March 29, 2011

More Coal from the Powder River Basin

 From Wild Earth Guardians:
Although the American West holds enough renewable energy potential to fully power the entire United States, Secretary of Interior Ken Salazar today announced at a press conference that he intends open the door for 2.35 billion tons of new coal mining in the Powder River Basin of Wyoming.
When burned, the coal threatens to release more than 3.9 billion tons of heat-trapping carbon dioxide, equal to the annual emissions from 300 coal-fired power plants, further cementing the United States as a leading contributor to climate disruption. Furthermore, coal’s pollution is dangerous to public health and contributes to four of the five leading causes of death in the United States.

“We can’t achieve a clean energy future by mining 2.35 billion tons of coal,” said Jeremy Nichols, Climate and Energy Program Director for WildEarth Guardians. “Rather than look ahead to our energy future, Secretary Salazar seems content to keep looking in the rearview mirror, keeping this country dangerously dependent on dirty energy.”

Salazar’s announcement is a stark contrast to his call for clean energy. Interior, for example, touted that in 2010, 4,000 megawatts of renewable energy development were authorized. And in today’s press conference, Secretary Salazar announced Interior’s intent to authorize more than 12,000 megawatts of renewable energy by the end of next year.

March 22, 2011

World Population and Energy Demand Growth

Projections of energy demand over the next hundred years are inherently uncertain, but this graph gives some idea of the potential explosion in energy use that will come from the development of emerging economies such as China, India, and Brazil.

Graph from the National Energy Technology Laboratory

Here are the French energy major Total's projections of population, GDP, and energy demand growth to 2030.


Wind Power Lags, Beset by Shale Gas and Budget Cuts

Chart from the American Wind Energy Association, January 2011 report, via Early Warning

On May 22, 2011, the FT reported that construction of new wind farms was set to decline in 2012 because of competition from natural gas:
Ignacio Galán, chief executive of the Spanish energy group Iberdrola, said the rise in US shale gas production had transformed the country’s energy industry, driving down gas and electricity prices. “Shale gas makes the production of electricity from other sources not attractive enough,” he said.
Installations of new wind capacity in the US dropped from 10,000 megawatts in 2009 to 5,100MW last year. Mr Galán said he expected there could be a further 5,000MW added this year, and perhaps as little as 3,000MW next year.
Government support for wind, which includes federal tax credits and legal standards for renewable generation adopted by 29 states, was adequate, he said, but added: “It’s hard to make an attractive return on investment at these prices.”
Several analysts and industry executives were less downbeat than Mr Galán, with some believing that new capacity additions will pick up next year.
Lisa Frantzis of Navigant, a consultancy, said that falling turbine prices meant new wind farms were now competitive on costs with new gas-fired power plants.
“Wind is one of the more attractive options for complying with states’ renewable energy mandates,” she said.
However, Mr Galán’s caution is a sign of the challenges still facing the US wind industry, which include uncertainty over the longer-term future of tax credits given the pressure on the federal budget, and generally weak electricity demand as the economy slowly emerges from recession.
The American Wind Energy Association, which began its annual conference in California on Sunday, estimates that employment in the industry fell by 10,000 jobs last year, to 75,000. . . .
Iberdrola is the largest investor in new wind capacity in the US, and the second-largest wind generator, after NextEra Energy, the owner of Florida Power & Light. Other leading companies in the US wind market include MidAmerican Energy, owned by Warren Buffett’s Berkshire Hathaway, EDP of Portugal and Eon of Germany.

March 20, 2011

In the Energy Box

From Thomas Homer-Dixon:
Much of the hysteria surrounding Japan’s nuclear crisis probably isn’t justified. As Britain’s chief scientific adviser, John Beddington, noted in Tokyo on Tuesday, even in the worst case of a full meltdown of multiple reactors at the Daiichi site and combustion or explosion of the spent fuel in the plant’s storage pools, contamination is very unlikely to extend beyond 30 kilometres from the site. The Chernobyl reactor had a graphite core that caught fire. The ferocious heat propelled radioactive particles into the upper atmosphere, spreading fallout across Europe. Fukushima isn’t Chernobyl.

But it’s an unmitigated disaster, all the same. And it’s hard to see how the nuclear power industry can recover. In recent years, the capital costs of nuclear plants have skyrocketed, with estimates of the final price of plants under construction in Europe and North America coming in three to four times above initial projections. The Fukushima disaster will make this problem far worse, because governments and regulators will insist on yet more bells and whistles to guard against accident, ratcheting up the price even more.

Nuclear power is now officially on life support, except, as Globe columnist Margaret Wente has noted, in giant power-hungry countries such as India and China that believe they don’t have much choice – until they have their own meltdowns.

So using Fukushima as another verbal cudgel to batter nuclear power is simply overkill. The word, instead, should mark a turning point in human history. Twenty-five years from now, Fukushima should be the label we use for the moment when humankind finally grasped the staggering severity of its common energy problem – and started investing the real resources needed to solve it.

We’re in an energy box. The walls are high and thick, and they’re closing in. The main source of the energy that drives our civilization is not viable in the long term. Eighty per cent of our energy comes from carbon-based fuels, and their emissions are wrecking our climate. But every direction we turn to get out of this box seems blocked by technological, economic or political obstacles.

Storing the emissions of carbon-based fuels underground is phenomenally expensive. We’ve already dammed most of the best hydropower sites. Renewables such as solar and wind are too intermittent and diffuse to supply more than 20 per cent to 30 per cent of our needs. Biofuels such as corn-based ethanol take nearly as much energy to make as they give back. And nuclear power scares the wits out of people and is, anyway, pricing itself out of the market.

We can’t get out of the box just by cutting back on our energy use. Yes, conservation is essential. But modern human societies are buzzing hives of technological and social complexity, and only huge inputs of high-quality energy can create and sustain this complexity. Most of us don’t want radically simpler lives, because they’d be poorer lives in countless ways. So we need energy, lots of it – and we need new carbon-free sources.

There are a number of candidate technologies. My favourite is ultra-deep geothermal power: We drill holes eight to 10 kilometres into Earth’s crust, pump down water, then bring it back to the surface – super-heated – to drive electrical turbines. Deep geothermal has problems, among other things a propensity, somewhat ironically, to cause earthquakes. But scientists and engineers can likely solve these problems much more easily than the problems facing, say, nuclear power. And in contrast to nuclear power, deep geothermal has a certain elegance: Instead of building dangerous nuclear facilities all over Earth’s surface, we drill downward to tap a little of the vast heat emitted by the best-shielded reactor on the planet, its molten core.

Deep geothermal might turn out to be a mug’s game. We won’t know until we do the research. Yet, regardless of how we get out of the box, solving our energy problem will be a defining challenge in the evolution of our species. If we don’t face this challenge aggressively and now, it will be game over for anything resembling modern civilization. Fukushima should be the moment we all get the message.

