Comment: In last Sunday’s (12^th Aug) ODAC News, the first and main item was about the crisis that has hit the global financial markets. It has been several months, arguably years, coming, but Thursday 9^th Aug stood out because the European Central Bank pumped 95 billion Euros into the European financial institutions, apparently to prevent several of them from sinking. Some commentators in the press are alluding to the crash of ’29. There are a lot of similarities. In any case, it looks like we will not know how bad the knock-on effects of the subprime scam will be until well into next year, due to the complexities of the subprime derivatives involved. Therefore, any comments or headlines to the effect that the worst is over, all is well, are at the very least premature, probably with the aim of boosting confidence.

What has the current financial crisis got to do with Peak Oil / Gas? Many things. The stock markets rely on confidence, amongst other things. A lack of confidence is what has to a large extent made the current crisis worse than it might otherwise have been, due to the so-called credit squeeze. Many Peak Oil observers expect investor confidence to plummet once it is realised Peak Oil really is here, with economic consequences similar to the current problems. It is also possible that the global economy will now go into recession, oil demand and therefore oil prices will fall, and Peak Oil will be pushed even further off the political agenda, until the next big jump in oil prices.

1a/ City hit by biggest crisis for a decade (The Telegraph, Sat 11 Aug)

http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2007/08/11/necon111.xml&DCMP=EMC-new_11082007

Comment: Intro from the Telegraph e-mail bulletin: “Britain's golden economic era is facing its final days with financial markets suffering their worst crisis in a decade, analysts warn.”

Article: On one of the worst days in recent stock market history almost £56 billion was wiped off the value of London's leading firms amid worldwide panic.

Experts predicted that the turbulence could have knock-on effects for all British households, depressing the housing market, potentially pushing unemployment higher and plunging pension funds into deficit.

They said the British economy's decade-long boom, built for a large part on the success of the City, was facing its sternest test, with many parts of the financial sector in a state of meltdown.

The dire predictions came as the benchmark FTSE 100 index of leading shares plunged by 3.7 per cent, the biggest drop in more than four years. In addition to massive losses in London, many hundreds of billions of pounds were lost from other markets worldwide.

Financial experts yesterday warned that the City was officially facing a crisis, with shares having lost more than a 10th of their value since June.

However, they added that the prospect of a full-blown recession still seemed unlikely, since most other parts of the British economy were still healthy.

... Prof Peter Spencer, an economic adviser to the Ernst & Young Item Club, said Britain was arguably more vulnerable to the slump than many other countries because the economy was so reliant on the City to power it ahead.

"We have become far too dependent on this kind of growth," he said. "We are going to see a pretty big correction - but it's a correction, not a crash.

"The age of big City bonuses is coming to an end. London's housing market boom is now effectively over."

... Prof Spencer said the crisis was in many senses comparable to the Wall Street Crash.

He said: "When historians look back, I would imagine they will compare this credit market slump with the events in 1929."

1b/ Global stock markets tumble on credit fears (The Telegraph, Fri 17 Aug)

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/08/16/cncredit116.xml&DCMP=EMC-mcn_16082007

Comment: Intro from the Telegraph e-mail bulletin: “The global credit crunch led to further sharp falls in the share prices of mortgage lenders on both sides of the Atlantic, while industrial metals tumbled amid a mounting fears of a slowdown.”

Article: ... Emerging market stocks, bonds, and currencies all began to suffer as hedge funds facing a deadline for investor redemptions scrambled to exit vulnerable positions, with contagion now spreading far beyond US sub-prime property debt.

Countrywide, America's biggest home loan lender, saw its share price fall 17pc after Merrill Lynch warned that the group faced possible bankruptcy as investors shunned mortgage securities, even though it held almost no exposure to the sub-prime sector.

This came as the US National Association of Realtors reported that house sales dropped in all but a handful of states over the April-June quarter, with falls of 41pc in Florida, 37pc in Nevada, and 23pc in Arizona. The median house price continued to slide to $223,800 - now down roughly 10pc since the peak 16 months ago.

Merrill Lynch said Countrywide was increasingly vulnerable to a "liquidity event" in the current grim mood. "We fear the acceleration of margin calls and forced asset sales in the capital markets could lead to more problems for it to finance its mortgage operations," said the bank...

