Category Archives: Opinion

Oil Industry Frets About Another Lost Decade

September 14, 2015Energy and Climate Change, Oil, OpinionTrevor Larkum

Oil is an inherently cyclical business. The point is remarkably simple but it is amazing how often it gets forgotten by forecasters and investors.

In the century and a half since the modern oil industry was founded with the drilling of Edwin Drake’s well in 1859, real prices have doubled in the space of three years on no fewer than six separate occasions, and halved on four.

If prices remain around $50 for the rest of the year, 2015 will be the fifth time real prices have fallen more than 50 percent in the space of less than three years.

Sharp price changes over short periods have therefore been the norm and the long period of relative stability between 1931 and 1969 was the exception.

It follows that any attempt to predict where prices will go in the medium term (two to five years) or long term (beyond five years) based on current prices or recent changes is bound to fail.

The cyclical, unpredictable nature of prices has not stopped an army of prognosticators from trying to guess where they will go, but most forecasts have an endearing backward-looking quality.

When prices are high and have been rising, most forecasts predict they will rise even further on increasing scarcity. When they are low and have been falling, most forecasts predict a further slide on continued oversupply.

In 2008, and again in 2011/12, as prices were peaking at more than $140 and $120 per barrel respectively, most forecasters were predicting prices would remain high more or less forever.

Not one major forecaster saw prices sinking back to less than $60 per barrel but on both occasions it happened in less than three years.

Now prices have fallen, it seems no major forecaster is predicting they will rise sharply again within the foreseeable future.

But the current bearishness about the medium-term outlook is no more likely to be accurate than the former bullishness was between 2008 and 2011.

Oil and Gas Industry to Lose Credit Supply

September 12, 2015Energy and Climate Change, Oil, Opinion, Peak OilTrevor Larkum

The screws are being tightened on the debt-laden US shale industry

More U.S. oil and gas companies could come under financial distress in the coming months as crucial hedging protection begins to expire.

Many companies had locked in high prices for their oil sales last year, allowing them a degree of protection as oil prices collapsed precipitously over the second half of 2014. Few, if any, hedged all of their production though, so revenues declined along with the oil price. Still, with some protection, the vast majority of companies (aside from a tragic handful) have not missed debt payments and have stayed out of bankruptcy.

That could become an increasingly tricky feat to pull off. As time passes, more and more hedges are expiring, leaving oil companies fully exposed to the painfully low oil price environment.

“A lot of these smaller guys who had bad balance sheets have pretty good hedge books through full-year 2015,” Andrew Byrne, an analyst with IHS, told the Houston Chronicle. “You can’t say that about 2016.”

In fact, about one-fifth of North American production is hedged at a median price of $87.51 per barrel. Smaller companies rely much more heavily upon hedging as they are more vulnerable to price swings and are not diversified with downstream assets. Across the industry, IHS estimates that smaller companies had about half of their production hedged at a median oil price of $89.86 per barrel in 2015.

But as those positions expire, any new hedges will be linked to current oil prices, which are now trading around $45 per barrel (although prices are fluctuating with great intensity and ferocity these days).

More worrying for the oil and gas companies that are struggling to keep their lights on is the forthcoming credit redeterminations, which typically take place in April and September. Banks recalculate credit lines for drillers, using oil prices as a key determinant of an individual company’s viability. With oil prices bouncing around near six-year lows, more companies will find themselves on the wrong side of that equation.

Banks were more lenient in April when oil prices were a bit higher and many analysts expected prices to rise. This time around the pain is mounting and there will be a lot less leeway. Somewhere around 10 to 15 percent credit offered to drillers could be cut back on average, a move that could slash $15 billion in credit capacity, according to CreditSights Inc.

With other financial avenues cut off, indebted drillers could be left with no way out.

“Nobody is in good shape with oil at $39,” CreditSights Inc. analyst Brian Gibbons told Bloomberg in an interview. “Most energy companies are shut out of the debt markets. There are few companies that can get a deal done right now.”

Is it time to join the climate change preppers?

September 11, 2015Energy and Climate Change, Opinion, Prepping and CollapseTrevor Larkum

(A tonque-in-cheek article from February 2014)

The floods and storms that have wreaked havoc across Britain this winter could be just the beginning, and now a growing number of people are making preparations for the end of the modern world. Here’s what you’ll need to do to stand a chance.

We are getting close to what might be called The Noah Scenario. Last month was the wettest January in Britain since records began in 1767. So far this month has been no different, and the Met Office expects the wind and rain to continue until March. Climate change may be a gradual process, but people who live on the Somerset Levels or the banks of the Thames are getting a very sudden education in the value of arks.

