Invitation to Bermuda Energy Symposium

 

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The Peak Oil Crisis: A $4 Trillion Hole

Last week reporters at the Wall Street Journal sat down and did some arithmetic.

Tom Whipple

They looked at how much oil was selling for in the spring of 2014 (over $100 a barrel); looked at what it is selling for today (under $50); and concluded that if prices stay low for the next three years, the global oil industry and the countries it finances will be out $4.4 trillion in revenues. As these oil companies, nationalized and publically traded, will be producing roughly the same amount of oil in the next few years, the $4 trillion will have to come mostly out of profits or capital expenditures.

This is where the problem for the future of the world’s oil supply comes in. The big oil companies, especially those that export much of their production, have been doing quite well in recent years. National oil companies have earned vast profits for their political masters. Publically traded ones have developed a tradition of paying out good dividends which they are loathe to cut.

This leaves mostly capital expenditures on exploring for and producing more oil in coming years to take a dive as part of the $4 trillion revenue hit. Even if oil prices of $50 a barrel or less do not continue for the next three years, this still works out to a revenue drop of $1.5 trillion a year or about three times the planned capital expenditures of some 500 oil companies recently surveyed.

The International Energy Agency just came out with a new forecast saying that while current oil prices have the demand for oil products increasing rapidly, there is still so much over-production that the oil glut is expected to last for another year or more before supply/demand comes back into balance. The return of Iran to unfettered production would not help matters.

In looking at the next five years there are several trends or major issues that are likely to impact the supply and demand for oil. First is the recent price collapse that no longer makes it profitable to start projects to produce new oil, most of which now comes from deepwater, tar sands, or shale oil fields and is far more expensive to produce than "conventional" oil. As a result, investment in new oil production projects has dropped substantially in the last year and is likely to fall further.

On the demand side of the equation China is the biggest unknown. For the last 30 years the Chinese have enjoyed unprecedented economic growth, but recently the "world’s factory" has not been doing as well. Its government has been thrashing around wildly trying to stimulate growth and fend off a collapse in its stock market. Some believe China is a huge economic bubble that is about to collapse taking much of the world with it, and obviously reducing its ever-increasing demand for more oil.

The other 800-pound gorilla looming out there is climate change. Except for the drought in California and the storm that flooded New York a few years back, much of America and China for that matter has not been hurt badly enough by anomalous weather to reach an agreement that stopping climate change is the number one priority of all of us. Reports of "feels like" 159°F coming out the Middle East this summer have little impact on those convinced that climate change is a hoax. Should the effects of climate change worsen in the near future to the point that "do something before life on earth becomes impossible" becomes the majority perception of the issue, consumption of fossil fuels could be severely restricted. Although not widely appreciated, there do seem to be viable alternatives to fossil fuels waiting to be exploited.

The violence in the Middle East has grown worse in recent years. Although oil production in some areas has been restricted by geopolitics and violence, most of the oil continues to be produced. It is useless to talk about the next five years in the Middle East; however, we should keep in mind that there are at least a half dozen confrontations going on in the region that could morph into situations where oil production becomes more restricted.

When we net this all together, what do we have? Conventional wisdom currently says that oil prices are likely to be closer to $50 a barrel than to $100 for the next year or more. Capital spending on new production to offset declining production from existing oilfields is likely to drop still further leaving us in the situation where depletion may exceed the oil coming from new wells or fields. This is the argument that those who believe that we are at or near the all-time peak of world oil production about now are using.

The International Energy Agency says that the demand for the cheaper oil is rising rapidly, that production of shale oil currently is falling and the rest of world’s production is relatively static so we should be seeing oil prices rising again by 2017. This is where the turning point in the history of oil production could occur. In recent history rising prices have led oil producers to increase drilling for new oil production again. However the next time around, as mentioned above, there are new factors that may come into play. Will China be increasing its demand for oil in another two years? Will the Middle East still be exporting as much oil, and producing oil given the turmoil and the need to increase air conditioning? Will the world have decided the time has come to clamp down seriously on carbon emissions?

If global oil production does reach some kind of a peak this year and is lower in 2016, can it recover to reach new highs in the years following? Anything from inadequate investment stemming from persistently low oil prices to a major conflict in the Middle East could keep production from rebounding to new all-time highs. We are living in interesting times and just could see peak oil before we realize it. More

 

 

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Is The Latest Attack In Saudi Arabia The Beginning Of A Resistance Movement?

