REPOST: Drilling in the dark

Who will have the permit to explore the bulk of Myanmar's offshore oil and gas reserves? This Economist.com article has the details.

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AFTER a long wait, and several delays, Myanmar’s government will soon announce which companies have won the right to explore the bulk of its offshore oil and gas reserves. The outcome of the bidding for the 19 deep- and 11 shallow-water blocks is one of the most eagerly awaited events in the hydrocarbons industry. The competition attracted almost all the global giants, including Total, Shell, Statoil and Chevron. The winners expect to explore some of the most promising waters left in Asia, and possibly the world.

Just how promising, however, is a subject of intense speculation, and not a little guesswork. Because of the long-running economic sanctions against Myanmar, introduced in the mid-1990s and only relaxed two years ago, almost no work has been done to determine the capacity of the country’s oil and gas fields, so estimates vary widely. The proven energy reserves are modest: 50m barrels of oil and 283 billion cubic metres of natural gas, the latter worth about $75 billion at today’s prices.

It is the unofficial estimates that have lured the Shells and Chevrons. Myanmar Oil and Gas Enterprise, which is state-owned, has put the reserves at 226m barrels of oil and 457 billion cubic metres of gas. Foreign oilmen agree that this could well be true. Those figures would put the Myanmar fields on a par with Britain’s North Sea before it was exploited, or Brazil’s reserves now. They might even underestimate the bounty.

Even by the uncertain standards of the oil industry, therefore, the winners of the bidding process will be drilling in the dark. The way that the contracts are being structured reflects that. Companies awarded deepwater blocks will initially have two years to study and survey them, after which they can walk away if they find nothing worth exploiting. If they think they have found oil or gas, they then have a further three-year exploration period, followed by another three years to start production. The timescale is slightly shorter for the more-manageable shallow-water blocks. Either way, Myanmar is unlikely to see any oil or gas from the offshore fields for at least seven or eight years.

The exact terms of the production-sharing contracts between the government and the winning companies will only be thrashed out after the blocks are awarded, another source of uncertainty. The impecunious and previously reclusive government, anxious to make the most of a possible windfall, is likely to drive a hard bargain. It will probably try to secure 80-85% of total revenues for itself, which is high by international standards. Since only about one-third of Myanmar’s citizens have access to electricity from the mains, the government is also demanding that the country’s domestic needs be met first. Its top priority is to provide fuel for new gas-fired power stations.

All this is not unreasonable. However, there are grounds for worry about the integrity of people involved in the bidding process who are in the government and close to it. The bidding—and its outcome—is being viewed as a test of the quasi-military regime’s commitment to political and economic reform. Is it really turning its back on the crony capitalism of the past, from which the generals profited so handsomely? Outside experts oversaw last year’s auction of mobile-telecoms licences, which was hailed as a model of openness and fairness. The bidding process for the oil and gas licenses, by contrast, is not facing such scrutiny. The risk is that decision-making will be as murky as the depths where Myanmar’s reserves lie.

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REPOST: US surprises market with sale from SPR

Oil prices hit their lowest levels after the news of the test sale of Strategic Petroleum Reserve (SPR) broke out. Is this why the government's holding off the test sale? Read about it from this article.

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The US will hold the first test sale of crude from its emergency oil stockpile - Strategic Petroleum Reserve (SPR) – since 1990, offering a modest 5 million barrels in what some observers saw as a subtle message to Russia from the Obama administration.

The Energy Department said the test sale had been planned for months, timed to meet demand from refiners coming out of annual maintenance cycles. But oil traders noted that Russia’s effort to take over the Crimea region from Ukraine has prompted calls for use of booming US energy resources to relieve dependence on Russian natural gas by Europe and Ukraine.

 

Oil prices dipped to their lowest levels in a month after news of the test sale.

Officials said the release would ensure that oil stored in vast salt caverns could still reach local refiners affected by recent changes in pipeline infrastructure.

“Due to the recent dramatic increase in domestic crude oil production, significant changes in the system have occurred,” department spokesman Bill Gibbons said. The test sale was needed to “appropriately assess the system’s capabilities in the event of a disruption,” he added.

