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I ran across
these items at Energy Bulletin.net today: Damage to Gulf of Mexico oil rigs mounts: API says 58
damaged and/or lost http://www.smh.com.au/news/business/damage-to-gulf-oil-rigs-mounts/2005/09/02/1125302739885.html North Slope can’t make up shortfall, producing all it
can http://www.news-miner.com/Stories/0,1413,113~7244~3036041,00.html Study reveals huge oil-shale field under federal
land in Colorado The US has an oil reserve at least three times that of
Saudi Arabia locked in oil-shale deposits beneath federal land in Colorado,
Utah and Wyoming, according to a study released yesterday. But the researchers
at the RAND think tank caution the federal government to go carefully,
balancing the environmental and economic impacts with development pressure to
prevent an oil-shale bust later. "We've got
more oil in this very compact area than the entire Middle East," said
James Bartis, RAND senior policy researcher and the report's lead author. He
added, "If we go faster, there's a good chance we're going to end up at a
dead end." For years, the
industry and the government considered oil shale — a rock that produces
petroleum when heated — too expensive to be a feasible source of oil. http://seattletimes.nwsource.com/html/nationworld/2002463368_oilstudy01.html Mouawad: Katrina’s Shock to the
System The economy may be able to withstand current prices, but
energy markets are at the mercy of the slightest glitch anywhere around the
globe that can push prices even higher. ... In other words,
said Mr. Felmy of the American Petroleum Institute: "There is no question
that this is a global issue. We're all in this together." http://www.nytimes.com/2005/09/04/business/04oil.html API http://api-ec.api.org/media/index.cfm?bitmask=001007000000000000 I have not
seen anything in the news since Saturday about the oil spill reported offshore.
Has anyone else? Reminder:
there is a shortage of skilled oil workers and supplies. (Some workers are
being imported from China, actually, to the US West: they are used to working
with older rigs and having to recycle parts than the past generation of domestic
oil workers). Yergin has
lately tried to preach that technology would rescue the global energy markets
and consumers from looming global shortages that cannot meet escalating demand.
Although much of what he says is
reasonable and prudent, he makes one statement that is hard to believe, that no
one anticipated a disaster like this happening in New Orleans, either for
flooding or port commerce or energy production. The Big Spin continues. As the term “energy security” becomes more discussed,
it is likely that the big winners in our lack of preparation were Iran and
Venezuela. The Katrina Crises: a
hurricane produces an integrated energy disaster Opinion by Daniel Yergin, Wall Street Journal,
Saturday, Sept. 03, 2005
What makes it an
integrated crisis is that the entire energy supply system in the region has
been disabled, and that the parts all depend upon each other for recovery. If
the next weeks reveal that the losses are as large as some fear, this would
constitute one of the biggest energy shocks since the 1970s, perhaps even the
biggest. Unlike the crises of the '70s or the Persian Gulf crisis of 1990-91,
this does not involve just crude oil: It includes natural gas, refineries and
electricity. The 1.5 million
barrels of oil production capacity that has been "shut in"--closed
down--is much less than was lost to the market when Saddam invaded Kuwait. But
although it has received less attention, 16% of U.S. natural gas is also shut
in; and 10% of our refining capacity is under water at a time when there is no
slack at all in the world's refining system. The electric and natural gas
distribution system in the region has also been knocked out. All of this has a
knock-on effect: Boats can't get out to the platforms without diesel fuel; and
refineries can't operate without electricity or people. Those last two are the
preamble to recovery. With communications broken down, companies are still
trying to make contact with the missing employees who run the different parts
of the energy infrastructure. As for electricity, a frontline manager summed up
the problem: "You can't overemphasize the absolute enormity of the
undertaking to put this place back together again." This
shock has revealed how crucial is the vast Gulf of Mexico energy complex. In
the 1930s, drillers had put down wells in the waters off the beaches of Louisiana
and Texas, to little effect. The first company to really go offshore--that is,
out of sight of land--was the Oklahoma independent, Kerr-McGee, just after