The latest attack in Saudi Arabia could be the beginning of a resistant movement against the current regime, as well as with Yemeni hostilities carried out by the House of Saud, Catherine Shakdam, Beirut Center for Middle East Studies told RT.

At least 15 people were reportedly killed in an attack on a mosque in Asir province in Saudi Arabia yesterday. A suicide bomber struck a mosque used by the army. The Interior Ministry claims the attack was carried out by Islamic State (IS, formerly ISIS).

RT: Do you think this was Islamic State again?

Catherine Shakdam: I don’t think so. I think it has more to do with the beginning of resistance movements against the Saudi regime, inside of Saudi Arabia rather than just some form of ISIS backlash. Because of where the attack actually took place - in Asir, which is a southern province of Saudi Arabia; we had province right next door to it, in Jizan, where tribes have already declared that they were against the Saudi regime and that they would organize resistance movements against them and actually fight them and reject the legitimacy.

I think that what we’re seeing today is really just an extension of this. And it has a lot to do with the Yemeni war. I’m not saying that the Yemeni are responsible - not at all. What I’m saying is that because of this war a lot of people now within the kingdom are going to react against Riyadh and trying to organize a resistance movement against them, against this dictatorship. And they are reacting. I think even though it was an attack directed against a mosque, it has more to do with who they were targeting - and it’s really just security forces rather than just civilians. So it is not to be confused with the type of the time that we have seen previously, for example, in Qatif, where Shia mostly was directly targeted. It is kind of a different type of attack here.

RT: Compared with other countries in the region, Saudi Arabia was seen as relatively safe from terror attacks until recently. Do you see such attacks becoming more frequent in the future?

CS: It is a possibility. And only because the Saudi have actually funded… terrorism, for decades. You can trace it back to the 1960s when they first allowed elements from the Muslim Brotherhood to come into exile in Saudi Arabia - they were welcomed them with the open arms. And this is today coming back to bite them. All those funds that have been allocated to radical movements across the Middle East and even beyond this. They have tried to open up, I would say, radical fronts in America, in Europe and all over the world. And today those elements that they have leaned on to maintain a strong hand on the Saudi people is actually coming back to haunt them. And they are paying the price today.

http://www.rt.com/op-edge/311841-terrorism-saudi-arabia-attack/

 

 

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Obama to Unveil Tougher Climate Plan With His Legacy in Mind

WASHINGTON — In the strongest action ever taken in the United States to combat climate change, President Obama will unveil on Monday a set of environmental regulations devised to sharply cut planet-warming greenhouse gas emissions from the nation’s power plants and ultimately transform America’s electricity industry.

The rules are the final, tougher versions of proposed regulations that the Environmental Protection Agency announced in 2012 and 2014. If they withstand the expected legal challenges, the regulations will set in motion sweeping policy changes that could shut down hundreds of coal-fired power plants, freeze construction of new coal plants and create a boom in the production of wind and solar power and other renewable energy sources.

As the president came to see the fight against climate change as central to his legacy, as important as the Affordable Care Act, he moved to strengthen the energy proposals, advisers said. The health law became the dominant political issue of the 2010 congressional elections and faced dozens of legislative assaults before surviving two Supreme Court challenges largely intact.

"Climate change is not a problem for another generation, not anymore," Mr. Obama said in a video posted on Facebook at midnight Saturday. He called the new rules "the biggest, most important step we’ve ever taken to combat climate change."

The most aggressive of the regulations requires the nation’s existing power plants to cut emissions 32 percent from 2005 levels by 2030, an increase from the 30 percent target proposed in the draft regulation.

That new rule also demands that power plants use more renewable sources of energy like wind and solar power. While the proposed rule would have allowed states to lower emissions by transitioning from plants fired by coal to plants fired by natural gas, which produces about half the carbon pollution of coal, the final rule is intended to push electric utilities to invest more quickly in renewable sources, raising to 28 percent from 22 percent the share of generating capacity that would come from such sources.

In its final version, the rule retains the same basic structure as the draft proposal: It assigns each state a target for reducing its carbon pollution from power plants, but allows states to create their own custom plans for doing so. States have to submit an initial version of their plans by 2016 and final versions by 2018.

But over all, the final rule is even stronger than earlier drafts and can be seen as an effort by Mr. Obama to stake out an uncompromising position on the issue during his final months in office.