March 18, 2011

Nuclear Fallout: Coal Market Tightens

From the Wall Street Journal:
Japanese demand will soften near term as coal users face production outages: Tohoku Electric Power, Japan's second-largest thermal coal importer, this week suspended its coal imports because of damage to its generating plants. Spot prices for Australian coal, the source of 70% of Japanese imports, have fallen 4% this week to $123.50. But if the plants come back online coal usage could rise in the second half. Citi estimates demand for thermal coal in Japan could increase by 7 million tons this year overall.

In Europe the shift could prove quicker: Previous expectations of declining coal demand are now rapidly being reversed. Germany's decision to suspend seven nuclear reactors is key: The lost electricity generating capacity will have to be made up in part from coal, adding around 3 million tons of European imports in 2011. Deutsche now forecasts European prices could rise to $145 per ton next year, from around $122 now.

Meanwhile, the U.S. Environmental Protection Agency appears to have softened its line on coal-fired power plants this week. The EPA wants a 91% reduction in mercury emissions from power plants, which had led some analysts to predict mass shutdowns of coal-fired stations unwilling to invest in the necessary filtration equipment. Credit Suisse, for example, forecast 60 gigawatts, or 18%, of capacity to close. But the EPA now estimates that figure at just under 10GW.

Oil Company Exposure to Middle East and North Africa

Source: Financial Times

March 17, 2011

The Perfectly Safe Nuclear Reactor: Always Just Around the Corner

From Hugh Gusterson, The Bulletin of Atomic Scientists:
We have now had four grave nuclear reactor accidents: Windscale in Britain in 1957 (the one that is never mentioned), Three Mile Island in the United States in 1979, Chernobyl in the Soviet Union in 1986, and now Fukushima. Each accident was unique, and each was supposed to be impossible. Nuclear engineers have learned from each accident how to improve reactor design so as to diminish the likelihood of that particular accident repeating itself but, as Donald Rumsfeld famously reminded us, there are always "unknown unknowns," and so each accident has been succeeded by another, unwinding in a way that was not foreseen. The designers of the reactors at Fukushima did not anticipate that the tsunami generated by an earthquake would disable the backup systems that were supposed to stabilize the reactor after the earthquake.

And presumably there are other complicated technological scenarios that we have not foreseen, earthquake faults that are undetected or underestimated, and terrorists hatching plans for mayhem as yet unknown. Not to mention regulators who place too much trust in those they regulate.

Thus it is hard to resist the conclusion reached by sociologist Charles Perrow in his book Normal Accidents: Living with High-Risk Technologies: Nuclear reactors are such inherently complex, tightly coupled systems that, in rare, emergency situations, cascading interactions will unfold very rapidly in such a way that human operators will be unable to predict and master them. To this anthropologist, then, the lesson of Fukushima is not that we now know what we need to know to design the perfectly safe reactor, but that the perfectly safe reactor is always just around the corner. It is technoscientific hubris to think otherwise.

This leaves us with a choice between walking back from a technology that we decide is too dangerous or normalizing the risks of nuclear energy and accepting that an occasional Fukushima is the price we have to pay for a world with less carbon dioxide. It is wishful thinking to believe there is a third choice of nuclear energy without nuclear accidents.

It is unlikely that all countries will make the same choice here. We are probably moving toward a post-Fukushima world in which some countries will abjure nuclear energy while others expand it. Countries with other energy options, strong democratic structures, and powerful environmental movements will probably de-emphasize, and maybe eventually renounce, nuclear energy. Switzerland has already suspended plans to build new reactors, and Germany's Angela Merkel, responding to large antinuclear protests, announced plans to close seven reactors pending further evaluation of their safety and to reconsider plans to extend the lives of Germany's oldest reactors.

In the meantime, countries with weak environmental movements and weak regulatory norms seem to be proceeding as if nothing has happened. As the Fukushima nuclear disaster unfolded, Turkey announced plans to go ahead with two reactors, and we can surely expect China, Russia, and India to do the same.

And what of the United States? Will it be like Germany and Switzerland, or like Turkey and China? A good way to think through this question is to look at how the United States responded to its last meltdown -- the meltdown of its banking system in 2008. To prevent a future recurrence of this disaster, the US government should have broken up banks that were "too big to fail," restored the Glass-Steagall Act's prohibitions on the commingling of investment and depository banks, and moved aggressively to regulate credit default swaps and financial derivatives. It did none of these things because the banks did not want it to, and the banks now run the show.

Nuclear Power Under Stress

From the Financial Times:
Although it is still too soon to know how the crisis at Fukushima will end, already the harrowing scenes from the site are provoking a widespread re-examination of nuclear safety that will, at the very least, lead to significant delays in new investments, an inevitable rise in cost and probably more rapid closures of existing plants. China, the world’s biggest builder of nuclear reactors, on Wednesday froze applications for new plants pending a review of safety.
Unless the stricken reactors are brought quickly under control, the industry could enter another two-decade global freeze like the one that followed the Chernobyl disaster in 1986. The consequences would include faster long-term growth in demand for fossil fuels, particularly natural gas, leading to tighter supplies and higher prices. It would also mean a further rise in the emissions of greenhouse gases created by burning those fuels – and further undermine climate policies around the world.

The nuclear business had engineered a remarkable turnaround. Seen only 10 years ago as a sunset industry, about to be supplanted by clean-burning gas and renewable sources such as solar, it has enjoyed a wide revival in support from energy companies, politicians and even the public. With climate policies demanding reliable low-carbon electricity, many governments in developed nations came to accept the need for nuclear as part of their future energy mix. That may now have changed. . . . 
The much-discussed “nuclear renaissance” was always more of a promise than a reality in Europe and the US. Nuclear power is a deeply political business, because the scale of the risks it entails inevitably involves governments. The support offered by most western countries has often not been strong enough to secure as much private sector investment as they had hoped. Now, governments are pulling away from whatever backing for nuclear power they had offered.
Switzerland was first to respond, suspending approvals for three new reactors on Monday. Germany followed 24 hours later, with chancellor Angela Merkel temporarily making idle seven of the country’s 17 nuclear power stations amid a three-month review of the nation’s nuclear energy policy. The Japan disaster was “a turning point in the history of technology-based society”, she said.

In the UK, where plans are well advanced to build up to 11 new reactors over the next 15 years, the government has asked its chief nuclear inspector to prepare a report on the implications of the events in Japan. Chris Huhne, the energy secretary, who has an anti-nuclear past, said on Tuesday it was too early to tell whether there would be any impact on the investment climate. But investors would “make their assessment on the basis of costs and likely returns” – and those would be affected by the inspector’s report.

