The Oil Drum

There has been the occasional story popping up in Drumbeat over this past week or so about the severe winter and gas shortages in Iran, and their resulting cut in supplies to Turkey. The Iranian domestic shortage was supposed to be made up from Turkmenistan. Unfortunately the shortfall from Iran to Turkey was supposed to be made up by increased supplies from Russia, but those also are falling short. About a year ago we saw some of the same discussion about supplies from Turkmenistan, through Russia, to Europe, with shortfalls and price increases – particularly relating to the gas supplies to Ukraine, through which the pipelines flow. At the end of that discussion the Turkmen got an increase in the price of their gas. It is therefore not surprising to see that Turkmenistan is seeking to double the price it gets from Iran.

As the production from Saudi Arabia continues to lag, even if transiently, Russian production and exports become more critical to world supply. And so we exchange the problems of getting oil from the sandy wastes of the Empty Quarter, with those of production from the icy wastes of Siberia. There are a couple of small issues, that I thought could be discussed, relative to this.

The first of these relates to gas supplies from that part of the world. It was interesting to note, in light of a number of comments made on this site about Gazprom’s acquisition of Western European pipeline company shares, that they now appear to be similarly interested in those of Portugal, as their strategy to control gas flows throughout Europe continues to succeed. The benefits, to them, of this policy are clear, for example in the negotiations over Kovykta, a field with 2 tcf of natural gas and over half a billion barrels of condensate. The plans were to sell some 2 bcf, largely locally, and then to expand deliveries through pipeline networks.

Unfortunately BP has noted:

TNK-BP cannot sell gas from its vast east Siberian Kovykta field or its smaller Rospan unit in western Siberia without Gazprom because of the Russian gas giant's monopoly control over Russia's pipeline network.

And here it has a problem, since the local market is not large enough to absorb the gas that the field can produce...

As we start off 2007, it seemed helpful to list the oil producing countries that Oil Drum readers might keep an eye on, both in this and future years. Often, the global production curve is presented in an undifferentiated way or is divided between OPEC and non-OPEC countries (as with the EIA). Other standard data sources such as the IEA, BP, Oil & Gas Journal, etc. usually break out production by region.

Taking a different approach, I decided to single out those countries that have made significant production increases in recent years — defined as any producer nation that has contributed an additional 0.5% to the current global liquids supply from fossil fuels (crude oil, condensates + natural gas liquids) since the year 2000. The result is shown in Figure 1.

Countries contributing at least a 0.5% increase since 2000 in world production of liquids fromfossil fuels (grey) versus the rest of world (blue). Does not include CTL or GTL. Data from BP — Figure 1

Will these difference makers deliver us from the turbulence & chaos of economic contraction and provide peak oil salvation?

As we look at the world market for fuels, one of the major growth areas in demand continues to be China. And, given their considerable potential impact on which product goes where and from what resource, in the future, it is interesting to put a few news items together and see where the wind is blowing.

One could start by noting that China's economy has been growing at 10.7% this year about 2.7% above the initial target of 8%, a number that has also been set as the official rate for next year, at this point. And while there are some publicity stunts, such as trying to stop private cars driving for a day, that will both highlight the current reported consumption of 8.7 mbd by those cars, it will also highlight the benefits of public transportation, one can assume that the current trend of higher than official growth rates may well continue. However even though the power generation system is currently hurting due to a drought that has lowered water levels, newly built coal and natural gas plants should cover the shortage.

China's seasonal hydropower output has been falling since August as dry weather shrinks reservoirs, but two years of rapidly rising coal- and gas-fired power generation should prevent another surge in oil demand.

Power generation from hydropower plants -- which can produce up to a quarter of China's electricity -- fell 10.3 percent on year in October, raising the burden on other plants to meet China's 10-plus percent growth in electricity demand.

Output was down by 8 percent and 4 percent, respectively, in the preceding two months, as water reserves shrank and the southwest was crippled by a drought that state media said was the worst in over a century.