Be prepared … follow this guide and you could be the last one standing when it all goes really, really wrong (Image: S. Parsons/PA)

It’s unlikely that these floods will be the last such catastrophe, or the worst. Climate scientists expect bigger and more frequent extreme weather events throughout the coming century – not just wind and rain, but droughts as well. Nor is weather the only danger: pandemic flu, nuclear weapons, antibiotic resistance, environmental catastrophe and chronic food shortages could also offer dire threats to civilisation as we know it. You might not want to panic just yet, but you might decide that it is time to join the “preppers” – people who are secretly preparing to abandon modern life when the apocalypse, in whatever form, does arrive.

When do I abandon my home?

When you have no choice. When soldiers are on your street, your neighbours have begun to steal from you and plague-sufferers are camped in your drive – or perhaps slightly before all that. Preppers have a catch-all term for this moment: the SHTF scenario, in reference to the day when the Shit finally does Hit The Fan.

“It would be the last resort for me,” says Steve, a 57-year-old prepper from Essex, who runs ukpreppersguide.co.uk. “Some people seem to think it’s the first thing to do. The moment something happens, they grab their rucksack and off they go and live in the wild – but if you’ve ever tried that, it really isn’t easy. Where I am at the moment, I probably have enough provisions to survive for about nine months. That doesn’t include going out and getting your own food.”

When the moment comes, however, you may not have much warning, so it is important to keep what preppers call a “bug-out bag” ready at all times. Ideally, you’d leave at night, when you won’t be followed.

“The idea behind leaving your home is to get away from danger,” Steve explains, “which means getting away from everybody and going under the radar, off-grid, so you can’t be found – then just survive for however long is needed before you can come back to civilisation.”

It’s not climate change, it’s everything change

September 10, 2015Energy and Climate Change, Opinion, Peak OilTrevor Larkum

Oil! Our secret god, our secret sharer, our magic wand, fulfiller of our every desire, our co-conspirator, the sine qua non in all we do! Can’t live with it, can’t — right at this moment — live without it. But it’s on everyone’s mind.

Back in 2009, as fracking and the mining of the oil/tar sands in Alberta ramped up — when people were talking about Peak Oil and the dangers of the supply giving out — I wrote a piece for the German newspaper Die Zeit. In English it was called “The Future Without Oil.” It went like this:

The future without oil! For optimists, a pleasant picture: let’s call it Picture One. Shall we imagine it?

There we are, driving around in our cars fueled by hydrogen, or methane, or solar, or something else we have yet to dream up. Goods from afar come to us by solar-and-sail-driven ship — the sails computerized to catch every whiff of air — or else by new versions of the airship, which can lift and carry a huge amount of freight with minimal pollution and no ear-slitting noise. Trains have made a comeback. So have bicycles, when it isn’t snowing; but maybe there won’t be any more winter.

…

Then there’s Picture Two. Suppose the future without oil arrives very quickly. Suppose a bad fairy waves his wand, and poof! Suddenly there’s no oil, anywhere, at all.

Everything would immediately come to a halt. No cars, no planes; a few trains still running on hydroelectric, and some bicycles, but that wouldn’t take very many people very far. Food would cease to flow into the cities, water would cease to flow out of the taps. Within hours, panic would set in.

Electric Car Tipping Point Within 10 Years

It’s encouraging to hear this kind of optimisim made public!

Tesla Motors CTO JB Straubel was the headliner at Intersolar North America last week. He talked about the transition to lithium-ion batteries and how that opened the floodgates for electric cars and stationary storage (eventually); the synergy between EVs, solar, and grid storage; the growth of solar power and grid storage; blah blah blah.

I know, I actually love all that stuff as much as the rest of you — it’s what I read, edit, & write about every day(!) — but it’s basically all general history and trends we know all about. But then JB dropped the awesome-bomb:

“I think we’re at the beginning of a new cost-decline curve, and, you know, this is something where there’s a lot of similarities to what happened with photovoltaics. Almost no one [would have predicted] that photovoltaic prices would have dropped as fast as they have, and storage is right at the cliff, heading down that price curve. It’s soon going to be cheaper to drive a car on electricity — a pure EV on electricity — than it is to drive a gasoline car. And as soon as we see that kind of shift in the actual cost of operation in a car that you can actually use for your daily driver, you know, from all manufacturers I believe we’re going to see electric vehicles come to dominate the whole transportation fleet.