In the US, support for new nuclear plants was a rare point of agreement between President Barack Obama and his Republican opponents. Steven Chu, the Nobel prize-winning energy secretary who is a long-standing supporter of nuclear power, tried to reassure members of Congress on Tuesday, telling them that “the American people should have full confidence that the United States has rigorous safety regulations in place to ensure that our nuclear power is generated safely and responsibly”. But Joe Lieberman, a high-profile independent senator and nuclear proponent, called for the US to “quickly put the brakes on [new reactors] until we can absorb what has happened in Japan”.

For all those countries, public opinion could be an immovable obstacle in the path of pro-nuclear governments. It is in the large emerging economies, particularly China and India, that enthusiasm for new nuclear plants has been strongest.

India, however, faces the same constraints as other democracies. Foreign companies were already wary of the Indian market because of a law passed last year making equipment suppliers liable for potentially unlimited costs in the event of a disaster. Local resistance to plants and fears about earthquakes and terror attacks are raising the political pressure.

China, which is building 27 of the 62 reactors now under construction worldwide, had identified nuclear energy as a main component of its plans to shift energy consumption away from fossil fuels over the next five years. Until midweek, Beijing seemed able to ignore public nervousness, with the government and state-owned nuclear companies issuing a series of statements to reassure the public about safety. But then the State Council, or cabinet, announced a temporary freeze on all new approvals. It called for the use of “the most advanced standards” to proceed with a safety assessment of all nuclear plants under construction.

“Any hazards must be thoroughly dealt with, and those that do not conform to safety standards must immediately cease construction,” it said.

Last year, the International Energy Agency, a watchdog backed by rich countries, predicted that nuclear power would grow only modestly in importance, going from 6 per cent of total world energy use to 8 per cent by 2035. Even that rate of growth now looks difficult to attain, the IEA acknowledged on Tuesday.

To fill the gap, renewables are likely to receive a boost. But there will also be a need for a reliable power generation that works even when the sun does not shine and the wind does not blow. Gas-fired power plants are quick and cheap to build, and natural gas is plentiful in the US. It could also be abundant in Europe and China if American production techniques can be imported. Peter Voser, chief executive of Royal Dutch Shell, Europe’s largest oil and gas company, said this week he expected that even in 2050 the two main commodities his group produces will provide two-thirds of the world’s energy. That represents a rise from the current 55 per cent.

Curbing the world’s dependence on fossil fuels has always been difficult. The agonies of Fukushima will make it even harder.

Shares of Nuclear Electricity Production

From The Economist

March 15, 2011

Global Energy System Under Severe Stress

From Steve Levine at Foreign Policy:
Over the last several months, we've learned the hard way in incredibly coincidental events that we are in firm control of almost none of our major sources of power: Deep-water oil drilling can be perilous if the company carrying it out cuts corners. Because of chronically bad-governance by petro-states, we can't necessarily rely on OPEC supplies, either. Shale gas drilling may result in radioactive contamination of water, though who knows since many of the companies involved seem prepared to risk possible ignominy and lawsuits later rather than proactively straighten out their own bad actors. As for much-promoted nuclear power, we know now that big, perfect-storm, black-swan natural disasters can come in twos.

March 13, 2011

Japan's Nuclear Quandary

From Charles Ferguson, in Foreign Policy:
Because it lacks abundant natural resources such as coal, oil, and natural gas, Japan imports more than 80 percent of its energy supplies. The 1973 oil shock from the Arab oil embargo convinced Japanese leaders that they needed to reduce their country's dependence on foreign oil. At that time, oil was used to generate about 66 percent of Japan's electricity. Nuclear energy offered a means to reduce this dependency. Today, nuclear power generates about 30 percent of Japan's electricity while oil accounts for 11 percent.
Tokyo wants to further increase nuclear power's share of electricity generation to 41 percent in 2017 and 50 percent by 2050. Japan presently has 54 commercial nuclear reactors and is building two more. It has plans for at least a dozen more in the coming decades.

From conversations I have had in recent years with Japanese nuclear energy officials, I have learned that they prefer a balanced portfolio with not too much reliance on a single source of energy for electricity. But moving toward one-half of Japan's electricity from nuclear power appears too risky in light of the recent massive earthquake. About one-fifth of Japan's nuclear plants were shut down. A prolonged shutdown of a significant portion of Japan's electric generators could affect public well-being -- for example, hospitals need reliable power supplies -- and could harm the Japanese economy.

One possible solution is to ramp up Japan's use of renewable energy sources. However, politically powerful forces stand in the way of greater development of renewable energy. Japan has 10 major electric utilities that wield tremendous political influence over local and national governments. The utility executives favor large power generators such as nuclear power plants. Wind, solar, and geothermal plants tend to be much smaller in power generation.

In 2010, the Japan Renewable Energy Policy Platform, an association of several renewable energy organizations, issued the first renewable energy white paper published in Japan. Its report underscores the lack of government incentives for increasing use of renewable energy. Japan had been in first place in the world in solar photovoltaic installation until 2004, when the government cut financial support. Moreover, renewable portfolio standards have been set too low. National targets were reached in recent years but have only resulted in a small fraction of electric power from non-hydro power sources. Furthermore, most geothermal power is not included in the renewable energy targets because of concerns about water use and the effects on spas. But geothermal has a huge potential because of Japan's location in a geologically active zone. In sum, renewable sources could provide about 67 percent of Japan's electricity by 2050 if the government would implement effective policies.

Japan, a world leader in nuclear power, should also become a leader in use of renewable energies. This will help alleviate safety and financial concerns about too much dependence on nuclear energy. It will also point the way toward a sustainable energy future for the world.
From the FT:
The International Energy Agency, the western countries’ oil watchdog, estimates that it takes about 38.8 barrels of crude oil to replace one megawatt of idled nuclear power generation capacity in Japan. If the country were to replace all its shut down nuclear capacity entirely with oil, it would have to import 375,000 barrels a day more on top of Japan’s expected purchases this year of around 4.25m b/d.
However, Japan is more likely to opt for a combination of oil, LNG and thermal coal.

The country boosted significantly its purchases of LNG in 2002, after the shutdown of 17 of Japan’s 54 reactors for safety inspections, and in 2007 and 2008 after the shutdown of the Kashiwazaki-Kariwa atomic station, the country’s largest.

The increase in LNG demand will push up spot prices globally, hitting gas prices from South Korea to the UK, but the impact will be cushioned by a relatively loose supply and demand balance as producers such as Qatar boost their supplies.

Tokyo is also likely to increase coal imports, as Japan’s utilities negotiate annual supply contracts with Australian miners. The negotiations, which face a deadline on April 1, are likely to settle annual prices in excess of the record $125 a tonne agreed in 2008-09, traders and analysts said.
Map from the New York Times:

African Land Rush

From a long piece in the Christian Science Monitor, "Hunger and Food Security: Is Africa Selling the Farm?" (February 7, 2011):
Africa is drawing dozens of corporate giants like Daewoo and even governments of such nations as Saudi Arabia, the United Arab Emirates, Brazil, Japan, and even India (which is food self-sufficient) to grow the food and biofuel crops they need back home. The coup in Madagascar and food riots in Mozambique last August – which followed news of a similar food and biofuels deal with the European Union and Brazil – are a warning sign of the volatility of the global balance of wealth and poverty that foreign investors and African leaders face.
By all rights, Africa could be a breadbasket for the world. Its fertile land, lengthy rivers, and farm labor tempt investors from around the globe.

