Peak Oil and the Fading of the Oil Economy
High Petrol Prices and High Gas Prices - unfolding
Period: In the year 2009

History of the rise of the cheap oil and gas economy - commentary and speculation on its fading

summary   details of fading hydrocarbons   price spikes  translate crude price rises to gas pump price rises
the immediate future
  recession in the USA
    recession overview  
immediate response to recession  medium term response to recession 
recession to depression
Sites of note
oil fields


Outlook for 2009

January 12 - Oil prices remain low, Tapis light sweet $US46.94, Louisiana Sweet $US45.19, Dubai 1M $44.54, Brent Blend $42.68. Prices are low due to the global recession and dampened global demand. In addition, a major oil speculator may be selling at any price as their bet on future prices of oil turns to custard. The price is likely to increase as the collapsing bets on oil prices (using borrowed money) unwind through the system.

January - USA - Recession leads to reduced petroleum use. There are 40 million barrels more in storage in tank farms in USA than the same time last year. Consumption fell under the level of domsestic production plus imports. Cushing Oklahoma storage hit close to its 35 million barrel capacity on january 2, a new record.

January - USA - Toyota delays completing a production plant for the fuel-efficient Prius hybrid due to weakening demand as gasoline prices fall.

January - USA - as oil prices fall, refiners profit margins on gasoline are squeezed. Refiners reduce output, put crude in storage, or in-sell it to traders to avoid further losses. Some adjust plant configuration to produce less gasoline and more diesel and heating oil.

January - oil companies are now storing about 80 million barrels of crude on supertankers the highest amount in 25 years( the 'very large crude carrier' class of supertanker can store 2 million barrels per vessel, the 'Suexmax' class can store 1 million barrels).

January - significant oil finds continue to diminish. The best prospects are in deep water, in spite of the expense of operating in that environment. Rigs able to drill in over 4,500 feet of water are now 92% utilised, in spite of increased numbers of such rigs available. The cost per day in 2002 was $US122,000 per day. That cost has now risen to $US376,000 per day.

January's quote of the month:
"In the last few months, virtually every speech on this subject started with criticism of the United States. But I will do nothing of the kind.

I just want to remind you that, just a year ago, American delegates speaking from this rostrum emphasised the US economy's fundamental stability and its cloudless prospects. Today, investment banks, the pride of Wall Street, have virtually ceased to exist. In just 12 months, they have posted losses exceeding the profits they made in the last 25 years. This example alone reflects the real situation better than any criticism.

In the 20th century, the Soviet Union made the state's role absolute. In the long run, this made the Soviet economy totally uncompetitive. This lesson cost us dearly. I am sure nobody wants to see it repeated.

Nor should we turn a blind eye to the fact that the spirit of free enterprise, including the principle of personal responsibility of businesspeople, investors and shareholders for their decisions, is being eroded in the last few months. There is no reason to believe that we can achieve better results by shifting responsibility onto the state.

And one more point: anti-crisis measures should not escalate into financial populism and a refusal to implement responsible macroeconomic policies. The unjustified swelling of the budgetary deficit and the accumulation of public debts are just as destructive as adventurous stock-jobbing.

......unfortunately, we have so far failed to comprehend the true scale of the ongoing crisis...we must assess the real situation and write off all hopeless debts and "bad" assets.

True, this will be an extremely painful and unpleasant process. Far from everyone can accept such measures, fearing for their capitalisation, bonuses or reputation. However, we would "conserve" and prolong the crisis, unless we clean up our balance sheets. I believe financial authorities must work out the required mechanism for writing off debts that corresponds to today's needs.

Second. Apart from cleaning up our balance sheets, it is high time we got rid of virtual money, exaggerated reports and dubious ratings. We must not harbour any illusions while assessing the state of the global economy and the real corporate standing, even if such assessments are made by major auditors and analysts.

In effect, our proposal implies that the audit, accounting and ratings system reform must be based on a reversion to the fundamental asset value concept. In other words, assessments of each individual business must be based on its ability to generate added value, rather than on subjective concepts. In our opinion, the economy of the future must become an economy of real values.