1c/ Hedge Funds Are Squeezed by Investors and Lenders (The NY Times, Mon 20 Aug)

http://www.nytimes.com/2007/08/20/business/20hedge.html?_r=2&adxnnl=1&oref=slogin&adxnnlx=1187582685-uR9E2fZTtuzDl1jFjHNgZA&oref=slogin

Comment: This article is one of many that explains why it is so easy for Hedge Funds to go under at the moment. The Hedge Fund borrows large amounts of money (“leveraging”) to buy so-called financial instruments, the main culprit at the moment being investments relating to subprime mortgages. As the value of the investment falls, the banks demand an appropriate amount of lent money back (a margin call), enough to cover the fall in value of the instrument. The banks may be demanding a lot of money back, and the dodgy investment falling in value may be unsellable, as is currently the case with any investments relating to the subprime market. The Hedge Fund then has to try and raise the money for the margin call by selling other assets. Note that this is similar to what happened on a much larger scale during the crash of ’29.

This same story is covered by last Thursday’s International Herald Tribune, How a hedge fund star lost it all. It makes clear that three of the big losers who invested with Sowood were pension funds: “Harvard's endowment lost $350 million, the Massachusetts pension fund $30 million and Boston Foundation close to $20 million.”

Article: As summer neared, investors in Sowood Capital Management, a $3 billion hedge fund, had little to complain about.

The fund was up 16 percent over the previous 12 months. Blue-chip management was in place, and any risk was well-hedged with a comfortable cushion of financing in place, the fund said in a letter to investors.

But a rocky June turned into a calamitous July, and by the end of the month, Sowood was on the brink of collapse. As the credit market tightened, Sowood had to sell stocks to meet margin calls from skittish banks and add hundreds of millions in cash reserves.

Sowood’s manager, Jeffrey Larson, sold the rest of the portfolio seemingly overnight — at a fraction of its initial value — and embarked on what he would later describe as a “deeply painful” process of returning the remaining money to investors and shutting the funds.

As problems that began in subprime mortgage lending have expanded into the broader markets, hedge funds like Sowood have come face to face with the ghost of past financial crises: the one-two liquidity punch from banks and investors.

On the one side, Wall Street banks and brokerage firms, as they did with Sowood, have stepped up their demands for more cash and collateral as they restrict the money they are willing to lend.

On the other, jittery investors seem ready to flee at any sign of trouble, as they did from the Bear Stearns Asset-Backed Securities Fund. The fund had a solid track record, no leverage and little exposure to subprime mortgages, but after it reported losses in July, investors demanded their money and Bear Stearns was forced to suspend redemptions…

1d/ Business comment: Sub-prime crisis is the edge of a financial hurricane (The Telegraph, Mon 20 Aug)

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/08/20/ccom120.xml&DCMP=EMC-mcn_20082007

Comment: From the article: “Greenspan did manage to avoid, or at least to postpone, a re-run of the early 1930s by slashing interest rates in 2001 when the US economy threatened to fall off the edge of a cliff. That is a performance his successor is going to have to repeat now that the US housing and credit booms have collapsed.” Written by Bernard Connolly, “global strategist for Banque AIG and the former head of economic research for the European Commission Watch”, who takes a very pessimistic view of the economic/financial future of Europe, the effects of Peak Oil come early you might say. In a commentary in the Telegraph a week and a half ago he singled out Spain as a European country about to hit the economic doldrums big-time. In this article, he suggests Ireland. Both have populations that have borrowed huge amounts of money for mortgages at very low interest rates which are now higher and rising, controlled by the European Central Bank and therefore beyond the control of their respective central banks.

Article: It is hard to overstate the seriousness of the global financial crisis. Yet the world's central monetary authorities - the central banks - have been culpably slow to recognise how dangerous things have become.

Initially, the crisis emerged from the US mortgage market, as payment delinquencies among sub-prime borrowers (borrowers in poor credit standing) began to mushroom. Things will get much worse as US unemployment begins rising, perhaps rapidly, making it harder for more and more borrowers to maintain timely interest and principal repayments on their mortgages.