But the continent continues to import the bulk of its staple food items, including corn, wheat, and rice from richer countries. On paper, foreign investment in African agriculture should correct that trade imbalance and help Africa become food self-sufficient. With global food prices skyrocketing, the demand for biofuels increasing, and the amount of arable land static, Africa is well situated to capitalize on global demand. And with its vast rural populations living on less than $1 a day, it would seem hungry for such deals.

So the continent's discontent with these deals takes many development experts by surprise. Almost any investment in a poor country generates jobs, tax revenues, and better skills for the future. But in today's Africa, investment in agriculture – even a $6 billion long-term deal like Daewoo's – is increasingly portrayed by the media and rights groups as "land-grabbing," neocolonialism, and even a threat to a country's ability to feed itself. And when many African countries are still unable to feed themselves, foreign investment can become the spark for revolution. . . .

"Setting aside the 'you're selling our land' histrionics," says a Western diplomat who has closely studied Madagascar's agriculture sector, "I think that countries of Africa would benefit from foreign investment by creating low-end jobs, some of it on larger commercial plantations and even some on the small-holder farms."
The key, this diplomat says, is to negotiate a deal that benefits the host country as much as it does the foreign investor. In the Daewoo deal – as with numerous similar deals involving companies from China, Saudi Arabia, Dubai, and elsewhere – all the food produced in Madagascar was intended for export.

"The landlord country needs to be really thoughtful about the conditions of the investment contract," says the diplomat. "They have to be saying, 'We want this to be environmentally sustainable, so the commercial farmers are using best practices for soil conservation and water use. They should be carbon-neutral. They should bring in good technology and show local small-holder farmers how to use it, so the general productivity of the region increases.' "

Often, such long-term development goals are the furthest thing from the minds of the people who sign such deals. And in a region where government transparency is nearly nonexistent, the question of who benefits from a deal depends most upon who negotiated and signed it. In many poor countries of Africa, power is heavily centralized, often in the hands of a political elite that has ruled more or less nonstop since independence in the early 1960s.

Legal systems little changed since colonial times don't offer individual farmers much protection in terms of land rights, and they offer little in terms of government assistance such as agricultural extension agencies. National leaders – sometimes more impressed by gleaming developments like glass-and-steel skyscrapers than by less-glamorous development like tractors and training – have often ignored farmers' needs. Even enlightened African leaders who see the benefit of improving the rural farm economy are often hampered by stodgy old laws and meet with resistance from a rural population that distrusts their motives.

"As much as 90 percent of Africa is under customary tenure, which means it's held by the state on behalf of the community, who are then given the customary right to the land," says Ruth Meinzen-Dick, a land-rights ­specialist at the Consultative Group on International Agriculture Research, the one responsible for India's green revolution in the 1960s.

Many African small-holder farmers know they can be moved off their land at any time, and the growing number of farming deals confirms their worst fears. As a result, many African farmers are reluctant to invest in their land or to improve their techniques, knowing the benefit may be taken away in the future.

"The question is, do people have an expectation that they will have their land in 10 years?" says Ms. Meinzen-Dick. "If they don't, they're not going to plant a tree that will give fruit later.... [T]hey're not going to make long-term decisions that increase their productivity."

Legal reforms in each of Africa's 53 nations may slowly start to improve the ability of small-holder farmers to lift themselves out of subsistence farming into more profitable and productive commercial agriculture. Many development agencies say Africa's best bet seems to be a bit of outside investment.

March 8, 2011

Global Oil Supply Disruptions

Addison Wiggins notes that the actual oil lost to the world market by the Libyan revolution "is still peanuts compared to previous supply disruptions."

The Big Melt

From Science Daily:
The Greenland and Antarctic ice sheets are losing mass at an accelerating pace, according to a new NASA-funded satellite study. The findings of the study -- the longest to date of changes in polar ice sheet mass -- suggest these ice sheets are overtaking ice loss from Earth's mountain glaciers and ice caps to become the dominant contributor to global sea level rise, much sooner than model forecasts have predicted.
The results of the study will be published this month in Geophysical Research Letters, a journal of the American Geophysical Union.

The nearly 20-year study reveals that in 2006, a year in which comparable results for mass loss in mountain glaciers and ice caps are available from a separate study conducted using other methods, the Greenland and Antarctic ice sheets lost a combined mass of 475 gigatonnes a year on average. That's enough to raise global sea level by an average of 1.3 millimeters (.05 inches) a year. (A gigatonne is one billion metric tons, or more than 2.2 trillion pounds.) Ice sheets are defined as being larger than 50,000 square kilometers, or 20,000 square miles, and only exist in Greenland and Antarctica while ice caps are areas smaller than 50,000 square km.

The pace at which the polar ice sheets are losing mass was found to be accelerating rapidly. Each year over the course of the study, the two ice sheets lost a combined average of 36.3 gigatonnes more than they did the year before. In comparison, the 2006 study of mountain glaciers and ice caps estimated their loss at 402 gigatonnes a year on average, with a year-over-year acceleration rate three times smaller than that of the ice sheets.

"That ice sheets will dominate future sea level rise is not surprising -- they hold a lot more ice mass than mountain glaciers," said lead author Eric Rignot, of NASA's Jet Propulsion Laboratory, Pasadena, California, and the University of California, Irvine. "What is surprising is this increased contribution by the ice sheets is already happening. If present trends continue, sea level is likely to be significantly higher than levels projected by the United Nations Intergovernmental Panel on Climate Change in 2007. Our study helps reduce uncertainties in near-term projections of sea level rise."

Rignot's team combined nearly two decades (1992-2009) of monthly satellite measurements with advanced regional atmospheric climate model data to examine changes in ice sheet mass and trends in acceleration of ice loss.

The study compared two independent measurement techniques. The first characterized the difference between two sets of data: interferometric synthetic aperture radar data from European, Canadian and Japanese satellites and radio echo soundings, which were used to measure ice exiting the ice sheets; and regional atmospheric climate model data from Utrecht University, The Netherlands, used to quantify ice being added to the ice sheets. The other technique used eight years of data from the NASA/German Aerospace Center's Gravity Recovery and Climate Experiment (Grace) satellites, which track minute changes in Earth's gravity field due to changes in Earth's mass distribution, including ice movement.

The team reconciled the differences between techniques and found them to be in agreement, both for total amount and rate of mass loss, over their data sets' eight-year overlapping period. This validated the data sets, establishing a consistent record of ice mass changes since 1992.

