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The world has a major crude oil problem; expect conflict ahead

May 1, 2022

The world has a major crude oil problem; expect conflict ahead

Media outlets tend to make it sound as if all our economic problems are temporary problems, related to Russia’s invasion of Ukraine. In fact, world crude oil production has been falling behind needed levels since 2019. This problem, by itself, encourages the world economy to contract in unexpected ways, including in the form of economic lockdowns and aggression between countries. This crude oil shortfall seems likely to become greater in the years ahead, pushing the world economy toward conflict and the elimination of inefficient players.

To me, crude oil production is of particular importance because this form of oil is especially useful. With refining, it can operate tractors used to cultivate crops, and it can operate trucks to bring food to stores to sell. With refining, it can be used to make jet fuel. It can also be refined to make fuel for earth moving equipment used in road building. In recent years, it has become common to publish “all liquids” amounts, which include liquid fuels such as ethanol and natural gas liquids. These fuels have uses when energy density is not important, but they do not operate the heavy machinery needed to maintain today’s economy.

In this post, I provide an overview of the crude oil situation as I see it. In my analysis, I utilize crude oil production data by the US Energy Information Agency (EIA) that has only recently become available for the full year of 2021. In some exhibits, I also make estimates for the first quarter of 2022 based on preliminary information for this period.

[1] World crude oil production grew marginally in 2021.

…click on the above link to read the rest of the article…

What Is Oil and Why Is It So Special?

April 13, 2022

What Is Oil and Why Is It So Special?

I have written in here several times that no other form of energy can match fossil hydrocarbons in their energy density except for uranium, but uranium requires a nuclear reactor to be utilized; something that cannot be carried by hand (like a container of gasoline can). Oil is especially important not only because of its density, but also because of its portability and versatility. No other form of energy can be transported and utilized as easily as oil. Most of us are familiar with oil in the form of gasoline or diesel, but perhaps also in kerosene or fuel oil as well. Natural gas is actually higher in density, but requires slightly different storage and engines. This portability and versatility explains why so many power tools such as lawn mowers, chainsaws, spin trimmers, lawn edgers, and more are powered by gasoline. The same advantages are also why most cars, trucks, tractors, agricultural machines, mining equipment, and roadbuilding equipment all use gasoline or diesel as their source for energy (although there ARE quite a few commercial trucks and forklifts which use natural gas or propane).

In this article and podcast, two energy experts, Nate Hagens and Art Berman, answer these questions and more regarding oil:

  • How is oil formed?
  • How did we become dependent on fossil fuels?
  • How much human labor is equal to the amount of energy in one barrel of oil?
  • Where do the majority of carbon emissions come from, and what role can we humans play in helping us reduce emissions?
  • How much oil is left and what are future prospects for oil production and the economy?
For those who want to see the slideshow while they listen, here it is.
…click on the above link to read the rest of the article…

Russian Ruble relaunched linked to Gold and Commodities – RT.com Q and A

April 3, 2022

Russian Ruble relaunched linked to Gold and Commodities – RT.com Q and A

With Russia’s central bank having just profoundly altered the international trade and monetary system by linking the Russian ruble to both gold and commodities, the journalists at RT.com in Moscow asked me to write a Q and A article on what these developments mean, and the ramifications of these changes on the Russian ruble, the US dollar, the gold price and the global system of currencies. This article has been published on the RT.com website here.

Regular readers will recall that I have contributed to quite a few RT.com articles before, such as about Australian gold (see BullionStar here), US Treasury gold (see BullionStar here), Poland’s gold (see RT site here), China’s gold (see RT’s Spanish site here), why buy physical gold (see RT site here), and gold price manipulation (see RT site here).

However, since RT.com is now blocked and censored in many Western locations such as the EU, UK, US and Canada, and since many readers may not be able to access the RT.com website (unless using a VPN), my Questions and Answers that are in the new RT.com article are now published here in their entirety.

Who would have thought that citizens of ‘free speech’ Western countries would need a VPN to read a Russian news site?

Why is setting a Fixed Price for Gold in Rubles significant?

By offering to buy gold from Russian banks at a fixed price of 5000 rubles per gram, the Bank of Russia has both linked the ruble to gold and, since gold trades in US dollars, set a floor price for the ruble in terms of the US dollar.

…click on the above link to read the rest of the article…

Germany Scrambles To Ration Gas After Refusing To Make Payments In Rubles

March 30, 2022

Germany Scrambles To Ration Gas After Refusing To Make Payments In Rubles

Now that Moscow has doubled down on its demands that its European “partners” pay for its oil and gas in rubles instead of euros (which, as the bloc already demonstrated, can be easily confiscated in the name of “sanctions”), the German government is digging in its heels as the payment dispute threatens to precipitate problematic energy shortages in Europe’s largest economy.

