Company Sells Satellite Images to Oil Companies and Market Analysts
Digital Globe satellite image of an oil storage facility. The company takes satellite images of oil production and storage facilities for use by oil companies and oil market analysts. (image: digitalglobe.com)
CNBC reported Tuesday on Digital Globe, a private satellite company that sells birds-eye-view photos to oil companies, oil analysts, and investors.
The company, which operates three satellites at altitudes of between 300 and 600 miles, can take images of basically anything that is visible from the air. US intelligence agencies are top Digital Globe clients, but civilian industries are finding more ways to use the images. Common private-sector applications of the satellite images are urban planning, land use, agricultural analysis, location-based services on cell phones and other handheld devices, and of course evaluating oil production and shipping.
The company’s images can help oil analysts determine how much oil is actually being produced at a certain extraction sites like offshore platforms. While using satellite pictures to count the number of trucks or tankers going to or from an oil well may seem like a haphazard way of gauging oil supplies, it makes a lot of sense when one considers the notorious inaccuracy of official oil supply data released by the American Petroleum Institute (API), the US government’s Energy Information Administration (EIA) and the International Energy Agency (IEA). Just this week, the API report showed a 5.86-million-barrel increase in US crude oil stockpiles during the previous week, while the EIA report showed an 800,000-barrel decrease over the same period.
It’s hard to say how the use of more sophisticated analytical tools like Digital Globe’s images will affect the oil market. But if it brings a bit more certainty to the task of accurately measuring supply and demand, it could help create a more stable market that is truly grounded in fundamental forces.
To watch a video of CNBC’s report from Digital Globe “Mission Control,” visit the CNBC website.
Oil “Barrels” Trace Back to Pennsylvania Whiskey
From one revered liquid to another: crude oil’s American unit of measurement, the 42-gallon barrel, derives from whiskey barrels of the 19th century. (image: mymodelships.com)
If you didn’t know before, the BP oil spill has likely taught you that in the US crude oil (like some other petroleum products) is measured in barrels. Commodity market prices, inventory data and oil spill volumes are all presented in barrels. An American barrel contains 42 gallons—hardly an intuitive or easy-to-remember quantity. So where did the 42-gallon barrel come from?
An informative article in Tuesday’s Washington Post answers that question with some surprising facts. The first oil wells, drilled in Titusville, PA in the 1860s, frequently sprung leaks or “blowouts.” When blowouts occurred, nearby workers scrambled to collect the spewing crude in any receptacle they could find, and 40-gallon whiskey barrels quickly became reliable standbys. As the oil industry grew, it sought to set its own standards of measurement, and adopted the whiskey barrel plus two gallons. Why the extra two? The Post cites one oil historian’s theory that it was the oil producer’s equivalent of a “baker’s dozen”:
One theory comes from Charles A. Whiteshot in “The Oil-Well Driller,” who cites producers agreeing in 1866 that “An allowance of two gallons will be made on the gauge of each and every 40 gallons in favor of the buyer.”
The article goes on to explain the discrepancies between US and UK gallons: both contain eight pints, but British pints (as most American beer-drinkers traveling in the UK have noted) are larger than American pints—20 ounces to 16 ounces. Because of that difference, our 42-gallon barrel of oil represents just 35 British gallons, though the UK now favors metric “litres” over gallons.
So it turns out that the American tradition of crude oil production is intertwined with another great American tradition—whiskey. And even though the rest of the world measures crude by weight (in metric tons—a much more accurate measurement that factors out fluctuations in volume that come with temperature changes), the US will continue using its own special measurement for the foreseeable future, despite the obvious benefits of adopting the rest of the world’s established standard.
Take that, metric system! American exceptionalism marches on!