The team found that for each year over the 18-year study, the Greenland ice sheet lost mass faster than it did the year before, by an average of 21.9 gigatonnes a year. In Antarctica, the year-over-year speedup in ice mass lost averaged 14.5 gigatonnes.

"These are two totally independent techniques, so it is a major achievement that the results agree so well," said co-author Isabella Velicogna, also jointly with JPL and UC Irvine. "It demonstrates the tremendous progress that's being made in estimating how much ice the ice sheets are gaining and losing, and in analyzing Grace's time-variable gravity data."

The authors conclude that, if current ice sheet melting rates continue for the next four decades, their cumulative loss could raise sea level by 15 centimeters (5.9 inches) by 2050. When this is added to the predicted sea level contribution of 8 centimeters (3.1 inches) from glacial ice caps and 9 centimeters (3.5 inches) from ocean thermal expansion, total sea level rise could reach 32 centimeters (12.6 inches). While this provides one indication of the potential contribution ice sheets could make to sea level in the coming century, the authors caution that considerable uncertainties remain in estimating future ice loss acceleration.

Dam-Building Spree in China

From Foreign Policy, an essay discussing the role of hydro-power in China's new five year plan:
Chinese rulers have always seen controlling water as part of their heavenly mandate. During the last 60 years, they have diverted rivers to feed inefficient irrigation systems, abused them as sewage canals for polluting industries, and choked them with more than 20,000 large dams. As a consequence, rivers, lakes, and wetlands have dwindled, fisheries are collapsing, water supplies have become unfit for human consumption, and China's coastal areas are engulfed by toxic algae blooms every summer. Moreover, dams have displaced at least 23 million people, and according to Chinese-American scientists, one particular project, the Zipingpu Dam, likely triggered the devastating earthquake that claimed 80,000 lives in Sichuan in 2008.
In response to the growing water crisis, the Chinese government has successively strengthened its water protection laws and regulations over the past 20 years. Yet the reality has not kept pace with such legal changes. In collusion with local government officials, project developers routinely flout environmental protection measures when they impinge on economic growth. Jiang Gaoming, a professor of botany at the Chinese Academy of Sciences, has charged that environmental impact assessments for hydropower projects have become a "marginalized and decorative process, seen as just a part of the cost of doing business." In recent years, construction projects started at several large dams on the Yangtze River even though their impact assessments had not yet been approved. And this year, a government body simply redrew the boundaries of a vitally important fish reserve on the same river to allow a midsize hydropower project to go forward. The decision may sound the death knell for the majestic Yangtze sturgeon and other migrating fish species. According to an official of the local environmental protection bureau, the dam was necessary "for the sake of economic growth."

The technical and engineering solutions that the new five-year plan proposes will not bring relief for China's freshwater resources. For instance, China's National Energy Administration has already announced that new hydropower projects, which it considers a source of green energy, will be approved to the tune of 140 gigawatts under the new plan. (In comparison, the United States has installed just 80 gigawatts of hydropower capacity in its entire history.) If the dam projects go forward, they will destroy areas that even the government has called "epicenter[s] of Chinese biodiversity." In addition, many dams are scheduled to be built on the earthquake-prone fault lines that mark the collision of the Indian and Eurasian plates.

The Chinese government hopes that the massive expansion of hydropower will allow it to sustain rapid economic growth while it gradually shifts away from fossil fuels. Yet the country already pays a high price for the collapse of its freshwater ecosystems. Its dams have destroyed and degraded freshwater resources on which hundreds of millions of people depend. Around the world, rivers, lakes, and wetlands have undergone more dramatic changes than any other type of ecosystem. The U.N. Environment Program warns that "natural systems that support economies, lives and livelihoods across the planet are at risk of rapid degradation and collapse" and that it would be arrogant to "imagine we can get by without biodiversity." If China's unprecedented dam-building spree is approved by the National People's Congress, it will undermine the foundations of the country's long-term prosperity.

China's new five-year plan essentially proposes to sacrifice the country's arteries to save its lungs. This impasse illustrates that China will not be able to engineer its way out of a mounting environmental crisis. . . .

The Next Oil Giant

From Fortune, a big story on the Brazilian oil industry:
Since BP's (BP) disastrous Deepwater Horizon accident in the Gulf of Mexico last April, the risks of offshore oil drilling have been a hot topic. One place it isn't questioned much is Brazil, whose oil production industry is one of the fastest-growing in the world because of vast new deepwater oil reservoirs discovered in the past five years. The largest finds are in the Santos Basin, which, at nearly 200 miles off the coast of Rio, is much farther offshore than even Campos. The mega-fields there lie more than three miles below the ocean's surface, underneath a salt layer in the crust of the earth some 6,000 feet thick. The technical and logistical challenges of drilling in these areas are immense.

Together, the so-called pre-salt reserves off the coast of Brazil have been put at 50 billion to 100 billion barrels or more -- potentially a deepwater Kuwait. Vast amounts of money and manpower are being mobilized for what is shaping up to be a historic investment boom. Foreign oil-services companies like Schlumberger, (SLB) Halliburton, (HAL) and GE (GE) are rushing to set up offices. It has been estimated that offshore oil and gas could be as much as a $1 trillion industry for Brazil over the next decade. And as political unrest in the Middle East drives up crude prices, the value of a stable new supply of oil from Brazil is magnified.

The company spearheading all this activity is Petrobras (PBR). By every measure the energy giant is already one of the world's most important corporations -- and it stands to grow vastly more influential. Last year Brazil's biggest corporation ranked No. 54 on Fortune's Global 500 list of the world's largest companies; in its most recent fiscal year revenues jumped 32% to $121 billion. Excluding wholly state-owned oil companies such as Saudi Aramco or NIOC of Iran, Petrobras is the fifth-largest oil company by production (2.15 million barrels a day in 2010) and the third-largest in market capitalization ($240 billion). By the end of the decade, Petrobras is likely to pass Exxon Mobil (XOM) to become the largest publicly traded oil company in reserves and production. It also has the respect of its peers, coming in seventh in its category on this year's list of the Most Admired Companies.

Developing the pre-salt assets is a daunting task. For starters, it will be mind-bogglingly expensive. In its five-year plan through 2014, Petrobras has committed to invest $224 billion, much of it on platforms, rigs, and other infrastructure for pre-salt production. (It's also building five new refineries.) To help fund the effort, last year the company conducted the largest share offering in world history when it sold $70 billion worth of new stock to investors. It plans to sell up to $40 billion in bonds by 2014.

Scrounging up investment capital is only part of the challenge. Critics argue that the government's mandate to make Petrobras the lead operator in the development of all fields in the pre-salt area -- rather than leave it open for bidding from international companies -- puts too much pressure on the company and will prove an inefficient approach to developing the area. It's unclear whether the industry supply chain can grow fast enough to meet the production targets Petrobras has outlined. And there is always the possibility that an offshore accident will throw the whole operation into chaos . . .