World War II. The company figured the risk was worth it: There was not much
competition and so the acreage was cheap. The risk lay in the fact that the
technology did not yet really exist for building a platform, getting it into
position, drilling into the ocean floor--or even servicing a platform. All that
needed to be invented. In October 1947, Kerr-McGee
hit oil in Block 32, 10 miles off Louisiana. That marked the beginning of
what has turned into an extraordinary accomplishment of science and
engineering. All the elements that were needed did get invented, reinvented,
and reinvented yet again. The pace has only increased. Even as recently as the late '70s, the
"frontier" for drilling was in 600 feet of water. Today, the new
frontier is up to 10,000 feet. This means a superplatform, part of a
billion-dollar-plus mega-project, from which workers guide a steerable drilling
apparatus down through 10,000 feet of water and then another 20,000 feet of
rock under the seabed. The full extent of the
Gulf of Mexico energy infrastructure is hard to grasp. Altogether, about 800
manned platforms, plus several thousand smaller unmanned platforms, feed their
oil and gas into 33,000 miles of underwater pipelines, a good part of which
eventually reaches shore at Port Fourchon at the mouth of the Mississippi. That
adds up to 35% of domestic oil production (including oil from state as well as
federal waters) and over 20% of our natural gas coming from off-shore. Add to
that the 10% of U.S. oil imports that flow in through the same corridor, plus
the string of refineries and pipeline networks that sprawl along the Gulf Coast,
and you have a complex that constitutes our single most important energy asset.
Companies are already
starting up some of the shut-in production. The LOOP--the offshore unloading
port--is back in partial operation, much more quickly than would have been
expected. The big question surrounds underwater pipelines. Their vulnerability
to mudslides was a prime lesson of last year's Hurricane Ivan, and remotely
operated underwater vehicles will have to methodically assess the damage.
Initially, 1.5 million barrels a day of oil were shut down with both Ivan and
Katrina. Within six weeks of Ivan, the shut-in capacity was reduced to just
200,000, which persisted for several months. But Katrina was worse than Ivan
and hit more of the bull's-eye. Unlike Ivan, it also devastated a significant
part of the onshore logistical infrastructure that supplies the offshore. That
suggests a slower rebound. Fortunately,
the Strategic Petroleum Reserve, with 700 million barrels, can compensate for
an extended period for the missing oil. The SPR is certainly demonstrating its
value here. Without it, people would be apprehensively asking how deeply into
recession the resulting $80- or $90-a-barrel oil would push the U.S. While the
trigger for its use is not what was anticipated, the SPR is proving its
role--not as a tool of market management, but to offset a major disruption,
protect gross domestic product, and maintain the viability of our economy. In terms of price,
natural gas has actually been hit more. Until this week, commercial gas
storage, banked for the winter, looked comfortable. But now those inventories
may not be built up sufficiently for a cold winter, a prospect that is already
stressing the natural gas market. Between Monday and Thursday natural gas
prices rose 20%, while crude prices, by comparison, were up 6%. The immediate big hit is from the loss of
that 10% of U.S. refining capacity. The world's refining system is stretched taut, and
gasoline, diesel and jet fuel now teeter on the brink of short supply. The
shortfall was accentuated by the shutdown for part of the week--due to
electricity loss--of the two major pipelines that carry refined products from
the Gulf Coast to the Southeast and the Mid-Atlantic states. That is why
wholesale gasoline prices shot up 60 cents in four days. The shortfall will be
made worse if panicked motorists rush to fill up. In that case, stations would
be drained, only further fueling the scramble. No consuming industry
is hit harder than airlines: 13% of our jet fuel production capacity has been
lost, but the proportion is much higher for the part of the country that
stretches from Miami International to Reagan National. Jet fuel inventories are
adequate for two weeks, but shortages can develop if new supplies do not
arrive. The financial pressure on airlines is huge; just the increase in the
fuel bill this year will likely exceed by several billion dollars the
industry's anticipated overall $7 billion loss. Some of the refining