Oil & gas in the Caspian has a long history - indeed it is one of the earliest oil production regions in the world, with Baku a major oil center in the second half of the 19th century and beyond. What makes the situation today interesting is the simultaneuous appearence of three things: (i) new reserves discovered offshore, (ii) the fact that, with the break up of the Soviet Union, the oil is located in (new) countries that are keen to have foreign investment and are now one of the few oil provinces around the world that still welcome Western oil majors, and (iii) these countries have no direct access to the world markets.

Graph by JaP. "kb/j" = thousand barrels per day. "Autres" = other

[editor's note, by Prof. Goose] This is a guest post by lads.

This article is a first simplistic (but comprehensive) assessment of World Oil Exports, here defined has the total amount of liquid hydrocarbons that are surpluses in producing countries. This assessment is made by projecting in to the future fixed change rates that reflect current trends in liquids production and consumption in countries where presently the difference between the two is positive. The outcome of this assessment is worrisome.

A news imbalance exists in the reporting of supply-side developments affecting peak oil claims. Apparently, there is nothing but good news lately—actually, this is being reported as the absence of bad news. This trend has driven down oil prices since early August. Is the trend real? Today, Barrie McKenna reminds us in Those quick to deride peak oil theory also don't know Jack about the bigger picture.

A chronic pitfall for economists is that the daily deluge of data often obscures more meaningful long-term trends...

It's that old adage of not seeing the forest for the trees...

With oil now in the low $60 range, many economists are rethinking their assumptions of last year...

The problem in all this is that the peak oil theory isn't about $78-a-barrel oil. And the price of abundance isn't necessarily $63.

Let's look briefly at the forest, not the trees. There's plenty of bad news.

Along with most who have read it, I was much impressed with the Chicago Tribune special segment on oil this weekend, and, if you have the time, would highly recommend that you both read the articles and watch the video (which takes about an hour). It does not have the fictionalized aspects that we have seen in other coverage from the BBC through Fox, and CNN about the problem, but rather, in a series of facts, lays out the situation. For those who don't have the opportunity, I thought I would give a summary, with some comments.

So, having made the trip from Durham to London, what is the first impression of the capital, since last time - it is one of lines of stationary taxi cabs waiting in a long queue for fares in a line that extends for a couple of hundred yards on the street, upstream of one of the two major train stations. I walk 20 minutes to my hotel past lines that seem, at time to be barely moving, and with cabs that, on average, contain a single passenger glancing worriedly at their wrist watch. It is definitely worse than New York.

The town is still lively, the restaurant where we had dinner (the one with wait staff in black kilts) had a full booking until late in the evening. The BBC show, and the topic in general did not engender any level of serious concern. The restaurant was interesting in that, for a while it was a relatively ethnic Scottish place where one could order haggis, neeps and tatties. Now, however, as it becomes more of a market presence, the flavor is moving toward the norm, that melage of food that, while good or excellent in quality is no longer so specifically tied to a region.

I had a dish made up, originally, from pork bellies. I can remember, from a movie that I cannot, the opportunities that pork belly futures once had. And so, tonight I ate some. The point is, I fear, a wee bit tenuous but is this. We can get quite excited about trading in the market, as some of the recent comments have shown, but when the day is over, somebody, somewhere will be eating that pork, or using that oil, and we reach a "rubber hits the metal" point where absolute supply meets absolute demand.

Well it appears that the thought of a New Great Game is catching on, as an image to describe the scene, if nothing else. The discussions this week are focusing on Kazakhstan where, you remember

China's CNPC last year bought Kazakh oil producer PetroKazakhstan, and the first oil from Kazakhstan reached China last week via a major new pipeline. Turkmen President Saparmurat Niyazov last month paid a six-day visit to Beijing, where he signed off on a plan to send 30 billion cubic meters of gas annually by a new pipeline to China beginning in 2009. Not satisfied, China is in talks with Kazakhstan over a gas pipeline from that country, too.

Well enter Vice President Cheney and the United States has an alternate suggestion

U.S. Vice President Dick Cheney is expected to push in Kazakhstan on Friday for a major new gas pipeline from the country to bypass Russia and take Kazakh gas westward through Azerbaijan and on to Turkey.