Bell Curve # 2 - Natural Gas

Natural Gas - Indian Context

There are plenty in India who think that we are finding nat gas fields and that we will have comfortable supplies in the future of this fuel. They live in a fools' paradise. Someone told me that most of these finds were already mapped out by ONGC, they just passed on the data to Reliance....dont know how much water that theory holds. Hey!!! the Himayat Sagar doesnt hold any water, so since when do theories have to hold any??

If supplies were comfortable, the govt would not be dictating as to whom the supplies need to go to and the order of priority. The only thing that remains to be dictated is the price.

I had said earlier that govts are known to have reneged on promises and this will happen in India's energy sector, more in the fossil fuel part of it. Not that it is good or bad, but stating a fact.

In case you'll missed the mail reg. the nat gas scenario in the North American context, it is pasted below the Hindu article.


Note: Whats this EGOM??? As far as I know this concept came only when nat gas allocation problems arose. Steel, fert, power are the major consumers and each minister and sec. in those ministries must have been fighting over it....throw in a couple of state govts now and then. When the cats fight over the cake, the monkey is called in to help distribute the cake, in this case the monkey being the EGOM

Gas supplies: ‘accord priority to fertilizer, LPG plants’
Special Correspondent (June 26th, The Hindu)
Reliance to start pumping in gas from September

NEW DELHI: The Petroleum and Natural Gas Ministry on Wednesday notified the new guidelines approved by the Empowered Group of Ministers (EGoM) asking Reliance Industries to set priority for supplying natural gas from its Eastern offshore KG-D6 field first to fertilizer units, LPG plants and the existing power plants.

The EGoM headed by the External Affairs Minister, Pranab Mukherjee, had decided that the companies which produced gas from areas awarded under the New Exploration Licensing Policy (NELP) would have to sell the fuel in accordance with the marketing priorities determined by the Government, according to an official statement here on Wednesday. The EGoM has fixed priority for the 25 million standard cubic metres daily of gas Reliance plans to start pumping in from September this year and 40 mmscmd from March 2009. the govt decides to whom the gas should be sold, it will soon, if it isnt already decide the price too.

The EGoM has asked the company to first supply gas from the KG-D6 field, the first major field of NELP to go on production, to the existing gas-based urea plants, which are now getting fuel below their full requirement. After urea plants, a maximum quantity of 3 mmscmd would be supplied to the existing gas-based LPG plants and thereafter up to 18 mmscmd to gas-based power plants that were lying idle or under-utilised or likely to be commissioned in 2008-09 or liquid fuel plants, which are now running on liquid fuel and could switch over to natural gas. cuz the liquid fuels can be diverted for transportation requirements

Nat gas in N American context, Email of late May 2008

First good article on nat gas in mainstream media. Has implications for India. When gas prices are far higher abroad than in India, then contracts that private sector has entered into will be questioned. Govts have and will renege on promises made.

Keep in mind that nat gas markets were until recently extremely local; cuz nat gas has to transported via pipes/ships. Pipes are intra-continental and Liquified Natural Gas (LNG) shipping capacity was minimal as was ports' handling capacity of the same. Those markets (prices) are gradually getting interlinked due to an increase in the shipping and port capacity expansion. Now you see where the Iran-Pak-India pipeline fits in.

Cant help myself here from typing this. Canadian tar sands' oil extraction depends on nat gas. Their costing estimates are based on 2-4 $ nat gas, today the price is about $16. North American gas extraction is hitting a plateau supposedly....havent looked at the figures closely. NAFTA is supidly structured on nat gas trades between Canada and US. Canada will likely renege.

Natural Gas in Pause Mode

Michael Stravato for The New York Times A new tanker built to transport liquefied natural gas, sitting idle at a dock near an L.N.G. storage plant in Louisiana.

By CLIFFORD KRAUSS
Published: May 29, 2008

CAMERON PARISH, La. — The cost of a gallon of gas gets all the headlines, but the natural gas that will heat many American homes next winter is going up in price as fast or faster.

