Tag Archives: oil industry

The Unquenchable Thirst for Oil

Demand for oil is rising and the energy industry, in America and globally, is planning multi-trillion-dollar investments to satisfy it. No firm embodies this strategy better than ExxonMobil, the giant that rivals admire and green activists love to hate. As our briefing explains, it plans to pump 25% more oil and gas in 2025 than in 2017. If the rest of the industry pursues even modest growth, the consequence for the climate could be disastrous.

To date politicians, particularly in America, have been reluctant to legislate for bold restrictions on carbon. That is in part thanks to ExxonMobil’s attempts to obstruct efforts to mitigate climate change. …ExxonMobil’s policies on climate change remain marred by inconsistencies. In October the company said it was giving $1m, spread over two years, to a group advocating a carbon tax. ExxonMobil maintains that a carbon tax is a transparent and fair way to limit emissions. But the sum is less than a tenth of its federal lobbying spending in 2018. Moreover, the carbon tax it favours would include protection for oil companies from climate lawsuits.

The firm is also working to reduce leaks of methane, a powerful greenhouse gas, from its wells, pipelines and refineries. However the American Petroleum Institute  (API) has been a main force urging Mr Trump’s administration to ease regulations on methane emissions. The API’s other efforts include lobbying against incentives for electric cars.  ExxonMobil is not alone in trying to sway the climate debate in its direction either. Shell, Total and BP are all members of the API. Marathon Petroleum, a refiner, reportedly campaigned to ease Barack Obama’s fuel-economy standards. BP spent $13m to help block a proposal for a carbon tax in Washington state in November. The Western States Petroleum Association, whose membership includes ExxonMobil and Shell, also lobbied to defeat that tax.

While oil companies plan to grow, trends in cleaner energy are moving in the wrong direction. Investments in renewables fell as a share of the total in 2017 for the first time in three years, as spending on oil and gas climbed. In 2018 carbon emissions in America grew by 3.4% as economic activity picked up, even as coal fell out of favour. Mr Woods maintains that any change to the energy supply will be gradual. “I don’t think people can readily understand just how large the energy system is, and the size of that energy system will take time to evolve,” he argues… Out at sea, ExxonMobil is working to increase production. By next year an underwater web of pipes will connect wells on the seabed to a vast vessel. From there the oil will be transferred to smaller tankers, then to the vast infrastructure that can refine and transport it until it reaches consumers in the form of fertiliser, plastic bottles, polyester or, most likely, petrol. From beneath the ocean floor to your car’s tank, for about the price of a gallon of milk.

Excerpts from  Crude Awakening, Economist,  Feb. 9, 2019; Bigger Oil, Economist,  Feb. 9, 2019

Global Oil Chokepoints and War in Yemen

Fighters from Yemen’s Houthi militia entered  on March 31, 2015 a coastal military base overlooking the Red Sea’s strategic Bab el-Mandeb strait, local officials told Reuters.  Soldiers of the 17th Armored Division in the Dabab district in Yemen’s southwestern Taiz province opened the gates to the Houthis, whose military advance has been challenged by six days of Saudi-led air strikes. This means that Houthi rebels have a foothold along one of the world’s crucial oil chokepoints.    According to the US Energy Information Administration’s (EIA) fact-sheet on global oil chokepoints, 3.8 million barrels of oil and “refined petroleum products” passed through the Bab el-Mandeb each day on its way to Europe, Asia, and the US, making it the world’s fourth-busiest chokepoint.  The strait controls access to multiple oil terminals and to a oil pipeline co-owned by state companies from Egypt, Saudi Arabia, the United Arab Emirates and Qatar that transits oil between the Red Sea and the Mediterranean Sea, called the Suez-Mediterranean or SUMED pipeline.  The Bab el-Mandeb is 18 miles wide at its narrowest point, “limiting tanker traffic to two 2-mile-wide channels for inbound and outbound shipments,” according to the Energy Information Administration.

“Closure of the Bab el-Mandeb could keep tankers from the Persian Gulf from reaching the Suez Canal or SUMED Pipeline, diverting them around the southern tip of Africa, adding to transit time and cost,” the EIA fact-sheet explains. “In addition, European and North African southbound oil flows could no longer take the most direct route to Asian markets via the Suez Canal and Bab el-Mandeb.”

Recent events in Yemen, where a Saudi-led Arab military coalition is fighting to restore president Abd Rabbu Mansur Hadi against an Iranian-backed insurgent movement, have already jolted global oil prices.

Excerpt from ARMIN ROSEN,  Iran-backed Houthi militants in Yemen just captured a military base along one of the world’s major oil lanes, Reuters, Mar. 31, 2015

More from wikipedia: On February 22, 2008, it was revealed that a company owned by Tarek bin Laden is planning to build a bridge  across the Bab el-Mandeb strait, linking Yemen with Djibouti.  Middle East Development LLC, a Dubai company owned by Tarek bin Laden, would build the bridge. The project has been assigned to engineering company COWI in collaboration with architect studio Dissing+Weitling, both from Denmark.

