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A visit to the heart of Canada’s oil sands industry – Fort McMurray

Since 2007 when we published our article, ”A crash program scenario for the Canadian oil sands industry” a visit to Fort McMurray and the areas where oil sands are mined has always been high on my wish list. On my current trip I passed Calgary on the way to Toronto so I finally got an opportunity to visit the oil sands. The flight from Calgary became an interesting introduction to the industry. It was on a small aircraft with around 50 seats and about 40 of the passengers were presumably workers on their way back to Fort McMurray after a week’s leave. A three week session of work on the tar sands awaited them. This report is a description of my trip and does not take a position for or against the mining of oil sands.

During the weekends from May until and including autumn the Oil Sands Community Alliance (OSCA) in Fort McMurray organizes round trips to interesting places. I was able to put together my own trip with their help.

North America’s changed energy supply situation according to BP

BP

In June 2014 BP presented its latest Statistical Review of World Energy. Now, in March, they have used these statistics to make estimates of future energy use. The results were presented in BP Energy Outlook 2035. This year, BP has made a special analysis of North America, i.e. Canada, the USA and Mexico. But before BP presented their predictions they made a disclaimer. The question is what value BP’s future scenarios have in the light of the disclaimer. Does BP really believe its scenarios describe our future? In any case we will certainly see references to their scenarios in the media. I suggested that you download a suitable version and study it. (Download).

Closing the “fracking valve”

Bloomberg riggs fracking

Since last autumn there has been overproduction of oil in the USA compared to what the market, OPEC and Saudi Arabia had planned. I have previously discussed how there is insufficient storage for this excess oil. It is fairly easy for the producers in the Middle East to close the taps and reduce production but closing the “fracking tap” is a completely different story. Bloomberg has published an article describing how, at the moment, the fracking tap is being closed in the USA, “Watch Four Years of Oil Drilling Collapse in Seconds”.

“The crash in oil prices kicked off intense debate over when, and how, American producers would react. So far they’re still cranking out oil, but there are signs that a slowdown is looming.

Discoveries of new oil and gas reserves drop to 20-year low!!!

Discoveries of new oil and gas reserves dropped to their lowest level in at least two decades last year, pointing to tighter world supplies as energy demand increases in the future. Preliminary figures suggest the volume of oil and gas found last year, excluding shale and other reserves onshore in North America, was the lowest since at least 1995, according to previously unpublished data from IHS, the research company. Depending on later revisions, 2014 may turn out to have been the worst year for finding oil and gas since 1952...

Read more: http://www.ft.com/intl/cms/s/0/def8d8f4-b532-11e4-b186-00144feab7de.html#axzz3RtlQi036

The crash in the price of oil may change the oil market – a look at the IEA’s “Oil Medium-Term Market Report 2015”

On Tuesday 10 February at 13:00 GMT the IEA released its “Oil Medium-Term Market Report 2015”. The day before the release I was contacted by Jens Ergon at Sveriges Television (“Sweden’s Television, SVT) who wanted to get my opinion on the report. I had a number of hours to read through the 140 pages of the version provided to media prior to the report’s official release. This meant that I could comment on the report immediately it was released. SVT has now reported some of those comments in an article that Jens Ergon has written, “The Price Crash Will Reshape The Oil Market”. The subtitle is, “American oil boom behind the falling price. But opinions vary widely on the future of oil.”

Let’s now go through the article together and I will make a few comments as we do so.

“The comprehensive fall in the price of oil has taken the world’s experts by surprise. Since the summer of 2014 the price of oil has more than halved from over $100 per barrel to a price today of around $50. Last Tuesday the International Energy Agency, IEA, made its first report since the price fall.

Oil majors fail to find reserves to counter falling output

Big oil companies had a poor record of finding and producing oil and gas last year, according to figures out in the past week - and big cuts in spending in response to falling crude prices could undermine their plans to turn that around. Four of the world's six biggest oil firms by market value - Royal Dutch Shell, Chevron, BP and ConocoPhillips - released provisional figures showing together they replaced only two-thirds of the hydrocarbons they extracted in 2014 with new reserves. Combined, those four and industry leader Exxon Mobil posted an average drop in oil and gas production of 3.25 percent last year.

