After a six month hiatus, advanced search capability has returned. We apologize for the delays.

As I wrote back in February when the feature was introduced, many have observed that it is difficult to find older The Oil Drum content. Readers have had to rely on Google site search or the archives page. The advanced search feature is based on Apache Solr, which, unlike Google, enables you to sort and filter results. You can try it out by entering your search terms in the "Advanced search" box to the left, or by going here.

Feedback is welcome.

Jorge Nascimento Rodrigues is perhaps the only journalist in Portugal aware of the issue of oil scarcity. During the past few years, I have had the opportunity to collaborate with him several times, bringing the Peak Oil message to a larger audience on an almost regular basis. Last weekend, the largest weekly newspaper in Portugal (and among the diaspora), Expresso, had another article in its Economy section, penned by Jorge with a few thoughts on present events and trends. Samuel Foucher kindly provided an updated version of one of his graphs to illustrate the article.  

Below the fold you will find an English translation of this article.

This is an improved version of a log at the EuropeanTribune.

The alarm has sounded: the scarcity of oil will affect everyone, say analysts

‘Peak’ oil is no longer debatable. The projections for the year, the five-year period, or the decade when global oil production would start declining “are now a part of history”, says Luís de Sousa, member of ASPO-Portugal and contributor to the blog “The Oil Drum”, talking to the Expresso. “The period of peak is already being lived. Predicting it is no longer relevant”, he adds.

According to this specialist, the vast majority of the important mathematical and accounting models of oil production used by entities independent from the oil industry all point to a similar time period when oil production reaches a maximum and begins to decline. This is a period of about a decade centred between 2008 and 2010, and the maximum oil produced is between 78 and 85 million barrels daily.

Luís de Sousa emphasizes that since 2005 world liquids production has been bound between 80 and 82 million barrels per day, clearly in agreement with those models. This plateau “has been sustained by the increase of natural gas liquids, with pure crude [petroleum] in decline since 2005″.

Recently, the ‘peak’ has returned to the spotlight because of a secret report by the Future Studies group of the German Centre for the Armed Forces Transformation, a military think tank working for the Berlin Ministry of Defence. The study was published by “Der Spiegel”, causing considerable concern by those less used to the issue and its geopolitical implications.

The Diplomacy of Oil

The report has an alarming tone: “scarcity shall affect everyone” and “oil price increases pose a systemic risk, not only for transport systems, but also for all other systems”. And left a message: “It is vital to secure access to oil”, for in a fairly short time-frame, between now and 2040, we may see “a change in the international security panorama with new risks – like that of fuel transport – and new actors in a possible conflict around the distribution of an increasingly scarce resource”.

The German report concludes that “oil exports available through the market of supply and demand will shrink” and that need for oil diplomacy will sky-rocket because of oil’s geo-politization.

The increasing scarcity referred by the Germans is associated with “an almost unchanging level of oil production, fixed within a band that began during 2004,” emphasizes Luís de Sousa. This variation “band” is called by many specialists, with some humour, an “undulating plateau”.  Meaning, in this plateau, production variations oscillate, like a wave, from year to year, independent of price variations. The present crisis, whose end continues to be debated, “will likely prolong this undulating period, flattening what otherwise would have been a prominent peak”.

More important than the peak itself or the production plateau is the volume of oil available on the international market, or in other words, what is available for export beyond what is consumed by those producing the oil. “Maximum exports were reached in 2005, at an amount equal to 44 million barrels a day (mbd). Since then, production has entered into a slow, but irreversible, decline,” says the ASPO specialist. Presently exports amount to 42 mbd, and in 2020 exports are likely to be under 35 mbd. Luís de Sousa also adds that in the contest for the oil available in the international markets, a change is taking place. “There is a transfer of consumption from the countries that form the OECD (developed countries) to those emerging.- If in 1990, half of the oil produced was consumed by the OECD, today that fraction is down to 1/3″.  The world market has been turned upside down.

This long term structural change, deriving from the scarcity of this commodity and growing geopolitical risks (including those of navigation through strategic straits), has been further changed, in recent years, by what was dubbed the “financialization” of the crude futures market. This happened when financial speculators nicknamed “Wall Street refiners” entered the marketplace, buying and selling “paper barrels”, causing an additional disturbance in the market, with sometimes “wild” oscillations.

