The surge in IEA's predictions

The supply shock created by a ‘surge’ in North American oil production will be as transformative to the market over the next five years as was the rise of Chinese demand over the last 15, the International Energy Agency (IEA) said in its annual Medium-Term Oil Market Report (MTOMR) released last week. The shift will not only cause oil companies to overhaul their global investment strategies, but also reshape the way oil is transported, stored and refined.

According to the MTOMR, the effects of continued growth in North American supply – led by US light, tight oil (LTO) and Canadian oil sands – will cascade through the global oil market. Although shale oil development outside North America may not be a large-scale reality during the report’s five-year timeframe, the technologies responsible for the boom will increase production from mature, conventional fields – causing companies to reconsider investments in higher-risk areas.

The MTOMR forecasts North American supply to grow by 3.9 million barrels per day (mb/d) from 2012 to 2018, or nearly two-thirds of total forecast non-OPEC supply growth of 6 mb/d. World liquid production capacity is expected to grow by 8.4 mb/d – significantly faster than demand – which is projected to expand by 6.9 mb/d. Global refining capacity will post even steeper growth, surging by 9.5 mb/d, led by China and the Middle East.

So is it time to rejoice, having found the silver bullet??

Experts see a controversy in IEA’s stance across a few months. Its 2012 World Energy Outlook released in November prophesied that world demand would reach 99.7 mbpd by 2035. The MTOMR now projects that world demand will reach 96.7 mbpd just five years from now, implying a growth trajectory far in excess of that projected in the agency's 2012 report.

The IEA makes no attempt to understand the effect that high prices have on the world economy and its ability to grow under such circumstances. Nor does it address the dampening effect of high prices on demand, calling into question its projection of rapid increases in demand, say some.

Above all, what about climate change concerns?? Burning all the known reserves of fossil fuels would put us on a path to a climate catastrophe, something the IEA acknowledged in the executive summary of its 2012 World Energy Outlook saying, "No more than one-third of proven reserves of fossil fuels can be consumed prior to 2050 if the world is to achieve the 2°C goal, unless carbon capture and storage (CCS) technology is widely deployed." How come it is now singing to the shale tune?? How did the media miss all the controversies? Was it carried away by promises of plenty from ‘surging’oil and natural gas supplies in North America?? 

Spilt oil

In yet another oil spill last week, the oil major Shell has admitted that more than 200 tonnes of oil has spilled into the North Sea, making it the worst single leak in the region for more than a decade. Gannet Alpha spill comes under the "gold standard" regulatory regime of the UK. Most of the rigs have exceeded their original design life (typically 20 to 25 years).

Shell's oil spill in the UK North Sea comes barely a week after the UN issued a strong condemnation of the company's environmental impact in the Ogoni region of the Niger Delta. In a string of allegations, the UN environment programme accused Shell of failing to meet its own environmental standards.

This is not specific to a company, but what one needs to bear in mind is the danger fraught by such spills to the ecosystem.

In the US, public support is building up against the proposed 1700 mile long Keystone XL pipeline to transport Alberta tar sands from Canada all the way down to Mexico! What a rupture could do to farmlands and wildscapes on way can be imagined, besides the pollution! Just this June, 42,000 gallons of conventional crude oil was dumped into the Yellowstone from a much smaller pipeline.

And yet, nations are going ahead with big plans in the eco-sensitive Arctic region. Who is to decide what's good or bad? Which country can take the onus of potential damage?

Staking claims to the Arctic

Big big oil and gas stakes are increasingly being disputed in the Arctic Ocean area. The US has given the green signal to Shell on drilling in the Arctic. Already, Russia's Gazprom is involved with France's Total and Norway's Statoil in developing the Shtokman field, on Russia's northern coast.

According to the U.S. Geological Survey, the Arctic may hold about one fifth of the world's remaining oil and gas reserves.

Until recently, areas along that coast were considered barely accessible, but with the summer ice thinning radically, ships are now able to traverse the fabled Northeast Passage, linking the North Atlantic to the northern Pacific. As one recent report noted, “A Norwegian cargo ship has already traversed the Northeast Passage faster than expected and without encountering any major challenges."

Norway and Russia are maneuvering for position in the Barents Sea, where Statoil recently made its biggest find in decades, advancing their claims at the United Nations Commission on the Limits of the Continental Shelf. Denmark is engaged in the same kind of struggle with Russia over seabed north of Greenland.

Canada is purchasing eight new armed ice-breaking patrol ships, has been conducting Arctic military exercises, and is constructing a base on Ellesmere Island.

Who does the Arctic belong to? Who does its resources belong to? More important, can we afford to drill in this eco-sensitive region with its ice cover fast shrinking?

New terrain, old questions

Is all energy development at the cost of environment? Should we go ahead despite the eco-risks? Or is it time for a serious re-look at what we call 'development'? Is this taking us forward in terms of actual well-being, or is it merely physical comfort we are calling 'development'?

The Sand Hills of Nebraska are a unique Great Plains prairie ecosystem. The grasses and wildflowers, and ponds and lakes that feed the acquifer - should these be valued at all or only the oil from the tar sands that lie below? Roughly 173 billion barrels of Alberta tar sands reserves, worth more than $15 trillion, underlay an area the size of Florida, making it by far the largest petroleum deposit in North America.

