Archive of selected extracts from my Triple Crunch log
First peak oil hedge fund for institutional investors set up in New York.
8 September 2009: Hedge fund investor, logi ENERGY LLC., announces The Peak Oil Value Fund, the first of its kind aimed at institutional and accredited investors. “We believe that the effects of Peak Oil on the markets are a temporary Global Macro series of events” says Larry Ortega, CIO. “We only have a few years to take advantage of these opportunities.” The fund’s investment strategy employs five approaches: 1) Publicly Traded Equities and Equity Options; 2) Investment in oil in storage; 3) Investment in Oil, Gasoline and Heating Oil spreads in the Futures Markets; 4) Private Investment in Public Equities of Oil and Gas Exploration Companies; and 5) Private Investment in Private Companies or Oil and Gas Fields.
My view: There will be more as the realisation spreads.
BP finds giant oilfield in Gulf of Mexico and the media is full of talk that peak oil concerns are over.
2 September 2009: The Tiber field, in 4,100 feet (1.25km) of water might be as large as the 4 bb Forties field, BP says. JL: “This [BP] find is welcome but its not going to take concerns away at a time when existing fields are depleting faster than expected and the new discoveries have a very long lead time.” The FT reports a more sober “at least 3 bb” of which only 500,000 barrels is retrievable with today’s technology. The field is the deepest ever: almost 6 miles (9.4 km) below the sea bed. BP believes there could be a further 20bb to be found in the deepwater Gulf of Mexico. (Us proved reserves are around 30bb, BP’s were 18.1 bb at the end of last year). The field is unlikely to be onstream before the second half of the next decade. Goldman Sachs argues that Tiber is no answer to BP’s “thin pipeline of new projects in the 2010-13 period,” Iain Reid of Macquarie?Securities argues that it “does scotch a few bears who thought there was a production black hole after 2013”.
My view: See my Guardian blog on this.
Split in US oil industry over plan for “energy citizen” protest rallies against proposed climate legislation.
14 August 2009: A leaked American Petroleum Institute memo shows the umbrella organisation asking companies to stage up to 22 gatherings mobilising thousands of “citizens” to protest against proposed carbon-reduction measures such as forcing oil companies to invest in renewables. Exxon strongly supports the plan, but API members BP and Shell are members of the US Climate Action Partnership, that supports many of Obama’s proposed policies. Jack Gerard, API President, entreats members to keep the memo confidential, because it would arm “critics”, but it finds its way to Greenpeace anyway.
My view: Exxon never seems to learn. We didn’t see GM urging Toyota to hold the line on SUV building with fake public protests.
UK Government review of energy security virtually ignores peak oil.
5 August 2009: The author, former energy minister Malcolm Wicks, says of energy security generally - on page 1 of 119 - that “there is no crisis.” The whole report sits very uncomfortably with the IEA’s latest thoughts, as carried by the FT and Independent on Monday. As for the work of the UK Industry Taskforce on Peak Oil and Energy Security (ITPOES), the report does not mention it, much less our significantly less sanguine conclusions. The taskforce had two meetings with DECC officials, one of which Mr Wicks attended himself. Peak oil is mentioned but once, in a short box on page 45. This passage concludes: “Few authors advocating an imminent peak take account of factors such as the role of prices in stimulating exploration, investment, technological development and changes in consumer behaviour.”
My view: This is as wrong as it is outrageous in its cavalier condescension. The equivalent would be a politician saying in 2007 that “few authors advocating the toxicity of derivatives take into account factors such as the investment banking industry’s sophisticated treatment of risk, and the extent of the due diligence involved in awarding triple AAA investment grading.” The government would say they consulted their own industry experts. But I have talked to two of them, and they tell me that they were barely consulted at all.
IEA’s Chief Economist issues another energy crunch warning, this time on a front page.
3 August 2009: The Independent reports an exclusive interview in which the IEA’s Fathi Birol warns that catastrophic shortfalls in oil threaten global recovery.
My view: Dr Birol seems to become more trenchant with each interview. It’s as though the World Bank were warning about the credit crunch ahead of time. But still few appear to listen.
McKinsey Global Institute warns that a 1970s-type oil shock could follow the current recovery
29 July 2009: Scott Nyquist, a McKinsey Director, writing in Business Week: “unless business leaders and policymakers act decisively on both oil supply and demand, there is a risk that a second oil shock could follow economic recovery—indeed, one that could be lengthier than the second price spike that hit the world economy in the 1970s.” MGI says there is much governments could do to abate risk. They calculate that “investments to increase energy productivity that offer investors a return of 10% or more could reduce global oil demand by as much as 10% by 2020, or between 6 million and 11 million barrels per day—the amount required to keep demand and supply in balance.” But “it may already be too late to avert a second oil shock that could develop as early as 2010, depending on how quickly the global economy recovers.”
My view: The UK Industry Taskforce on Peak Oil and Energy Security is not alone in its concerns. They are evidently shared by elements of McKinsey.
Oil & Gas UK warns that UK faces an energy crunch as exploration falls in North Sea
9 July 2009: A report shows investment in exploration is dropping 57% in the first half of 2009. It fell to £4.8bn last year, down £1.2bn on the previous two years, and could drop to £3bn next year, where £5bn is needed. Domestic reserves still contribute around two thirds of UK primary energy. 37bn barrels could be extracted, the industry believes. On this showing it will nearer 11 bn barrels.
My view: Peak oil is about timely delivery, not just how much oil may or may not be left as a resource.
Commodity Futures Trading Commission will hold hearings on potential US curbs on oil trading
7 July 2009: The reining in of speculators (not just in oil, but gas and other commodities) by setting limits is now on the cards. The traders are predictably unimpressed. One says: “People forget you need the speculator to take the other side of producers trade – if you have a producer who needs to hedge then you need a speculator.”