The FT reported Wednesday that German Energy Minister Robert Habeck has activated the “early warning phase” of Germany’s gas emergency law, which was adopted to help ration supplies in the face of a severe shortage. The decision will alert German consumers and businesses to do what they can to conserve energy.

Too bad President Biden and the US will take years to reroute their promised LNG exports (and even so, they will likely never be able to fully compensate for Russian supplies).

Habeck issued the warning for fear that Moscow would swiftly move to cut off energy exports to one of its biggest customers in Europe over its refusal to make payment in rubles, which Habeck has insisted would be a violation of the two sides’ contract.

The move was triggered by German concern that Russia might cut supplies to the country and its neighbors because they are rebuffing Moscow’s efforts to force payment for gas imports in rubles.

After demanding last week that “hostile states” pay for its gas and oil in rubles (although it hinted that gold and cryptocurrency might also be considered), Moscow said it wouldn’t share its resources “for free” after the G-7 aggressively repudiated the Russians’ request.

“We will definitely not supply oil and gas for free, that’s for sure. It’s hardly possible and reasonable to engage in charity in our situation,” Putin spokesman Dmitry Peskov said earlier this week.

…click on the above link to read the rest of the article…

 

Demand Destruction Has Begun

March 26, 2022

Demand Destruction Has Begun

One month ago, Brent jumped above $100/bbl for the first time in eight years as Russia executed a full-scale invasion of Ukraine, and it became clear that western governments would impose sanctions. The oil market has been in triple digits for practically the entire time since.

And, after a month of oil prices we have not seen in nearly a decade and weeks of record-high fuel prices, JPMorgan has published a research report (available to pro subs) which finds that high-frequency data suggest that consumers are beginning to react resulting in what the Fed has desperately wanted to achieve all along: commodity demand destruction.

That said, high prices are clearly not the only demand-destructive force in the world at the moment, however. The crisis in Ukraine, crippling financial sanctions in Russia, and the continued spread of the highly infectious Omicron variant in China have an even more direct impact on regional fuel consumption than high prices.

As a result, JPMorgan has cut 1.1 mpd off its 2Q22 demand forecasts, followed by about 0.5 mbd cuts to both 3Q and 4Q. On net, this trims 420 kbd on average from the bank’s expectations for 2022 global oil demand as high prices, COVID restrictions, and geopolitical conflict drive demand destruction in Russia, China, India, and Europe.

While the US has been relatively isolated so far (despite the highest gasoline prices on record), JPM’s demand revisions are heavily concentrated in Europe, which remains the epicenter of the geopolitical shock. Since the start of the Russia-Ukraine war, the bank’s economists have downgraded the growth in the region by over 2%-pts and have raised inflation forecasts by nearly 3%-pts.

…click on the above link to read the rest of the article…

 

Food shortages as the energy crisis grows and supply chains break?

March 22, 2022

Food shortages as the energy crisis grows and supply chains break?

Preface. This is a long preface followed by two articles about how supply chains and complex tractors may be affected by energy shortages and consequent supply chain failures in the future.Which we’re already seeing as massive numbers of ships sit offshore waiting to be unloaded, and a shortage of truckers to deliver goods when they do arrive.

Supply chain failures will only get worse, affecting food supply and making the prediction of 3 billion more people by 2050 unlikely.  We are running out of time to replace fossil fuels with something else that is unknown and definitely not commercial for transportation, manufacturing and other essential services and products. Even the electric grid needs natural gas to stay up, no matter how many wind turbines or solar panels are built (Friedemann 2016).

The reason time is running out is that global conventional oil, where 90% of our petroleum comes from, peaked in 2008 (EIA 2018 page 45), and world oil production of both conventional and unconventional oil in 2018 (EIA 2020).

In the unlikely event you don’t know why this is scary, consider that we are alive today thanks to heavy-duty transportation, which runs almost exclusively on diesel, four billion of us are alive due to finite natural gas derived fertilizer, 500,000 products are made out of fossil fuels, and much of our essential manufacturing (cement, steel, metals, ceramics, glass, microchips) depend on the high heat of fossil fuels. There is not much time to come up with processes to electrify or use hydrogen to replace fossil fuels, which don’t exist yet, let alone rebuild trillions of dollars of infrastructure and a new unknown energy distribution system, triple the electric grid transmission system, and replace hundreds of millions of vehicles and equipment to run on “something else” (Friedemann 2021).

