Perceptions based on perhaps too small a collection of information can lead into opinions that, on investigation, turn out to be incorrect. Just recently a couple of friends had mentioned that charities that they are associated with were seeing a decline in donations. I built this into a picture of the general public being less able to afford earlier levels of giving, perhaps because of the continued impact of higher costs of fuel. However, the perception is as a general statement, wrong, and (via the National Park Service from The Giving Institute) I learned that:

Americans gave more than $298.42 billion in 2011 to their favorite causes despite the economic conditions. Total giving was up 4 percent from $286.91 in 2010. This slight increase is reflective of recovering economic confidence.

The greatest portion of charitable giving, $217.79 billion, was given by individuals or household donors. Gifts from individuals represented 73 percent of all contributed dollars, similar to figures for 2010.

In the perception that is becoming increasingly prevalent on the future of energy supplies, and particularly on crude oil, the current adequacy of supply is projected forward to anticipate no problems with supply in the future. Peak oil is now suggested to occur not because the supply is limited, but because with the increasing use of renewable energy, demand will peak, and then decline. Bloomberg New Energy Finance founder Michael Liebreich is quoted as projecting that the growth in fossil fuel use will almost stop by 2030, while Citi Commodity Researchers are suggesting that the increases in prices will drive increases in efficiency that will bring a peak in oil demand “much sooner than the market expects.”

Just this month, Saudi Aramco announced that production had begun at their Manifa oilfield, and by July would be supplying up to 500 kbd to the new refinery that is being built at Jamail with the collaboration of Total. The first oil from the refinery is expected to ship in August, and both projects are currently ahead of schedule. Manifa will further increase in production next year, to 900 kbd, with the additional flow going to the Yanbu refinery being built with the collaboration of Sinopec. Both these refineries are designed to take heavy crude, and can also accept oil from the ongoing projects to expand production at Safaniya. Collectively this is said to ensure that the company will be able to achieve a maximum sustainable production of 12 mbd.

The gains in available reserves are required as the current production from Ghawar and the other major fields in the Kingdom continue to decline in production, as was discussed last year. I remain relatively convinced that Saudi Aramco will not increase their crude oil production above 10 mbd, despite the wishes and projections of others that they will end up doing so. By the time that their domestic consumption reaches the point that it lowers exports to a level that would hurt the KSA economy at current prices, the shortages globally will have raised the price sufficiently that the available production at that time will continue to suffice to meet their needs. (This is, however, a projection only for this decade).

This month’s OPEC Monthly Oil Market Report continues to anticipate a significant increase in available crude over the next three years, although this is indirectly recognized through the growth in crude distillation unit (CDU) capacity around the globe in that interval.

Each year the larger oil production companies provide their views of the future, and I recently reviewed that for ExxonMobil. Shell has now produced their projections, though in a somewhat different format as the document “New Lens Scenarios”, which deals with future projections as a set of differing options. That does not make these views less informative.

In reviewing where the world will go, Shell looks more to political impact as the future unrolls. They see the European Union stuck in a Trapped Transition” where:

...the ‘can’ keeps being ‘kicked down the road’ while leaders struggle to create some political and social breathing space. So there is continuing drift, punctuated by a series of mini-crises, which will eventually culminate in either a reset a reset involving the writing off of significant financial and political capital (through pooling sovereignty, for example) or the euro unravelling.

On the other hand, countries such as China and Brazil are resilient:

in their different ways, they had the financial, social, political, or resource ‘capital’ to respond and reform, following a room to Manoeuvre pathway.

Within the next thirty years, as the population grows, so a greater percentage - up to 75% - will live in cities. And these will consume a greater fraction of the global energy supply, perhaps as high as 80%, up from the current 66%.

The document is very much slanted as a socio-political forecast, with considerable polemic in regard to the weaknesses that the company perceives to exist in the West.

Shell postulates two different scenarios for the future. There is the Mountain scenario, where business continues very much as usual, and then there is an Oceans scenario where the ”powers that are” work toward a more accommodative approach to those in the developing world, and to the less fortunate layers of society.

The document begins with the impact if the Mountain scenario is to prevail, driven through a top down control, largely through existing institutions. Shell is not enamoured of this:

In the US, for example, income and wealth inequality continue to increase, with stagnating middle-class earnings, reduced social mobility, and an allegedly meritocratic higher education system, generously supported by tax exemptions, whose main beneficiaries are the children of the successful. Superimposed on this class divide is an increasingly serious intergenerational divide, as commitments to the elderly via entitlement programmes crowd out discretionary expenditures that could rebuild economic and social infrastructure. Similarly, in Europe an ageing population and commitments to high levels of entitlement, which are frequently underfunded, create a mixture of social and political strains that deflect attention from the core structural economic issues facing the region.

Driven by this gloomy picture of the future, Shell anticipates that global GDP growth through the 2030’s will average under 2%. This will, in turn, moderate the growth in energy demand. Through increasing urbanization, the growth of the service sector and the greater use of electricity in developing countries, Shell anticipates that the strong correlation between economic and energy demand growth will be broken.

N.B. All the illustrations come from the Shell New Lens Scenarios document.

This post began as a view on the developments in Cyprus and I am grateful to Gail for the suggestion. It is my fault that it morphed a little from that original simple objective.

One problem in marketing natural gas is that there is so much of it coming onto the market that this makes it difficult to set a price for future production. Even when the fields and reserves are estimated to be large, having some confidence in the price that the gas will bring in turn helps provide confidence with investors that there will be a positive return on the cost of bringing that gas to the market. However, once that initial commitment is made to invest the money, then the need for a return often drives an expeditious program to bring in revenue even if the market is already reasonably well supplied. Prices may then fall and the investment becomes a losing one.

The current cold weather in the United Kingdom and the threat of gas rationing has raised the price some 30% this month and the market appears lucrative. But the UK market, in the short term, can be rescued by 3 tankers of LNG from Qatar with more available if needed (provided it is ordered soon.) And then, though there remains a need to refill storage, the crisis will be over for now and the price will likely fall back, although likely not completely since the UK is in process of shutting down coal-fired power stations to comply with EU edicts and natural gas is the replacement fuel of the moment.

Looking further down the road, Centrica, a major energy supplier in the UK, has agreed to a 20-year agreement with a US supplier to buy LNG from the US (out of the Sabine Pass terminal). This would take a fifth LNG train at a facility where the first train is expected to come on line in 2015, and the second in 2016. Each train has a liquefaction capacity of 4.5 million tons pa or 220 bcf of NG, and customers have already been found for the first four trains – again for a 20-year period. The UK supply is therefore not anticipated to start until 2018.

In the meantime, Qatar has no plans to increase production in the face of the overall growing glut in supply, although it potentially could. And this availability of alternate supply is not good news for the Big Daddy of natural gas exporters, those in Russia. Russia has already seen Turkmenistan sell its natural gas to China directly, rather than through Russian middlemen. To date this has reached 1.7 tcf with further expansion in the works.

To make the situation more volatile, the natural gas discoveries in the eastern end of the Mediterranean over the course of the last five years have been found to be of increasing size, as exploration continues.