Michael Stravato for The New York Times
Cheniere Energy’s liquefied natural gas terminal near Cameron Parish in Louisiana is idle, because other countries, like Japan and Spain, are willing to pay more for the fuel.
Michael Stravato for The New York Times
Darron Granger, standing, a Cheniere senior vice president, said the investment would pay off, but “I just can’t say when.”
Michael Stravato for The New York Times
Construction work inside an L.N.G. storage tank at Cheniere’s terminal, in anticipation of increasing gas shipments.

That fact makes the scene in the languid, alligator-infested marshland here in coastal Louisiana all the more remarkable.

Only a month after Cheniere Energy inaugurated its $1.4 billion liquefied natural gas terminal here, an empty supertanker sat in its berth with no place to go while workers painted empty storage tanks.

The nearly idle terminal is a monument to a stalled experiment, one that was supposed to import so much L.N.G. from around the world that homes would be heated and factories humming at bargain prices. everyone thought that nat gas was plenty

But now L.N.G. shipments to the United States are slowing to a trickle, and Cheniere and other companies have dropped plans to build more terminals.

A longstanding assumption of American energy policy has been that natural gas would be plentiful abroad, and therefore readily available for importation, as production falls off in North America, where many fields are tapped out.

But some experts are starting to question that idea, saying natural gas could be subject to the same explosion in overseas demand that has made oil so expensive. Shows the thought process of the writer. It isnt the explosion in demand that is responsible for our current predicament (which BTW is not recognized as such by most policymakers); as much as the peaking of extraction is. Explosion in demand conveys a sense of us still being in 'control' and having the ability to do something about it. Recognition of the peaking of extraction of nat gas / oil will make us frame the issue differently; that frame will force us to look at it in a different light; and those lenses will enhance our ability to take mitigatory steps.

As it is, the supertankers that were supposed to deliver cargoes of gas from Africa and the Middle East to the United States are taking them to places like Spain and Japan instead, am not sure why they would do that....taking cargo elsewhere, but i do know that the highest bidder has in the past diverted shipments. pushing up gas prices and depleting the nation’s stockpiles as the hurricane season approaches.

“A few years ago myopia affliction people looked at L.N.G. as a solution to North America’s gas needs,” said Nikos Tsafos, an analyst with PCF Energy, a consulting firm. “But today we see that there is less L.N.G. around than people expected, and there is more competition for that L.N.G. from markets that are willing to pay more than the United States.”

Not long ago, Cheniere was a darling of Wall Street. It was widely praised for having the vision to plan four new liquefied gas terminals around the Gulf of Mexico to connect the country with supplies of natural gas from places like Nigeria and Egypt, gas once considered so worthless it was burned off.

Now the company’s stock price has sunk from $40 to just over $5 since last fall. Talk about volatility...i dont even need to check the time period for the fall....shows how well wall street does their homework. How come they didnt check who the competitors were for that nat gas? If you were in teh cold storage business you would try and see how much veggies and fruits were out there that would need to be carried over between seasons; will they fill your shelves or will you have to use your cold storage facility as a Snow World Theme Park!!

“The question that people ask is if L.N.G. doesn’t come to the United States for another year or two or three, what is going to happen to Cheniere,” acknowledged Charif Souki, the chief executive officer of the company. ask tough questions, what if it doesnt come, period!!!

While natural gas prices in the United States have spiked to over $11.80 per thousand cubic feet from $7.50 at the beginning of the year, the price that gas producers can draw in many other countries in the world is several dollars higher. All they need are terminals in producing countries that can chill natural gas to minus 260 degrees Fahrenheit for shipping across oceans and terminals in consuming countries that can regasify cargoes.

Just about the only place where demand for L.N.G. seems not to be growing is the United States, an abrupt shift from expectations as little as one year ago.

The Sabine Pass terminal was part of an estimated $7 billion construction of eight new L.N.G. receiving terminals being built around the Gulf of Mexico and the Atlantic Coast over the last five years to guarantee plentiful domestic supplies. With imports about 40 percent of the level of a year ago, and national receiving terminal capacity poised to double this year, the excess construction of import capacity has alarmed industry executives. what were they smoking...or sniffing??