My view: There is speculation, and there is speculation. Unregulated trading should not be allowed to threaten the global economy.
The threat of an oil supply crunch has receded with the recession, the IEA says
30 June 2009: The IEA has cut its oil demand forecast by fully 3.3 mbd by 2013. The agency foresees 0.6% growth of 540,000 barrels a day from 2008 to 2014, meaning consumption increases from from 85.8 mbd to 89. The Opec cushion is now expected to reach 7.78 million barrels a day, or 8%.
Comment: See the Reuters article of 23 June for a less sanguine view.
IEA sees potential for oil supply crunch by 2014
23 June 2009: This Reuters assessment differs from the FT’s portrayal, below. It could happen if global growth returns to 5% pa, IEA chief Nobuo Tanaka says. “If GDP only grows 3% we will probably see a postponing of the supply crunch until after 2014,” he adds.
My view: This is essentially the same view as the UK industry taskforce’s.
Opec and EU warn that regulation is needed to stop an oil bubble
23 June 2009: After joint talks in Vienna, officials say that the financial sector is insufficiently well regulated to head off this prospect. The role of speculation, a persistent Opec concern, is not resolved.
My view: It is hugely difficult to imagine the international community agreeing effective regulation of this commodity, given the multilateral track record.
Brown asks for an emergency plan to stop oil prices wrecking the recovery
21 June 2009: The UK PM orders Treasury and Department of Business officials to prepare for a scenario where a rising oil price leads to a lending drought for UK companies. He will seek an international agreement to limit the price of oil, which is at nearly $72.
My view: There is something of Canute in this.
11 June 2009: Tony Hayward offered a restatement of his company’s position on peak oil at the release of the 2009 BP Statistical Review of World Energy. The review shows that in 2008, for the first time, total energy demand in poorer countries (including China and India) exceeded power and fuel consumption in wealthier nations. “Our data confirms that the world has enough proved reserves . . . to meet the world’s needs for decades to come,” Mr Hayward said, adding that constraints on production were “human, not geological”. Will Whitehorn, chair of the UK industry task force on peak oil and energy security, calls the findings overoptimistic. He says: “Many of the reserves figures are overstated.”
My view: My money is on Will.
Goldman Sachs reverts to bullish forecast as oil nears $70 a barrel
4 June 2009: Surprising Wall Street, Goldman has forecast $85 a barrel by year end, ending a spell of bearish forecasting. As recently as end April it was predicting $45 within three months because of plentiful inventories and weak demand. Goldman predicted the “super-spike” above $100 ahead of anyone else, in March 2005 when crude was around $55, building much kudos. But then it had a spell of bad forecasts, including wrongly calling $200 oil.
My view: The smoothed trend will only be upward, of that we can be confident. Predicting the deviations from the trend is quite another matter.
Gulf faces gas shortfall: only Qatar and Iran have enough supplies for their own needs
26 May 2009: The cumulative gas shortfall for the 6 GCC nations may be at least 7 trillion cubic feet by 2015. Neither Qatar or Iran can necessarily help their neighbours. Qatar’s moratorium on new North Field projects extends to at least 2013, as things stand. In Iran, the problem is global and regional politics. Saudi Arabia, Kuwait and the UAE are already burning oil for power and expected increasingly to do so. The UAE is turning to nuclear, after concluding they will need to add more than 40GW by 2020. They estimate not much more than half of that can feasibly come from gas. An un-named official from the Abu Dhabi National Oil Company: “Most people don’t recognize it, but the Middle East has one of the world’s fastest growing rates of [power] demand….and the the net effect is a lot of crude oil is getting diverted to the electricity sector.”
My view: This will boost oil use significantly in the oil exporting countries, imperilling supply for oil-importing countries once peak oil hits.
Saudi oil minister warns of oil price spike in 2-3 years, worse than the 2008 one
26 May 2009: Ali Naimi says the next spike will result from ongoing underinvestment in new capacity.
My view: This will be a focus of the next report by the UK Industry Taskforce on Peak Oil and Energy Security.
Russia cannot guarantee the EU that there will be no further disruptions to gas supplies
25 May 2009: President Dmitry Medvedev tells an EU-Russia summit in Khabarovsk that he cannot promise uninterrupted gas supply to the west. Neither, relatedly, will Russia be lending any more money to Ukraine, because it has concerns about Kiev’s solvency. Ukraine should be filling its storage facilities around now ready for winter, and isn’t. This itself impacts smooth transit to Europe.
My view: As UK gas production plunges in the North Sea, we can’t say we haven’t been warned. Currently the UK is building gas infrastructure, but we can’t be sure we will have enough gas to put into it.
The high oil price of early 2008 was due much more to peak oil than speculation
11 May 2009: Steven Kopits, Managing Director of Energy business analysts Douglas-Westwood, observes that global production plataued in October 2004, and in the four years thereafter the global economy expanded by 18% while oil supply didn’t grow. Prices rose because more new Chinese consumption hit the market than developed economy consumption fell out of it. And then the world economy collapsed. Now, market manipulation is rife. Opec is reducing production at millions of barrels a day and investment banks are using charted supertakers to hoard something like 100 million barrels to profit come the return to high prices. Why no outrage about the investment banks, he asks. Because people only care about high prices once they experience high prices. Regulators will have to contain oil prices if they are to prevent a “second peak oil recession.”
“Peak oil, not speculation,” Steven Kopits, Douglas-Westwood Industry Comment, 11 May 2009.
My view: Given the feeble nature of efforts to regulate the out-of-control investment banking sector post-crash, there is surely little hope that oil speculation will be regulated.