As long as US house prices were rising, it always seemed possible for homeowners who got into trouble to take out additional loans, in effect borrowing to finance their earlier borrowings: a classic Ponzi game. But when the oversupply of new houses in the US began forcing prices down instead of up, the avenues to ever-more borrowing were shut off, at least for late entrants into the game, the people who had been unable to build up enough equity in their houses via the earlier period of rising prices.

But US sub-prime is just the leading edge of a financial hurricane. For far too long, no-one seemed to care if borrowers would be able to service their debts: borrowers themselves seemed not to care; lenders seemed not to care; and investors in the packages of mortgage loans created by banks and sold to institutions such as pension funds seemed not to care. In short, there was a global credit bubble.

The root cause of a credit bubble is not financial market greed (though that has certainly been present) but an inappropriate level of real interest rates that sends misleading signals about the feasibility of continuing to consume today while ignoring tomorrow. In the US in the mid-1990s, the former Fed chairman, Alan Greenspan, ignored the message of the 1920s and failed to engineer a rise in real rates to match a rise, driven by optimism about productivity, in the expected rate of return on investment in the US economy.

The late-1990s result was, as in the late 1920s, a frenetic stock market boom, massive business over-investment financed by credit, not by postponed consumption (saving), and an inevitable collapse. Greenspan did manage to avoid, or at least to postpone, a re-run of the early 1930s by slashing interest rates in 2001 when the US economy threatened to fall off the edge of a cliff. That is a performance his successor is going to have to repeat now that the US housing and credit booms have collapsed...

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2a/ Truck Production in Russia Up 20%, to 158,000, in Seven Months [Car Production] (FC Novosti, Fri 17 Aug)

http://www.fcinfo.ru/themes/basic/materials-rfcm-index.asp?folder=3352

Comment: Many articles over the last 6 months have suggested car production in Russia increasing at 20-50% / annum, which may be the case for individual companies. The overall growth is much lower, nearer 10%.

Article: Car production in Russia amounted to 714,000 cars in January-July 2007, up 10.1% from the same period last year, according to the Federal State Statistics Service. Car production in July 2007 grew by 13.8% from July 2006 and by 9.7% from June 2007.

2b/ Gazprom Chooses First Supplier for Shtokman Project (FC Novosti, Mon 20 Aug)

http://www.fcinfo.ru/themes/basic/materials-rfcm-index.asp?folder=3192

Article: Russian energy giant Gazprom has chosen the first supplier for the development of the Shtokman gas condensate field in the Barents Sea.

It is the Vyborg shipyard based in St Petersburg, which won the tender for the construction of two floating rigs. The contract has been estimated at RUR59bn ($2.3bn, or €1.7bn) and is to be implemented within three years.

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3a/ Revealed: cover-up plan on energy target [UK] (The Guardian, Mon 13 Aug)

http://www.guardian.co.uk/environment/2007/aug/13/renewableenergy.energy

Comment: Summary: <<It [the report] says the UK "has achieved little so far on renewables" and that getting to 9%, from the current level of about 2%, would be "challenging".>>

Article: Government officials have secretly briefed ministers that Britain has no hope of getting remotely near the new European Union renewable energy target that Tony Blair signed up to in the spring - and have suggested that they find ways of wriggling out of it.

In contrast to the government's claims to be leading the world on climate change, officials within the former Department of Trade and Industry have admitted that under current policies Britain would miss the EU's 2020 target of 20% energy from renewables by a long way. And their suggestion that "statistical interpretations of the target" be used rather than new ways to reach it has infuriated environmentalists.

An internal briefing paper for ministers, a copy of which has been obtained by the Guardian, reveals that officials at the department, now the Department for Business, Enterprise and Regulatory Reform, think the best the UK could hope for is 9% of energy from renewable sources such as wind, solar or hydro by 2020.

It says the UK "has achieved little so far on renewables" and that getting to 9%, from the current level of about 2%, would be "challenging". The paper was produced in the early summer, around the time the government published its energy white paper.

Under current policies renewables would account for only 5% of Britain's energy mix by 2020, the document says. The EU average is 7%; Germany is at 13%. It acknowledges that Germany, unlike Britain, has built a "strong and growing renewables industry".