PIIGS are the most affected

One of the groups in the OECD that will suffer most with the contraction of available oil is the one formed by those countries most dependent on oil in their energy mix, according to Luís de Sousa. “A detail must be noted – those countries in greatest difficulties will be precisely those called the PIIGS. These countries each have an oil dependence in their total energy mix of over 45%, including Greece with 58%, Portugal and Ireland with 55%, Spain with 48% and Italy with 46%. This is in contrast to the European Union average of 37%. If we add the four countries with oil dependency above the European average, but below 45%, we get a complete map of the zone where the ‘undulating plateau’ will have the greatest impact. Besides the PIIGS, this includes Austria (44%), Holland (42%), Belgium (41%) and Denmark (39%).”

The weakest sector for the five most vulnerable countries of the euro-zone (Portugal, Ireland, Italy, Greece and Spain) is the transport sector, particularly when road-based. “This dependency can derive from geographic location, inappropriate urban and national planning or both” says Luís de Sousa. He recommends increasing maritime and railway modes of transportation; it is not sufficient to modernize the  electrical infrastructure or to encourage other sources of energy.

And here’s the graph that identified the PIIGS’s reliance on oil:

Thanks to Jorge for continuing to raise awareness of a subject that, as he writes, shall affect us all. Thanks to Samuel for his prompt collaboration.

A list of posts on previous articles by Jorge (from EuropeanTribune):

Have Oil prices bottomed out?

Unmissable interview with Franck Biancheri

The Month of the Psychological Shock (Over Oil) in America?

Jorge Nascimento Rodrigues is perhaps the only journalist in Portugal aware of the issue of oil scarcity. During the past few years, I have had the opportunity to collaborate with him several times, bringing the Peak Oil message to a larger audience on an almost regular basis. Last weekend, the largest weekly newspaper in Portugal (and among the diaspora), Expresso, had another article in its Economy section, penned by Jorge with a few thoughts on present events and trends. Samuel Foucher kindly provided an updated version of one of his graphs to illustrate the article.  

Below the fold you will find an English translation of this article.

This is an improved version of a log at the EuropeanTribune.

The alarm has sounded: the scarcity of oil will affect everyone, say analysts

‘Peak’ oil is no longer debatable. The projections for the year, the five-year period, or the decade when global oil production would start declining “are now a part of history”, says Luís de Sousa, member of ASPO-Portugal and contributor to the blog “The Oil Drum”, talking to the Expresso. “The period of peak is already being lived. Predicting it is no longer relevant”, he adds.

According to this specialist, the vast majority of the important mathematical and accounting models of oil production used by entities independent from the oil industry all point to a similar time period when oil production reaches a maximum and begins to decline. This is a period of about a decade centred between 2008 and 2010, and the maximum oil produced is between 78 and 85 million barrels daily.

Luís de Sousa emphasizes that since 2005 world liquids production has been bound between 80 and 82 million barrels per day, clearly in agreement with those models. This plateau “has been sustained by the increase of natural gas liquids, with pure crude [petroleum] in decline since 2005″.

Recently, the ‘peak’ has returned to the spotlight because of a secret report by the Future Studies group of the German Centre for the Armed Forces Transformation, a military think tank working for the Berlin Ministry of Defence. The study was published by “Der Spiegel”, causing considerable concern by those less used to the issue and its geopolitical implications.

The Diplomacy of Oil

The report has an alarming tone: “scarcity shall affect everyone” and “oil price increases pose a systemic risk, not only for transport systems, but also for all other systems”. And left a message: “It is vital to secure access to oil”, for in a fairly short time-frame, between now and 2040, we may see “a change in the international security panorama with new risks – like that of fuel transport – and new actors in a possible conflict around the distribution of an increasingly scarce resource”.

The German report concludes that “oil exports available through the market of supply and demand will shrink” and that need for oil diplomacy will sky-rocket because of oil’s geo-politization.

The increasing scarcity referred by the Germans is associated with “an almost unchanging level of oil production, fixed within a band that began during 2004,” emphasizes Luís de Sousa. This variation “band” is called by many specialists, with some humour, an “undulating plateau”.  Meaning, in this plateau, production variations oscillate, like a wave, from year to year, independent of price variations. The present crisis, whose end continues to be debated, “will likely prolong this undulating period, flattening what otherwise would have been a prominent peak”.

