Daily Archives: October 21, 2009

Kate Mackenzie

Just as the rest of the world begins to get excited about prospects for shale gas reserves, a skirmish is growing over just how much shale gas is actually recoverable in the US.

Matt Simmons has said a few times this year that he doesn’t see evidence that the big shale plays such as Barnett are actually providing big increases in natural gas production, despite the number of wells being sunk. He also pointed to the environmental problems with the hydraulic fracturing used to extract shale gas.

Geologist and energy consultant Arthur Berman has also been pointing out the rapid decline rates for some of the big shale gas plays for some time now.

Kate Mackenzie

On FT Energy Source:

EU climate financing shenanigans

Climate targets versus science

The hidden cost of energy – on health

Some delayed Opec projects are revived

Scrutiny for favourable shale oil leases

The ‘obscure’ hedge fund and the ailing lender

Oil slips $1 ahead of US inventories

Further reading:

Political pundits should stay away from debating emerging clean technologies (Matthew Yglesias)

Has Warren Buffett misjudged the electric car race? (Spiegel)

The Volt is not yet cost-competitive, says GM (CNet)

Nigeria hopes peace can bring big China deals (CNN)

Fossil fuel subsidies dwarf clean energy subsidies (Grist)

High capital costs plague solar (Master Resource)

Chu, Aleklett and the cost of oil (Bit Tooth Energy)

Kate Mackenzie

We wrote yesterday that two major sticking points in the lead-up to a Copenhagen agreement seemed to be settled, but two big issues remained: 1. How much money rich countries will give poor countries; and 2. Whether the US Congress will approve an emissions target in time.

On that first point, EU members are, surprise surprise, in disagreement about exactly how much money to give to the developing world to fight climate change, how to share the costs amongst themselves — and even about how to talk about that sum, from a tactical viewpoint.

EU finance ministers failed to reach agreement at a meeting yesterday meaning heads of state will take up the discussion later this month. Some of the different views are a little predictable: coal-dependent Poland, for example, one of the poorer EU states, argues it will face enough costs meeting its own emissions targets without giving money to other countries, too.

The northern, wealthier, greener states tend to be more supportive of making a commitment at the upper end of the range proposed by the European Commission – some €15bn a year. Sweden’s finance minister, for example, said it was “very disappointing” that no agreement was reached yesterday.

Meanwhile some countries, such as Luxembourg and Germany are against putting a number on the table too early. From Reuters:

“We got stuck on the definition of internal allocation that is desired by some countries… and how to internally compensate states that could be more overburdened than average,” Deputy Finance Minister Joerg Asmussen told reporters.

“I warned, from the German side, against putting complete figures on the table too early,” he added.

Italy is also advocating wariness on providing a number, according to the WSJ.

It’s unlikely that any of this will seriously affect Copenhagen talks, where the EU will present a unified view, based on the EC’s estimate that global public financing should total €22bn – €50bn per year. This is regardless of the behind-the-scenes scuffles about how the burden is distributed between member states.

On the other hand, the rest of the developed world hasn’t even begun to talk about financing numbers yet.

Related links:

Progress on Copenhagen: Two down, two to go (FT Energy Source, 20/10/09)
Obama could go to Copenhagen, but only if the talks go well (FT Energy Source, 20/10/09)
Will the Kerry-Boxer bill pass in time for Copenhagen? (FT Energy Source, 30/09/09)

Oil prices fell while base metals softened and gold consolidated as commodity markets traded cautiously on Wednesday.

Nymex December West Texas Intermediate fell $1 to $78.12 a barrel while ICE December Brent lost 74 cents at $76.50 a barrel.

US inventories data, due out later in the session, were expected to show an increase of 1.8m barrels in crude stocks last week, according to a poll of analysts by Reuters.

Almost one fifth of US refining capacity has been lying idle because of poor profit margins and weak demand from consumers for petrol and heating oil.

Kate Mackenzie

What does struggling US commercial lender CIT have in common with peak oil?

Quite a lot, if a rather mysterious offer for some of CIT’s debt is serious. CIT is under pressure from activist investor Carl Icahn over its plan to reduce its $30bn debt load by almost $6bn. Icahn says the terms CIT is offering its existing bondholders to take part in the debt exchange are poor and would destroy the value of their assets.

One fund has offered to take on $1bn of that debt – and it’s apparently raising money for a peak oil fund. But it’s all a little intriguing, as Reuters reports:

NEW YORK (Reuters) – An obscure hedge fund said it offered to buy $1 billion in debt from CIT Group Inc (CIT.N) but declined to identify its source of capital. CIT would not comment on whether it was seriously considering the offer.