Surging US shale oil production has upended the logistics of US crude markets. Major pipelines that traditionally moved oil from the Gulf to the Midwest have reversed course, moving a glut of shale oil from places like North Dakota to points south.

Analysts say President Barack Obama has been more willing than his predecessors to tap the strategic reserve, noting that he did so in 2011 as part of an international response to civil war in Libya. While that 2011 sale was an emergency release, the Energy Department has said the latest sale is a test of the reserve’s operations. Many questioned whether the US SPR was large enough to send a meaningful political message to Russia, especially since US law still bans most exports of US crude oil. The SPR holds enough oil to cover US crude oil imports for about 80 days.

“It could be a message from Obama that says, ‘Russia, we can impact the price of oil if we want to.’ But I think that’s giving the administration too much credit at this stage,” said Dominick Chirichella, senior partner at Energy Management Institute in New York. Republican lawmakers concerned about Crimea have stepped up calls for the administration to approve natural gas exports more quickly to pressure Moscow. But a dearth of US terminals to export liquefied natural gas (LNG) means significant exports are years away, limiting the immediate use of gas as a geopolitical tool.

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Dr. Ali Ghalambor has more than 30 years of experience in the oil and gas industry. For more about him, and to read more news about the industry, visit this blog site.

REPOST: Ukraine crisis is about Great Power oil, gas pipeline rivalry

Is it about oil and gas? This article from TheGuardian.com discusses the link between the crisis in Ukraine and Russia's and US' intention on controlling energy pipelines in Eurasia.

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Russia's armed intervention in the Crimea undoubtedly illustrates President Putin's ruthless determination to get his way in Ukraine. But less attention has been paid to the role of the United States in interfering in Ukrainian politics and civil society. Both powers are motivated by the desire to ensure that a geostrategically pivotal country with respect to control of critical energy pipeline routes remains in their own sphere of influence.

Much has been made of the reported leak of the recording of an alleged private telephone conversation between US assistant secretary of state Victoria Nuland and US ambassador to Kiev Geoffrey Pyatt. While the focus has been on Nuland's rude language, which has already elicited US apologies, the more important context of this language concerns the US role in liaising with Ukrainian opposition parties with a view, it seems, to manipulate the orientation of the Ukrainian government in accordance with US interests.

Rather than leaving the future of Ukrainian politics "up to the Ukrainian people" as claimed in official announcements, the conversation suggests active US government interference to favour certain opposition leaders:

Nuland: Good. I don't think [opposition leader] Klitsch should go into the government. I don't think it's necessary, I don't think it's a good idea.

Pyatt: Yeah. I guess... in terms of him not going into the government, just let him stay out and do his political homework and stuff. I'm just thinking in terms of sort of the process moving ahead we want to keep the moderate democrats together. The problem is going to be Tyahnybok [Oleh Tyahnybok, the other opposition leader] and his guys and I'm sure that's part of what [President Viktor] Yanukovych is calculating on all this.

Nuland: [Breaks in] I think Yats is the guy who's got the economic experience, the governing experience. He's the... what he needs is Klitsch and Tyahnybok on the outside. He needs to be talking to them four times a week, you know. I just think Klitsch going in... he's going to be at that level working for Yatseniuk, it's just not going to work.

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Nuland: OK. He's [Jeff Feltman, United Nations Under-Secretary-General for Political Affairs] now gotten both [UN official Robert] Serry and [UN Secretary General] Ban Ki-moon to agree that Serry could come in Monday or Tuesday. So that would be great, I think, to help glue this thing and to have the UN help glue it and, you know, Fuck the EU.

Pyatt: No, exactly. And I think we've got to do something to make it stick together because you can be pretty sure that if it does start to gain altitude, that the Russians will be working behind the scenes to try to torpedo it.

As BBC diplomatic correspondent Jonathan Marcus rightly observes, the alleged conversation:

"... suggests that the US has very clear ideas about what the outcome should be and is striving to achieve these goals... Washington clearly has its own game-plan.... [with] various officials attempting to marshal the Ukrainian opposition [and] efforts to get the UN to play an active role in bolstering a deal."