All predict their output will increase and new reserves will be added in coming years. But the 2014 results echo longer-term trends. Over the past decade, the biggest Western oil companies have seen reserves growth stall, production drop 15 percent and profits fall by almost a fifth - even as oil prices almost doubled, a Reuters analysis of corporate filings shows.

Read the full article here:
http://www.reuters.com/article/2015/02/05/oil-majors-output-idUSL6N0VE2YM20150205

How cheap is oil today?

If one studies the price of oil between 1980 and the present day one can see that the price was lowest on 10 December 1998 at $9.10 per barrel. During the period 1990 to 2014 the average rate of inflation in the USA has been 2.59%. At that rate of inflation a price of $9.10 equates to $13.70 per barrel today. It was in 1998 that Colin Campbell and Jean H. Laherrère published their famous article, “THE END OF CHEAP OIL” in Scientific American. Today’s “low” crude oil price of around $50 per barrel is more than 250% higher than the equivalent price in 1998. The price of half a year ago of $100 per barrel would be over 600% higher than the 1998 price. Is there any better evidence that the cheap oil is gone and we will never see such cheap oil again?

Those who follow the oil story know that in 1956 M. King Hubbert said that the USA’s conventional oil production would reach a maximum between 1965 and 1970. Hubbert was ridiculed for his estimate and in 1970 his opponents happily declared that “we have never produced more oil than we are doing today”. The fact is that, at the peak, more oil is produced than ever previously.

Is the Johan Sverdrup oil field in Norway a new Norwegian Bonanza?

Johan Sverdrup

Last Monday, Statoil made a statement to the press about the oil field Johan Sverdrup. The fact that The Wall Street Journal highlighted this news meant that it was spread around the world. The title of their article was "Statoil Forecasts New North Sea Oil Bonanza". From the WSJ article itself we learn that the expected production profits from the field are about $200 billion over the next 50 years (1.350 billion NOK, NKR). The fact that the state is expected to seize 670 billion NKR of this means they will be taking 50% of the production value. One could easily get the impression that the rest of the income would accrue to Statoil, but the fact is that the producer only owns a part of the production rights.

Later in the article the WSJ discusses Norway's oil production, noting that it was 1.46 million barrels a day in 2013 and that this is less than half of Norway’s maximal production that occurred in 2001.

The Baltic Sea is of increasing importance for Russia

My article on the strategically important of the Baltic Sea for the Russian oil exports, is now published in Aftonbladet, a Swedish tabloid and one of the larger daily newspapers in the Nordic countries. Read the article in Swedish on aftonbladet.se, ”Östersjön får allt större betydelse för Ryssland”.

The Baltic Sea is of increasing importance for Russia

The submarine hunt in Stockholm's archipelago is over and yet again we can state that there were only indications of underwater activity. At the same time we have heard from, among others, Finland that Russia has recently increased its military activities. Analysts tell us that the Cold War has returned and comparisons are made with the Soviet era. Many people in various branches of the media will now analyze the increasing tensions between Sweden and Russia.

OPEC’s 165th meeting: ”Everybody is happy”

On 11 June OPEC held its 165th meeting in Vienna and the organisation’s 12 members decided to maintain its production volume of 30 millon barrels of oil per day (Mb/d). The meeting is reported in the OPEC Bulletin 6/14. They also decided to extend Abdalla Salem El-Badri’s term as general secretary of OPEC until the end of the year. After the meeting a press conference was held during which General Secretary El-Badri stated, “Right now we have a very comfortable crude oil price, the market is stable and OPEC is producing 30 Mb/d of crude, more or less. The consumers are getting their supplies and the producers a good price. Everybody is Happy.”

On the question of whether shale oil production in the USA was a threat to OPEC the answer was that it was not because the USA would not be an oil exporter. With regard to future investments El-Badri considered that OPEC had a good plan for investments and stated they would study the balance between demand and production. In conclusion he said that “OPEC will continue to play its part in supplying the world with enough crude oil”.

In the OPEC Bulletin some of the external guests to the meeting were also interviewed.

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