The fund, logi Energy, said it was interested in $1 billion of CIT’s middle market lenders debt portfolio.

Logi (or lower-case logi as it calls itself) is certainly somewhat mysterious – as BusinessInsider points out, its main website doesn’t work. Its energy fund website requires a very detailed registration that is only open for accredited investors. Then again, a mysterious hedge fund is almost a tautology. And while staying mum on the source of the financing, logi’s chief investment officer did talk to Reuters, if only to downplay the significance of their offer:

But Ortega told Reuters, “We have an institutional-class investor that is interested in supporting it.” The financing is contingent on CIT accepting the offer.

A spokesman for CIT declined to comment on the proposal. Analysts and energy investors said they had not previously heard of logi.

Ortega said he did not believe the debt offer was a game-changing deal for CIT.

“This is simply a hip pocket opportunity for them,” he said. “Those poor guys have a much bigger problems … CIT has a big chunk of oil and gas debt. We only want a sliver.”

Kate Mackenzie

Opec secretary-general Abdulla el-Badri told the Wall Street Journal that of those 35 Opec oil production projects said in February to be put on hold, seven were being re-started, thanks to buoyant oil prices.

The projects would be brought on stream over the two to four years and would produce 1.2m barrels per day, he said.

El-Badri, who has this year voiced caution about oil prices rising too quickly and dampening an economic recovery, sounds reasonably comfortable with the near-$80 levels seen recently. He said the oil environment was ‘becoming more healthy’ but he also voiced concerned about oil demand:

“The consumer wants security of supply….But we do need security of demand,” Mr. El-Badri said.

As the WSJ notes, the idea that oil demand will in fact peak in the near future is gaining traction – in a recent Deutsche Bank report, for instance, and in recent remarks from BP’s chief economist Christof Ruhl.

There’s no doubting that many oil production projects were delayed after prices began to fall dramatically in September 2008. But getting hold of detailed data on production from some Opec members is notoriously difficult.

The IEA in a paper for the G8 noted that Opec had not provided details of those 35 delayed projects, and the IEA’s own data had only identified 30 Opec projects that had been delayed, adding: “though it is unclear which of them have been deliberately stalled because of weaker demand and/or lower prices”.

Related links:

Deutsche: The end is night for the age of oil (FT Energy Source, 06/10/09)
Oil producers and consumers fret about future price spikes (FT Energy Source, 27/04/09)
Delaying investment projects: Who’s doing it, and why (FT Energy Source, 13/04/09)

Sheila McNulty

For the second time since the Obama Administration took office, the Interior Department is investigating the terms of leases issued under the Bush Administration.

This time, Ken Salazar, Secretary of the Interior, has asked the department’s Inspector General to investigate a set of favourable conditions and low royalty rates offered on January 15, 2009 – just five days before the end of the Bush Administration.

The favourable conditions and rates were offered to energy companies holding existing research, development and demonstration leases from the US government. Here is what Salazar had to say about the why the timing and circumstances of the leases merited additional review:

Taxpayers deserve answers to serious questions about why these lease addenda were granted at the eleventh hour, under what circumstances, and at what potential expense to the federal treasury. We must reform our nation’s oil shale program and ensure that the American people have the promise of a fair return from their resources.

The leases were issued in January 2007 to develop new technologies to extract oil from shale rock. Yet on January 15, 2009, the department granted the holders of the six oil shale leases the right, at the time of conversion to commercial development, to elect to have their leases governed by a set of favourable conditions and low royalty rates. The Bush Administration established an initial royalty rate of 5 per cent for commercial oil shale production, which Mr Salazar says was premature.

James Fontanella-Khan

Setback for US crackdown on oil speculation
Leaders at the US commodity regulator raise doubts (FT)

Gazprom, EDF clinch US-UK long-term gas swap
The deal allows Gazprom to expand in the US (Reuters)

EU finance ministers dodge decision on climate
Baton passes to European Union leaders (WSJ)

Nuclear power revival for GE leaves waste unsolved
Governments globally endorse plans to temporarily warehouse waste (Bloomberg)

Russian pipelines win key approvals
Denmark and Turkey support plan (WSJ)

Special report: Carbon trading
Greenhouse gases offer growth prospects (FT)

Cnooc 9-month pretax net falls to $4bn
Revenues in the same period were down 33.8% (WSJ via Bloomberg)

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