The anticipated final climate change regulations have already set off what is expected to be broad legal, legislative and political backlash as dozens of states, major corporations and industry groups prepare to file lawsuits challenging them.

Senator Mitch McConnell of Kentucky, the Republican majority leader, has started an unusual pre-emptive campaign against the rules, asking governors to refuse to comply. Attorneys general from more than a dozen states are preparing legal challenges against the plan. Experts estimate that as many as 25 states will join in a suit against the rules and that the disputes will end up before the Supreme Court.

Leading the legal charge are states like Wyoming and West Virginia with economies that depend heavily on coal mining or cheap coal-fired electricity. Emissions from coal-fired power plants are the nation’s single largest source of carbon pollution, and lawmakers who oppose the rules have denounced them as a "war on coal."

"Once the E.P.A. finalizes this regulation, West Virginia will go to court, and we will challenge it," Patrick Morrisey, the attorney general of West Virginia, said in an interview with a radio station in the state on Friday. "We think this regulation is terrible for the consumers of the state of West Virginia. It’s going to lead to reduced jobs, higher electricity rates, and really will put stress on the reliability of the power grid. The worst part of this proposal is that it’s flatly illegal under the Clean Air Act and the Constitution, and we intend to challenge it vigorously."

Although Obama administration officials have repeatedly said states will have flexibility to design their own plans, the final rules are explicitly meant to encourage the use of interstate cap-and-trade systems, in which states place a cap on carbon pollution and then create a market for buying permits or credits to pollute. The idea is that forcing companies to pay to pollute will drive them to cleaner sources of energy.

That new rule also demands that power plants use more renewable sources of energy like wind and solar power

Mr. Obama tried but failed to push through a cap-and-trade bill in his first term, and since then, the term has become politically toxic: Republicans have attacked the idea as "cap and tax."

But if the climate change regulations withstand legal challenges, many states could still end up putting cap-and-trade systems into effect. Officials familiar with the final rules said that in many cases, the easiest and cheapest way for states to comply would be by adopting cap-and-trade systems.

The rules take into account the fact that some states may refuse to submit plans, and on Monday, the administration will also unveil a template for a plan to be imposed on such states. That plan will include the option of allowing a state to join an interstate cap-and-trade system.

The rules will also offer financial benefits for states that choose to take part in cap-and-trade systems. The final rules will extend until 2022 the timeline for states and electric utilities to comply, two years later than originally proposed. But states that begin to take actions to cut carbon pollution as early as 2020 will be rewarded with carbon reduction credits — essentially, pollution permits that can be sold for cash in a cap-and-trade market.

Climate scientists warn that rising greenhouse gas emissions are rapidly moving the planet toward a global atmospheric temperature increase of 3.6 degrees Fahrenheit, the point past which the world will be locked into a future of rising sea levels, more devastating storms and droughts, and shortages of food and water. Mr. Obama’s new rules alone will not be enough to stave off that future. But experts say that if the rules are combined with similar action from the world’s other major economies, as well as additional action by the next American president, emissions could level off enough to prevent the worst effects of climate change.

Mr. Obama intends to use the new rules to push other countries to commit to deep reductions in their own carbon emissions before a United Nations summit meeting in Paris in December, when a global accord to fight climate change is expected to be signed.

Mr. Obama’s pledge that the United States would enact the climate change rules was at the heart of a pact that he made last year with President Xi Jinping of China, committing their nations, the world’s two largest carbon polluters, to substantially cut emissions.

"It’s the linchpin of the administration’s domestic effort and international effort on climate change," said Durwood Zaelke, president of the Institute for Governance and Sustainable Development, a research organization. "It raises the diplomatic stakes in the run-up to Paris. He can take it on the road and use it as leverage with other big economies — China, India, Brazil, South Africa, Indonesia."

While opponents of the rules have estimated that compliance will cost billions of dollars, raise residential electricity rates and slow the American economy, the administration argues that the rules will save the average American family $85 annually in electricity costs and bring additional health benefits by reducing emissions of pollutants that cause asthma and lung disease.

The rules will be announced at a White House ceremony on Monday and signed by Gina McCarthy, the Environmental Protection Agency administrator. While the ceremony is scheduled to take place on the White House’s South Lawn, officials said it might be moved indoors to the East Room after forecasters predicted that the weather would be too hot.

 

 

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