“Also, that same battery cost decrease is going to drive batteries in the grid. There’s going to be much faster growth of grid energy storage than I think most people expected. You suddenly get to have energy that’s 100% firm and buffered from photovoltaics that’s cheaper than fossil energy. And we’re within sort of grasping distance of that goal, which is very, very exciting.

“Because once we get to that, and there really is no going back, it will make sense to do this economically without any environmental consideration whatsoever. So that’s the amazing tipping point that’s going to happen within I’m quite certain the next 10 years.”

Peak Oil Primer

September 9, 2015Energy and Climate Change, Oil, Opinion, Peak OilTrevor Larkum

An introduction to Peak Oil

Contrary to popular opinion we do not live in the Information Age. What we live in is the Oil Age. Look around you and you’ll have a virtually impossible task of trying to find something that isn’t tied back to oil – be it hip replacement surgery, the little pieces of plastic wrapped around the ends of your shoelaces, or the vast infrastructure that makes the so-called “Information Age” possible.

But not only is the relatively superfluous dependent on oil, but so is the very non-superfluous, such as food we eat. Not simply an issue of food being shipped around the world on the back of fossil fuels, the fact of the matter is that fossil fuels are used to plant and harvest our foods, and upon much else, the very fertilizers we spread on our fields are mined from the ground and even derived from fossil fuels themselves (the ammonia and urea we apply to our fields for nitrogen are products of nitrogen atoms paired in the air around us of which were split and combined with hydrogen from natural gas). Simply put, oil and the rest of the fossil fuels are the “lifeblood” of industrial civilization and our modern way of life.

The parallel between food and oil prices (Image: FoodDownTheRoad.ca)

Enter peak oil.

Is Greece Planning to Print Energy?

September 8, 2015Energy and Climate Change, Oil, Opinion, Peak OilTrevor Larkum

My first repost – I suspect of many – on the subject of Peak Oil

Over the past couple of months the story keeping many people on the edge of their seats has been the ongoing dilemma of Greece’s detested debt burden, its Great Depression-worthy 25% contraction of its economy, and its voluntary or even forced withdrawal from the eurozone – the fabled “Grexit.”

Can these new Greek gods (minus the ties) conjure energy from thin air? — Can these new Greek gods (minus the ties)
conjure energy from thin air?

For about five years now, heavy austerity policies (cutbacks in government spending) have contributed to what is being described by some as a “humanitarian crisis.” As per stated in the conditions of €240 billion in loans that Greece has received over these years, the Greek government has had to significantly cut back on expenditures, which has included laid off government workers, reduced pensions, a gutted minimum wage, and the selling of state institutions. Partially as a result of this, general unemployment is a bit above 25% while youth unemployment is at nearly 60%; suicide rates are up by 35%; rates of divorce, depression, children suffering from malnutrition, children suffering from physical and emotional abuse, and hospitals lacking basic equipment and medicines are all up; infant mortality has increased 43%; and married women are begging brothels to let them work, but who are then turned away because, well, it’s apparently illegal to sell oneself for sex if one is already betrothed.

Nonetheless, and to the acclaim of many alternative media outlets, late-January saw the stunning election-win of what is called a far-left political party, Syriza. The prime mandate on which it was voted in on by the Greek electorate was to reverse the five-year policy of austerity and to essentially tell its Troika creditors (the European Union, the European Central Bank, and the International Monetary Fund) to shove it where the sun don’t shine.

With Syriza promising to repeal all the aforementioned discomforts, accolades came pouring in, possibly the most astoundingly hyperbolic drivel coming from the online magazine Truthdig.

Oil Prices are on a Roller Coaster

September 8, 2015Energy and Climate Change, Oil, OpinionTrevor Larkum

Why do oil prices go down? Because they went up. Why do oil prices go up? Because they went down. That’s what they do. To avoid oil-price volatility, you must kick the oil habit.

You can do this by switching to efficiency and renewables. You’ll get cheaper energy services at steady prices; free price insurance; and lower risks to climate, health, environment, global development and security, and America’s independence and reputation.

In contrast, the oil for which the U.S. pays $1 billion a day — and paid $2 billion a day until mid-2014, when $100+ per-barrel prices halved — comes with price risk and far bigger hidden costs that at least triple the real societal cost to upwards of $4 billion a day.

So why, after four relatively placid years, did the world oil price tumble starting in mid-2014, and what’s next?