But US efforts to turn the political tide in Ukraine away from Russian influence began much earlier. In 2004, the Bush administration had given$65 million to provide 'democracy training' to opposition leaders and political activists aligned with them, including paying to bring opposition leader Viktor Yushchenko to meet US leaders and help underwrite exit polls indicating he won disputed elections.

This programme has accelerated under Obama. In a speech at the National Press Club in Washington DC last December as Ukraine's Maidan Square clashes escalated, Nuland confirmed that the US had invested in total "over $5 billion" to "ensure a secure and prosperous and democratic Ukraine" - she specifically congratulated the "Euromaidan" movement.

So it would be naive to assume that this magnitude of US support to organisations politically aligned with the Ukrainian opposition played no role in fostering the pro-Euro-Atlantic movement that has ultimately culminated in Russian-backed President Yanukovych's departure.

Indeed, at her 2013 speech, Nuland added:

"Today, there are senior officials in the Ukrainian government, in the business community, as well as in the opposition, civil society, and religious community, who believe in this democratic and European future for their country. And they've been working hard to move their country and their president in the right direction."

What direction might that be? A glimpse of an answer was provided over a decade ago by Professor R. Craig Nation, Director of Russian and Eurasian Studies at the US Army War College's Strategic Studies Institute, in a NATO publication:

"Ukraine is increasingly perceived to be critically situated in the emerging battle to dominate energy transport corridors linking the oil and natural gas reserves of the Caspian basin to European markets... Considerable competition has already emerged over the construction of pipelines. Whether Ukraine will provide alternative routes helping to diversify access, as the West would prefer, or 'find itself forced to play the role of a Russian subsidiary,' remains to be seen."

A more recent US State Department-sponsored report notes that "Ukraine's strategic location between the main energy producers (Russia and the Caspian Sea area) and consumers in the Eurasian region, its large transit network, and its available underground gas storage capacities", make the country "a potentially crucial player in European energy transit" - a position that will "grow as Western European demands for Russian and Caspian gas and oil continue to increase."

Ukraine's overwhelming dependence on Russian energy imports, however, has had "negative implications for US strategy in the region," in particular the strategy of:

"... supporting multiple pipeline routes on the East–West axis as a way of helping promote a more pluralistic system in the region as an alternative to continued Russian hegemony."

But Russia's Gazprom, controlling almost a fifth of the world's gas reserves, supplies more than half of Ukraine's, and about 30% of Europe's gas annually. Just one month before Nuland's speech at the National Press Club, Ukraine signed a $10 billion shale gas deal with US energy giant Chevron "that the ex-Soviet nation hopes could end its energy dependence on Russia by 2020." The agreement would allow "Chevron to explore the Olesky deposit in western Ukraine that Kiev estimates can hold 2.98 trillion cubic meters of gas." Similar deals had been struck already with Shell and ExxonMobil.

The move coincided with Ukraine's efforts to "cement closer relations with the European Union at Russia's expense", through a prospective trade deal that would be a step closer to Ukraine's ambitions to achieve EU integration. But Yanukovych's decision to abandon the EU agreement in favour of Putin's sudden offer of a 30% cheaper gas bill and a $15 billion aid package provoked the protests.

To be sure, the violent rioting was triggered by frustration with Yanukovych's rejection of the EU deal, along with rocketing energy, food and other consumer bills, linked to Ukraine's domestic gas woes and abject dependence on Russia. Police brutality to suppress what began as peaceful demonstrations was the last straw.

But while Russia's imperial aggression is clearly a central factor, the US effort to rollback Russia's sphere of influence in Ukraine by other means in pursuit of its own geopolitical and strategic interests raises awkward questions. As the pipeline map demonstrates, US oil and gas majors like Chevron and Exxon are increasingly encroaching on Gazprom's regional monopoly, undermining Russia's energy hegemony over Europe.

Ukraine is caught hapless in the midst of this accelerating struggle to dominate Eurasia's energy corridors in the last decades of the age offossil fuels.

For those who are pondering whether we face the prospect of a New Cold War, a better question might be - did the Cold War ever really end?

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Scientists examine aerogel technology’s potential for oil and chemical clean-up

Aerogel technology holds great potential to clean up comprehensively oil and chemical spills. If further developed, this advanced technology may even offer a cheaper and a more environment-friendly method to absorb oil and heavy metals from water and other surfaces.