Tar Sand Supporters Get Pwned*: New Canadian Video Game Is Activism Tool
Canadian PM Stephen Harper gets splattered. "Tar Nation" is a 1790s-era euphemism for damnation, and a 21st century-style tool for spreading political opposition to tar sands mining. (image: tarsandswatch.org)
An online Canadian video game released Sunday allows users to shoot oil at politicians who support Alberta tar sands mining. Called “Tar Nation,” the game was designed by the Polaris Institute, a Canadian think tank that conducts public outreach campaigns on issues disproportionally represented by corporate-driven dialogue and information. Otherwise known as oilsands, tar sands are a controversial source of crude oil because of their development’s heavy toll on the environment, both immediate and long-term.
Set in the backyard of a foreboding oil refinery, the game features Prime Minister Stephen TARper and Opposition Leader Michael OIL RIGnatieff (that’s Harper and Ignatieff in more relaxed settings) as Jack-in-the-box targets popping up and down behind a tree stump, brown weed, and rock ostensibly subjected to thermal cracking.
Insidious Design Net designed the Flash-animated game as an activism tool. Even if you were just interested in spraying goop, it’s hard not to absorb the underlying message. One’s eyes drift over headlines and phrases such as “most destructive project on earth; “How Canada subsidizes fossil fuels at the expense of green alternatives”; and “about to become Canada’s no.1 emitter of greenhouse gases.” As previously reported, Canada’s tar sands have come under fire especially since it was discovered that nine projects are already failing to meet clean-up rules, leaving vast quantities of toxic waste on the ground. When enough damage has been done, the game presents the player with a letter to the real-life politicians. Compared to the oil shoot-out, that timeless tool of political advocacy gently makes its point.
Dear Stephen Harper and Michael Ignatieff,
I am deeply concerned that you are both stuck in the Alberta tar sands.
The tar sands represent the wrong direction for Canada. With three to five times the greenhouse gas emissions as conventional oil, severely damaging environmental and social impacts, and negative economic consequences for other provinces, the tar sands are taking Canada in the wrong direction.
It is not too late to invest in the new energy economy of the future and turn your back on the tar sands.
Sincerely, . . .
This is not the first time someone has used entertainment vehicles as a way to protest tar sands. In March, a coalition of environmental groups published an ad titled “Canada’s Avatar Sands,” that cast tar sands as the mineral “unobtainium” from the movie Avatar. Parallels between the fictional resource’s role in the film and the issues surrounding oil sands in real life are hard to ignore. Whether Avatar’s makers also intended this connection is open to interpretation.
As owner of the world’s second largest oil reservoir, and as the primary oil exporter to the US, Canada stands at a significant crossway. Developing its oil sands would be very economically profitable in the long run, and give the country new leverage against the US. However, the process of removing bitumen from the Alberta tar sands contaminates millions of gallons of fresh water could decimate an area of land the size of Florida, 14,000 km of which is intact forest—itself a rare thing in the world. These destructive side effects come with no easy solution.
A colorful and engaging way to win people’s minds, “Tar Nation” is an effective way to publicize an issue that deserves wider scrutiny. Also, if you watch the game long enough, you can see Stephen Harper briefly clutching a stuffed animal for no reason.
*Pwned is a 2000s-era version of the word “owned,” itself a euphemism for “taken down,” or “obliterated,” and originating from internet video game culture, where players would mistakenly type “P” instead of “O” when communicating with a defeated player. Its usage is mostly limited to the internet.
Push Toward Low-Sulfur Heating Oil Part of Shift in US Refining Industry
Because of regional demand, refineries in the Northeast—like this one in New Jersey—are unique in their high output of heating oil. (image: cleanstation.net)
Export demands and forthcoming environmental regulations, including requirements for lower sulfur content in heating oil, are driving changes in the US refining sector, the oil industry newsletter The Oilspot News reported on Monday.
In recent years, demand for US-produced road diesel has grown, mostly in European and South American markets. Within that trend, demand for ultra low-sulfur diesel (ULSD) is expanding, as ULSD requirements for vehicle fuels take effect in countries like Columbia. The European Union and the US already require vehicle diesel to be USLD, and low-sulfur mandates will soon expand to cover maritime and railroad fuel in the US.