Should we continue expanding supplies of planet-warming fossil fuels, especially when the tar sands project has razed hundreds of square miles of boreal forest, led to the creation of dozens of toxic tailings ponds, and released vast quantities of CO2?

Should we exploit the Arctic that contains almost one-quarter of the undiscovered, technically recoverable, hydrocarbons in the world? Amounting to 90bn barrels of undiscovered, technically recoverable oil, 1,670 trillion cubic feet of technically recoverable natural gas, and 44bn barrels of technically recoverable natural gas liquids in 25 geologically defined areas thought to have potential for petroleum.

A single spill can have disastrous impact on marine life in the area. But do we care (beyond rhetoric) about marine life when the issue is about energy security and scarce resources? Will nations take the long-term view or seize the 'opportunity' of unexploited, vast terrains?

Introspection time

On the energy and environment, it is the biggest story that continues to be highlighted for a fortnight. And why not, considering that as much as 5,000 barrels per day are escaping into the Gulf after Deepwater Horizon rig exploded and collapsed, letting oil from the well gush into the ocean. Some say the number is closer to 1.1 million gallons—approximately 26,500 barrels—per day. A barrel of crude equals about 42 gallons. The large element of doubt is because this is based on guesswork based on a cascade of satellite images and thickness estimates derived from visual descriptions of the slick. So far, somewhere between 4 million gallons and 21 million gallons have spilled.

BP's attempts to contain the spill using two huge domes to catch and siphon the oil have failed. The next tactic is going to be something they call a junk shot. They're actually going to take a bunch of debris, shredded up tires, golf balls and things like that and under very high pressure shoot it into the preventer itself and see if they can clog it up and stop the leak. What better use for garbage??!

The final hope is in a relief well that will be dug or a series of them nearby to take the pressure off the spilling well. But that will take 2-3 months and meanwhile the oil spill continues spreading (as shown in the picture taken by NASA.

The spill has made international bodies sit up and take note of a lack of regulations regarding offshore drilling which can cause untold pollution and environmental problems. With many nations eyeing the melting Arctic region with a view to tapping the seafloor, the world seems set for another 'cold' war. The erstwhile Soviet Union has made quite a mess of the Arctic with abandoned fuel barrels strewn around. Putin has pledged funds to its geographical society for 'developing' the Arctic.

The region's potentially enormous oil and gas reserves are becoming more accessible, prompting what Agence France-Presse called "a diplomatic tug-of-war" between the five countries that border the area -- Russia, Canada, Denmark, Norway, and the United States. Even China has shown more than passing interest. After all, the Arctic belongs to all!

The Arctic region also sits on what is believed to be tons of peat that keep a close lid on methane gas. If drilling is to proceed merrily, what can happen is a nightmare. Peak oil or not, looks like it is time we got unhooked from oil. What do you think? Or is it simply a matter of lax regulations?

Oil in the Arctic

Water AND energy will trigger the future wars on this planet.

Take oil. Recent IEA reports talk of declining production from existing oilfields. Peak oil, where extraction outstrips new discoveries, could be just a five years away. The hunt has been redoubled to find new oil wells. A massive find at Kurdistan could fuel tension between the Iraq government and the autonomous Kurdish regional government.

Equally tension fraught is the building up pitch for the Arctic ocean floor. Almost 30 percent of undiscovered oil is said to be buried there.

There is unexplored oil on the order of 90 billion barrels and 1.67 trillion cubic meters of natural gas, in the Arctic region, according to a U.S. Geological Survey report, but most of the natural gas lies in the Arctic Ocean closest to Russia.

Not only oil, but even gas hydrates, a mixture of ice and methane, another fuel source, have been discovered here. These are found only in high-pressure and cold temperatures.

Various nations have been staking claim and the deadline is 2009. Besides two small basins that are common, the rest is to be divided between Norway, Denmark, Russia, Canada and the US as per the 1982 UN Convention on Law of Sea (UNCLOS), which the US interestingly has not ratified.

According to this law, up to 230 miles of the ocean floor from the coast is exclusive economic zone of a nation.There is plenty scope for clashes as science, law and national ambitions lock horn. Meanwhile, the questions that come to mind are: can a region like the Arctic Ocean be claimed by nations? Is that fair? Also, what happens to the marine and polar wildlife as nations go drilling the ice?

Of course, exploiting this oil is not going to be easy. Superior technology will be required. The shifting ice pack will make the going rocky for rigs. Huge investments will be needed. Plus, any oil spill cannot be cleaned.

In yet another instance of energy related conflict of interest, is the focus on lithium. Lithium is an energy source that could help power the fuel efficient electric or petrol-electric hybrid vehicles of the future. The world's largest reserves lie in Bolivia at the Salar de Uyuni - in the remote southern Andean plane.

Naturally, Bolivia is not at all sure if opening the reserve to foreign industry will benefit it. We will not repeat the historical experience since the fifteenth century when raw materials exported for the industrialisation of the west that has left us poor, says Bolivia's minister for mining, Luis Alberto Echazu.

Why not make a common resource pool? Much as this goes against capitalistic free market notions, energy has become a life-essential today. Some amount of intervention is not surely bad.

Your comments and ideas are awaited. Help us make this blog a meaningful discussion forum.