EU leaders agreed the 20% target for the bloc in spring. The European Commission is working out how to reach this.

… The paper also reveals that carbon capture and underground storage of CO2 emissions from new coal-fired power stations is projected to make little contribution before 2020…

3b/ UK gencos to invest $14 billion in low-carbon plant by 2012: AEP (Platts, Mon 13 Aug)

http://www.platts.com/Electric%20Power/News/8202853.xml?p=Electric%20Power/News%82%22=Electric%20Power?src=energybulletin

Comment: The article refers to "invest[ing] more than GBP7 billion in 15 GW of low carbon plant over the next five years", of which "8 GW of clean coal projects". However, as item 3a points out, clean coal is unlikely to be with us before 2020, if then. One could argue that, until then, it is hardly low-carbon. As mentioned before, the UK’s long-term natural gas supplies are anything but secure, some have warned precarious, yet we will be building more gas-fired power stations.

Article: UK power generators plan to invest more than GBP7 billion in 15 GW of low carbon plant over the next five years, the Association of Electricity Producers said Saturday.

A further 8 GW of clean coal projects and "a considerable amount of renewable energy generation is under consideration," said AEP, whose members account for more than 90% of UK generating capacity.

But AEP estimates its members will have to spend "at least GBP20 billion by 2020 to fill the gap left by closing nuclear and coal-fired power stations," said its chief executive, David Porter. Most of this investment would be in gas-fired plant, renewables and clean coal, he said, as well as nuclear if the outcome of the UK's current consultation on it allows.

Porter called for a clear, long-term stable regulatory regime for reducing CO2 emissions, and in particular more information about post-2012 emission allowances in the EU emissions trading scheme, to ensure the investment needed is made.

3c/ Go-ahead for gas-fired power station (Financial Times, Mon 20 Aug)

http://www.ft.com/cms/s/d8fc5a0a-4f4d-11dc-b485-0000779fd2ac,s01=1,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2Fd8fc5a0a-4f4d-11dc-b485-0000779fd2ac%2Cs01%3D1.html&_i_referer=

Comment: Login required for full article. The FT suggests this might be the beginning of another ‘dash for gas’ in the UK. When chronic natural gas shortages begin in the UK (probably sometime in the period 2010 – 2020, post-2020 if we are lucky), the first sector to be cut off will be industrial users of natural gas. After that, the lights go off.

Department for Business, Enterprise and Regulatory Reform = former Dept of Trade and Industry

Article: A new gas-fired power station in south Wales has been given the go-ahead, marking the latest stage in what has been described as a fresh “dash for gas” by electricity generators.

Carron Energy, an independent generator and electricity supplier, has won approval from the Department for Business, Enterprise and Regulatory Reform for an 800MW, gas-fired power station at Newport, beside the river Usk. About 650 jobs will be created at the plant.

3d/ No New UK Nuclear Power Likely Before 2020 – Poyry (Planet Ark [Reuters], Tue 21 Aug)

http://www.planetark.com/dailynewsstory.cfm/newsid/43823/story.htm

Comment: As mentioned already, when the UK approaches the time when the so-called energy gap starts appearing, i.e. electricity demand outstripping supply (2016 give or take a year or two), if the choice is implementing environmental directives (shutting down coal-fired power stations) and keeping the lights on, which is it going to choose?

Article: No nuclear power plants are likely to be built in Britain before 2020, if they are built at all, which will be too late to fill the country's looming power generation gap, according to a report published on Monday.

The British government wants the private sector to build new nuclear power plants to replace the country's ageing reactors and plug a generation shortfall left by the closure of coal-fired power plants under European environment laws.

But the report by Poyry Energy Consulting says the commercial case for building new nuclear plants is shaky and that none will be built without a higher long-term carbon price than that set by the current European Union Emissions Trading Scheme (ETS).

"Despite the rhetoric, it is difficult to see much new nuclear capacity coming into the market before 2020," Poyry director Andrew Nind said.

... Environmental regulations could force many of Britain's coal fired power plants to close over the next decade, while all but one of its nuclear power plants are expected to shut by 2020, leaving a gaping hole that new nuclear cannot fill in time.