As foreign governments and other fuel markets across the board transition to low-sulfur fuel, the US heating oil market, which is heavily concentrated in the Northeast, is following suit. As HeatingOil.com has reported recently, several Northeastern states are in the process of applying new low-sulfur mandates to heating oil. To meet increased demand for low-sulfur heating oil, some refiners will simply produce more low-sulfur fuel that meets mandates for heating oil as well as vehicle fuels.
These facts appear to support the Independent Connecticut Petroleum Association’s Gene Guilford, who argued that increased demand for ULSD as a result of low-sulfur heating oil requirements would not constitute a major change to US refinery activity or raise consumer heating oil prices. Heating oil can currently contain up to 2,000 parts per million (ppm) of sulfur, a unique level of sulfur that is not shared by other fuels. Because of high regional demand, refineries in the Northeast (known as Petroleum Administration for Defense District I or PADD I) are unique in their higher output of heating oil. As The Oil Spot explains, “‘PADD I is the holdout here,’ said [Alfred Luaces with Purvin & Gurtz, Inc.], comparing the region’s high yield in heating oil output to the rest of the country.”
It appears that the US refining industry is already in the process of producing more low-sulfur and ultra low-sulfur fuel in response to both foreign demand growth and shifting regulations around the world. New low-sulfur heating oil mandates, assuming they are adopted by several states in the near future, will likely bring about only nominal increases in domestic demand for low sulfur fuel.
As long as the requirements are implemented gradually, already-increasing levels of low-sulfur fuel production should be able to absorb growing demand and avert major heating oil price spikes for consumers in the Northeast.
US Oil Production Rise in 2009 No Game-Changer
Oil production rose domestically for the first time since 1990, thanks to previously untapped reserves like that in the Bakken formation (pictured). However, this uptick means little for both prices and energy trends. (image: cbr.ca)
American oil production reached its peak in 1971, as was predicted by the Hubbert model applied to US oil fields. Since then, production has dropped by nearly 50 percent. Yet 2009 was a record-breaking year for US production, with levels increasing for the first time since 1991, according to the U.S. Energy Information Administration and reported by the AP.
However, missing in the above comparison is the fact that production dropped to its lowest point in 25 years in 1990, rendering the 1991 increase less significant in terms of overall production trends. In 1990, average domestic production of oil was 7.35 mbd, and in 2009, it was 5.32 mbd. 2009’s improvement over 2008’s 4.95 mbd is worth noting, but not a game-changer for the US energy outlook. The level is still 2 million barrels per day below the 1990 average.
As the AP article explains, the spike in 2009 domestic production was due to oil discoveries and the fruit of drilling projects that were financed during the period of high oil prices that ran between 2004 and autumn 2008. Deepwater reserves in the Gulf of Mexico and the Bakken Shale deposit that spans Montana and North Dakota were the biggest new sources.
“As the price of oil went up, you were able to access resources that were more difficult and expensive to get to,” said Rayola Dougher, Senior Economic Adviser for the American Petroleum Institute.
Dougher is referring to the steep costs of developing deepwater reserves and oil shale. The US Department of the Interior estimates that the US contains over a trillion barrels of oil in the form of oil shale, and 12-19 billions of barrels of oil in the form of tar sands. Both of these forms fall under the category of “unconventional oil,” because they require extraction techniques outside of traditional oil wells, and/or refinement techniques outside of those used for lighter grades of oil. As we’ve previously discussed, the methods of producing unconventional oil are economically feasible only when prices are very high.
But even under high-price conditions that could stimulate increased domestic production (some analysts are predicting higher oil prices in 2010 and onwards), it’s unlikely that Americans would experience relief from either high consumer prices or energy dependence.
