- Science: Technology Is Turning U.S. Oil Around But Not the World’s (NEW)
- Once, men abused slaves. Now we abuse fossil fuels
- Thomas Homer-Dixon: Our peak oil premium
- The End of Elastic Oil
- Power paradox: Clean might not be green forever
- How Much Energy Does Energy Efficiency Save?

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High oil prices ensured that profits at the major oil companies rose again in 2011 – Shell’s full year profits leapt 54% to $28.6 billion while Exxon’s increased 35% to $41.1 billion. With this kind of money at stake it is no surprise it is almost impossible to get a sensible debate about our energy future…

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The myth of the machine, the theme of last week’s Archdruid Report post, has implications that go well beyond the usual terms of discussion in the peak oil scene. One of those implications, which I mentioned briefly last week, unfolds from the way that so many people who are concerned about peak oil fixate obsessively on the hope that some kind of machine will solve the problem.

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What does peak oil have to say to us about the coming election? In general, those who understand the nuances of the phenomenon of the peaking of global oil are saying that world oil production is either at or is very close to reaching its all-time peak. In recent years leveling out of conventional oil production has resulted in a fivefold increase in oil prices. This increase in oil prices is believed by many to be a key reason, if not the key reason, for the economic troubles currently besetting much of the world.

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A midweekly roundup of peak oil news, including:
-Developments this week

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There are many unintended consequences as fuel supplies become more scarce and expensive. (With a h/t to Rune Likvern), I see that those Greeks who are being starved of affordable fuel are starting to chop trees down for warmth and income. This sort of desperation has devastated the countryside all over Albania, Africa, and Asia, and it is extremely difficult to stop the practice from spreading or to recover from it. The world expects that fuel must be available at an affordable price, and one of the ongoing questions is whether it will continue to be.

In that regard, BP has just released its Annual Energy Outlook 2030, examining how the world energy supply, and mix, will change in the years up to 2030. The booklet is an update from the study released last year, and reviewed at the time. This year the introductory speech by Bob Dudley focused on energy demand in China and India, Middle East exports, and transport fuel demand. BP sees overall energy demand growing some 40% over the next two decades, with virtually all growth coming from the developing countries. More than half will come from China and India alone. And of that energy, they anticipate that the supply will break out as follows:

Energy Supply Source Contributions ( BP Energy Outlook 2030)

Demand will grow across virtually all sections, apart from that of transportation in the OECD, which is expected to fall over the next two decades.

Demand changes in the next two decades (BP Energy Outlook 2030)

Oil will still be the basic source for transportation fuel, and though growth in demand is anticipated to be only 1% a year that turns into another 16 million barrels a day by 2030. One has to be careful therefore in assessing the contributions of the different sources of fuel, as percentages, since, while these may be falling relative to the whole, the actual volumes that are being consumed may still be rising.

Expected changes in the relative sources of energy supply prediction from last year (left) to this (right)through 2030 (BP Energy Outlook 2030)

On a minor note, the role of coalsurpasses that of oil some 20-years from now, while last year, the two were about equivalent. Even though BP expects that by 2020, coal’s share of the global market will begin to fall, though less steeply now than they anticipated last year. And BP expects that some of the change in the mix will be brought about by technical change.

Technology underlies many of the trends apparent in this report. For example, the supply of gas has been accelerated as a result of technologies that unlock shale gas and tight gas. In the transport sector, we believe the efficiency of the internal combustion engine is likely to double over the next 20 years. And that will save roughly a Saudi Arabia’s worth of production. By 2030, we expect hybrids to account for most car sales and roughly 30% of all vehicles on the road.

The interesting question is, of course, where BP thinks that all the oil will come from. Last year, when they projected the same growth rate, the sources were expected to be Saudi Arabia and Iraq. This year, they project that more will come from Deep water, rising from the 9% of supply anticipated last year to 10% in the current review (currently it is at about 7%). But, more interesting, is that they see the roles of energy efficiency and technical exploitation of indigenous resources leading to a great change in the international fuel market:

we foresee both the Americas and Eurasia – or Europe including Russia and the former Soviet Union – achieving self-sufficiency in energy, while the Middle East will generate surplus supply for Asia’s surplus demand. In the US for example, oil imports have dropped by about one-third since peaking in 2005 and are likely to be half of today’s level in 2030. The US now produces over 50% of the liquid fuel it uses – as opposed to importing the majority, as was the case a few years ago.