The government wants atomic energy to play a part in Britain's future energy mix but has refused to pay for it or build the plants with public money.

A spokeswoman for the department responsible for energy said on Monday the government was already trying to work out how the country will cope if no nuclear power plants are built.

The government admitted last week that Britain's current target of getting 20 percent of its power from renewable sources of energy by 2020 is already very challenging, so it may have to become still more dependent on imported gas, while slashing demand.

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4a/ Turkmenistan seeks other outlets besides Russia for gas exports (Platts, Fri 17 Aug)

http://www.platts.com/podcasts/news/index.xml

Comment: Podcast (4m 43 s) from Platts, discussing natural gas exports from Turkmenistan and Azerbaijan, various gas supply pipelines to Europe including the Nabucco pipeline, and the fact, usually overlooked by most commentators, that Russia needs more Central Asian natural gas just to maintain its indigenous consumption/exports to Europe, let alone increase them.

4b/ Kazakhstan and China sign oil and gas pipelines agreement (Financial Times, Mon 20 Aug)

http://www.ft.com/cms/s/0/fdb5e094-4eb4-11dc-85e7-0000779fd2ac.html

Article: Kazakhstan and China have agreed to build pipelines to carry oil and gas from fields near the Caspian Sea, one of the world's most promising new oil provinces, to China.

"The Caspian will be linked to western China," Nursultan Nazarbayev, the president of Kazakhstan, said after a meeting with Hu Jintao, the Chinese leader, in Astana, the Kazakh capital, on Saturday.

The agreement marks a setback for the European Union and the US, which have both urged Kazakhstan to export oil and gas across the Caspian to western markets.

The projects may also be regarded grudgingly by Russia, the dominant route for Central Asian gas exports, which is also targeting new pipelines to China.

Last year, Kazakhstan and China completed a pipeline from a field owned by Chinese National Petroleum Corporation (CNPC) in the central part of the republic to Xinjiang province, China.

That pipeline will now be connected with another CNPC field and pipeline in western Kazakhstan, creating an export route spanning the breadth of Kazakhstan from the Caspian, where CNPC is negotiating for acreage, to China.

CNPC plans to expand its presence in Kazakhstan, where it has invested $6.5bn in oil projects. But analysts said Kazakhstan's plan to limit the new pipeline to 400,000 barrels a day signalled a hesitation to over-commit oil to China.

Julia Nanay, a senior director at PFC Energy, said: "The oil pipeline to China is another element in Ka-zakhstan's diversification strategy, but the majority of the republic's oil exports will still move through Russia."

Mr Nazarbayev said the pipeline from Kazakhstan to China would also carry supplies from Turkmenistan.

The pipeline, designed to carry up to 30bn cubic metres a year of gas, will provide Central Asia with a first large non-Russian route for gas exports.

However, Kazakhstan and Turkmenistan have also agreed to build a gas pipeline north to Russia.

*The Chinese Exim Bank has signed an agreement to award a $292.8m credit to Kazakhstan Aluminum Smelter, part of the Eurasian Natural Resources Corporation, the Kazakh group, to build a smelter in Pavlodar in the north of the republic.

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5/ "Peak oil" becomes burning issue (Swiss Info, Mon 20 Aug)

http://www.swissinfo.org/eng/front/detail/Peak_oil_becomes_burning_issue.html?siteSect=105&sid=8120964&cKey=1187621031000&ty=st

Comment: From the ‘About’ page of Swiss Info: “swissinfo/Swiss Radio International (SRI) is an enterprise of the Swiss Broadcasting Corporation (SBC). Its role is to inform Swiss living abroad about events in their homeland and to raise awareness of Switzerland in other countries...” This was the main item on their English-version website earlier today (Mon 20 Aug). See also ASPO Switzerland.

Article: Swiss scientists say politicians and the public should have a greater awareness of "peak oil" – the moment when the world's maximum crude oil output is reached.

Researchers at Basel University warn that although climate change is grabbing more headlines than the possible exhaustion of fossil fuels, a conflict is brewing over crude oil.

"The question is not for how long we will have crude oil reserves, but for how long output can grow," warned Daniele Ganser, a historian and peace researcher at Basel University, who says the significance and explosive nature of the issue is underestimated by politicians and the public.