In a period of very high oil prices, we would likely see more of these projects or efforts to make those federal lands, much of which are situated inside pristine national parks, open to drilling. However, setting aside the uncalculated costs to America’s bastions of untouched wildlife, it’s unlikely that these projects would have any impact on the price of oil, which is a globally traded commodity influenced by worldwide supply fluctuations that dwarf any US contribution. In terms of lessening our dependence on foreign oil, increased oil production domestically, even on the order of 1 mbd, would only offset the export losses that we are already experiencing from major suppliers Mexico and Venezuela. As analyst Chris Nelder wrote in February, the combined export loss from these two countries, which together comprise two of our three largest sources of oil, was 0.89 mbd from 2005 through 2008. Roger Blanchard, oil analyst and author of “The Future of Global Oil Production”, finds it “likely” that Mexican oil exports will reach zero within the next ten years.
The optimistic-sounding AP headline “Govt. says US oil production increased in 2009” implies a needed rejuvenation of our nation’s future energy supplies, but in reality only reinforces the unpredictability of our future.
Refiners’ Troubles Have No End in Sight
A grim future looks to be in store for refineries like this one, owned by Valero. (image: roamsecure.net)
As the global recession made deep cuts in oil demand, the refining sector was hit especially hard. For major oil companies, refining has sucked away profits made in exploration and production. Refiners without such a diversified business have simply struggled, squeezed between low consumer demand for refined oil products and the rising price of the crude oil refiners have to buy.
What can refiners do to get back on their feet? The Financial Times’ Energy Source blog examines the argument from a pair of analysts at the investment bank Barclays Capital who say they have the answer: close more refineries.
Senators’ 2008 Oil Buying Bill (Accidentally) Saved Taxpayers $600 Million
An underground salt cave tunnel to savings, i.e. a Louisiana portion of the Strategic Petroleum Reserve in light of a 2008 bill. (image: Robert Nickelsberg via Getty Images)
The bill that abruptly halted President Bush’s 2008 stockpiling of crude oil in the US Strategic Petroleum Reserve (SPR) panned out very well, according to a cost analysis by the Department of Energy released on Friday. As Greenwire via the New York Times reported, the decision to suspend refilling the reserve until prices fell below $75 a barrel saved US taxpayers $600 million. But not for reasons first thought.
The legislation to temporarily stop the 70,000 barrel-per-day shipments to the SPR was originally pitched by Sens. Byron Dorgan (D-N.D.) and Jeff Bingaman (D-N.M.) as a measure to alleviate high gas prices. An increase in the supply of oil left on the commercial market, they reasoned, would lower prices of crude oil and gasoline, which reached all-time highs in 2008. Despite White House criticism for the economic validity of this strategy, the Strategic Petroleum Reserve Fill Protection Act swept through Congress with nearly unanimous approval on May 13, 2008 [97 to 1 in Senate, 385 to 25 in House]. It proceeded on the belief that filling of the SPR was one of the factors contributing to rising prices: Read More »
Study: Cap on Carbon Emissions Would Boost Domestic Oil Production
The use of carbon dioxide in enhanced oil recovery, as illustrated above, could expand as a consequence of climate legislation. (image: llnl.gov)
The oil industry has opposed legislative efforts to impose a cap on carbon emissions, but a new study says that such a cap could actually lead to increased oil production in the US and reduce imports of crude oil by 40 percent, reports the Houston Chronicle’s NewsWatch: Energy blog.
Captured carbon dioxide is at the heart of the study’s paradoxical finding. According to Advanced Resources International (ARI), which conducted the study for the environmental group the Natural Resources Defense Council, an emissions cap would accelerate development of carbon capture and storage (CCS) technology. Oil companies are already using captured carbon dioxide to improve the recovery of oil; by pumping carbon dioxide into oil wells, oil that couldn’t be recovered through conventional drilling is pushed up where it can reach a well, a process known as carbon dioxide enhanced oil recovery. If CCS became commonplace and could be paired with oil drilling, carbon dioxide enhanced oil recovery could expand immensely, increasing total domestic production by 3 to 3.6 million barrels per day in 2030. This form of enhanced oil recovery could bring a total 85 billion barrels of previously unrecoverable oil into production.
