than normal for this time of year. If we allow the inventories to be pulled down, and tap the SPR if we need to, we should have plenty. However, I expect more volatility as we pull inventories down. I still think $80 oil is an easy bet in the near future. Oh, and I don't know why gas didn't move any more than it did. I suspect it is because the bottleneck is refining capacity, and because of the high inventories there shouldn't be a gasoline shortage. But I anticipated an upward move on gasoline.

I spent another hour on the phone with Khosla tonight. We talked mostly about energy balances. My 4-year kept screaming at me to play with him, and my wife wasn't here to help me out. It was a bit comical.

Oh, and I think I know why you can't find any ethanol stocks to short. Mavericks owner (and billionaire) Mark Cuban has been shorting them. From the Sharesleuth story that I was quoted in:

AFTERWORD FROM MARK CUBAN
Based on the information that Sharesleuth has uncovered, I have chosen to short shares of this company. My personal approach to investing, and in this case shorting , is very consistent. When there are a lot of individuals with pasts that include sanctions from the SEC, there is a good chance they are up to their old tricks again. Which leads me to want to short the stock.
When a company says they are operating a plant to produce a product, and that plant has no utilities, I want to short that stock.
So I am short 10,000 shares of Xethanol. I would like to short more, but I haven't been able to borrow any more. I am currently in the money on the shares.

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GreyZone on August 7, 2006 - 10:16pm

Haha! Sounds like Robert remembers what may be on some tape somewhere. ;)

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Robert Rapier on August 7, 2006 - 11:10pm

Let's just say that I now know where the bodies are buried. And a guy with a video camera and a weekly TV show has copies of the tape. :-)

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Dragonfly41 on August 7, 2006 - 9:25pm

OK...bring out the photos guys. We need some lightheartedness on a day like today.

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Ricko on August 7, 2006 - 7:43pm

On shutdown. Note quote from A.G. Edwards

We estimate it could take between 2-3 months to get it back on line," Bruce Lanni, an industry analyst with A.G. Edwards, wrote in a research note. "However, there are no assurances that it will return to current capacity, given the complexities and age of the reservoirs. Thus, we would not be surprised to see volume losses in the area of 5 percent to 10 percent."

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xxxburb on August 8, 2006 - 12:47am

"Thus, we would not be surprised to see volume losses in the area of 5 percent to 10 percent." After a 3 month rest?

Great find BTW!

...So if they don't just pick up the same production from before the repairs ....why not? (A possible explanation from Westexas upthread?)

"The one caveat is that I think that they have been injecting water into the gas cap in order to boost the pressure in the field. I don't know if months of no production might have some longer term negative impact if it gives more time for the water to reach the oil leg through gravity drainage"

Is that what Lanni means by age and complexity of the reservoirs?

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roel on August 7, 2006 - 7:56pm

Ok, first, the link fallout posted in the 1st thread, the PBS doc on the construction of the Trans-Alaskan, is hilarious, scary, and recommended.
(1000% cost overrun, hasty work, not a confidence booster)
http://www.pbs.org/wgbh/amex/pipeline/filmmore/pt.html

Then a question, for anyone who might know the legal details of the Alaska/Big Oil tax rules: The Seattle PI reports that the state will lose $4.6 million a day in revenues for the duration of the shut down, or $1.68 billion a year.
So how much will BP lose? Should be easy if you know what percentage the state tax is. (or do the Feds take a percentage as well?)

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Oliver North on August 8, 2006 - 6:09am

This PBS link is hilarious, thanks! Mafia, Teamsters, drugs, sex, fraudolent contractors, corporate america, Congress.. there is just everything in the story of building that Alaskan pipeline..

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Oliver North on August 8, 2006 - 6:51am

Video of the pipeline:
http://www.pbs.org/wgbh/amex/pipeline/sfeature/flyover.html

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fallout on August 8, 2006 - 9:36am

Glad you guys liked it. The actual documentary was even better, of course.

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sofistek on August 7, 2006 - 9:01pm

Phew!

"Producers' group Opec expressed worry at the closure, but said it had enough spare capacity to meet any shortfall."

"It certainly isn't going to create any shortages," Tancred Lidderdale, an analyst with the federal Energy Information Administration, said.

http://news.bbc.co.uk/1/hi/business/5251458.stm

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TheTransition on August 7, 2006 - 9:42pm

The effect in Australia is likely to be an immediate subsidy for Biofuels and efforts to fast-tack GTL and CTL. The various backbenchers in Parliament have discovered that voters don't like high petrol prices one bit. Particularly as they're seen to be responsible for the latest increase in interest rates.

http://www.theaustralian.news.com.au/story/0,20867,20054496-601,00.html

Nice quote about it being the "No 1, BBQ stopper". Point being that not much in the way major policy questions makes it into everyday conversations.

Anyway, the discussion about alternative liquid fuels is happening in oz now.

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fireangel on August 7, 2006 - 10:39pm

http://www.bloomberg.com/apps/news?pid=20602099&sid=adcHeXaf.zuM&refer=energy

Why are Saudi's raising the price of oil if there is more than enough to go around?
Where are the extra 400,000 barrels?
Where is the extra light sweet oil?
What the hell is Bush doing in spite of knowing about peak oil?
These and other exciting questions will answered in next week's exciting new episode of Peak oil.

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Don in Colorado on August 7, 2006 - 11:17pm

The President says we're going to use "switch grass."

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step back on August 7, 2006 - 11:33pm

Not to be confused with flip flop grass.

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wigz on August 7, 2006 - 11:42pm

Bush is ate up
may have n haled... but can't remember... alcohol is a fuel?

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kalpax on August 7, 2006 - 11:38pm

..and for bit of entertainment, I just found this song about gasoline addiction

It's in German, but I believe the general gist of the lyrics and images is universal. Enjoy!

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kof on August 8, 2006 - 12:11am

How likely is it that production in the field fell below the minimum level to operate the pipeline? Can anyone answer that with a high level of confidence?

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