For decades Brazil was considered hydrocarbon-poor. The country didn't produce enough crude to meet its own demand -- much less to export -- until five years ago. That's a big reason Brazil developed its sugar-cane ethanol industry. (Virtually every car on the road in the country can run on either gas or ethanol, and pretty much every fueling station offers both. Petrobras is investing $3.5 billion in biofuels through 2014.) Early on, Petrobras took its search for reserves offshore and expanded overseas. While the vast majority of its output today is in Brazil, the company has a presence in 28 other countries, including large-scale operations in the Gulf of Mexico. It produces a quarter of the world's deepwater offshore oil.
The Brazilian oil equation changed in 1997 when the government amended the law to allow foreign oil companies to bid for the right to explore blocks offshore. The competition led to new discoveries. Then improving seismic technology enhanced the ability of the oil companies to "see" through the salt layer in the earth's crust. The first major pre-salt field in the Santos Basin was discovered in 2006.

The industry is keeping a watchful eye on how Petrobras develops those ultra-deepwater fields. "It's the frontier," says David Knapp, chief energy economist for the Energy Intelligence Group in New York, who points out that the geology off the coast of Angola, across the Atlantic from Brazil, is almost identical. "It is seen as a bellwether for potential future development in similar areas at similar depths."

Petrobras has been drilling in the pre-salt fields and has even been producing some oil. But the activity so far has mostly been to verify reserves and get a handle on the technical challenges. There are contaminants in the pre-salt oil that make it highly corrosive, so Petrobras has been working on new alloys for its drilling equipment. And the salt layer is softer than rigid rock, which means that solidifying drilled wells is more difficult and expensive.

Production is expected to ramp up aggressively. The company's strategic plan calls for doubling its total hydrocarbon production rate by the end of the decade, from 2.7 million barrels a day in oil and oil equivalents to 5.4 million. That will require huge investments in infrastructure. "The main constraint we have is the capacity of the supply chain to meet our needs," says Gabrielli.

Consider the company's rig situation. Petrobras has 14 ultra-deepwater drilling rigs -- far short of what it needs. By 2012 it will have added 20 rigs that are now either under construction or being used by other companies. After that there's no supply. The shipyards in Singapore and South Korea that build most of the world's offshore drilling devices are maxed out. So Petrobras is helping create a rig-building industry at home. It is awarding contracts worth a total of about $18 billion to four Brazilian shipyards to supply 28 rigs starting in 2014.

Gabrielli says Petrobras assumes that oil will fluctuate between $65 and $85 a barrel through 2020. To some that estimate might sound low. But the CEO says that he expects strong demand in countries like China, India, and Brazil to be counterbalanced by slower demand in mature markets like the U.S. and Europe. "We don't see why the price is going to be skyrocketing," he says. Gabrielli says the breakeven price for pre-salt oil from the Santos Basin should be $40 a barrel and could go lower as the operations scale up.

Who will buy that oil? It makes sense geographically for the U.S. to be a big customer -- tankers going north from Rio to the petroleum infrastructure of the Gulf Coast don't have to cross an ocean or go through a canal. In 2010 the U.S. purchased about 260,000 barrels a day of petroleum products from Brazil. The Chinese are likely to be aggressive buyers too. Last year China replaced the U.S. as Brazil's biggest trading partner. And in 2009, when credit markets were still tied up, the China Development Bank loaned Petrobras $10 billion in exchange for the right to buy up to 200,000 barrels of oil a day for 10 years at market prices. "They are going to be important customers," says Gabrielli. "The Chinese put a value on the strategic relationship." 

March 5, 2011

China's Oil Dependence

The New York Times reports that China will announce in the next few weeks new five year targets for limiting the growth of energy consumption. In coming years, China is projected to import a greater proportion of its oil than the United States, and it is even now more dependent on the Persian Gulf than the United States. Of course, that's why America is in the Gulf: to protect China's oil imports.

From the Times:
Any energy policy moves by Beijing hold global implications, given that China is the world’s biggest consumer of energy and largest emitter of greenhouse gases. And even the new efficiency goals assume that China’s overall energy consumption will grow, to meet the needs of the nation’s 1.3 billion people and its rapidly expanding economy.

As a net importer of oil, China tends to view its energy needs as a matter of national security. And so, even as Beijing tries to quell any signs of the Arab world’s social unrest striking a political chord with Chinese citizens, the government is also intent on not letting similar upheaval impinge on its energy needs.

Zhang Guobao, who was China’s longtime energy czar until his retirement in January and is still a power broker on energy issues, said Friday that China must undertake an “arduous” task to protect its security. “Oil security is the most important part of achieving energy security,” Mr. Zhang told the official Xinhua news agency. “Preparations for alternative energies should be made as soon as possible.”

China has placed a big bet on renewable energy, emerging as the world’s biggest and lowest-cost manufacturer of wind turbines and solar panels. But the country remains heavily reliant on coal for its electricity. And its oil imports are surging after auto sales have surpassed the American market in each of the last two years.

China has also moved ahead of the United States as the biggest buyer of oil and natural gas from Saudi Arabia, which has so far avoided social upheaval but is on Mideast analysts’ watch lists. That oil is shipped in tankers that travel along sea lanes controlled by India and the United States, which adds to Beijing’s jitters.

Iran, hardly a bastion of stability, is another large supplier of crude oil to China. . . .

An important feature of the five-year plan is its call to double the share of natural gas in Chinese energy consumption, to 8 percent in 2015 from 4 percent last year . . .

As part of its effort to curb oil demand, the Chinese government has already been pursuing an aggressive program to develop electric cars, although these would run at least initially on a national grid that still relies heavily on coal.

China aims to limit energy consumption in 2015 to four billion metric tons of coal or its equivalent in other fuels . . .

Meeting the new target of no more than four billion metric tons of coal or its equivalent will require further improvements in efficiency if the economy expands 7 percent a year in the coming years.  
Much greater efficiency gains would be needed if the economy grows even faster, as most economists predict. The Chinese economy expanded 10.3 percent last year. . . .

Mr. Zhang and other Chinese officials have made little mention of climate change, which has ranked far behind energy security as a priority in Chinese policy making.

When Oil Doubles, Watch Out Below

David Rosenberg, the (of late) very bearish economist, on the correlation between sharp increases in oil prices and recessions. Is the doubling in the oil price a game-changer, he asks?
Well, there have been only five times in the past 70 years when this has happened within a two-year time frame: January 1974, November 1979, September 1990, June 2000, and August 2005. And now, December 2010.

Each period had its own particular spark. The first three were supply shocks and the last two (before the latest round) reflected burgeoning demand growth, which ultimately acted as a break on the economy.