However the executives predict that it is only a matter of time before the white elephants begin to look like a more robust breed. They say American gas suppliers will eventually be willing to pay the higher world prices on the spot market, especially if a gas shortage ensues after a punishing hurricane season or frigid winter. Energy demand is inelastic demand. Consumers will be willing to pay much higher. What happens to the economy?? Pray for a frigid winter dude; while the rest of the country prays for relief at their fireplaces and boilers.

They also predict future American consumption of natural gas is poised to increase because of hardening opposition to building new coal-fired electricity generating plants and delays in new nuclear plants. “Over time, we will need to start importing more gas,” said Darcel L. Hulse, president of Sempra LNGE, a division of Sempra Energy, which is building receiving terminals in Mexico and Louisiana. “We will not have enough.” Just because one needs more, it doesnt follow that the Lord will provide it. Still stuck in that same thinking and operating under invalid assumptions.

That was the thinking that spurred the L.N.G. expansion in the United States in the first place. At the beginning of the decade, government officials and energy experts predicted a decline in domestic natural gas production as conventional fields on-shore and in the Gulf of Mexico declined. Companies like Cheniere, Sempra Energy and Exxon Mobil began snapping up coastal land and requesting regulatory approval for scores of terminals. Several other terminals were taken out of mothballs and expanded.

But recently domestic natural gas production has been stronger than expected and events abroad have drawn L.N.G. from the United States to countries that needed it more.

Last July an earthquake in Japan forced the closing of the Kashiwazaki-Kariwa nuclear power plant, which in turn has forced Japanese utilities to import huge amounts of L.N.G. World L.N.G. supplies grew even more scarce because of a persistent drought in Spain that has crimped that country’s hydroelectric capacity, forcing the Spanish to increase L.N.G. imports. look at the ripple effects...an accident here a drought there and you have a problem. World energy markets have become a tightly knit system that is taut. A taut global market for a product that is characterised by inelastic demand - recipe for volatility.

Prices in Asia and Europe have soared, as producers have sold more supply on the spot market where prices are higher than those in traditional long term contracts.

World demand for natural gas has grown about 2.6 percent a year over the last decade, but in Asia, the Middle East, Latin America and Africa it has averaged 7 percent over the same period, according to a recent UBS report. Growth in the developing world is expected to be supported in the years ahead by a construction boom in refineries and power and petrochemical plants.

Supplies of L.N.G. are going to grow in the next few years, but experts say they will not be enough to satisfy the growing demand. Liquefaction plant projects that prepare the gas for shipping in producing nations like Nigeria and Russia are being delayed and even shelved because of political turbulence, cost overruns and increasing domestic demand for gas in their own countries. Production in one major terminal in Indonesia is sliding because of a declining field, and production in another in Norway is facing mechanical difficulties.

With L.N.G. providing only about 3 percent of total American natural gas consumption in recent years, the fall in L.N.G. imports has made few headlines. But some experts say those responsible for importing gas are making a mistake by not buying more L.N.G. at current prices.

They warn that the failure to import more L.N.G. is leaving natural gas reserves precariously low should the country be hit by a harsh hurricane season or cold winter. They say low L.N.G. imports have helped push American natural prices higher, just not high enough to match the prices of Europe and Asia whose ability to produce and store gas is far inferior to the United States.

Andrew D. Grams, head of North American power and gas trading at Deutsche Bank, said the United States may eventually pay dearly for not importing more L.N.G. now. He calculated that given the reduced L.N.G. imports and expected energy use through the summer, the country will have only 3.1 trillion cubic feet of gas in storage at the end of October — almost 1 trillion cubic feet below full storage.

“Under a normal scenario, that’s just barely enough to get through winter,” Mr. Grams said. “It doesn’t take a rocket scientist to figure out that we may not get enough L.N.G. supply in the United States unless our pricing structure becomes more competitive with the rest of the world.”

Natural gas, unlike oil, is still a regional commodity and its price is only loosely connected to world oil benchmark prices. But L.N.G. has tied regional markets closer, and the arc of natural gas prices appears to be following close behind oil in recent months because of tightening L.N.G. supplies.