I propose we start laying down a new international legal framework for energy security. Implementation of our initiative could play a political role comparable to the treaty establishing the European Coal and Steel Community. That is to say, consumers and producers would finally be bound into a real single energy partnership based on clear-cut legal foundations.

Every one of us realises that sharp and unpredictable fluctuations of energy prices are a colossal destabilising factor in the global economy. Today's landslide fall of prices will lead to a growth in the consumption of resources.

On the one hand, investments in energy saving and alternative sources of energy will be curtailed. On the other, less money will be invested in oil production, which will result in its inevitable downturn. Which, in the final analysis, will escalate into another fit of uncontrolled price growth and a new crisis.

It is necessary to return to a balanced price based on an equilibrium between supply and demand, to strip pricing of a speculative element generated by many derivative financial instruments."
 - Russian Prime Minister Vladimir Putin speaking at the World Economic Forum in Davos, Switzerland. Emphases added.

Jan - Mexico - Output from the massive Cantarell field has now dropped to 772,000 barrels a day, down 39,000 barrels a day in just one month. Its decline rate over the last year is now a massive 38%.

Jan - Mexico - Output from Ku Maloob Zaap is 787,000 barrels a day.

Jan - Mexico - Pemex hopes to maintain oil production at 2.75 million bpd over 2009 by increasing production from Ku Maloob Zaap and the onshore Chicontepec project. Cantarell production is expected to have fallen to 700,000 bpd by the end of 2009.

Jan - Mexico - Oil exports are now 1.366 million bpd.

The fall in oil output dragged down oil exports to 1.366 million bpd in January, compared with 1.434 million bpd a year earlier.

Gasoline imports averaged 329,700 bpd in January, up from 303,870 bpd in January 2008. (Reporting by Robert Campbell; editing by Jim Marshall)

Feb 4 - Saudi Arabia raises the price for all of crude oil grades available for export purchase in March. Price of Heavy crude to the USA increased most, adding $US4.70 to the price per barrel. Saudi Arab light is now $US1 a barrel more expensive than West Texas Intermediate. It is suggested that Saudi Arabia is reducing their exported oil quantity by raising prices slightly over competing crudes, including Gulf crudes.

Feb - USA - final reports from oil operaters show that about 9.2 % of the oil production in the Gulf of Mexico remains shut-in as the aftermath of hurricanes Gustav and Ike. This amounts to 119,792 barrels of oil a day.
About 12.8 % of the Gulfs natural gas production remains shut-in. Just prior to the hurricanes, the Gulf produced 7.0 billion cubic feet of gas per day. Gas production has increased since then, and in spite of the capacity shut-in, about 7.4 billion cubic feet of gas per day is now produced.

Feb 18 - oil prices - West Texas Intermediate Light Sweet $US34.93, Louisiana Sweet $US41.20, Brent Blend $US39.78, Tapis Light Sweet $44.39, Dubai1M light sour $38.92.

Feb 18 - Oil prices (futures) are now at a 5 year low due to reduced demand following the economic crisis. Heavy demand in excess of supply at this time last year saw oil prices at an historic high. The International Energy Agency (IEA) predicts that this year oil consumption will decline to its lowest levels since 1982. The IEA estimates consumption will decline by 570,000 barrels a day, to 84.7 million barrels a day.

Feb - China - investment in coal-fired power plants is being reduced as the economic crisis results in less power demand, and the possibility of excess supply later in the year. China's coal exports are also down by 36% last month.
Resources are being diverted to build more nuclear reactors and wind farms according to the head of the National Energy Administration (NEA). The government $US583 billion stimulus package will see almost $US44 billion go to increased power generation, with a re-focussing on nuclear power and renewables, and a slightly larger sum going on grid upgrades. Large, more modern coal plants will be built. Small, polluting plants will be progressively closed down. About 80% of China's electricity is generated by burning coal. Nuclear currently supplies 1% of China's electricty.

