Folks,

In my article for this week’s Energy and Capital, I review some current events of interest to peak oil observers. There are some disturbing trends developing around the world–in particular fuel shortages–and it’s important to keep one’s ear to the ground.

–C

Heard It in the Peak Oil News

2007-07-06

By Chris Nelder

I’m going to let you in on a little secret today.

I’m going to reveal one of my best sources for peak oil-related news.

It’s Tom Whipple, a former CIA man who spent about a decade summarizing world news for the CIA’s morning report to the President. In short, he’s one of the best at scanning the news and picking out interesting trends and relevant bits.

These days he writes for the Falls Church News Press. Falls Church is just about 15 minutes down the road from CIA headquarters in Langley, VA.

Fortunately for all of us, in addition to being a news hound, he’s also a peak oil junkie, and now he shares the benefit of his skills with the public by picking out the key stories on peak oil and posting them online in his daily Peak Oil News and his weekly Peak Oil Review . The scope and volume of his summaries are amazing–as a major newshound myself, I can’t imagine how he does it–and they’re invaluable resources for anybody interested in watching the slow-motion train wreck of peak oil.

His news roundup on Independence Day was a doozy, and it reminded me that it’s been a while since I zoomed out and shared some peak oil current events with the Energy and Capital audience.

So today I bring you a sampling of recent stories he picked out, freely plagiarized, to create my digest of his digest of the news.

Out of Gas

• South Dakota fuel terminals have been struggling for weeks to maintain supply, leading to shortages at gasoline stations all around the region. Tanker truck drivers throughout the Midwest have found themselves sitting idle for hours at a time waiting for gas to deliver.

• Argentina is suffering through a severe energy crisis with rationing of energy and fuel as the government tries to find a way out of its recent "suicidal" policies of subsidizing oil and gasoline in order to drive economic development. Low rainfall has caused problems for hydroelectric dams, and industrialists, who have already made temporary layoffs, have begun warning that they will have to start cutting jobs soon.A cold spell in May forced Argentina to halt all gasoline exports to Chile. When temperatures fell again a few weeks later and gasoline restrictions returned, irate taxi drivers paralyzed the centre of Buenos Aires in protest at a sudden withdrawal of their fuel.

• Iraq has suffered from an acute shortage of oil products since the U.S.-led invasion in 2003. Prices of fuel on the black market are more than ten times the official prices. To meet growing shortages, the government is importing millions of dollars worth of oil products every month from neighboring countries.

• Likewise, Iran’s program of oil subsidies–combined with sanctions from the West over its nuclear intentions–has proved disastrous, putting the government in an intense budgetary squeeze and forcing it to impose gasoline rationing. Angry protesters torched gas stations in response. Tehran currently imports about half of its gasoline, and absorbs a loss of nearly $2 per gallon on it. As in Iraq, the rationing is expected to lead to a brisk black market for gasoline.

• In Nepal, after days of acute fuel shortage, the Kathmandu valley was hit Tuesday with its worst crisis in history as the state-owned petroleum importer and distributor reached the lowest level of fuel stocks and stopped supplies to gas stations entirely. Fuming taxi drivers subsequently parked their cars before the heart of the Nepalese government center to protest the shortfall.

The Nepal Oil Company (NOC) is also facing cuts from its sole supplier, Indian Oil Corporation (IOC), because of mounting debts owing to Nepal’s subsidies, which force NOC to sell fuel below cost. In response, Nepal’s government is expected to allow the NOC to raise prices and help the NOC pay down its debt to IOC in order to restore supply.

Oops, I Really Shouldn’t Have Said That

• Australia’s Defense Minister Brendan Nelson said oil was a factor in Australia’s contribution to the Iraq war, because the nation’s energy security depends on stability in the Middle East. Dr Nelson also said it was important to support the "prestige" of the US and UK.

"The defence update we’re releasing today sets out many priorities for Australia’s defence and security, and resource security is one of them," he told ABC radio. "Australians and all of us need to think what would happen if there were a premature withdrawal from Iraq," he said.

He was immediately assailed for his comments by the Prime Minister and opposition party leaders.

And speaking of Iraq, the Parliament continues to try to formulate a draft oil law that will dictate who controls Iraq’s reserves and provide a legal framework for foreign investment and the distribution of revenues. They have been under intense pressure from Washington to finalize it, as it is seen as a crucial foundation for restoring order in the country. But secrecy continues to surround the draft, and Sunni Arabs and Kurds fear that they will be denied an appropriate share of the spoils. The draft has not been made public, and the Kurdistan Regional Government (KRG) said it had not seen or approved the draft.

Oil and Gas

• A major British newspaper, The Independent, ran a front page story entitled "A World Without Oil," quoting the London-based Oil Depletion Analysis Centre, which said "global production of oil is set to peak in the next four years before entering a steepening decline which will have massive consequences for the world economy and the way that we live our lives."

• Fatih Birol, the International Energy Agency’s chief economist, implied that peak oil is just around the corner, saying "if Iraqi production does not rise exponentially by 2015, we have a very big problem, even if Saudi Arabia fulfills all its promises. The numbers are very simple, there’s no need to be an expert."