The same increases in the prices of steel and other materials and shortages in labor that are making to more expensive to explore for oil are making L.N.G. development more costly too. Meanwhile, countries that produce oil and gas like Libya and Algeria are replacing their oil-powered electricity plants with natural gas-burning plants. That way, they are able to export more oil, which costs less to ship than L.N.G.

“The value of gas to you is what people are willing to pay for the oil you are exporting,” said Don Hertzmark, a consultant who has advised several oil companies on L.N.G. projects. “At that point, the gas is worth a lot of money.”

Nevertheless hopes for L.N.G. still survive here. The secretary of energy, Samuel W. Bodman, and a Cajun zydeco band came last month to celebrate the opening of the Sabine Pass terminal, and a tanker delivered L.N.G. from Nigeria for testing purposes.

Workers are testing generators and painting and building five huge storage tanks, each capable of providing a full day’s supply of gas for Louisiana. Tugboat crews are practicing for any future cargo arrivals.

“I know the L.N.G. will come and we’ll make a profit on this,” said Darron Granger, a Cheniere senior vice president. “I just can’t say when.” wishful thinking stemming from denial

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Bell Curve # 1 - Oil

Analysis: On its last legs
By Ed Crooks - Financial Times, London
Published: July 11 2008 19:09 Last updated: July 11 2008 19:09

To appreciate the achievements of the North Sea oil industry, you really need to go offshore, flying an hour or more in a cramped helicopter above the churning waters that lie between Scotland and Norway.

Cat’s-cradles of pipework, planted on the sea bed up to 600 feet below, the platforms are awe-inspiring feats of engineering. They are also fraught with hazards. technological achievments. the oil & gas industry is next only to the armament industry in terms of its technological accomplishments and employment of technology in my opinion. Last weekend, memorial services commemorated the 20th anniversary of the Piper Alpha explosion, the world’s worst offshore disaster, in which 167 were killed.

Yet for all the skill and bravery of the workforce, the industry is fighting a losing battle: the North Sea is in terminal decline. The challenge now is how to squeeze out as much oil and gas as possible before the wells finally run dry. With crude prices above $147 a barrel yesterday, any extra output would be more lucrative than ever – but is the industry there in shape to deliver?

As the world looks ahead nervously to the exhaustion of its reserves of fossil fuels, whenever that may come, the North Sea is an early indication of how that decline will come. Oil & Gas UK, the industry association, warned this week that without heavy investment again thinking that investment can get us out of this predicament. Money cannot change geology. and the development of new fields, the UK sector of the North Sea would be “effectively over by about 2020”. We have to be very clear in our thinking here. The trouble starts when we hit a global peak not when we run out of oil. Anyone who has driven a car knows, the car engine will sieze when there is less than optimal oil in it, not when the oil in it has run out.

Even if the industry does keep investing, and strikes lucky in finding fresh pockets of oil and gas, the iron laws of geology and economics cannot be turned aside. some laws of economics like the 'Homo Economus', i.e., men are rational beings who always act in their self-interest are already being overturned http://www.predictablyirrational.com/ “The North Sea will continue to decline,” says Mike Wagstaff, a former banker with Schroders who is now chief executive of Venture Production, an oil and gas producer focused on the North Sea.

“Whether we invest or not will change the rate of decline by maybe a couple of percentage points.” The investment also refers to Enhanced Oil Recovery. EOR will also change the shape of the bell curve from what it would have otherwisee been. It will change it from what normally will be a smooth tapering off on the decline side of the bell curve to a sharp drop. Then we are toast!!!

Opening up the North Sea in the 1970s helped break the power of Opec, thats like saying that the addict found a stash buried in his house and didnt need the pusher anymore. now the stash is nearing its bottom. the oil producers’ cartel, and deliver two decades of cheap energy, from the mid-1980s to the mid-2000s. Now, the region is one of the fastest-declining oil provinces in the world, according to the International Energy Agency. On the UK side, oil and gas output peaked at the turn of the decade and has been falling by 7.5 per cent a year since 2002. 6 years of technology, investment, a growing economy, (meaning a govt not strapped for funds) and they could do zilch about the decline

Today, the North Sea supplies about 4m barrels of oil a day from the UK and Norway, meeting about 4.7 per cent of global demand. That is about as much as Iran and more than Kuwait, Venezuela or Nigeria. By 2013, that will have dropped to 3m b/d or 3.2 per cent of demand, the IEA predicts.