It is worth noting that the oil price doubled this time around in December, before any turbulence in the Middle East or North Africa, and broadly reflected the physical demand/supply balance globally in crude. There was perhaps some impetus from QE2 as the oil price was around $75/bbl in August and closed the year closer to $90/bbl. Since that time, oil prices have jumped around 10% and that has occurred amidst the supply concerns emanating from the political turmoil overseas. Either way, the longer the oil price stays elevated, the more lasting damage it will inflict on the global economy, primarily the countries that are large net importers of energy.

Of the five instances cited above, all but one involved a recession for the U.S. economy and that was in 2005 during the height of the credit and housing boom, which acted as a huge offset. But oil prices did keep rising and managed to outlast the euphoria in credit and residential real estate, so the recession may have been delayed at the peak of the ‘growth rate’ in the oil price, but it was not derailed as history shows.

Without resorting towards definitions of what constitutes a recession, what has happened 100% of the time in the past is that a year after the month in which the oil price doubles, the economy slows down and does so precipitously. Using year-on-year real GDP growth as the yardstick, the economy slowed an average of 2.3 percentage points; the range was 0.9 to 4.4ppts; and a median of 2ppts. The starting point in Q4 of last year was +2.7% and so you can imagine what a 2-plus percentage point haircut would do to the economic and earnings landscape. Keep in mind that all it took was a moderation to 1.7% growth in the second quarter of last year to induce a near 20% correction in the U.S. stock market and some deeply rooted double-dip fears.

March 4, 2011

China Builds a Strategic Petroleum Reserve

From the FT, "Asia Moves to Shore Up Strategic Oil Reserves"
China is the world’s second-largest oil importer after the US. India is the world’s fifth-largest, ahead of countries such as South Korea, France and the UK. But the pair lack a strategic petroleum reserve that can be tapped during a supply crisis similar in size and scope to the ones held by western countries.

Analysts believe the political upheaval in the Middle East and north Africa is likely to encourage both China and India to accelerate their purchases of crude for strategic reserves.

If so, the extra demand could tighten further global oil markets, testing the limits of spare production capacity among members of the Opec cartel.

Unlike industrialised countries, which built up their stockpiles three decades ago in the wake of the 1973 oil crisis, China only recently began its strategic reserve programme, starting to fill reserves in 2006 and completing a 102m barrel build-out in “Phase One” two years later.

The second phase of the programme will build a further 168m barrels of reserves by the beginning of next year.

When China finishes filling its reserve, which it is expected to do by 2020, it will hold about 500m barrels, equal to roughly three months of imports and the second-largest stockpile in the world.

China’s strategic stockpiling “is likely to be a feature of the global oil market not only this year but this decade”, says Soozhana Choi, head of Asia commodities research at Deutsche Bank in Singapore. . .

Over the past decade, China has grown more and more dependent on crude imports and currently buys more than half its oil overseas. In 2003, when the oil market experienced its previous geopolitical supply shock during the US-led invasion of Iraq, Beijing was importing about a third of its oil from overseas.

India is some way behind China. The country is targeting a reserve of about 40m barrels, equal to little more than two weeks of imports, by the end of 2012.
So far, it has only filled depots holding 9.8m barrels of crude. If India were to create a reserve similar in size as a share of oil imports to those of China, the US, Japan or Europe, it would need at least 200m-250m barrels of oil.

The high cost of oil, trading on Wednesday at $117 a barrel, is likely to slow down India’s plans, analysts say. That same thinking may yet apply to China.

“We are not willing to import too much at high prices. We want to buy when the price falls,” says Wang Jun, a scholar at the Chinese government-linked think-tank CCIEE.

But Mr Wang acknowledged, in a recent monograph, that China’s vulnerability to oil supply shocks was exacerbated by the lack of a complete strategic reserve: “Chinese dependence on imported oil for the purpose of ensuring normal economic and social functioning has become the speculation capital of international oil traders.”

Shale Gas in Europe

From Ben Schiller, at Yale Environment360:
Across Europe, a host of energy companies are exploring for unconventional deposits in what some are comparing to the great oil and gas rushes of the past. Exxon Mobil has bought up concessions in Germany and Poland. Shell is active in Sweden and Ukraine. Chevron is in Poland. Total is in Denmark and France. And Cuadrilla is also exploring in the Netherlands and the Czech Republic.

Though skeptical not long ago, the industry now is increasingly confident about the size of reserves in Europe, where shale deposits underlie most of the European Union’s 27 states. “It’s gone from people saying, ‘You’re crazy, why are you moving to Poland?’ to ‘Oh, that is the hottest play in Europe,’” says John Buggenhagen, head of exploration at Dublin-based San Leon Energy, which has several concessions in Poland.

According to the International Energy Agency, Europe could hold 35 trillion cubic meters (tcm) of so-called “unconventional gas,” which is dispersed in various rock formations rather than in reservoirs. Europe’s total current demand is roughly 580 billion cubic meters annually.

As the industry takes off, however, critics are raising flags about the environmental ramifications, especially at a time when Europe is supposed to be shifting to a more sustainable energy portfolio. The concerns center mainly on natural gas trapped in shale formations and a controversial technique widely used in the United States — hydraulic fracturing, or “fracking.” . . .

The question in Europe is whether the problems in the U.S. are a result of a particular regulatory regime (or lack of one) or whether large-scale shale gas development can be done safely given proper oversight. . . .
For now, the British government is allowing exploration to proceed. In its submission to the inquiry, the Department of Energy and Climate Change says the “safety risks and hazards associated with drilling for shale gas should be no more onerous than those associated with drilling for any other hydrocarbons by a borehole.” . . .
Chief executive Mark Miller says Cuadrilla is avoiding many of the chemicals used in U.S. production, some of which would undoubtedly be illegal on European soil. He blames Halliburton, which developed fracking in 1949 as a way of extending the life of conventional gas wells, for failing to disclose toxic substances in its fracking fluids, and thus giving the rest of the industry a bad name. As for evidence of water contamination, Miller says the cases are either unproven, or the result of poor drilling practices. . . .

Despite the efforts of firms like Cuadrilla to assure the public, however, the exploration boom is sparking protests in several countries, notably in France and Germany, foreshadowing what developers could be up against in coming years. Earlier this month, the French Ministry of Ecology called a halt to shale gas drilling throughout the country while it assesses the environmental issues. Its report is due in June.

Other governments are more supportive. Ahead of a EU Energy Summit this month, Poland inserted language into the official declaration calling for unconventional gas development. Poland is keen to reduce its dependence on Russian supplies, which currently account for two-thirds of its demand. And over the last three years, Poland has granted 79 concessions, becoming a magnet for energy executives and geologists from around the world.

Ewa Zalewska, director of geology at Poland’s Ministry of the Environment, says Polish shale gas is “the gold rush of the 21st century,” while other officials have spoken of Poland as the “next Norway” and a future “energy super-power.” Poland’s reserves are estimated at 1.4 trillion to 3 trillion cubic meters. And the government is working closely with the U.S., signing on to the U.S. State Department’s Global Shale Gas Initiative, which aims to “help countries seeking to utilize their unconventional natural gas resources.”