• Oil briefly topped $73 a barrel, a ten-month high. OPEC has no intention of raising production before their next planned meeting on September 11. Demand is strong and inventories of gasoline are low as refineries continue to struggle to maintain output.

• The closure of a flooded refinery in Kansas is expected to raise gasoline prices in Oklahoma, Kansas, Nebraska, South Dakota, North Dakota and Minnesota, which depend heavily on local supply, and possibly the rest of the country. The flood also caused a 42,000 gallon oil spill, which spread around the surrounding area and just reached one of the important area lakes that provide drinking water.

• Russia’s parliament voted to allow the country’s biggest two biggest energy companies to employ and arm private security units, with guns supplied from the national armory. Why? "A couple of terrorist acts and an ensuing ecological catastrophe would be enough to immediately declare Russia an unreliable partner and supplier of energy reserves," said MP Alexander Gurov.

• In the U.K., a shortage of natural gas is expected due to high demand and constrained supply.

• BP and Royal Dutch Shell are said to be in merger talks that would create a £250 billion oil giant. The combined entity would produce over 70% more oil and gasoline than industry leader ExxonMobil. I have to suspect that this further contraction of the oil industry is a reflection of their diminishing expectations for the future.

• Oil production from the North Sea has continued to fall, despite record levels of investment in recent years. Oil production in April was 7.8% lower than last year, and production from the Outer Continental Shelf dropped 12.1% on the year. Operators are clearly working harder and harder to produce less and less oil from these mature oil basins.

• Russia’s crude oil exports fell 6.9 percent in June as higher export duties encouraged oil companies to refine more crude domestically. (If you read my piece from two weeks ago, Canary in a Data Mine , you know that I believe declining exports will prove to be our first serious signals of a disconnect between oil supply and demand.)

• In Nigeria, the rebel group Movement for the Emancipation of the Niger Delta (MEND) ended their recent cease fire and resumed their abductions and attacks on oil installations. Earlier this week, five contractors were kidnapped from a rig in Nigeria, and two days ago, a three-year-old British girl, the daughter of an expatriate worker, was kidnapped (that’s the first time I’ve heard of them striking such a low blow). More than 200 expatriates have been kidnapped in the Niger Delta since the beginning of last year.

• Saudi Arabia raised its oil prices to Europe to a three-year high, as Europe becomes more desperate for oil due to rapidly declining production in the North Sea and the loss of production from Nigeria due to rebel attacks. But the Saudis actually lowered their price to the U.S. market, because crude oil stockpiles are at a 9-year high, due to the loss of refining capacity. The Saudis also cut their allocations of crude to South Korea by 9.5% from contracted volumes, and by 9.5% to 10% to Japanese customers.

• Now that melting ice is permitting access to formerly inaccessible areas of the Arctic, Russia announced its claim to a significant chunk of the Arctic seabed and is seeking UN approval to develop it for oil, gas, and mining potential. At present there is an international agreement to limit economic activity in the Artic to a 200 mile zone that follows national coastlines. The rest of the Arctic is under governance of the International Seabed Authority.

Arctic Sea Ice 1979:

Arctic Sea Ice 2003:

Source: NASA’s Visible Earth site

• As I have reported previously, deepwater exploration in the US Gulf of Mexico is being held back by a lack of rigs. "The tight rig market for deepwater rigs is a real throttle on the capability of the entire industry in the Gulf of Mexico," said Chevron.

• The Alberta Energy and Utilities Board says in its annual report it has "concluded that natural gas production in the province peaked in 2001." Natural gas production has entered a decline that will continue no matter how much drilling is done. This raises immediate questions about the viability of increasing production from Alberta’s vast tar sands.

• BP, Statoil, Chevron and Total accepted the new terms dictated to them by Hugo Chavez to continue operating in Venezuela, but ExxonMobil and ConocoPhillips refused and turned to international courts to plead their case. Oil output from Venezuela is expected to drop as the international oil majors become more sensitive to the risks of doing business there and Venezuela scrambles to round up replacements for skilled labor and equipment.

• Fires and explosions have idled refinery capacity around the world, from Lagos to the U.S.

• Shell has withdrawn a permit to start work on a federal oil in-situ shale research lease in Colorado due to problems with the freeze wall. Readers who have followed my columns will be unsurprised at this announcement. (I nearly fell off my chair when I first heard about the design of this project.)

I suppose that’s enough for one column.

Doesn’t exactly look like a recipe for boom times, does it?

So why would I spent this week’s column promoting the work of an independent newshound?

For one thing, because the mainstream media do an exceptionally poor job of informing the public about the dire state of the energy business, and we really need to start getting them up to speed.

For another, I did it because as far as I know, Tom does almost all of his work for no pay, reports to no one, is in cahoots with no one, and does it for no other reason than the public’s need to know. Like many such independent analysts in the peak oil arena, he does it simply because it needs to be done, and he makes a great personal sacrifice to do it. In short, he’s one of the peak oil movement’s heroes, and deserves a little recognition.

Until next time,

–Chris