More important than the peak itself or the production plateau is the volume of oil available on the international market, or in other words, what is available for export beyond what is consumed by those producing the oil. “Maximum exports were reached in 2005, at an amount equal to 44 million barrels a day (mbd). Since then, production has entered into a slow, but irreversible, decline,” says the ASPO specialist. Presently exports amount to 42 mbd, and in 2020 exports are likely to be under 35 mbd. Luís de Sousa also adds that in the contest for the oil available in the international markets, a change is taking place. “There is a transfer of consumption from the countries that form the OECD (developed countries) to those emerging.- If in 1990, half of the oil produced was consumed by the OECD, today that fraction is down to 1/3″.  The world market has been turned upside down.

This long term structural change, deriving from the scarcity of this commodity and growing geopolitical risks (including those of navigation through strategic straits), has been further changed, in recent years, by what was dubbed the “financialization” of the crude futures market. This happened when financial speculators nicknamed “Wall Street refiners” entered the marketplace, buying and selling “paper barrels”, causing an additional disturbance in the market, with sometimes “wild” oscillations.

PIIGS are the most affected

One of the groups in the OECD that will suffer most with the contraction of available oil is the one formed by those countries most dependent on oil in their energy mix, according to Luís de Sousa. “A detail must be noted – those countries in greatest difficulties will be precisely those called the PIIGS. These countries each have an oil dependence in their total energy mix of over 45%, including Greece with 58%, Portugal and Ireland with 55%, Spain with 48% and Italy with 46%. This is in contrast to the European Union average of 37%. If we add the four countries with oil dependency above the European average, but below 45%, we get a complete map of the zone where the ‘undulating plateau’ will have the greatest impact. Besides the PIIGS, this includes Austria (44%), Holland (42%), Belgium (41%) and Denmark (39%).”

The weakest sector for the five most vulnerable countries of the euro-zone (Portugal, Ireland, Italy, Greece and Spain) is the transport sector, particularly when road-based. “This dependency can derive from geographic location, inappropriate urban and national planning or both” says Luís de Sousa. He recommends increasing maritime and railway modes of transportation; it is not sufficient to modernize the  electrical infrastructure or to encourage other sources of energy.

And here’s the graph that identified the PIIGS’s reliance on oil:

Thanks to Jorge for continuing to raise awareness of a subject that, as he writes, shall affect us all. Thanks to Samuel for his prompt collaboration.

A list of posts on previous articles by Jorge (from EuropeanTribune):

Have Oil prices bottomed out?

Unmissable interview with Franck Biancheri

The Month of the Psychological Shock (Over Oil) in America?

Bond investors remained stoical despite the flood of bad news coming from struggling southern European countries today – as it could have been much worse.

Spain’s one-notch credit downgrade by Moody’s, to AA1, still the second-best rating, actually lifted optimism about the Spanish economy’s capacity to pay down its debts. Spanish 10-year bonds rose, pushing down yields to 4.12%, down from 4.19% yesterday.

“It is still higher than the Standard & Poor’s rating, there was speculation it could have been worse,” said Brian Barry, credit analyst at Evolution Securities in London.

S&P, Moody’s rival credit agency, has an AA rating on Spain – the third highest – with a negative outlook.

Spain has been under pressure from bond vigilantes – active bond investors – about its double-digit budget deficit and its shrinking economy. Like Ireland, Spain is suffering from a real-estate slump, as the sector once accounted for almost a quarter of the country’s economy.

Moody’s downgrade came because of “the country’s weak economic growth prospects, also relative to Aaa-rated sovereigns, as the process of rebalancing the economy away from the construction and real-estate sectors will likely take several years”.

Other reasons for the cut included “the considerable deterioration of the Spanish government’s financial strength” and the “worsening debt affordability”.

Spain’s leading Ibex stock market index dropped 0.27% to 10458 this morning.

Bond investors welcomed Ireland’s multibillion euro banking bailout, as they prefer transparency over the uncertainty that further skeletons may remain in the closet.

The worst-case scenario of a €35bn bill to shore up Anglo Irish bank was mostly in line with forecasts by Standard & Poor’s, already priced in by the market.

“The announcement has brought clarity and the central bank’s worst-case scenario looks credible,” said Brian Barry, a credit analyst at Evolution Securities. “They have kitchen-sinked – they have finally dealt with the issues around the financial sector and the market looks to be taking some confidence from this.”

The lack of nasty surprises pushed up the price of Irish bonds, sending the 10-year bond yield down by 10 basis points to 6.5%.

Such borrowing costs are still almost unbearable, and similar to those of Greece just before it succumbed to the €110bn bailout by the European Union and the International Monetary Fund in the spring. The difference is that Greece, then, had multibillion euro immediate debt commitments, while Ireland is already funded for the rest of the year.