…click on the above link to read the rest of the article…

Why liquefied coal (CTL) and natural gas (GTL) can’t replace oil

March 21, 2022

Why liquefied coal (CTL) and natural gas (GTL) can’t replace oil

Preface. Here are just a few of the reasons why we aren’t likely to convert enough coal to diesel to matter as oil decines (see Chapter 11 Liquefied Coal: There Goes the Neighborhood, the Water, and the Air for more details on this in When Trucks Stop Running: Energy and the Future of Transportation)

It is not likely much coal will be converted to diesel, because if all global coal production were converted to liquid coal, perhaps 17 million barrels a day (Mb/d) could be produced. That amounts to 22 % of current world oil production. If more efficient liquefaction technologies came along, and coal now used to generate electricity and make cement, steel, aluminum, paper, and chemicals were all diverted to make liquid fuels, as much as 54 Mb/d could be made. But roughly 17 Mb/d is more likely because diverting most or all of the coal from other uses to make CTL is not realistic.  After all, we do need cement and steel to build the CTL coal liquefaction plants, roads, and the trucks and pipelines to transport the CTL itself.

In the U.S. coal production could be doubled to make CTL, but that might cut reserve life in half. In the U.S., there may be 63 years of reserves at current rates of production, but only 31.5 years if we doubled coal production.

The thermal efficiency of liquefaction is roughly 50–60 %; hence, only half the coal energy used in liquefaction will come out as the energy available in the CTL fuel. And there may be other losses. An inconvenient truth about coal is that it is a dirty fuel. If carbon capture and sequestration were to be required, 40 % of the remaining energy in a liquid coal power plant would be consumed.

…click on the above link to read the rest of the article…

Russia-Ukraine War and the Changing Energy Landscape.

March 21, 2022

Russia-Ukraine War and the Changing Energy Landscape.

The can of worms that is our global use of energy, has been levered open yet further by the escalating war in Ukraine. Prices of all types of energy had already been hiked dramatically as a result of a strong economic rebound post-covid, but with limited capacity to meet additional demand. As a result of a potential embargo on Russian fuels, the UK price of natural gas briefly hit 800p per therm, or sixteen times that of March 2021. Oil prices too, are at a high not seen since just before the Great Recession of 2008, with Brent crude spiking at $128 a barrel, and driving record prices for petrol and diesel. Since energy underpins everything we do, its cost sets the baseline for all other commodities, including food, whose prices are also surging globally.

Europe is dependent on Russia for around 40% of its gas, thus making any supply restrictions extremely problematic, to put it mildly: for example, if Russia were to carry out its threat to cut off the gas. Similarly, refusals by the West to buy Russian oil beg the question of whether matching quantities can be secured from elsewhere. Given that oil is the lifeblood of industrial civilization, and we run the risk of a demand/supply gap, leading to soaring prices – $200 a barrel has been suggested – the economic consequences would almost certainly be catastrophic.

The European Commission has now pledged to curb massively its purchase of Russian gas: by some two thirds by the end of this year. The proposed mechanism for this includes establishing a greater diversity of suppliers, biomethane production, and energy efficiency strategies for buildings, including behavioural changes such as turning down thermostats to curb energy demand. Indeed, demand reduction must be a salient part of any viable future energy blueprint.
…click on the above link to read the rest of the article…

What If It Breaks?

March 7, 2022

What If It Breaks?

Making your entire economy a Landfill Economy dependent on the fantasy of infinite replacements and substitutions is the height of hubris and folly.

Very few people ask: what if it breaks? It’s a question we can ask of a great many things: touchscreens, motherboards, tools, vehicles, supply chains and entire systems: what if it breaks?

The first thing we notice is the great number of things which can’t be repaired, they can only be replaced. Good luck repairing the touchscreen or motherboard in your vehicle. Oops, the puncture in your tire is in the sidewall, no repair possible, buy a new tire.

The entire economic system assumes two things: 1) there will always be replacements for everything that can’t be repaired and 2) there will always be substitutes for everything we want. Beef too expensive? Then buy fake-meat. If that’s too expensive, substitute chicken. And so on: there will always be a substitute that can scale globally that will get cheaper as it scales.

Unfortunately, both assumptions are false. There are no replacements for oil and fertilizers. What we have are ifs: if we build 1,000 nuclear reactors, then we can convert this electricity into hydrogen which will be the fuel of the future. And so on. If, if, if. Nice, but getting beyond if is non-trivial: oops, we need hydrocarbon energy to build the 1,000 nuclear reactors and all the complex equipment to convert seawater into hydrogen on a scale large enough to matter.