While the Norwegian side was developed more slowly, and its peak came later, it too is in decline. Norway suffered the world’s second-biggest drop in oil production last year, according to BP – exceeded only by the supposedly planned output reductions from Saudi Arabia.

Yet Aberdeen, the granite city on Scotland’s north-east coast that is the capital of the British oil and gas industry, does not feel like the heart of a dying business. Record high oil prices mean the cash is flowing freely, making Aberdeen an oasis of prosperity in the increasingly bleak landscape of credit-crunch Britain. The hotels are full all week, luxury car dealerships selling Mercedes and Land Rovers have been opening showrooms and the rush-hour traffic is horrendous. There are more Porsches per head in Aberdeen than in London’s elite Kensington. Luxury two-bedroom apartments are on the market at £400,000 – about what you would pay in a reasonably desirable part of London.

Scotland’s offshore workforce has risen from a low of about 19,000 at the start of the decade to about 28,000 today, while shortages of skilled staff have sent wages through the roof. An experienced diver can earn more than £100,000 a year.

About the graph above: The declines are happening in the big producers' fields, the increases are happening in the small producers' fields (more or less), so in a sense it is an incomplete picture of the situation.

Oil company profits are soaring, too. The industry will pay about £16bn in tax this year; about one-third of the corporation tax expected from the whole of British business. Office buildings are springing up across the city and its outskirts. BP moved into a new Aberdeen base this year and several subsea engineering companies – contractors that instal and maintain equipment underwater – have built head office buildings in Westhill, a suburb of Aberdeen that has been christened “surf city”.

That impression of robust health, however, is only half the picture. Head offshore and the troubles of North Sea are more readily apparent. The condition of the platforms and other installations varies widely. The best have the gleam of polished steel and fresh paint; the worst show every sign of exposure to the pitiless battering of wind and waves for three decades.

When the first platforms were built in the 1970s, they were designed for a life of 30 years or so. Few people believed they would still be active well into the 21st century. Many installations have had their lives extended for 10 years, some for 20.

A report last November from the Health and Safety Executive, which has responsibility for safety in Britain’s sector of the North Sea, was scathing about the state of some platforms. “Fabric maintenance is very poor on many platforms, showing inadequate long-term planning by the operators for the lifetime of installations, a lack of regard for the working environment of offshore workers and the risks to the individual of injury,” it said.

On the worst installations, handrails are pitted with rust and held together with scaffolding clips, while grating floors are crumbling and covered with board walkways. Paintwork is peeling and bubbling with corrosion. In the past few years, the industry has begun to get to grips with the problem: it is now spending about £1.5bn a year on “asset integrity”. The biggest problem with the North Sea, however, is below the surface: the fields are running dry. The giant areas developed in the 1970s are producing a fraction of their peak output and the fields being discovered today are tiny by comparison. The Forties field held 5bn barrels of oil, Brent about 4bn: more than 100 times the volumes of today’s typical discoveries in the UK sector. A new field of more than 50m barrels is a rarity.

The newer fields are also generally harder to exploit. The oil is heavy, so it will not flow easily, or is held in what is known as a “high pressure high temperature” reservoir: at 150 degrees Celsius or more. it is a well known fact in the oil industry that the second half of the oil that remains in a field is more diffcult to get out, is of lesser quality and is going to cost more to simply extract and refine Producing oil and gas from these fields means constantly pushing back the technological frontier.