February - world liquid fuels - production of total liquids decreased by 1 million barrels per day from January, according to the International Energy Agency (IEA) march report. So far, total world liquids production is 83.93 million barrels a day.

Feb - Iran - the National Iranian Oil Company claims it has cut production by 550,000 barrels per day in recent months, in compliance with OPEC country quota, in order to stop falling oil prices.

March 2 - Russia - The St. Petersburg Commodity Exchange which opened september 2008 is due to expand trade this month. The Russian energy minister proposes that Iran "consider the possibility of selling a part of Iran's oil at the St. Petersburg Commodity Exchange". The St. Petersburg Commodity Exchange

March - UK - UK gas storage levels are low and declining. Storage for the time of year continues to decline at a rate of about 100 mcm/day faster than 2008. The low level of storage in the UK was raised in parliament. Opposition MP Greg Clark said:

Hansard: 5th March Parliamentary Debate Gas Storage

"For the second time in only four winters, we almost ran out of gas, and almost did not have sufficient gas to meet demand. According to a written answer that the Minister gave me only this morning, only the depressed state of the economy, due to the recession, saved us from running out.
Even the official regulator thinks that we do not have enough storage. In the Energy and Climate Change Committee, my Hon. Friend the Member for Bromsgrove (Miss Kirkbride) asked the regulator whether he thought that enough storage was being planned, and he said:“I am not happy to talk about this...we were hoping that storage would have doubled in the past five years— “and we have barely moved.”

March - the deep recession continues to cause deflation, job losses and reduced production. Oil prices remain low (~ $US50is a barrel). OPEC pumped an average of only 27.98 million barrels per day in March to prevent oil prices sliding further. This is 90,000 b/d  less than February.

March - Global oil demand is down about 3.5% relative the same time last year.

March - USA - Consumption of crude oil in USA is currently about 20,000,000 barrels per day. Total US crude oil inventories in (excluding the Strategic Petroleum Reserve ) are 359,427,000 barrels (EIA). This is roughly 20 days supply.

April - The
International Energy Agency (IEA) figures show total world liquids production for the first three months of 2009 was 83.9 million barrels a day. In 2008 the averages was 86.59 million barrels a day, and in 2007  85.41 million barrels a day. Demand continues to fall as the recession bites deeper.

May to July  - oil prices bounce around low levels of $50 to $70 due to the 'recession' dropping demand. Demand has fallen by about 2.5 million barrels a day.

July - Saudi Arabia - now has its stated ultimate capacity of 12 million barrels perday in place as the Khurais, Nuayyim, and Shaybah projects come on line. July production was 8.04 million bpd, presumably due to reduced demand.

July  - Saudi Arabia - summer time fuel-oil imports for electricity gneration is cancelled. Instead, the nearly 750,000 barrels per day of fuel required is supplied by Saudis commercial crude. The price of some grades of exportable crude is now lower than the landed cost of fuel oil. In addition, new spare capacity is not being sold, at a time when Saudi government income from oil export sales has dropped sharply.

July 30 - Petroleos Mexicanos cuts its production forecast to 2.65 million barrels a day for 2009, down from its previous estimate of  2.8 million barrels a day. Pemex production estimate for 2010 is 2.5 million barrels a day. Cantarells production has dropped at twice the forecast rate.

August - the IEA estimates global oil demand will contract relative to 2008 by 2.3 million barrels a day averaged over 2009. This assumption is based on IMF economic assumptions (World Economic Outlook, April 2009) that global economic growth will be up by 1.8% in 2010, as against the 1.4% contraction in 2009. This assumption is almost certainly wildy wrong, as the USA financial crisis is likely to be re-invigorated by about april 2010 when more toxic loans come due.

Oil prices - after staying in a band of around $US50-$US70, prices rise to just under $US80 for light crude. This probably reflects the falling USA dollar and a certain amount of speculation on 'commodities', rather than a fundemental increase in demand. 125 million barrels sit in floating storage. The USA makes ineffectual noises about 'curbing' speculation in oil.

