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20 September 2014

Press review 20-09-2014 - United

In spite of the suspense of recent weeks, the Scots ended up voting to remain in the UK, in the process sparing many headaches to a lot of people. The Westminster government can thus count on the North Sea petroleum and gas extraction to balance its finances for a few years longer. But the writing is on the wall and a face off with depletion will come about eventually. The decline of these resources coupled with the isolationist drive of the UK government will likely result in a new referendum sooner than most may expect.

In fact, this coming winter could already be the energy event horizon long expected for the UK. To the decline of the North Sea adds the progressive retirement of Coal and Nuclear power plants, that has slowly derided the capacities of the UK National Grid to meet electricity needs. More than a decade of negligent energy policies now translate in to diesel fired electricity generation. The market will certainly deal with the problem, but is this the outcome British citizens wish?

16 September 2014

Scottish independence and the media

This story is not new and may be already known to most readers. Nevertheless, I stumbled upon this remarkable video that tells the tale from the protagonist's view. This media bias, that essentially encompasses all subjects, is the main driver of this blog.

13 September 2014

Press review 13-09-2014 - Back in Contango

Petroleum prices took a nose dive this week in international markets, pulling the futures contracts structure back into contango. Politicians in Europe insist on slashing GDP, while China finally faces its long waited housing crisis; demand is shifting and the outlook for consumption is turning to negative. To these issues adds the escalation of economic sanctions between NATO and Russia, a tit-for-tat game with unknown consequences.

These economic developments come at the wrong moment for the petroleum industry. Recent reviews have focused on the mismatch between prices and extraction costs, that for some marginal producers may be at this stage in excess of 50%. The sustained price hike necessary to support these producers seems remote at this stage, leaving great doubts over the gargantuan amounts of debt that allowed the industry to operate with prices under marginal cost. If in pasts weeks extra-heavy petroleum and off-shore resources have been the focus of these debt woes, now even the so called "shales" in North America are cast in doubt.

07 September 2014

Scotland independence: the case for Yes

Thursday the 18th Scotland is going to vote what may well be the most important political decision in several centuries for itself and the UK. The reasons that prompted this process are many: the perception of a slow derision of Scottish identity and culture, the crystallisation of the UK's democracy (where non elected individuals still retain important powers), natural resources, budget sharing, NATO, just to name a few.

I am not Scottish, nor do I live in Scotland, thus I can not possibly fathom everything driving the vote. But one exercise I can make: assess the economic risks associated with the decision. And by doing so the complexity of this question becomes apparent, as so how uncertain is the outcome.

06 September 2014

Press review 06-09-2014 - The Limits

These days, having the media referencing "Peak Oil" in reasonable terms is a rare enough event; having it referenced together with the Limits to Growth study is pure luxury. But that is just what two journalists writing for The Guardian did, noting that the standard scenario produced by the MIT scientists in 1973 has been remarkably accurate. This should not be something new to regular readers, but it is important to know that the issue of exponential growth is still being studied seriously.

Contrary to what these journalists assert, I do not find the study to be a doomsday prophecy. The standard scenario is one of various developed, each with a different outcome. The study provided important insights into the mechanisms driving exponential growth and the possible obstacles to its perpetuation. The fact that the standard scenario has been the most accurate these past forty years means that finite resources are the most important of these obstacles, anticipating an end to growth sooner rather that later. And herein lies the path to a sustainable future: replacing finite resources with renewable ones and/or closing the resource extraction - usage - disposal cycle.

30 August 2014

Press review 30-08-2014 - The North Sea End Game

Scotland is voting an independence referendum in two weeks time. The debate has heated up considerably in recent weeks with the North Sea petroleum and gas resources coming into play. A great deal has been debated around reserve estimates and the implications for an hypothetical sovereign Scottish budget. However, far more important than reserves is knowing the net revenues that such resources can yield. And it is here than EROEI chimes in.

There is not much wealth in a resource that, however plentiful, is a marginal producer, parked at the head section of the supply curve. Yes, there is still petroleum and gas under the North Sea, but these are now mostly low return resources, that - as the article below explains - hardly provide revenues for their own exploration. The moment costs per barrel go above the market price it is all over.

Nevertheless, the sheer political risks associated with either the "yes" or the "no" supersede the budgetary questions and should be the main driver of the Scots' decision.