Hopes for the future of the North Sea rest on new entrants: companies that can make a business out of investing in smaller and older fields that are no longer worth the time or trouble for the big international oil companies. This week, for example, Shell and ExxonMobil sold six fields to Taqa, a fast-growing energy group based in Abu Dhabi. Peter Barker-Homek, an ex-BP man who is Taqa’s chief executive, says he plans to invest up to £1.5bn in the fields, to raise production from 40,000 barrels a day to 60,000 b/d thats how much oil that probably lines the tankers after tehy are emptied; we are scraping the fields with our bare hands literally – a decision that would not have made sense for Shell or Esso.

“They were looking at those assets in a completely different way,” he says. “For a major, the problem is how to replace 1bn barrels of reserves. Taqa only needs replace 100m barrels.”
. . .
New entrants’ contributions are vital to sustaining the life of the North Sea. About 40 per cent of investment in the UK sector comes from companies that were not there eight years ago. they are operating assuming a high price of oil, when the oil price dips (if it does) in the aftermath of the coming global economic slowdown, they might have to pack their bags. Then, you know where to go and pick up your Porsche Venture and Oilexco, a Canadian company that is another relatively recent arrival, were the most active drillers of new wells last year.

Recently, however, the number of new entrants has been falling, although it picked up a little last year. The number of fields changing hands has dropped to its lowest for more than a decade. hmmm

Costs are one obstacle: the North Sea is one of the most expensive places in the world for an oil company and costs have been rising fast. Tax is another. Oil executives observe wryly that while Venezuela and Russia have hit the headlines by grabbing a bigger share of their oil revenues, Gordon Brown did much the same thing with two tax increases imposed on North Sea companies when the prime minister was Britain’s chancellor of the exchequer.

Malcolm Webb, the chief executive of Oil & Gas UK, talks about a “window of opportunity”: the period when it is still possible for companies to develop fields in the North Sea by hooking up to existing infrastructure, before those ageing installations crumble away completely. “We don’t have the luxury of a great deal of time,” he says. “If the developments don’t come forward, if we are not making use of the infrastructure, then there is a real risk it will be decommissioned.”

Not everyone is so worried. Venture’s Mr Wagstaff thinks there will still be significant production in 2050. this guy is a recent entrant. he wouldnt have been a recent entrant, did he not think there was scope. wouldnt trust him. maybe greed clouding his rationality But the North Sea is showing how the whole of the global oil and gas industry is becoming more difficult and more expensive. As it fades away, the dependence of Europe and the US on Russia and the Middle East for their oil and gas is inevitably going to grow. Russia has a score to settle with the West. The coming down of the Berlin Wall wasn't stomached very well in the Kremlin. On top of that, our fiend Greenspan blamed the Housing Bubble in the US on the coming down of the Berlin Wall!!! Not kidding, google it and you will see

Copyright The Financial Times Limited 2008

Is this how the Oceans will recover?

Picture: AP
Picture does not accompany the original article in the Financial Times

Japanese fishermen strike over fuel prices

By Michiyo Nakamoto in Tokyo
Published: July 14 2008 16:47 Last updated: July 14 2008 17:23

My Comment

'Revenge of Gaia' (Lovelock's book by that name) at the Japs for all the overfishing, especially the whales? Industrial scale trawler fishing will suffer setbacks. All for the good maybe, as altered oceans get a breather?

FT Article below

Japan’s fishing industry will hold its first ever nationwide strike on Tuesday in protest against the recent surge in energy costs, adding to the pressure that falling fish populations and pollution are already inflicting on sushi shops and the Japan­ese dinner table.

The strike, which would affect virtually the entire industry of about 200,000 fishing boats in Japanese waters and overseas, aims to underline the plight of the fishermen and put pressure on the government to help them deal with the recent spike in energy prices.

“Many fishermen are being faced with bankruptcy. We are asking the government to deal with a situation in which fishermen cannot afford to go out and fish,” a representative of Zengyoren, the federation of fisheries co-operatives, said on Monday.

The cost of heavy oil used in fishing boats has tripled in the past five years to Y115,000 ($1,080, €680, £542) per kilolitre and is expected to continue rising, the Zengyoren says.

If it hits Y130,000 per kilolitre, between 30 and 40 per cent of businesses will close shop and 50,000 to 60,000 people will lose their jobs, the federation calculates.