At CERAWeek Conference, Oil and Gas Are the Future
Secretary of Energy Steven Chu speaking about the future of oil and gas at CERAWeek 2010. (image: chron.com)
Tuesday was “oil day” at the CERAWeek 2010 energy conference, sponsored by the energy research firm IHS CERA, and leading figures from the energy industry and from the Obama administration gathered to speak about the future of oil and gas. The dominant tone was one of confidence, as most speakers insisted that fossil fuels would remain the key energy sources far into the future, reported the Houston Chronicle.
While a positive assessment of the future of oil and gas might be expected from energy insiders, some of the oil and gas industry’s central claims about the continuing potential and relevance of fossil fuels were confirmed by Secretary of Energy Steven Chu. He talked about the promise of natural gas, which can be used for power generation and burns cleaner than coal, as a “bridge” fuel that can play a role in the “transition to other fuels” in the future. Oil, too, will retain its place in the energy mix, according to Chu: “Oil is an ideal transportation fuel, so it will be with us for decades.”
Chinese Legislators Want Increased Strategic Oil Reserves
These oil tanks are part of China’s strategic reserves, but some legislators think they’re not enough. (image: wsj.com)
Some lawmakers in China are calling for an increase in the country’s stockpile of crude oil and refined oil products, Reuters has reported. As China’s energy consumption grows, these lawmakers are concerned that an increasing reliance on oil imports will jeopardize the country’s energy security.
China has already embarked on an expansion of its strategic petroleum reserves, adding 170 million barrels of capacity to preexisting reserves of 102 million barrels. However, Chen Geng, a member of the National People’s Congress, said that the “current state crude reserves are far lower than sufficient.” According to Chen, China will have to import 350 million metric tons of oil (roughly 2.5 billion barrels) by 2020, and Chen called for greater stockpiles to soften the threat that such reliance on imports poses to energy independence. Another member of China’s parliament called for the state to increase its reserves of refined oil products in addition to its crude reserves.
Energy policy in China has been dictated by an insistence on self-sufficiency since the rule of Deng Xiaoping in the 1980s, as HeatingOil.com contributor Jeff Jorve explained. China’s investment in green technology and in vast supplies of petroleum and petroleum products are each aimed at the same end—energy independence.
While China’s energy policy may be driven by longstanding domestic concerns, the country’s actions affect oil consumers around the globe. Whether China buys oil and oil products to use them or to store them, the market registers it as additional demand, which pressure the prices of crude oil and heating oil to rise.
Terror Alert for Oil Tankers in Asia’s Malacca Strait
The Malacca Strait is the narrow channel that separates Malaysia from Indonesia, and carries a third of the world’s seaborne oil. (image: sabrizain.org)
Singapore’s navy issued an advisory saying it had “received indication” that a terrorist group is planning an attack on oil tankers passing through the Malacca Strait, Bloomberg reported today. The warning did not name any terrorist groups, but the threat could be coming from a regional group with ties to al-Qaeda.
The Malacca Strait runs between Malaysia and the Indonesian island of Sumatra, and is the shortest sea route between the Persian Gulf and North Asia, says the EIA. According to EIA data, roughly 15 million barrels a day passed through the Malacca Strait in 2006, which accounts for nearly one-third of the global amount of oil shipped by sea. The IEA calls the Malacca Strait one of six “chokepoints” in sea routes around the world, similar to the Strait of Hormuz that leads out of the Persian Gulf, making it a critical point for global security, reports Reuters.
CFTC Calls for More Transparency in Sea Storage of Heating Oil, Other Petroleum Products
CFTC Commissioner Scott O’Malia has called for the fog to be lifted on sea storage data for petroleum products. (image: jcolen.com)
Since last summer, a trend has emerged in the international oil trade: storing crude oil and refined products at sea for profit.