No one can agree on when exactly the moment of "peak oil" will be – some experts say 2010, others say 2020 or 2030 – but it is a serious problem as crude oil output has grown for decades and positively boomed with the industrialisation of the emerging nations.

An end to the spiral is not in sight and once the global peak is reached, a further increase is simply not possible.

"Conflict over crude oil will increase in proportion with its scarcity – the global economy is facing a recession," said Ganser.

"We are running to the oil limit without thinking. It's as if we planned to climb the Matterhorn to get to the summit at midnight, leaving it much too late to descend."

Low visibility

Ganser says the issue of peak oil is barely a topic in public debate because it is not immediately visible.

"If oil supplies run low, they are imported," he said. "That also goes for the oil-producing countries that have already reached the peak."

A switch to gas or coal is not a solution, according to Ganser. "These energy sources are also finite and will one day reach their maximum output. It would therefore be wrong for Switzerland to turn to gas power plants."

Ganser points out that as early as 1978 Switzerland had defined the containment of crude oil dependency and the promotion of renewable energy types and efficiency as goals in its energy concept.

"Resource conflicts"

Wolfgang Sachs, a sociologist at the Wuppertal Institute for Climate, Environment and Energy, is also calling for a reduction in energy consumption.

"It is a stroke of luck that climate chaos and the issue of peak oil have hit the global agenda at virtually the same time," he says, explaining that peak oil and the climbing price of oil have a direct effect on every business's finances.

"That means that people in the northern countries, which won't be affected by the climate chaos until later, will take the problem seriously."

Sachs says an economic development that is based on fossil fuels as a source of energy is a "large security risk".

"The fact that oil is finite is a destabilising factor," he said. "Before we reach the ecological limits of what we can bear, we will reach the social ones."

He describes ethnic and social conflicts such as those in Nigeria as "precursors of resource conflicts".

Like Ganser, Sachs sees a way out of the crisis in renewable energies, new and efficient technologies and in a drastic reduction of energy consumption.

"Cars with a top speed of 100km/h would be absolutely adequate," he said.

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6/ Asia's thermal coal supply squeeze to worsen in '08 (Reuters, Fri 17 Aug)

http://in.reuters.com/article/businessNews/idINIndia-29022120070817

Article: Asia's thermal coal supply squeeze, which has driven spot prices to record highs of over $72 a tonne, is set to worsen next year as Indonesia and Australia struggle to meet feverish demand growth in China and India.

Tight supply could push spot prices to average about $75 a tonne in the first quarter of 2008, traders and producers said, and long-term contract prices between Australian producers and Japanese utilities by as much as 10 percent.

"The market is going to be very, very tight next year. It will be worse than this year," Peter Ball, vice president for marketing at Indonesia's largest coal producer PT Bumi Resources, told Reuters.

"Apart from China and India, demand will also rise when Mexicans start to come to the market. When they finally do, we don't know where the coal is going to come from."

Coal consumption is expected to increase rapidly in Mexico, where state utility Federal Electricity Commission has mapped out plans to increase its generation capacity to 56,785 MW by the end of 2012, compared with current 49,834 MW.

... Many analysts and officials have said the Chinese coal market was likely to reach a balance this year and would become a net importer next year. It was a net importer in the first half of this year, but restored its net exporting status in July.

Some producers estimated that China's large-scale withdrawal from coal exports would result in a net loss of 30-34 million tonnes of coal in the Pacific market this year and more than 45 million tonnes in 2008.

Industry sources said high international prices have prompted Chinese utilities in the southern coast to increasingly seek sub-bituminous coal, which has lower heating value, to fuel their power plants -- a move that would jeopardise South Korea's and India's coal supplies.

The scramble for alternative suppliers would mean demand for South African, Russian and even Canadian coal shipments, which have trickled into Asia since June, is set to rise.

... Underpinned by growing Asia-Pacific demand, coal prices are likely to stay at robust levels in the next five years, Australia's government forecaster said.

"The situation of undersupply, or supply tightness, will likely remain for quite a few years because there are very few large-scale coal mines coming online," said Alan Copeland, a commodity analyst at the Australian Bureau for Agriculture and Resource Economics.