“I paid Y90,000 for three days’ worth of fuel and my catch will probably bring in about Y100,000, so if I pay my two employees 30 per cent of that, I am already in the red,” says Suezaburo Tsuruoka, a fisherman in Chiba. Unless financial help is extended, Mr Tsuruoka believes, “half [of small fishing businesses] will quit”.

“We want the government to bear part of the cost of fuel,” he says. My Comment How many folks are how many govts going to bail out. Freddie, Fannie now Fisher?

The government has budgeted Y10.2bn to help fishermen lower their energy costs by increasing efficiency and other measures but says it would be difficult to provide direct energy subsidies to the fishery industry alone.

“Buses, taxis and trucks also face higher energy costs so [helping only fishermen] might not win public support,” says a ministry of agriculture, forestry and fisheries official. My comment There you go!!!

However, the problem for fishermen is that fish prices are set through auctions, making it difficult to tack on higher costs. The average price of fish has fallen from about Y240 per kilo in 1990 to Y178 per kilo last year, according to the Zengyoren.

The strike, which will be for one day, is not expected to have a serious impact immediately on fish supplies at markets and restaurants.

“Storage technology has greatly improved: we have frozen fish, and fish already in tanks,” so supplies will not be unduly depleted, says a representative of Tsukiji, the world’s largest fish market, in Tokyo.

However, if high energy prices were to continue and Japanese fishermen forced out of business, imports would increase and Japan’s self-sufficiency in fish and marine food products would fall from 57 per cent to as low as 30 per cent, Zeng­yoren warns.

South Korea recalled its ambassador to Japan on Monday after Tokyo said it would reaffirm its claim to a group of islands controlled by Seoul in school teaching guides, Reuters reports from Tokyo. South Korea and Japan both lay claim to a group of desolate, rocky islets which Seoul calls Dokdo and Tokyo calls Takeshima. The area surrounding the islets has fertile fishing grounds. My Comment Peak Oil will change geopolitical equations

“Japan should not repeat its behaviour of promising a forward-looking relationship with Korea but then stirring up a dispute such as the Dokdo issue once in a while when the government changes,” South Korea’s presidential office said.

http://www.ft.com/cms/s/0/738cb79c-51b7-11dd-a97c-000077b07658.html
Copyright The Financial Times Limited 2008

Cantarell Sees Steep Declines

Pemex Cantarell Output Drops 34% on Spending Limits (Update1)
By Andres R. Martinez
http://www.bloomberg.com/apps/news?pid=20601087&sid=aQF381AACFAI&refer=home

My comment
It really doesnt matter why it has dropped, the point is that it has dropped. Blaming spending limits etc is nothing but fooling ourselves that if we spend, we will find sufficient oil to get out of this predicament. That is simply not true. The peak of discoveries was way back in 1964; and lots of money and drilling has flowed below the bridge since then. Denial of reality takes on many forms and shapes. 34% is a huge drop, the Hirsch Report concluded that if output falls at 2% we need 20 years to mitigate the impact; and keep in mind Cantarell is the third largest field in the world. Enhanced Oil Recovery is nothing but using a bigger straw to suck out the juice, one only empties the glass faster.

This is how global oil extraction looks. A smoking jet fighter still maintaining its upward trajectory, seconds before it makes a dramatic change in course.

Start of Bloomberg Article

July 7 (Bloomberg) -- Crude output from Mexico's Cantarell, the world's third-largest oil field, is falling at the fastest pace in 12 years as investment limits keep state-owned Petroleos Mexicanos from fully exploiting deposits and finding new ones.

Production at the Gulf of Mexico development dropped 34 percent in May from a year earlier, the biggest decline since October 1995, according to data compiled by the government and Bloomberg. That was when Hurricane Roxanne's 131 miles-per-hour (114-knot) winds shut down offshore wells for a week.

Seven decades after Mexico banned foreign oil investment, President Felipe Calderon is pressing lawmakers to allow Pemex, as the state energy company is known, to hire outside producers to help find and pump petroleum. Cantarell's decline is costing Pemex $20 billion a year in sales at a time when oil prices have never been higher, and the company lacks the funding to find enough new deposits to keep reserves from dwindling.