Image Source: hollandfoodpartner.com

These are the conclusions of a group of researchers at the University of Wisconsin-Madison, who recently examined alternative modifiable materials that have the ability to absorb oil and chemicals in water.

Known for their extreme low densities, aerogels are open-celled, mesoporous, solid foam composed of a network of interconnected nanostructures. They are commonly used in a variety of applications such as aerospace construction, paint thickeners, and material insulation.

Image Source: ineffableisland.com

Through their study, the researchers have created a relatively environment-friendly form of aerogel that possesses impressive properties, which include the ability to absorb oil and chemicals without absorbing water. In addition, the new aerogel can absorb up to 100 times its own weight in organic solvents and is reusable in few cycles.

In their report, the researchers stated that the new aerogel technology has one unique property that has superior absorbing ability for organic solvents and metal ions.

Image Source: sciencedaily.com

Due to its positive societal impact, the researchers—Shaoqin Sarah Gong, researcher at the Wisconsin Institute for Discovery (WID); Qifeng Zheng, associate professor of biomedical engineering; and Zhiyong Cai, a project leader at the USDA Forest Products Laboratory in Madison—revealed that they are now eager to share their findings to the scientific community and are working on its possible mass-production.

Dr. Ali Ghalambor is renowned in the energy industry for his remarkable contributions in the oil and gas sector. Learn more about his insights by visiting this blog.

REPOST: Despite Shale, Middle East Remains Key to Oil Demand

Oil production in Middle East is still vital in meeting the demands in Asia. Know more about this news from this Rigzone.com article.

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The U.S. shale revolution has helped reshape the global energy market, but Middle Eastern oil will remain vital for meeting future Asian energy demand, Fatih Birol, chief economist for the International Energy Agency (IEA), told attendees Feb. 21 at an event at Rice University in Houston.

The significant growth that has occurred in recent years in U.S. unconventional oil production surpassed initial estimates by the IEA, which initially forecast that the United States would overtake Saudi Arabia as the world’s largest oil producer in 2017. This shift is now expected to occur next year, according IEA’s 2013 World Energy Outlook.

Despite this growth, Middle East oil will still be needed to meet global oil demand in Asia, said Birol, adding that the IEA’s findings have been misinterpreted.

“This message could have unintended consequences for global oil markets if it continues,” Birol commented.

These consequences include waning investment in Middle East oil development, which will be needed to meet future demand.

The surge in unconventional oil could enable the United States to wean itself off Middle East oil imports or imports altogether while meeting U.S. oil demand.

However, “there is a whole world outside the United States in terms of consumption needs,” Birol commented. “We need to understand that the world beyond the United States will need reasonably priced oil. If we keep sending the wrong signal, we may not have as much oil as we’ll need.”

U.S. shale oil production is expected to keep rising until the 2020s, but will then plateau. A slowdown in production is expected to occur in the following decade. In order to meet global oil demand growth, oil from the Middle East as well as new sources such as Brazil, Canada and Russia, will be needed to satisfy Asia oil demand, Birol said.

Image Source: rigzone.com

SHALE, NUCLEAR POLICIES REWRITING ENERGY PLAY

The shale revolution, changes in nuclear energy policies in a number of countries following Japan’s Fukushima disaster, and specific pricing policies that give advantages or disadvantages to renewables and fossil fuels, are reshaping long-held tenets of the energy sector.

The roles and identities of actors in the global energy sector theater are also changing, with countries such as the United States and Brazil emerging as potential energy exporters. At the same time, some countries that have historically acted as energy exporters are seeing domestic energy demand rising at home, to the point that they are impacting the global energy market as well consumers as well as exporters. Over the past four to five years, consumption of not only oil but other fuels in the Middle East ranked only second behind China, Birol noted.

Trade patterns also are changing for countries such as Canada. In the past, Canadian oil and gas was imported to the United States, but the U.S. shale gas and oil boom has cut into Canadian imports. The Canadian government, in its search for a new market for its resources, has made a huge turn towards Asian countries. Over the past 24 months, Canadian government officials have made a number of visits to Asia.