Following the collapse of oil prices in the fall of 2008, contango has been the name of the game for crude oil and other petroleum-based commodities. Contango is a situation in which the current market price for a commodity is lower than the price of futures contracts for that same commodity in coming months and years. As the gap between current prices and future prices widens, investment firms and other oil market players are enticed to buy oil now, store it, and resell it at its future price for a tidy profit.
US Refining Industry Threatened by Bahamian Oil Terminal
Competition from the Borco terminal in the Bahamas could add to US refiners’ troubles. (image: vopak.com)
Refineries in the US have been hit hard by the recession, which cut demand for refined oil products, and the industry continues to struggle. As oil companies consider idling or shutting down refineries, the industry now confronts another challenge 80 miles off the coast of Florida: the expansion of the Borco oil terminal on the Island of Grand Bahama.
The terminal plans to add 6 million barrels of storage capacity by 2011, reports Reuters on ForexPros.com. Borco’s existing storage capacity already tops 20 million barrels, but primarily holds heavy fuel oil or crude oil; much of the crude oil held at Borco gets sent to the US for processing. The new storage capacity, on the other hand, is designed to hold light refined products such as gasoline, diesel, and heating oil.
Those 6 million barrels of refined fuel products could compete directly with US refiners. “If you’re on the East Coast, you better be ready for competition,” said Tim Day, the managing director of First Reserve Corp., one of the owners of the Borco terminal. “A light sweet refiner making gasoline on the East Coast could suffer long term.”
Already suffering refiners hardly need another cause for worry. Borco’s move surprised some because one of the long-term trends hurting refiners is shrinking fuel demand in the US, a trend that would also affect Borco’s efforts to sell refined oil products to the US market. If conservation efforts, such as those that have reduced demand for heating oil, continue or increase, Borco and US refiners could be competing for shares of an ever-smaller market.
Blame Oil Refiners and OPEC for $100 Oil and Another Summer ’08, Says Analyst
John Kilduff, co-CEO of Round Earth Capital (r.), speaks to European CNBC correspondent Guy Johnson (l.) about a coming oil rally. (image: cnbc.com)
In line with Goldman Sach’s forecast early this week, CNBC’s European Closing Bell program on Tuesday featured co-CEO of Randolff Capital John Kildoff predicting that oil prices would soon rise significantly. Calling the past week’s global crude oil price fluctuations below $80 a barrel a “temporary setback” and the French Total refinery strike “a little hyped,” he stated:
I think the move back above 80 will be before us in the next several days. And we’re going to continue higher. I’ve been on the record as saying I think we’re going to see a $100 a barrel for crude oil here, at some point during the first half of the year.
Oil prices took a dive Tuesday on reports of low consumer confidence, falling to $78.84 a barrel. CNBC correspondent Guy Johnson noted the interest in Goldman Sach’s release of an optimistic forecast the day before, which predicted oil prices would reach $85-95 by the end of the year.
Kilduff agreed that prices like that would be damaging but stated they would be temporary and “probably coincide with the peak summer gasoline demand here in the United States.” In an unusual turn, he blamed oil refiners for the coming price uptick. Read More »
Total’s Strike Ends, French Refineries Resume Work
Workers continue to strike at Total’s refinery in Flanders, but the walkout ends at all other plants. (image: france24.com)
Workers at five of Total’s six refineries in France voted to end their weeklong strike on Wednesday, allowing shipments and oil processing to resume, reports Bloomberg. Total, the French oil major, planned to permanently close one of its refineries, precipitating the strike, but unions advised workers to end the walkout after Total promised that no other refineries would be closed or sold in the next five years and that refinery workers at the closed plant would find other work within the company.
At the refinery in Flanders, near Dunkirk—the refinery Total plans to close—workers voted to continue the strike until March 8, when Total will present its plans for the future of the plant. Total still intends to close the Flanders refinery, but has said it will build a training center at the site and restructure jobs to keep refinery workers employed with Total. The Flanders refinery has been idle since September, so the continuation of the strike there will not affect oil production.