Oil Shale: Costs and Benefits

[A] second shale revolution is in prospect, in which cleaner and more efficient ways are being found to squeeze the oil and gas out of the stone. The Jordanian government said on June 12th that it had reached agreement with Enefit, an Estonian company, and its partners on a $2.1 billion contract to build a 540MW shale-fuelled power station. Frustratingly for Jordan, as it eyes its rich, oil-drenched Gulf neighbours, the country sits on the world’s fifth-largest oil-shale reserves but has to import 97% of its energy needs.

In Australia, Queensland Energy Resources, another oil-shale company, has just applied for permission to upgrade its demonstration plant to a commercial scale. Production is expected to start in 2018. Questerre Energy, a Canadian company, also said recently that it would start work on a commercial demonstration project, in Utah in the United States.

In all these projects, the shale is “cooked” cheaply, cleanly and productively in oxygen-free retorts to separate much of the oil and gas. In Enefit’s process the remaining solid is burned to raise steam, which drives a generator. So the process produces electricity, natural gas (a big plus in Estonia, a country otherwise dependent on Russian supplies) and synthetic crude, which can be used to make diesel and aviation fuel. The leftover ash can be used to make cement. Enefit’s chief executive, Sandor Liive, says his plants, the first of which started production in December 2012, should be profitable so long as oil prices stay above $75 a barrel (North Sea Brent oil was around $113 this week).

Although the new methods of exploiting the rock are cleaner than old ones, environmentalists still have plenty to worry about. Oil shale varies hugely in quality. Estonia’s is clean, Jordan’s has a high sulphur content, Utah’s is laden with arsenic. Like opencast coal mining, digging up oil shale scars the landscape. Enefit has solved that in green-minded Estonia, by landscaping and replacing the topsoil. Other countries may be less choosy.

Some of the world’s biggest energy firms have also experimented with mining and processing oil shale, only to give up, after finding that it took so much energy that the sums did not add up. However, Shell says it is making progress with a new method it is trying, also in Jordan, in which the shale is heated underground with an electric current to extract the oil.

These rival technologies have yet to prove their reliability at large scale—and they are far from cheap. Mr Liive reckons it will cost $100m to get a pilot project going in Utah (where his firm has bought a disused oil-shale mine), and another $300m to reach a commercial scale. A fall in the oil price could doom the industry, as happened in the 1980s when a lot of shale mines went out of business…America this week loosened its ban on crude exports. If the second shale revolution succeeds, it will have a lot more oil to sell.

Oil shale: Flaming rocks, Economist, June  28, 2014, at 58

Loans-for-Oil: China and Latin America

China’s demand for commodities has entrenched Latin America’s position as a supplier of raw materials. The country guzzles oil from Venezuela and Ecuador, copper from Chile, soyabeans from Argentina, and iron ore from Brazil—with which it signed a corn-import deal on April 8th.   Chinese lending to the region also has a strong flavour of natural resources. Data are patchy, but according to new figures from the China-Latin America Finance Database, a joint effort between the Inter-American Dialogue, a think-tank, and Boston University, China committed almost $100 billion to Latin America between 2005 and 2013 (see chart). The biggest dollops by far have come from the China Development Bank (CDB). These sums are meaningful. Chinese lenders committed some $15 billion last year; the World Bank $5.2 billion in fiscal year 2013; foreign commercial banks lent an estimated $17 billion.

More than half of China’s lending to Latin America has been swallowed by Venezuela, which pays much of the loan back from the proceeds of long-term oil sales to China. Ecuador has struck similar deals, as has Petrobras, Brazil’s state-controlled oil firm, which negotiated a $10 billion credit line from CDB in 2009.

Such loan-for-oil arrangements suit the Chinese, and not simply because they help secure long-term energy supplies. They also reduce the risk of lending to less creditworthy countries like Venezuela and Argentina. Money from oil sales is deposited in the oil firm’s Chinese account, from where payments can be directly siphoned.  It is no surprise that Chinese money is welcome in places where financial markets are wary. Ecuador, which defaulted on its debts in 2008, has used Chinese loans both to fill in holes in its budget and to re-establish a record of repayment in advance of trying to tap bond markets again.

But Chinese credit has its attractions in other economies, too. It often makes sense for countries to diversify sources of lending. Loans can open the door to direct investment. And as Kevin Gallagher of Boston University points out, the Chinese banks operate in largely different sectors to the multilaterals. Of the money China has lent in the region since 2005, 85% has gone to infrastructure, energy and mining. Borrowers may have to spend a proportion of their loan on Chinese goods in return; some observers worry about the laxer environmental standards of Chinese banks. But the main thing is that money is available. Expect the loan figures to rise.

Chinese lending to Latin America: Flexible friends, Economist,  Apr. 12, 2014, at 27