The Irish government said that it suspended bond auctions for the rest of the year, and that it planned to return to the international markets in 2011.

The bailout of Ireland’s banking system will push the government’s budget deficit to a staggering 32% of GDP Ireland said today. The government reiterated its commitment to cut the deficit below 3% of GDP by 2014.

Bond investors remained stoical despite the flood of bad news coming from struggling southern European countries today – as it could have been much worse.

Spain’s one-notch credit downgrade by Moody’s, to AA1, still the second-best rating, actually lifted optimism about the Spanish economy’s capacity to pay down its debts. Spanish 10-year bonds rose, pushing down yields to 4.12%, down from 4.19% yesterday.

“It is still higher than the Standard & Poor’s rating, there was speculation it could have been worse,” said Brian Barry, credit analyst at Evolution Securities in London.

S&P, Moody’s rival credit agency, has an AA rating on Spain – the third highest – with a negative outlook.

Spain has been under pressure from bond vigilantes – active bond investors – about its double-digit budget deficit and its shrinking economy. Like Ireland, Spain is suffering from a real-estate slump, as the sector once accounted for almost a quarter of the country’s economy.

Moody’s downgrade came because of “the country’s weak economic growth prospects, also relative to Aaa-rated sovereigns, as the process of rebalancing the economy away from the construction and real-estate sectors will likely take several years”.

Other reasons for the cut included “the considerable deterioration of the Spanish government’s financial strength” and the “worsening debt affordability”.

Spain’s leading Ibex stock market index dropped 0.27% to 10458 this morning.

Shares in Allied Irish Banks tanked 20%, or €0.1, to €0.440, after the Irish government said it was preparing to take control of the lender.

Allied Irish may need as much as €3bn additional funding, the government said today. Ireland has already pumped €33bn into its banks and building societies to avoid their collapse. Irish lenders financed a real estate boom over the past 10 years, which collapsed as soon as economic growth stalled and mortgage defaults soared.

“This statement confirms that additional capital support will be required by some of our banks and building societies,” the Irish Department of Finance said in a statement. “The overall level of State support to our banking system remains manageable and can be accommodated in the Government’s fiscal plans in the coming years.”

Anglo Irish has already received €22.9bn from the government, which took 18% of the bank in January 2009, after credit markets dried up following the collapse of Lehman Brothers.

The lender may need up to another €6.4bn, the government said today, while Irish Nationwide Building Society may need a further €2.7bn.

Bank of Ireland, which raised €2.93bn in June, doesn’t need any extra capital, the central bank said.

Bond investors welcomed Ireland’s multibillion euro banking bailout, as they prefer transparency over the uncertainty that further skeletons may remain in the closet.

The worst-case scenario of a €35bn bill to shore up Anglo Irish bank was mostly in line with forecasts by Standard & Poor’s, already priced in by the market.

“The announcement has brought clarity and the central bank’s worst-case scenario looks credible,” said Brian Barry, a credit analyst at Evolution Securities. “They have kitchen-sinked – they have finally dealt with the issues around the financial sector and the market looks to be taking some confidence from this.”

The lack of nasty surprises pushed up the price of Irish bonds, sending the 10-year bond yield down by 10 basis points to 6.5%.

Such borrowing costs are still almost unbearable, and similar to those of Greece just before it succumbed to the €110bn bailout by the European Union and the International Monetary Fund in the spring. The difference is that Greece, then, had multibillion euro immediate debt commitments, while Ireland is already funded for the rest of the year.

The Irish government said that it suspended bond auctions for the rest of the year, and that it planned to return to the international markets in 2011.

The bailout of Ireland’s banking system will push the government’s budget deficit to a staggering 32% of GDP Ireland said today. The government reiterated its commitment to cut the deficit below 3% of GDP by 2014.

Investors were tucking into Dairy Crest, the company behind Utterly Butterly and the John Lydon advertised Country Life, ahead of a trading update due tomorrow.