Total said it would take between two or three days for output to resume, but a representative for the CGT, a French labor confederation, said at Total’s Donges refinery that the plant had tanks full of refined products that were ready to be shipped, according to the AFP. This will help ease fuel shortages in France, where Hundreds of gas stations have run out of fuel due to the strike.
While the walkout has ended, the CGT’s labor coordinator with Total, Charles Foulard, warned Total that “if it doesn’t keep its promises there will be another strike with fuel shortages.”
France’s Refinery Strike Causes Higher Heating Oil Prices
Total workers meet with the plant director at the refinery in Flanders, which Total plans to close. The director’s helmet reads “CGT,” the initials of a French labor confederation. (image: AFP via google.com)
The price of home heating oil rose on Friday—and could continue to rise—because of a strike in France. Refinery workers at French multinational Total went on strike on February 16, bringing Total’s refinery operations to a halt, Bloomberg reported on Monday. While global oil inventories are high enough to compensate for a brief hiatus in French oil refining, the labor dispute and threat of future supply interruptions was enough to bring at least one day of higher oil prices on NYMEX. If the strike continues, or if it expands beyond Total to the rest of the oil industry in France, global oil stockpiles could shrink and the price of crude and refined products, such as heating oil, could spike.
Talks between Total and French labor groups broke down on Monday. Having failed to reach an agreement, a representative of the CGT, a French confederation of trade unions, said that “[t]he strike will be intensified and extended to all refineries.” The representative, Charles Foulard, added that there would be fuel shortages in France this week, and drivers should fill up their cars when they can. UFIP, an oil industry group in France, denied that any fuel shortage was imminent and said that France had 10–20 days worth of oil.
Six of France’s twelve refineries are operated by Total, and the strike has affected production of 1.1 million barrels a day of refined products. If the strike is extended, as Foulard says, ExxonMobil’s two refineries in France will likely be the next to stop production. The CGT has called for Exxon’s refineries workers to strike on Tuesday, February 23.
The strike is in response to Total’s plans to close down the refinery at its plant in Flanders. Like the US refining industry, Total’s refining sector has struggled as the recession cut into fuel demand. Total’s offer to the striking workers includes job guarantees, a training center to be built at the closed refinery, and plans to invest in the five remaining refineries.
For heating oil consumers, prices could rise as Total’s workers hold out and refineries in France lay idle. However, the prospect of permanently closing a refinery does not bode well for consumers, either. The reason it has proved to be a profitable move for oil companies is that less refining capacity means lower supplies of oil products and higher prices.
Heating Oil Weekly Roundup: World War II Mines, the Eni Strategy, and the Climate Bill’s Travails
NordStream’s simulation of a robot scanning the seabed for unexploded mines from World War II. (image: nordstream.com)
To transport natural gas from Russia to Western Europe, the Russian natural gas giant Gazprom is leading an effort to build a new pipeline called Nord Stream across the Baltic Sea. They’ve hit a possible snag, though, says Yonah Freemark of The Infrastructurist—the Baltic Sea is still littered with mines from World War II. Enter Bactec International and its mine-detecting robots, which will detonate and clear all mines in the pipeline’s path.
Paolo Scaroni, the CEO of Eni, an Italian oil company, worries about the future of international oil companies and writes in the Wall Street Journal that they may have to change their business strategy. The solution? Be more like Eni.
The Times of London reports that some people are trying to lower their heating bills by burning wood instead of oil or gas. What they don’t mention is that consumers who heat their homes exclusively with heating oil or natural gas have cut their expenses on wood and wood burners to as low as $0.
At Energy Tribune, Robert Bryce examines how the Senate climate bill, which seemed like a sure thing at the time of President Obama’s first address to Congress last February, has gotten derailed. Burgeoning skepticism about climate change and the resurgence of Republicans play big roles in his story, but the takeaway is that any real legislative action will happen at the local and state levels instead of in the US Congress.