Not only are there no substitutes for many things, there are no replacement parts, either. Too bad about your entire Smart Home system going down. The vendor of the do-hickey that’s connected to your hub went out of business and so there’s no replacement parts or software upgrades….

…click on the above link to read the rest of the article…

All Hell Breaks Loose On Russian Oil Embargo Fears: Futures, Stocks Plunge As Oil Soars To $139, Gold Hits $2,000

March 7, 2022

All Hell Breaks Loose On Russian Oil Embargo Fears: Futures, Stocks Plunge As Oil Soars To $139, Gold Hits $2,000

All hell is breaking loose in the Sunday evening session where S&P equity futures and Asian markets tumbled, while havens such as sovereign bonds and gold soared amid fears of an inflation shock in the world economy as oil soared on the prospect of a ban on Russian crude supplies.

Emini futures were down 1.6% as of 9:00pm ET, while Nasdaq 100 futures plunged 2% and European futures were down 3%.

“Energy Shortages Could Threaten Social Cohesion”: Germany Warns Against Ban On Energy Imports From Russia

March 6, 2022

“Energy Shortages Could Threaten Social Cohesion”: Germany Warns Against Ban On Energy Imports From Russia

At a time when US officials are saying virtually every day that the US is in “active discussions” to ban Russian oil imports, Germany’s economy minister said that while he regrets the country is still dependent on imports from Moscow, he warned against a comprehensive ban on energy imports from Russia.

As Dutesche Welle reports, “Germany is currently still dependent on Russian fossil fuels”, Economy Minister Robert Habeck said on Thursday; he spoke out against a ban on energy imports from Russia in the wake of Moscow’s invasion of Ukraine.

“I would not advocate an embargo on Russian imports of fossil fuels. I would even oppose it,” he said after meeting German business leaders. “We need these energy supplies to maintain the price stability and energy security in Germany,” Habeck added, warning that “a shortage in supply could threaten social cohesion in Germany.”

Habeck stressed Germany “must free ourselves” from imports of Russia’s gas, coal, and oil.  In February, Germany stopped the controversial Nord Stream 2 natural gas pipeline. It has since joined other European nations in introducing a raft of sanctions against Russia over its invasion of Ukraine. Berlin even overturned its longstanding practice of blocking weapons exports to conflict zones.

Habeck, however, said Germany has already begun to feel the effects of those decisions.

“The impact of the sanctions and of the war on all sectors of the economy is so strong that we can fear a big impact,” Habeck said. The minister said any hopes that Europe’s largest economy would return to post-pandemic levels later this year were dashed.

…click on the above link to read the rest of the article…

Two Oil Price Scenarios: One Bad, And One Catastrophic

March 3, 2022

Two Oil Price Scenarios: One Bad, And One Catastrophic

Another day, another record discount for Russian Urals crude, which was offered at a price more than $22 below spot by oil trader Trafigura and still could find no giant…

… confirmed what we previously observed, namely that the commodity world is splitting in two: a bidless market for Russian oil, and (increasingly) offerless for non-Russian.

This is the key point that JPMorgan’s commodity strategist Natasha Kaneva makes in a research note earlier today, in which she notes that while the US and its allies have so far stopped short of imposing penalties directly on Russian oil and gas, on Tuesday it became increasingly clear that Russian oil is being ostracized. The preliminary Russian crude oil loadings for March revealed a 1 mbd drop in the loadings from the Black Sea ports, 1 mbd drop from the Baltics and 0.5 mbd drop in the Far East.

In addition, there is now also an estimated 2.5 mbd loss in oil products loadings from the Black Sea, for a total loss of 4.5 mbd of Russian crude loands, a stunning amount in a market that was already precariously balanced before the Ukraine war.

Putting that number in context, prior to last week Russia was exporting about 6.5 mbd of oil and oil products, with two-thirds clearing through the now-frozen seaborne market. Out of that, Europe and the US accounted for 4.3 mbd, with Asia and Belarus rounding to 2.2 mbd.

Then echoing what we said yesterday, JPM notes that “as the Russian invasion entered its seventh day on Wednesday, Russian cargoes have become toxic for the majority of the Western trading houses, refineries, utilities, shippers, banks, ports and insurers. As of today, almost 70% of Russian oil is struggling to find buyers.”