``We are at the worst time right now of the decline,'' David Shields, an energy analyst and publisher of Mexican oil magazine Energia, said in a July 1 interview. ``They should have been developing the fields to be sustainable.''

Falling production is curbing exports to the U.S., which buys about 80 percent of the oil Mexico sells abroad. Sales to the U.S. declined to 1.07 million barrels a day in May, the lowest since November 1995.

Exports at Risk
Pemex, Latin America's biggest company by revenue, may need to cut exports this year to meet domestic demand as production falls, My comment this same phenomenon of other oil exporting countries curtailing exports once decline sets in is going to repeat elsewhere too. that means less available in the global importable oil pool Energy Minister Georgina Kessel said last month in an interview. The company reduced the amount of oil it supplies to Texas refineries operated by Royal Dutch Shell Plc and Valero Energy Corp., according to a June 30 regulatory filing.

Mexico nationalized its oil industry in 1938 and enacted a constitutional ban on foreign energy investment to protect the country's resources. Increasing royalties from Pemex, which Mexico relies on for 40 percent of government revenue, have left the company short of exploration and production funding.

Mexico's Congress is in the final month of debate on Calderon's proposal to give Pemex more freedom to hire companies to explore, produce, refine and transport oil. Foreign producers still wouldn't own the oil. Hiring them under service contracts would free Pemex to invest more in other projects.

Pemex is seeking $20 billion in exploration and production funding for next year, up from its 2008 budget of $15 billion. Output at the three-decades-old Cantarell fell 25 percent in 2007, exceeding company projections for a 15 percent drop.

Spending Needs
``Spending on exploration is a relatively low number, compared to other areas of the world,'' Jed Bailey, managing director of Latin American research at Cambridge Energy Research Associates, said in a July 1 interview from Boston.

Irving, Texas-based Exxon Mobil Corp., the world's largest oil company, plans more than $25 billion in capital spending this year. Chevron Corp., the No. 2 U.S. oil company, budgeted almost $23 billion.

Pemex's funding request is too low to meet a goal of boosting oil production back above 3 million barrels a day, Kessel said in the interview. The company needs about $30 billion a year to hit that target, she said. Total crude output in May was 2.8 million barrels a day, down 10 percent from a year earlier, led by Cantarell's plunge.

Pemex spokesman Carlos Ramirez didn't return calls seeking comment.

Reserves Fall
The company replaced 50 percent of the oil it extracted in 2007. At current production rates, Pemex's oil reserves would run out in 9.2 years if it added no new deposits.

Pemex has been unable to take full advantage of record oil prices. Crude-oil futures traded in New York climbed to a record above $145 a barrel this month, the highest since trading began in 1983.

Cantarell's output dropped by more than 540,000 barrels a day in May from a year earlier as the deposit lost pressure, making it more difficult and expensive to extract crude. Pemex has been injecting nitrogen for more than 10 years to stimulate production. My comment Enhanced Oil Recovery / EOR involves water injection (Ghawar Field, S. Arabia) nitrogen injection, horizontal drilling etc. What this does is steepens the slope of the declining part of the Bell Curve. Screwed if we dont do EOR, doubly screwed if we do. But, the way humans or most species operate is to bother about the now. Risk taking behaviour it has been demonstrated, increases when one is hungry for example. So, if we are hungry for energy, we will take more risks to get what we can NOW, think about tomorrow later. Isnt that what the Easter Islander who cut the last standing palm tree did? He, it could well have been a she :) , wanted the palm tree then, think about tomorrow later.

Living at risk is
jumping off the cliff and building your
wings on the way down. ~Ray
Bradbury

The development peaked at 65 percent of the company's 3.3 million barrels of daily crude output in 2003. In May, it fell to 37 percent of total production.

The world's largest oil field is Ghawar in Saudi Arabia, followed by Burgan in Kuwait and Cantarell.

To contact the reporter on this story: Andres R. Martinez in Mexico City at http://us.mc577.mail.yahoo.com/mc/compose?to=amartinez28@bloomberg.net.