The Oil Drum: Europe

[With Centrica and EDF announcing hefty retail gas price increases in the UK this week, I thought it was worth reposting this story that was first published in December 2007. The follow on story Daddy will the lights be on at Christmas?, is perhaps more pertinent this year than last.]

OECD European gas production looks set to peak in 2008. After that, falling production combined with rising demand will see OECD European gas imports wanting to rise from current 197 BCM per annum to 442 BCM per annum by 2020. Where will this gas come from and how will rising European imports affect N America and the rest of the world?

Figure 1 OECD Europe gas production and conceptual forecast. Click all charts to enlarge

On the heels of this weekend's Saudi Oil summit, Nigerian production has dropped to the lowest level in 25 years. This was in part because militant attacks shut in as much as 345,000 barrels per day of Nigerian production in the past few days. The Nigerian militant group MEND (Movement for the Emancipation of the Niger Delta) has demonstrated a continuing ability to interrupt production from Nigeria's mature, onshore fields. However, the future promise of Nigerian oil is not onshore. Rather, it is the 1.25 million barrels per day of offshore production scheduled to come on line in the next 6 years. Analysts previously believed these offshore facilities were out of MEND's reach.

This assumption--that far offshore facilities are beyond the reach of militants--must now be reconsidered. The week's most successful attack, shutting in 225,000 barrels per day, came against Shell's Bonga facility. At 120 km offshore, the Bonga attack demonstrated a new militant capability in the offshore environment. As Nigeria is one of the few states with the geological potential to significantly increase oil production and exports, the Bonga attack may prove to be an extremely important development.

Shell’s $3.6 billion “Bonga” Floating Production, Storage, and Offloading vessel (FPSO), 120km from shore in 1000m deep water, was recently attacked by MEND militants.

This is a guest post by John Robb. John is an author, an entrepreneur, a blogger at Global Guerrillas, and a former USAF pilot in special operations. His book, Brave New War was published in April 2007 by Wiley, which can be purchased here. The book apparently is influential, since Robb was named one of the "Best and Brightest" by Esquire Magazine and invited to speak at a plethora of venues (the DoD, CIA, NSA, NIC, Highlands Forum, Center for Biosecurity, and many more). The book is also being used in universities from the Naval Post Graduate School to Johns Hopkins.

The run-up in oil prices over the last four years is usually framed, likely correctly, as a combination of torrential demand from developing countries (China and India), speculation, and peak supply. Other analysis indicates that production is also being damaged due to NOC mismanagement, political instability, and rapid increases in domestic consumption within oil exporting countries.

However, the rapidity and volatility of current oil prices may be due to a more narrow set of factors surrounding the production of light sweet crude: the comparative quality and scarcity of light sweet crude, world demand, and guerrilla systems disruption.

OECD European gas production looks set to peak in 2008. After that, falling production combined with rising demand will see OECD European gas imports wanting to rise from current 197 BCM per annum to 442 BCM per annum by 2020. Where will this gas come from and how will rising European imports affect N America and the rest of the world?

Figure 1 OECD Europe gas production and conceptual forecast. Click all charts to enlarge

This story was originally posted 3/11/2007, here is a link to the original if you would like to see the old comment thread.

When a fire becomes sufficiently intense, its heat creates a rising column of air so strong that surrounding air is drawn into the void, creating a draft that sustains and intensifies the fire. It becomes a self-sustaining, self-intensifying organism: a firestorm. The violence in Nigeria’s delta region has become a firestorm, and the consequences of this transformation will fundamentally impact that nation’s ability to export oil. Recent events in the delta region have transitioned the violence there from a negative-feedback loop where there was a disincentive to militants to shut in too high a portion of Nigeria’s oil exports to a positive-feedback loop where militants will compete to completely destroy Nigeria’s capacity to export oil.

Figure 1: Nigerian Militants in a Speedboat

Oil prices recently passed $69/barrel in New York (and above $72/barrel for Brent) over fears that a looming general strike in Nigeria will exacerbate already tight oil supplies.

The “indefinite strike” is scheduled to start Wednesday, June 20th, and will include both major union groups in the country. The prospect of a strike successfully shutting down Nigeria’s remaining oil exports is rightly driving world markets, but what is the relationship between this strike and the background of violence and attacks in the Niger Delta? Buried below headlines of the looming strike, this week saw two significant attacks: one on a Chevron facility that cut 42,000 barrels of oil production, and a separate takeover of an ENI facility taking 27 people hostage and cutting 40,000 barrels of production.

When a fire becomes sufficiently intense, its heat creates a rising column of air so strong that surrounding air is drawn into the void, creating a draft that sustains and intensifies the fire. It becomes a self-sustaining, self-intensifying organism: a firestorm. The violence in Nigeria’s delta region has become a firestorm, and the consequences of this transformation will fundamentally impact that nation’s ability to export oil. Recent events in the delta region have transitioned the violence there from a negative-feedback loop where there was a disincentive to militants to shut in too high a portion of Nigeria’s oil exports to a positive-feedback loop where militants will compete to completely destroy Nigeria’s capacity to export oil.

Figure 1: Nigerian Militants in a Speedboat

As we start off 2007, it seemed helpful to list the oil producing countries that Oil Drum readers might keep an eye on, both in this and future years. Often, the global production curve is presented in an undifferentiated way or is divided between OPEC and non-OPEC countries (as with the EIA). Other standard data sources such as the IEA, BP, Oil & Gas Journal, etc. usually break out production by region.

Taking a different approach, I decided to single out those countries that have made significant production increases in recent years — defined as any producer nation that has contributed an additional 0.5% to the current global liquids supply from fossil fuels (crude oil, condensates + natural gas liquids) since the year 2000. The result is shown in Figure 1.

Countries contributing at least a 0.5% increase since 2000 in world production of liquids fromfossil fuels (grey) versus the rest of world (blue). Does not include CTL or GTL. Data from BP — Figure 1

Will these difference makers deliver us from the turbulence & chaos of economic contraction and provide peak oil salvation?

Bless my socks! I had popped the Hel post into the hopper a couple of weeks ago, when I left, and am now back, although still trying to catch up on the information that was posted while I was away. One thing that has struck me, which related to the last post, has been the speed with which wind seems to be catching on as an alternate energy source. The NYT had a piece on the growth in India and China this past week (but since I was traveling I failed to tag it). And turbines are appearing when least expected, showing that the investment is now considered worthwhile.

By the same token, while driving around Poland we were, at least once, carried in a car powered by gas, and these are fairly common, though when our host said two million such, I am not sure if he was correct on the decimal point.

I listened to the recent interview with Matt Simmons and am not sure that I completely agree with one point that he made. In talking about production, he suggested that we had (as Khebab pointed out) reached a point where there has been some slight decline in production over the past months, and that this might signify that we have passed the peak.

A news imbalance exists in the reporting of supply-side developments affecting peak oil claims. Apparently, there is nothing but good news lately—actually, this is being reported as the absence of bad news. This trend has driven down oil prices since early August. Is the trend real? Today, Barrie McKenna reminds us in Those quick to deride peak oil theory also don't know Jack about the bigger picture.

A chronic pitfall for economists is that the daily deluge of data often obscures more meaningful long-term trends...

It's that old adage of not seeing the forest for the trees...

With oil now in the low $60 range, many economists are rethinking their assumptions of last year...

The problem in all this is that the peak oil theory isn't about $78-a-barrel oil. And the price of abundance isn't necessarily $63.

Let's look briefly at the forest, not the trees. There's plenty of bad news.