…click on the above link to read the rest of the article…

“The Market Is Starting To Fail”: Buyers Balk At Russian Oil Purchases Despite Record Discounts, Sanction Carve Outs

March 1, 2022

“The Market Is Starting To Fail”: Buyers Balk At Russian Oil Purchases Despite Record Discounts, Sanction Carve Outs

While in their unprecedented broadside of sanctions on Russia, the U.S. and Western allies went out of their way to spare Russian energy shipments and keep economies humming and voters warm, the oil market has gone on strike anyway. Acting as if energy were already in the crosshairs of Western sanctions officials, refiners have balked at buying Russian oil and banks are refusing to finance shipments of Russian commodities, the WSJ reports citing traders, oil executives and bankers.

This self-imposed embargo which has effectively halted a majority of Russian oil shipments, threatens to drive up energy prices globally by removing a gusher of oil from a market that was tight even before the Russian invasion of Ukraine. Meanwhile, Russia, waging war and in need of revenue with its financial system in turmoil, is taking extreme steps to convince companies to buy its most precious commodity.

We previously reported that owners of oil tankers had already started to avoid Russian ports because of both the military invasion of Ukraine and apprehension that sanctions for oil could also come soon, and as a result rates for oil tankers on Russian crude routes had exploded as much as nine-fold in the past few days.

But now, amid growing fears they will fall afoul of complex restrictions in different jurisdictions, refiners and banks are balking at purchasing any Russian oil at all, traders and others involved in the market say. Market players also fear that measures that target oil exports directly could land as fighting in Ukraine intensifies.

“This is going to make it very complex to trade with Russia,” Sarah Hunt, a partner at law firm HFW who works with commodities traders, said of the sanctions laid out as of Monday. “These sanctions against Russia will have an incredible effect on global trade and on trade finance.”

…click on the above link to read the rest of the article…

Back to Reality: We are All Children of Oil

February 28, 2022

Back to Reality: We are All Children of Oil

Colin Campbell, founder of the Association for the Study of Peak Oil (ASPO), speaks in Pisa in 2006. Officially, the Powers that Be (PTB) ignored the ASPO message, but it could be that they understood it all too well. That would explain many things about the current situation. For two years, we thought that all our problems were caused by a microscopic, peduncled critter. Now, we are back to reality: we are all children of oil, and we cannot survive without it.

A few days ago, I found by chance on my shelves some documents from the 2006 conference of ASPO (the association for the study of peak oil) that I and others organized in Pisa, in Tuscany. The conference had a certain global resonance: it was sponsored by the Tuscan government, hundreds of people from all over the world came to attend, and the international media commented on it. It was part of a wave of interest on peak oil and its consequences. Just as another example, see the leaflet on the right that I also found rummaging among old documents. It announces a meeting to be held in the Tuscan countryside in 2004, titled, “The Party is Over“, and subtitled “How to exit from the petroleum-based economy“Today, it looks as if these things are a hundred years old. How was it that there was an age in which you could express this kind of subversive thoughts in public and be given some space in the media? And how could we delude ourselves into thinking that we could have convinced that nebulous entity called “humanity” that we were running out of our natural resources, crude oil in the first place? Even more subversive, that we should reduce consumption and move to renewable sources before it was too late?

…click on the above link to read the rest of the article…

Could The World Really Run Out Of Oil?

February 25, 2022

Could The World Really Run Out Of Oil?

Stop staring at your gains from the energy stocks for a second here. Take a seat in a nice quiet place and ask yourself this one really simple question: if oil demand continues to grow at ~1 million b/d for the next 8-10 years, where is the oil supply coming from to meet it?

Rystad Energy, along with many others, including my friend Tracy Shuchart as well as the work of Josh Young over at Bison, show that US oil production will peak in 2023/2024. Outside of OPEC’s core members, Saudi Arabia, UAE, and Kuwait, there’s no spare capacity (with the exception of Iran).

Part of the reason we’re in this situation is because of the shale boom. If it wasn’t for the Permian back in 2016, we would already be deep into an oil supply crisis. We need another Permian, and that’s unlikely. Furthermore, we also know that shale as an industry never produced a profit. Those investors who got in and didn’t get out in time (most) all lost their shirts. Trying to kick that dead horse back to life will require horse-sized steroids. They will come with higher oil prices, but it’s not gonna happen for some time and it’s not gonna solve the immediate problem.

oil rigsWithout demand destruction, this oil supply deficit is going to be hard to control, and with it, oil prices though due a pullback here and now are going higher and for longer than many think.

Just look at the broader landscape in the oil market today. You can list the number of countries that can actually grow oil production on one hand:

  • OPEC (Saudi, UAE, Kuwait), Iraq, and Russia are now tapped out (e.g. under compliance to OPEC+ agreement)
  • US
  • Canada
  • Brazil
  • Norway

…click on the above link to read the rest of the article…

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