"And nearly every country in Asia has drawn up plans to build more coal-fired power plants."

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7/ COMPANIES INTERNATIONAL: Oil groups put faith in R&D as states lock up (Financial Times, Tue 21 Aug)

http://search.ft.com/nonFtArticle?id=070821000659

Comment: The title of the article is bit of a misnomer. The gist of the article is that Big Oil puts very little money into R&D, especially compared to other sectors.

Article: The world's international oil companies are increasing investments in technology to ensure their survival in an industry now dominated by their state-owned rivals.

... A survey by the Financial Times of the larger oil companies shows that R&D spending by many has jumped sharply recently.

Royal Dutch Shell has raised its technology R&D budget 50 per cent over the past three years to $1.2bn in 2006. Chevron's R&D has more than doubled over the past five years from $221m in 2002 to $468m last year. ConocoPhillips has budgeted $400m for this year, which is up about 50 per cent from what it historically spends.

The rise in R&D spending at ExxonMobil, the world's biggest international oil company, is less dramatic, up from $631m in 2002 to $733m last year. Exxon said this reflected the "priority" it had always given R&D.

"It is particularly through technology that the international oil companies can differentiate themselves,'' said Jan van der Eijk, Shell's chief technology officer.

Yet analysts consider recent commitments small when compared with other industries. Amy Myers Jaffe, energy expert at Rice University, had problems when she tried to compile a graphic comparing R&D spending across sectors.

"I couldn't put Microsoft, GM or Merck on the same slide with ExxonMobil, or ExxonMobil would have been too small.'' Microsoft spent $7.1bn, or almost 14 per cent of its revenues, on R&D in the year to the end of June, while General Motors spent some $6.6bn or 3.2 per cent of revenues, in 2006. Exxon, in contrast, spent just 0.2 per cent of its 2006 revenues on R&D.

Oil companies insist they commit far more to R&D than the numbers reflect as it is spread throughout the business. It can take a decade to test and implement new technology.

"We had to ask ourselves what was the right level of sustained investment through the cycles,'' said Ryan Lance, ConocoPhillips' senior vice-president for technology. "Seven years ago, the price of oil was $12 a barrel; you have to look at it in that context.''

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8/ Tehran advised not to export gas (The International News [Pakistan], Mon 20 Aug)

http://www.thenews.com.pk/top_story_detail.asp?Id=9691

Comment: Several warnings have come out over the last year suggesting that Iran’s natural gas exports will never amount to much – see in particular Fereidun Fesharaki’s (Chairman & CEO, FACTS Global Energy Group) presentation at Oil and Gas 2006, slide 10. You will need to submit a few details, name, company, e-mail address, to access the presentation. From slide 10:

For Iran, we expect much smaller export volumes. We see 20-30 million tonnes as lifetime LNG ceiling and small volumes of pipeline gas. The reasons are:

􀂾 Large domestic grid at prices of 1 cent/cubic meter.

􀂾 Massive gas injection requirements of some 10 billion cf/d.

􀂾 Massive gas-based petrochemical projects.

􀂾 CNG projects to provide a major volume of gasoline supplies as early as end of this decade.

􀂾 Major political opposition to gas exports.

Iran is currently a net importer of natural gas, or at least was until recently i.e. Iran imports more gas from Turkmenistan than it exports to Turkey. There are multiple Iranian gas-export projects on the table at the moment, some mentioned in the article below.

Article: An influential research centre of Iranian parliament has sounded a downbeat note on the future of Iran’s gas industry, saying that exports would not be possible in the next 10 years given the scale of domestic consumption.

The warning was supported by Iran’s sacked oil minister on Sunday. “It seems that for at least the next 10 years there will not be any extra gas for export. Iran is advised to remove gas export from the country’s policy due to the limited production capacity,” the panel said. Turkey is currently the only recipient of Iranian gas exports, receiving several billion cubic metres annually.

But Iran is seeking to export large quantities of gas to Turkey and other countries in the Middle East, as well as to India and Pakistan through new pipelines. Iranian media reported on Sunday that Iran’s sacked oil minister had also issued a parting warning to President Mahmoud Ahmadinejad, predicting a looming “catastrophe” in the Iranian energy sector because of high consumption...

