The Oil Drum: Canada

I recently looked through news articles to see which energy sectors were being affected by the credit crisis. I was amazed at how widespread and how devastating the impact is.

There are really two closely related problems. One is reduced access to credit, making new borrowing difficult for nearly every business that requires debt. Prices for all commodities have been dropping as well. At least part of the reason for this price decline is the lack of availability of credit—many of the less credit-worth buyers drop out of the market. This leaves fewer buyers and almost the same number of sellers, so the price drops.

In this post, I examine how reduced access to credit and the concomitant decline in commodity prices is affecting energy companies.

I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil - Alan Greenspan (2007)

The Guardian had an interesting article recently on discussions about exploiting 40 billion barrels of Iraqi oil reserves.

The biggest ever sale of oil assets will take place today, when the Iraqi government puts 40bn barrels of recoverable reserves up for offer in London. BP, Shell and ExxonMobil are all expected to attend a meeting at the Park Lane Hotel in Mayfair with the Iraqi oil minister, Hussein al-Shahristani.

Access is being given to eight fields, representing about 40% of the Middle Eastern nation's reserves, at a time when the country remains under occupation by US and British forces. Two smaller agreements have already been signed with Shell and the China National Petroleum Corporation, but today's sale will ignite arguments over whether the overthrow of Saddam Hussein was a "war for oil" that is now to be consummated by western multinationals seizing control of strategic Iraqi reserves.

The subject of Iraqi oil is one which has fascinated me for a number of years, so in this post I'll outline why I believe that Iraq probably has the world's largest oil reserves - or, as Daniel Yergin once said of the middle east, it is "the greatest single prize in all history" (echoing a similar statement by George Kennan at the end of world war 2).

In my personal battle to delay Peak Natural Gas, I have gutted a bedroom in my 1920's vintage Seattle house and am adding insulation and new windows. During restoration of an older house, one hopes to find treasures left behind by the years -- such as an old bottle of scotch or something. No such luck so far on something of that nature, but I have found some interesting items including a remarkably well preserved bat skeleton.

Yesterday, however, I was pulling up fir flooring when I found that it had been underlain with pages from the local newspaper from 1920. The editorial section had a piece on Alaskan oil that was rather interesting, so I thought I would share this look into America's oil past.

It gets depressing hearing about our financial problems every day. I am sure a lot of people would rather talk about oil and natural gas, and about better prospects for the future. Improved technology is one factor that might make future production better than the bleak future that most of us are foreseeing today. It might even reduce costs, so that more oil and gas can be produced at the lower prices we are seeing today.

What kinds of technology advances are you hearing about? Which ones really have promise? Which ones will not be hurt too badly by the financial crisis, and in fact, may help production in spite of the crisis?

To get people started, below the fold I quote paragraphs about technologies I have read about, mostly from articles in the Next Generation Oil & Gas Journal.

We all know that oil prices are lower than they were in the recent past because supply is greater than demand. In fact, OPEC oil ministers are meeting this week to try to fix supply, so it will be more in line with demand.

All of this seems a little strange, though. We are going into the winter months, when demand for oil normally rises because many people around the world heat their homes with oil. We are using somewhat less gasoline in the United States, but apart from the hurricane disruptions, not very much less than earlier this year. While we are going into a recession, it doesn't seem to have hit with full force yet. What other factors may be involved in the current lower prices? In this post, I will discuss factors besides those we usually think of as supply and demand that may be involved.

Figure 1. EIA Chart of WTI oil spot prices - One measure of oil price

The credit crunch is already having an impact on energy markets. New projects are harder to fund. Highly leveraged companies are sometimes finding it necessary to shed assets. Some players are finding themselves to be the indirect casualties of other players, like Lehman, that have already failed. Long term, we will probably see consolidation and lower production than would have been the case without the credit crunch. Of course, if there is a major recession, it is possible that we won't need as high production.

In this post, I have tried to bring together some of the impacts of the credit crunch on the energy industry that are already being felt. If you are seeing other impacts, please make note of them in the comments.

Updated 9/14 900 EDT. Hurricane Ike made landfall in Galveston in an area with extensive oil infrastructure, namely over 5 million bpd of US petroleum refining capacity. (5 MMBBL is about 30% of US capacity (about 15 MMBBL), and a bit less than 6% of global capacity (~85 MMBBL)).

Our thoughts and prayers go out to those affected by this storm. We would ask that you please keep this thread on point with Hurricane Ike and energy-related articles, stories, maps, data, and links in the comments.

(Graphics and damage forecasts moved below the fold for bandwidth and spacing...it's all still there...this continues to be the thread to accumulate resources as of 9/14.)

An update on the latest production numbers from the EIA along with graphs/charts of different oil production forecasts. 

World oil production (EIA Monthly) for crude oil + NGL. The median forecast is calculated from 14 models that are predicting a peak before 2020 (Bakhtiari, Smith, Staniford, Loglets, Shock model, GBM, ASPO-[70,58,45], Robelius Low/High, HSM). 95% of the predictions  sees a production peak between 2008 and 2010 at 77.5 - 85.0 mbpd (The 95% forecast variability area in yellow is computed using a bootstrap technique). Click to Enlarge. 

(Welcome: we are now on a later and more updated thread, which can be found here: http://www.theoildrum.com/node/4525 NB: you may want to just go the front page (it will be post #1 or #2) to get to the most recent thread: http://theoildrum.com ...)

(all the maps and models moved under the fold to conserve bandwidth...scroll down)

Updated 9/12 2300 EDT--next update in the morning when we know more about where and how much power/wind was involved. Hurricane Ike's current track currently is headed directly for Houston/Galveston and is expected by the National Hurricane Center to be Category 2 (or perhaps a 3) at a late Friday/early Saturday am landfall, which remains in striking distance of over 5 million bpd of US petroleum refining capacity. (A little perspective: 5 MMBBL is about 30% of US capacity (about 15 MMBBL), and a bit less than 6% of global capacity (~85 MMBBL)).

The concern now is the where of landfall. If the storm continues further west before turning (see Chuck's update below), then Texas City/Baytown will be in a very bad place, and that's >1MMBBL all by itself. The next two maps represent the current NHC track (the further "left" the storm goes the worse it is for TX City and Baytown, note red storm surge in this track, Baytown is at the back of the bay) and the GFDL track below...as of this update the eye was wobbling to the left of the NHC track, which isn't a good thing for Texas City.

(all the maps and models moved under the fold to conserve bandwidth...scroll down)

(Welcome: we are now on a later and more updated thread, which can be found here: http://www.theoildrum.com/node/4525 NB: you may want to just go the front page (it will be post #1 or #2) to get to the most recent thread: http://theoildrum.com ...)

Hurricane Ike's current track predicts landfall within 100 miles of Galveston Saturday morning; but the storm isn't strengthening much yet and the track has been moving northwards--so, because of the wobbles in the track, models are still uncertain. Within the current NHC storm path lies over 5 million bpd of US petroleum refining capacity. (Perspective: 5 MMBBL is about 30% of US capacity (about 15 MMBBL), and a bit less than 6% of global capacity (~85 MMBBL). Also, the MMS reported Wednesday that staff has been evacuated from 452 production platforms (63.0%) and 81 rigs (66.9%) – (95.9% of the oil production and 73.1% of the natural gas production has been shut-in as a precautionary measure for Hurricane Ike.)