capacity may come back quickly, while flooding may put some out of commission
for some time. Increased product imports from Europe, the Caribbean and Latin
America can help offset the losses, but that will take weeks. In the meantime,
calls for price controls and allocations will likely grow. As painful as the
price hikes may be, those calls should be resisted: The gas lines of the '70s
were largely self-inflicted, the perverse result of controls. More
constructive, and hugely less cumbersome and costly, would be clear
communication to consumers. A package of responses, such as properly inflated
tires, adherence to speed limits, consolidation of trips, and tune-ups, could
cut gasoline consumption by 10% to 20%. This needs to be reiterated again and
again, for modest restraint on demand is the quickest way to take the pressure
off the market. The flexibility of markets and the resilience of the energy
sector are the most effective antidotes to high prices and disruption. We can
see markets working, also, in the substantial build-up of supply from around
the world that will occur over the next few years. Post-Katrina,
companies will have to continue to weigh relative risks when deciding whether
to invest in the ultradeep Gulf of Mexico, West Africa, or the Caspian. The
rocks under the gulf are highly prospective, and companies will carry on
applying capital and ingenuity to developing the resources--now planning not
for the 100-year storm, but for a 200-year one. Oil production from the gulf
could rise from two million barrels today to 2.4 million by 2010. That would
mean the gulf's share of total U.S. oil production rising from today's 35% to
45%, although the recovery from Hurricane Katrina could end up pushing that
level back a year or two. Katrina's shock
underscores a transition in the idea of energy security. For three decades, the operating concept was "1973
Vintage": In response to the 1973 embargo and then the Iranian upheaval,
it focused on securing the flow of crude, primarily from the Middle East, and
coping with any disruption. The SPR was created in the mid-'70s for 1973
Vintage reasons (although the idea of such a reserve had first been bruited by
President Eisenhower after the Suez Crisis). Its proponents, focused on another
Middle Eastern crisis, never thought that its second major use (the first being
in the 1990-91 Persian Gulf crisis) would be for domestic disruption. But a host of
developments--from terrorism to the California power crisis to the East Coast
blackout to Katrina--have emphasized a return to what might be called the World
War II model of energy security, assuring the security and integrity of the
whole supply chain and infrastructure, from production to the consumer. (The
gravest energy threats during World War II were when Nazi U-boats came close to
cutting the tanker pipeline across the Atlantic that supplied U.S. military
forces). This
more expansive concept of energy security requires broader coordination between
government and the private sector; more emphasis on redundancy, alternatives,
distributed energy and backup systems; planning and pre-positioning of vital
supplies ("strategic transformer reserves" for electric substations);
and methods that can quickly be applied to promote swift market adjustment. As
with the August 2003 blackout, this crisis underlines the need for
modernization and new investment in the energy infrastructure that supports our
$12.4 trillion economy. A strong push in this direction may come from the new
energy legislation, rather than from the idea of "energy
independence." A great precept of
energy security was laid out by Churchill when, on the eve of World War I, he
converted the Royal Navy from (Welsh) coal to (Persian) oil. "Safety and
certainty in oil lie in variety and variety alone," he said. In other
words, diversification of supply sources expands the margin of security.
Margaret Thatcher gave us an equally sturdy dictum: "The unexpected happens.
You had better prepare for it." Disruption on the scale of Katrina was never
anticipated, neither for the gulf's energy complex nor for the larger tragedy
that unfolds. And hurricane season is not over. From now on, a hit of this scale
will not be unexpected. But what else is out there? That is a question for the
world's entire energy supply system. For surely, somewhere, the unexpected is
brooding, and waiting to happen. Mr.
Yergin, chairman of Cambridge Energy Research Associates, is author of
"The Prize: The Epic Quest for Oil, Money and Power" (Free Press,
1993).
http://www.opinionjournal.com/editorial/feature.html?id=110007204 |
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