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9a/ For Russia, An End To Growth is In Sight (ASPO-USA, Wed 15 Aug)

http://www.aspo-usa.com/index.php?option=com_content&task=view&id=194&Itemid=91

Comment: Russia recently announced that it expects its oil production to grow to about 10.6 Mb/d and stay at that level till 2020 (see Russian oil output to plateau until 2020 – EconMin, Reuters). Dave Cohen of ASPO-USA digs a bit deeper, and reviews various forecasts.

Article: Russia's resurgent oil production has fueled growth outside of the Organization of Petroleum Exporting Countries (non-OPEC) since 1999. The end is now likely in sight for yearly increases from the Federation. Growth has slowed since 2004, and although most analysts expect increases to continue in the near term, Russia is poised to peak or plateau sometime in the 2010-2012 period. If you are concerned about peak oil, it is necessary to track events in the world's largest oil producer. The eventual outcome is uncertain, but a peak in Russia's oil production in the medium-term seems all but assured.

... It is uncertain whether Russia will ever see 10.6 million barrels per day. This number appears to be an upper bound on Russia's post-Soviet production peak. Wherever production crests, it is not obvious how production will be sustained at that level thereafter. The only sure thing is that Russia's production peak or plateau is now on the horizon. The end of growth in Russia's oil production is an event of great historical significance. The world should take note, and prepare for the consequences.

9b/ Russia Oil Report (Whiskey and Gunpowder, May/June 2007 ?)

http://www.whiskeyandgunpowder.com/ppc/RussianOilReport2.html

Comment: This very interesting and insightful overview of Russian oil companies explains some of the internal geopolitics/politics going on in Russia, and suggests that it is just a matter of time before most of the non-state Russian oil companies are assimilated by Rosneft, the Russian state oil company.

Article: The Russian government has steadily extended its reach over the country's energy industry over the past four years, building its state companies into major global players. Originally, the logic for the expansion was nationalist and political. Russian power players were incensed that oligarchs (or even worse, foreigners) were able to profit from private ownership of the country's oil wealth -- and by consolidating, the Kremlin gained access to a powerful tool for influencing the behavior of the European states downstream.

But now there is a new logic in the nationalization process: political competition. Within Russian President Vladimir Putin's inner circle there are two power centers. The first, comprising First Deputy Prime Minister Dmitry Medvedev and Deputy Chief of Staff Vladislav Surkov, is the power behind Gazprom, the Russian state natural gas mammoth. The second, comprising Sergei Ivanov and Igor Sechin -- who share Medvedev and Surkov's titles, respectively -- controls Rosneft, Russia's major state oil firm.

The Gazprom and Rosneft teams are more than simply two adversarial state companies. They are the two factions struggling to succeed Putin as Russia's next president, with Medvedev and Ivanov as the candidates and Surkov and Sechin as the powers behind the throne. For these teams the Gazprom/Rosneft tussle is more than simple one-upmanship; it is the most clear-cut and public means of evaluating who is doing better at consolidating power. (Note that the firms' CEOs -- Gazprom's Alexei Miller and Rosneft's Sergei Bogdanchikov -- do not play a major role in this political tussle...although they do despise each other, adding a personal twist to this economic, strategic, and political competition.) …

[The article then goes on to review the chances of various Russian oil companies chances of surviving assimilation.]

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10/ Exit Iran's oil minister, and a pipeline too (Asia Times, Fri 17 Aug)

http://www.atimes.com/atimes/South_Asia/IH17Df01.html

Comment: An update on the outlook for Indian natural gas supplies. Amongst other things, the journalist suggests that prospects for imports from Iran do not look good. LNG seems to be the main way forward.

Article: India's quest to expand the use of natural gas as a major energy source has experienced several recent setbacks.

The prospects for the US$7.5 billion Iran-India-Pakistan (IPI) gas pipeline took a big hit with the dramatic firing of Iran's oil minister, who had reportedly agreed to sell gas to the two countries at a discount. Further, the Indian government has dramatically reduced the estimated gas reserves of recent finds that we