Why Oil Prices Fluctuate

People burn 1.3 cubic miles of oil a year, or 93 million barrels a day (each barrel equal to 42 U.S. gallons or 159 liters). Scott Pugh, energy advisor to the Department of Homeland Security, visualizes those barrels, each 20 inches in diameter, laid end-to-end and joined to form a pipeline. It’d stretch 1.8 times around the earth. To traverse that pipeline in 24 hours, the oil must flow at 1,835 miles per hour — 2.44 times the speed of sound.

Crude oil’s price fluctuates at more like the speed of light, varying with global, regional, local, and firm-specific market conditions. Despite many complexities, some broad observations are usually valid.

Oil prices tend to rise with instability in major exporters — Persian Gulf, Nigeria, Venezuela, Russia — though diversified supplies, suppliers, and delivery routes have made markets more placid. Strong economic growth also tends to raise prices — until they get high enough to dampen or reverse the economic growth. Conversely, oil prices fall when major exporters do what John D. Rockefeller used to do regularly: “sweat the market” with oversupply to bankrupt high-cost producers and thus raise one’s own monopoly rents.

Tesla is the beginning of the end for oil?

September 8, 2015Electric Cars, Energy and Climate Change, Model S, Oil, Opinion, TeslaTrevor Larkum

A good find by our friends at EV Obsession, apparently a trade magazine from the oil industry, Alberta Oil, has put a Tesla Model S electric car on its cover (“Hell on wheels”) and published an article with this title and sub-title: “Is Tesla’s Model-S the Beginning of the End for Oil? Why battery technology could drive the electric vehicle to new heights – and disrupt the fossil fuel industry in the process”.

You get the feeling that the thinking of many inside the oil industry is starting to change; for the longest time, most of the comments and official forecasts from the industry basically said that, yes, electric vehicles are coming, but they won’t be a big deal for many decades, and that maybe in 30-40 years they’ll represent a few percents of the vehicles out there.

Tesla on industry magazine - end for oil? (Image: Wikipedia) — Tesla on industry magazine – end for oil? (Image: Wikipedia)

This reassuring (for them) prognostication about the status quo was repeated like a mantra until even most people who heard it over and over in the media accepted it as truth. But that’s not how things work. We can’t know that far in advance how things will be, and if you had asked someone in 2006 whether billions of people were going to own super-powerful internet-connected smartphones within less than a decade, they’d have thought you were crazy. What looks obvious in hindsight isn’t obvious at all looking forward. Why? Because change is non-linear. Things move slowly for a long time, and then you reach a special tipping point where change accelerates. For example, solar power adoption was relatively slow until the price per watt of solar started getting close to other sources (first with incentives, and now without). That changed the game and things shifted in a higher gear. And as we get close to solar being cheaper than all other sources of energy, things will shifter in even higher gear…

Avoiding climate burnout – top tips

September 6, 2015Energy and Climate Change, OpinionTrevor Larkum

I have spent my lifetime face to face with some of the most brutal and inhumane acts ever committed, but nothing has been as traumatizing for me as trying to get action to tackle the climate crisis.

As a long time human rights defender and prior Executive Director at WITNESS, I helped produce and direct films on rape as a weapon of war and amputations in Sierra Leone’s recent bloody conflict, I conducted an undercover investigation into the Russian mafia’s involvement in trafficking women for forced prostitution, I investigated hit squads in apartheid South Africa, and I spent countless hours in editing rooms watching first hand images of death, destruction, and devastation.

But spending my days and nights trying to get our country to tackle global warming is more emotionally demanding than any job I have ever done.

When I was at WITNESS, people used to say “The work you do must be so difficult. How do you manage?” to which I would respond “Well, I can see the results. And it’s not as bad as environmental work would be!” What I meant when I said that five years ago is that I felt overwhelmed by our inexorable march to “pave it all” — parking lot by parking lot, McDonald’s by Wal-Mart.

But seeing former Vice President Al Gore give his now famous slideshow at the TED conference in 2006 convinced me that nothing mattered more than tackling global warming, and that climate change had massive humanitarian and human rights consequences. There was no looking back, so in mid-2007 I leapt, knowing that I was headed straight towards my deepest fears and concerns.

As I started to immerse myself in the science and early impacts of global warming, I became increasingly distraught. But I soldiered on, hoping against hope that I would be so busy in an ambitious new start up campaign at 1Sky, and so relieved to be trying to do something about it, that I would not be overwhelmed with existential angst and despair. Looking back on the last year and a half since I started as 1Sky’s Campaign Director in the fall of 2007, my wish has generally come true. But since President Obama’s inauguration and the 2009 clock started ticking on the countdown to Copenhagen, I feel myself slipping. And I know I am not alone.