Russia is also eying Asia as it seeks a new destination for its oil and gas as its previously loyal client Europe looks for new energy resources.

“Countries that can read the changes in trade patterns will be able to position themselves at an advantage,” said Birol.

China, India and the Middle East will also create much of the new demand for oil compared with Organisation of Economic and Cooperative Development (OECD) countries. Oil demand growth will primarily occur in transportation, including personal cars and freight, and the petrochemical industries of these nations, Birol said. IEA forecasts Asian trucks will comprise one-third of global oil demand, due to the anticipated growth in diesel and gasoline demand in Asian countries.

“This is an important signal for the oil companies and refineries,” Birol noted.

Asia and non-OECD countries will play the main actors driving future energy demand growth, while OECD member countries such as the United States, Canada, Europe and Japan will have a negligible role in future demand growth.

IEA successfully forecast the role that China would play in new energy demand growth. However, India may overtake China in this role in the 2020s. Birol attributes this future shift to China’s major focuses on energy efficiency and rebalancing its economy from heavy to light industry, as well the significant slowdown in China’s population growth.

Middle Eastern countries’ consumption of oil will growth in less than 20 years’ time from 6.6 million barrels of oil per day (MMbopd) to 10 MMbopd, or the same level as current Chinese oil consumption. Electric power demand in the region also will grow, with the amount of electric power capacity and transmission and distribution lines on par with capacity in Japan and Korea, Birol noted.

US SHALE REDEFINES ECONOMIC COMPETITIVENESS

The U.S. shale revolution has defined the economic competitiveness of the United States, Europe and other countries in terms of energy-intensive industries. Prior to the shale revolution, global gas prices were more or less on par with each. Today, European gas prices are three times higher than the United States, and Asian gas prices are five times higher than that of the United States.

“We believe the price differential may narrow a bit, but it will remain with us for some years to go,” Birol said.

IEA also forecasts a wide differential to remain between gas and electricity prices for some time.

Lower gas prices mean that energy-intensive industries that are sensitive to higher prices such as petrochemical and iron in the United States have a competitive advantage over countries with higher gas prices. The U.S. and emerging countries will emerge as winners in the new market, while Europe and Japan will be among the losers.

This cost difference between the United States and its economic competitors will remain for some time, and Birol believes this difference could give a strong boost to the United States economy in 2015 through a renaissance of manufacturing and balance of trade.

The United States and other countries should use this time wisely to see how much they can make out of this opportunity.

“Competitiveness is a life and death” problem in Europe, said Birol, noting that not one speech in recent time by a European leader has not touched on competitiveness.

While Europe’s competitiveness has been hurt by the price differential between U.S. and European gas prices, Birol said liquefaction, transportation and regasification costs to bring U.S. gas to other markets makes it impossible that the world will see one gas price anytime soon.

“We may see some increase in U.S. gas prices and some decline in Europe, but the difference will remain for years to come,” Birol noted.

Oil prices will likely continue to trade at the $100 benchmark, barring a major economic downturn in certain parts of world.

Changes that Birol would like to see include a reduction in CO2 emissions, the continued rise of which has put the world on an unsustainable path. With more than two-thirds of emissions that lead to climate change coming from the energy sector, Birol noted that this a trend that needs to change. In many countries – particularly emerging economies in the Middle East and Asia – the consumption of fossil fuels is heavily subsidized.

Birol also would like to see the 1.3 billion people that currently have no access to electricity – mainly in sub-Saharan Africa – to be connected to the world’s electric grid. No electricity means no refrigerators or other electrical appliances commonly found in the homes of developed countries. Given current policies, however, over 1 billion people will still not have access to electric power over the next two decades. 

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Dr. Ali Ghalambor has more than three (3) decades of experience in the oil and gas industry. Know more about him by following this Twitter page.

REPOST: California fracking foes see drought as new weapon in heated battle

Fracking opponents came up with a new argument to stop the development of massive state oil reserves. Read more from this article:

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SAN FRANCISCO, Feb 10 (Reuters) - California fracking opponents aiming to stop development of massive state oil reserves are focusing their drive this year around the state's record-breaking drought, arguing oil production would suck sorely needed water from farms and homes.