Several factors make Poland attractive to foreign energy firms, according to Grzegorz Pytel, energy expert at the Sobieski Institute, a think tank in Warsaw. Under current regulations, producers pay only a 1 percent tax on the volume of hydrocarbons produced, plus a 19-percent corporation tax— both low rates by international standards. Also, concession contracts are for longer periods of time than in other countries and cover larger geographical areas.

The largely unanswered question, though, is how producers are going to sell the gas once it is extracted, Pytel says. Polish demand is 14 billion cubic meters a year a year, with 10 billion of that coming from Russia’s Gazprom. To export excess natural gas produced in Poland, Pytel says Polish gas companies will probably have to strike a deal with Russia, which effectively controls pipelines running through Poland.

Andrzej Kassenberg, president of the Warsaw-based Institute for Sustainable Development, says shale gas could help reduce Poland’s need for coal-derived electricity (currently 92 percent of production) and serve as a “transition” energy source on the way to a more renewable future. But he is concerned that shale gas drilling could spoil the landscape and exacerbate water shortages in some areas. “There are going to be thousands of drilling towers and lots of new roads and pipelines, and that could cause social problems,” says Kassenberg.

The idea of shale gas as a transitional energy source is contentious, chiefly because of the time it takes to develop shale gas resources and build gas-fired power stations. A study by Florence Gény, a research fellow at the Oxford Institute for Energy Studies, finds that Europe will not see “significant” levels of shale gas production before 2020. In other words, if shale gas is to be transitional, it will be in the next decade rather than this one.

March 3, 2011

Saudi Stocks Sink

From Ambrose Evans-Pritchard, never to shy away from worst-case analysis:
Saudi Arabia’s Tadawul stock index has tumbled 11pc in wild trading over the past two days, led by banks and insurers. Dubai’s bourse has hit a 7-year low.
The latest sell-off was triggered by the arrest of a Shi’ite cleric in the Kingdom’s Eastern Province after he called for democratic reforms and a constitutional monarchy. The province is home to Saudi Arabia’s aggrieved Shi’ite minority and also holds the country’s vast Ghawar oilfield, placing it at the epicentre of global crude supply.

“Unrest in this region can have fatal consequences for the world,” said JBC Energy. “The plunge on the Saudi stock exchange can be interpreted as a sign of waning trust.”

In Bahrain, the island nation’s Sunni elite holds sway over a Shi’ite majority that is denied key jobs and has a token political voice, making it a trial run for Saudi Arabia’s near-identical tensions in the Eastern Province.

Bahraini dissidents have so far been much bolder, prompting a bloody crackdown last month when at least seven people were shot by the military. The ruling family – under intense pressure from Washington to stop the killings – has since held out an olive branch to protesters and let the radical Haq leader Hassan Mushaima return from exile, yet the crisis is far from contained.

My Mushaima said on Wednesday that protesters have “the right to appeal for help from Iran” if Saudi military units interfere in the struggle. Tanks were seen crossing the 17-mile causeway from Saudi Arabia to Bahrain on Tuesday.

“These were supposed to be Bahrain’s tanks returning from Kuwait: that is not a credible story,” said Siras Abi Ali, a Gulf expert at the risk group Exclusive Analysis.

He said the outcome in Bahrain will set the template for events across the border. “There is no good outcome from this for Saudi Arabia. If Bahrain offers concessions, the Saudi Shia will demand similar concessions. If they crack down, they risk an uprising. These people do not want to live under the House of Saud,” he said.

Saudi activists have called on Facebook for a “Day of Rage” on March 11, despite the penalty of lashing for street protest. A similar call to arms in Syria fizzled because people were frightened, and the security forces nipped it in the bud. “We will be watching closely to see how many people turn up, and how far their demands go,” said Mr Abi Ali. . . .

Whatever the hopes in the West, Mr Abi Ali said the Mid-East is now in the vortex of multiple uprisings that will create turmoil for years and destabilise oil supply for a long time. “The Arab world is not going to start behaving like the Swiss,” he said. . . .
There is a raging debate over whether the Saudi oil giant Aramco can raise output by 3m bpd if needed, as claimed. While two new fields have come on stream adding 2m bpd since the 2008 oil shock, “attrition” on old fields has offset much of this. “We think they’re close to full capacity,” said one analyst.
Global spare capacity may in reality be less than 4m bpd, and perhaps as low as 2m. Meanwhile, oil demand from China alone rose by 850m bpd last year.
Here's a six month chart of the Saudi stock market from Bloomberg, followed by a five year view:

Among the Wikileaks releases are US cables from Saudi Arabia reporting the system of payments by which the rich get richer. Here an extract from a much longer story from Reuters:
When Saudi King Abdullah arrived home last week, he came bearing gifts: handouts worth $37 billion, apparently intended to placate Saudis of modest means and insulate the world's biggest oil exporter from the wave of protest sweeping the Arab world.

But some of the biggest handouts over the past two decades have gone to his own extended family, according to unpublished American diplomatic cables dating back to 1996.

The cables, obtained by WikiLeaks and reviewed by Reuters, provide remarkable insight into how much the vast royal welfare program has cost the country -- not just financially but in terms of undermining social cohesion.

Besides the huge monthly stipends that every Saudi royal receives, the cables detail various money-making schemes some royals have used to finance their lavish lifestyles over the years. Among them: siphoning off money from "off-budget" programs controlled by senior princes, sponsoring expatriate workers who then pay a small monthly fee to their royal patron and, simply, "borrowing from the banks, and not paying them back."

As long ago as 1996, U.S. officials noted that such unrestrained behavior could fuel a backlash against the Saudi elite. In the assessment of the U.S. embassy in Riyadh in a cable from that year, "of the priority issues the country faces, getting a grip on royal family excesses is at the top."

A 2007 cable showed that King Abdullah has made changes since taking the throne six years ago, but recent turmoil in the Middle East underlines the deep-seated resentment about economic disparities and corruption in the region.

March 2, 2011

Iraq's Potential

From the Wall Street Journal, March 1, 2011:
Right now, Iraq produces about 2.7 million barrels a day, or just 3% of global supply. But its growth potential is enormous. The International Energy Agency puts Iraq second only to Saudi Arabia in terms of increased oil output by 2035, with Iraq producing another 4.3 million barrels a day by then.

That may be conservative. Contracts awarded to foreign oil companies aim to boost Iraqi output from existing fields to more than 11 million barrels daily. Even if that is too ambitious, consultancy JBC Energy expects output to hit almost eight million daily barrels by 2020, 67% higher than the IEA's forecast for that year. In contrast, the IEA saw Libyan output remaining flat even before the current crisis began.