“Gusher” Oil Field Discovered In Weld County, CO Is Surprisingly Sweet
Light sweet crude is flowing in Weld County, Colorado. (image: co.weld.co.us and lca-resources.com)
Yesterday, reports of a high quality crude oil well in discovered in northern Colorado contained two remarkable facts.
1. During its initial 24-hour test, the production well yielded 1,770 barrels of oil. According to denverpost.com, the average well in the region produces 100-150 barrels a day.
2. The oil is light sweet crude, the most useful and therefore most valuable crude grade in the world that is increasingly rare.
Report of $2.4 Trillion Worth of US Oil & Gas Reserves Deserves Closer Scrutiny
Reports of an unprecedented bounty of domestic oil and gas reserves are open to misinterpretation. (image: trcc.commnet.edu and i.ehow.com)
On Monday, a report released by a national contractor for state utilities claimed that the United States contains more than 2,000 trillion cubic feet (tcf) of natural gas and 229 billion barrels (bbl) of oil—as observed by The Energy Source blog at Forbes.com, that’s more than the average OPEC nation holds. Noting that a chunk of these reserves lie in areas barred from drilling, the report also found that leaving these reserves untouched would cost the US $2.36 trillion in lost GDP over the next twenty years.
It’s no secret that the US contains its own oil and gas reserves. According to Reuters, Previous estimates have placed those figures at 1750 tcf and 186 bbl for gas and oil, respectively.
The study, two years in the making, was sponsored by the National Association for Regulatory Commissioners in conjunction with the industry-funded Gas Technology Institute. The government-protected reserves amount to 43 billion barrels of oil and 286 tcf of gas and are located in the Arctic National Wildlife Refuge and in areas just off the coastline of the continental US. The US currently consumes an average of 20 million barrels of oil per day, and produces 6 million barrels per day.
The research was done according to standard methodology by SAIC Corp ie data collection and processing, and the report attributes the reserve increases to advances in drilling technology and gas extraction methods. The real thrust of the study comes from its economic figures. This appears to be the first time a hard dollar amount—and a whopping one at that—has been attached to the value of those reserves.
Floating Storage of Crude Oil Drops, But Distillates Remain at Sea
This chart from JBC Energy shows that distillate supplies in floating storage remain ample, even if crude supplies are falling. (image: blogs.ft.com)
For oil traders, it seems that contango—a market situation in which futures prices are higher than spot prices—is no longer such an exciting dance. The Wall Street Journal reported yesterday that floating supplies of crude, kept at sea during times of low demand in the hope of future profits, are finally dropping after more than a year. The volume of crude oil currently stored on supertankers has more than halved, down to 43 million barrels from its record high of 90 million in April of last year, and the Wall Street Journal notes that land-based surpluses are falling as well. Analysts estimate that the quantity of crude at sea could drop to 27 million barrels by March, which would be the lowest level since the current contango began at the end of 2008.
Some analysts are trumpeting this development as a sign that the oil market is rebounding, and that the contracting of floating crude reserves may even herald a price spike. But the Journal takes a more cautious view, noting that “Appetite for oil in industrialized countries, which plummeted during the recession, remains depressed. Demand in the U.S. shrank 2% in the last four weeks from a year earlier and supply is still plentiful. Moreover, spare capacity in oil-producing countries remains high.”
In addition to plentiful supplies and ample spare capacity, most of the oil in floating storage is currently in the form of distillates, such as heating oil, so even if the contango for crude is coming to an end, the world’s oceans are still the largest oil storage facility around. A JBC Energy estimate cited yesterday in the Financial Times puts floating storage of distillates at 75–85 million barrels. Their figures also show that as floating storage of crude has dropped, there’s been a corollary rise in the shipboard volume of distillates. Last March, there were only 8–10 million barrels of distillates stored offshore, a number that has increased tenfold since then.