California assemblyman Marc Levine told Reuters last week that he will co-author an upcoming bill that would place a moratorium on hydraulic fracturing in the state, and said he will use the drought, which could be the state's worst ever, to bolster his position.

"The drought is a game changer on fracking," Levine said. "We have to decide what our most precious commodity is - water or oil? This is the year to make the case that it's water."

A moratorium bill failed last year on a vote of 37 to 24, although another bill requiring greater disclosure on fracking, including water use, passed.

State Senator Holly Mitchell, Levine's co-sponsor on the bill, is not planning to focus on the drought, but environmentalists already are capitalizing on it, picketing Governor Jerry Brown at events including his announcement of the drought.

"Fracking uses water we just can't spare," said Dan Jacobson, legislative director for environmental lobby group Environment California.

Fracking has created an energy boom in the U.S. and has the potential to drastically increase oil production in California Monterey Shale deposit, which federal officials have estimated holds up to 15 billion gallons of oil, more than most estimates for Alaska's Arctic National Wildlife Refuge and twice the reserves of North Dakota's Bakken shale oil deposit.

Fracking works by injecting pressurized water and some chemicals deep underground to break up rock and release oil and natural gas. Opponents to the practice have mostly centered their arguments around the idea that it could contaminate below-ground drinking water supplies and that the fossil fuels it produces will accelerate climate change.

California does not do much fracking, yet, and it is not clear how much water the oil industry uses for each well.

State figures suggest the whole industry used about as much as 300 households in 2013 - about 300 acre-feet or nearly 1 million gallons, according to the Department of Conservation.

Regulations requiring oil companies to report fracking went into place on Jan. 1, but experts believe it will continue or pick up this year.

The eastern United States has a different geology which allows horizontal drilling that can go for miles underground, using millions gallons of water during a single frack job in a process that may take days or weeks.

In California, much less water is used and the period of pressuring the reservoir rock is much shorter, Department of Conservation chief deputy director Jason Marshall said.

"Hydraulic fracturing in California uses very small amounts of water," said Dave Quast California Director for Energy Indepth, an oil industry-backed group. "However, oil producers are very sensitive to the competing demands for water resources and will make whatever adjustments are necessary to adapt to drought conditions."

Environmentalists say state figures are based on voluntary submission and not are verified. "We just don't how much water fracking has used or will use," said Zack Malitz of San Francisco-based progressive group Credo, whose group has helped organize dozens of rallies against fracking in California.

In any case, the industry would have to increase fracking and water use substantially to develop the shale oil in a significant way.

Governor Brown opposed a moratorium on fracking last year, arguing it was best for California to produce the oil it uses, and his spokesman Evan Westrup declined to comment on whether the drought had changed the governor's mind.

Environmentalists concede that getting the bill through the state legislature this year will be difficult given the wide margin it failed by in the state Assembly last year, but they plan to keep pressing the issue.

"If Governor Brown wants to be a climate leader, he is going to have to walk the walk and stop fracking in California, which would dramatically increase carbon pollution and lead to more severe droughts," said Credo's Malitz.

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Gas shortages amid the natural gas boom: What went wrong?

Some people may be going through one of the coldest winters ever, which may be caused not just by weather conditions. In many parts of the country, natural gas shortages have emerged due to the high demand. As a result, some customers have been asked to power down whenever possible out of fear that there may not be enough gas in power plants.

Image Source: specialevents.com

The shortage may come as a surprise to many because previous updates from the energy industry have highlighted abundance in natural gas. Even Texas, the largest producer of natural gas, has been reported to have issued a state of emergency. Amid the shortages in many states, one has to wonder what went wrong in the nation’s energy resources.

Image Source: processingmagazine.com

Experts note that the shortage is not just about the supply. There is plenty of natural gas in the giant fields of Texas, Pennsylvania, and Louisiana. The problem, however, is that the resources are not being distributed effectively to the places that need them most.

Image Source: usnews.com

Another problem is that with the advent of the natural gas boom, the country seems to have too abruptly dropped its reliance on fossil fuels. While the high supply makes the shift to natural gas sustainable, significant drops in the use of coal to generate power in plants may severely affect areas that natural gas supplies don’t reach.

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