The reason was not the announcement that Dairy Crest had renewed a long term milk supply agreement with supermarket group Morrisons. Rather it was a spot of takeover speculation prompted by news late on Tuesday that the privately owned German group Theo Müller had just bought 200,000 shares to take its stake in the business to a disclosable 3.04%. Müller is Germany’s largest private dairy company with sales in Europe of €2.3bn, and is best known in the UK for its yoghurt brand. Analyst James Bushnell at Exane BNP Paribas said Dairy Crest could be an interesting bid candidate, whether for Müller or another predator. The company would cost around £1bn with a takeover premium and including debt. Bushnell said:

Dairy Crest previously distributed Yoplait’s yoghurts in the UK (via a joint venture). Müller’s move could be part of an ongoing negotiation strategy, but could also fuel bid speculation in some quarters. There is no direct UK product overlap, but both companies operate exclusively within the chilled arena. To an appropriate buyer (i.e. with scope for cost synergies) we believe Dairy Crest could be an interesting take-out candidate. Though we are not privy to Muller’s balance sheet, it has not taken on any large acquisitions in recent years. Whether Muller would want a large UK liquid milk business (in addition to Dairy Crest’s branded portfolio) is another question.

Dairy Crest closed 23.6p higher at 372.6p, the second biggest riser in the mid-cap index. The biggest was office rental group Regus, up 5.85p to 83.5p. That company was also subject to takeover gossip, with traders speculating on a possible 130p a share offer. Meanwhile Rightmove added 7.5p to 740p as fund manager Richard Watts from the Old Mutual UK Select Mid Cap Fund tipped the online property group at Growth Company Investor’s annual show in London.

All this helped the FTSE 250 climb 10.12 points to 10562.53. But investors were more cautious about the leading index, as global economic worries continued to weigh on sentiment. The FTSE 100 finished 9.17 points lower at 5569.27, with the heavyweight banking and mining sectors both losing ground as the third quarter drew to a close amid worries about European sovereign debt, notably in Ireland and Spain. Angus Campbell, head of sales at Capital Spreads, said:

Risk assets were not in favour today. As long as concerns over European countries’ credit ratings circulate, gains for equity markets will be hard to come by. The usual suspects (Spain and Ireland) continue to be the most likely candidates for defaulting on their debt and now civil unrest in Europe is almost becoming the norm. Today’s session has very much been dominated by investors balancing their books ahead of the end of the quarter. Too much of a negative end to September though will not set the best precedent for next month and memories of the big falls of the past during October are etched in the back of the mind.

Vedanta Resources fell 96p to £21.65 as an Indian court ordered the closure of a major copper smelter on environmental grounds, while Anglo American dipped 19.5p to 2531.5p and BHP Billiton fell 8p to £20.22. Among the banks, Barclays ended 3.8p lower at 305.25p and Lloyds Banking Group was 0.95p lower at 74.3p. Elsewhere AstraZeneca lost 62.5p to 3237.5p after a downgrade from buy to hold by analysts at RBS. They said:

We continue to expect a good performance from AstraZeneca in its quarterly results, although we are more cautious about the second half result, with tougher year-on-year comparisons owing to the absence of swine flu vaccine sales, generic erosion of Casodex, Pulmicort Respules and Toprol Xl, as well as erosion of US Arimidex sales following generics approval in the summer. Potential competition to Nexium in Europe remains a risk.

But Wolseley climbed 96p to £15.91 as the company – which has a large proportion of its business across the Atlantic – benefited from US mortgage figures which came in better than expected.

Rolls-Royce rose 20.5p to 612p following an upgrade from Morgan Stanley. The bank has lifted its recommendation from equal-weight to overweight, and its target price from 580p to 720p. It said:

We believe the market is missing the potential for improved profitability following the recovery in after-market revenues, progress in new programmes and the developed world replacement cycle kicking in.

But Smiths Group, whose products range from airport scanners to medical equipment, lost 18p to £11.96 despite reporting a better than expected 17% increase in full year profits to £435m. The fall followed a cautious outlook statement thanks to the coalition government’s planned spending cuts.

Shares in Allied Irish Banks tanked 20%, or €0.1, to €0.440, after the Irish government said it was preparing to take control of the lender.

Allied Irish may need as much as €3bn additional funding, the government said today. Ireland has already pumped €33bn into its banks and building societies to avoid their collapse. Irish lenders financed a real estate boom over the past 10 years, which collapsed as soon as economic growth stalled and mortgage defaults soared.

“This statement confirms that additional capital support will be required by some of our banks and building societies,” the Irish Department of Finance said in a statement. “The overall level of State support to our banking system remains manageable and can be accommodated in the Government’s fiscal plans in the coming years.”

Anglo Irish has already received €22.9bn from the government, which took 18% of the bank in January 2009, after credit markets dried up following the collapse of Lehman Brothers.

The lender may need up to another €6.4bn, the government said today, while Irish Nationwide Building Society may need a further €2.7bn.

Bank of Ireland, which raised €2.93bn in June, doesn’t need any extra capital, the central bank said.