November - 'All liquids' fuel production is 85.95 mbd according to the december IEA account. This is about 200,000 barrels a day higher than october. All liquids include heavy an d conventional oil, tar sands, condensate from gas and oil fields, natural gas processing plant liquids, synthetic gas and coal-to-liquids fuels, and biofuels.

december - Iraq - production has has risen over 2.5 million barrels a day.

december - Iraq - European, Russian and Chinese oil companies (Shell, BP, Lukoil, CNPC, and others) win auctions to develop big Iraqi oil ields.
Shell and Petronas win the contract to develop Majnoon field (7 billion barrels of reserves), Lukoil and Statoil won West Qurna 2 field (9.75 billion barrels of reserves), and Total and Petronas win the Halfaya field (0.5 billion barrels of reserves). ExxonMobil win development of West Qurna 1. ExonMobil is the only USA company to win a contraact with the Iraqi government.
Development costs fro these fields are estimated to be low - around $US10 to $US20 per barrel

December 4 - Mexico - The Mexican government announces it intends to reduce funding for the development of the Chicontepec oil field by 63% (from US$4.4 billion to US$1.61 billion) for 2010, and by alesseer amount in 2011 and 2012.  So far, the project has consistantly underperformed. The Chicontepec 'Tertiary Gulf Oil Project' spans 3 states and 29 fields. The production rate in these fields is very low - only a few hundred barrels a day overall, and as little as 50 barrels a day per well. The aim is to increase per-well production tenfold through a variety of enhanced techniques. The programme called for 975 additional wells, repairs to over 500 wells, and extension of pipelines. Production was expected to bring 2009 production to 72,000 barrels a day, but it remains at just under 30,000 barrels a day. It is hoped to achieve 43,000 barrels a day in 2010, and over 500,000 barrels a day by 2015.

December - the 4,350-mile Turkmenistan-China gas pipeline project is officially opened by Hu Jintao, the Chinese president,. The pipeline originates in the Samandepe gas field in Turkmenistan, crosses Uzbekistan and Kazakhstan and terminates in north-west China. Gas supplies from stage one of the project are due  to come on stream in January 2010. The pipeline provides an alternative market for Turmkani (and ultimately Uzbeki) gas. Previously Turkmanistan supplied its gas to Russia at less than prevaling European prices. Sino-Russian plans for a Siberian pipeline to China have yet to leave the discussion and planning phase.

2009 - USA - Oil refineries - 5 refineries closed this year, including Valero Energies Delaware City refinery, capable of processing 210,000 barrels of crude a day. The total gasoline capacity idled or completely closed is 700,000 barrels a day. Gasoline demand continues to be down, and refiners margins continue to be squeezed. Exxon Mobil’s USA refineries lost $US203 million in the third quarter alone. Exxon Mobil’s global refining business dropped by $US2.7 billion, to a meagre $US325 million. Average refinery capacity utilisation has fallen to around 75%. The USA has refining capacity of about 18 million barrels a day, around 5% -8% higher than actual demand. USA now has refining capacity significantly in excess of its domestic crude production. Oil imports are increasingly 'pre-refined' as USA refineries are older and less efficient.
USA gasoline consumption peaked in 2007 at 9.7 million barrels a day, but it is not expected to reach that level again, in spite of  rising population. Highly subsidised ethanol continues to displace gasoline.

The USA population at december 26th 2009 is estimated by the US Census bureau to be 308,231,553 (in 2000 - 9 years ago - the Census Bureau projected the july 2009 population of the USA would be 297,436,000, or around 10 million less than the actual population). The Census Bureau (2008 estimate) estimates that, in the middle case, the population of USA will be 321,085,000 in 2015 - an addition of around 13 million more people relative to 2009.

2009 - global refinery capacity - Asian refinery capacity continues to expand, especially in China and India. Large projects in China, India and Saudi Arabia have added roughly two million barrels a day of refining capacity in 2009.

2009 - Global oil demand over 2009 is down by roughly 1.7 million barrels a day (~2 %).

 © Copyright 2009

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