For the U.S. and European pictures to change as much as they anticipate, cellulosic ethanol still appears to be the flag pole on which they have hung their future, and in which they remain heavily invested. Yet when one looks at the make-up of the sources for fuels in 2030, as projected this year over that suggested last year, there has been a slight gain in overall volumes required.

Anticipated sources of fuel in 2030 – last year’s projection (left) and this year (right)

The interesting changes come in Non-OPEC growth, with the contribution from bio-fuels diminishing, growth in US production replacing that anticipated from the FSU (wonder where that went?) and a drop in the Non-OPEC declines. To answer my own question, I suspect that the growth in FSU supplies (which I am covering elsewhere) has been melded into the need to sustain production at current levels, and that may be a part of the reason for the drop in the Non-OPEC declines.

When one considers that BP are forecasting an increase in demand of 8 mbd from China, 3.5 mbd from India, and 4 mbd from the Middle East, with the non-OPEC decline being at 6 mbd, there is a total of 21.5 mbd of new production being forecast, over the next 20 years. And of this, 12 mbd will come from OPEC, namely Saudi Arabia and Iraq, but with a significant contribution – 4 mbd – from NGLs.

At which point I cough gently and draw your attention to recent remarks (h/t Stuart Staniford) of the Saudi Oil Minister, who suggested that they have flexibility up to a full production of 12.5 mbd, with a little time; but, on the other hand, they will drop production to keep the price over $100 a barrel. And so there is a suspicion that as Libyan oil production returns to normal, Saudi production may fall in balance. The upper limit on Saudi production had earlier been set at 12 mbd, but both these figures are now coming under increasing question, particularly since Aramco has had problems in finding a market for their heavier crudes, which make up almost all of the surplus over current production. (And the Saudi refineries to treat them are still a couple of years away). Yet, if the refineries to treat those oils do come on line, and that increases Saudi capability by 1 mbd of marketable product from Manifa, it will still only bring them up to about 11 mbd. It may be that they will raise production that much, to offset increasing domestic use, and maintain the volume of exports that they need to sustain their economy. But how long they can do that, relying on their ageing major reservoirs remains, of course, the other big question. BP anticipates that they will increase production by 3 mbd over current levels, and still have a cushion of a million or so barrels a day.

And as for Iraq, the country exported 2.14 mbd in December having risen 275 kbd or 14.4% over the year. Whether that can be sustained in the face of continued troubles is not clear. The Al-Ahdab field has come on stream and is ahead of schedule, at 120 kbd, though it may well be that all that oil ends up in China. BP, however, are assuming that Iraq can double production, to 6 mbd, by 2030.

Growth in production in the Americas is anticipated to come from the oil sands (up 2.2 mbd); the Brazilian deep waters ( another 2 mbd) and U.S. shale oil (at 2.2 mbd). Total biofuels growth of 3.5 mbd balances out the anticipated supply and demand at just under 105 mbd.

The continued growth in natural gas is divided into two parts, that which is shipped through pipelines, and that sent as LNG in tankers. Total demand will rise about 50% with the Middle East, China and India providing most of the increase in demand, and with supply coming from a number of sources.

Changes in natural gas demand and supply over the next 20 years (
BP Energy Outlook 2030)

The growth in use will be across all sectors of the economy, but if I do an eyeball comparison it seems as though there is a significant drop in LNG increase over the numbers that BP were using last year. Back then they were seeing an increase of around 70 bcf/day over the interval; now, while they are projecting a growth of 4.5% p.a., the overall volume is somewhat less.

Coal demand will continue to rise, largely due to increased demand for power and industrial use in China and India, while western nations slowly ease away from the fuel.

Changes in coal use over the next 20 years. (BP Energy Outlook 2030)

BP summarizes the changes that they have made, relative to last year’s forecast as:

Changes in BP forecasts from 2011 to 2012. (BP Energy Outlook 2030)

Overall, it looks to be a rather optimistic view of the future.

Analysts at UBS say company could consider special dividend if it fails to find suitable acquisitions

British Gas owner Centrica is on the rise after analysts suggested it could return up to £1.2bn to shareholders.

The company raised its stake in the Statfjord field in the north sea earlier in the week, but UBS said further such deals were unlikely to fit its acquisition criteria. Analyst Stephen Hunt said:

Even though Centrica’s preferred strategy remains vertical integration, if the company doesn’t find sufficient investment opportunities, then it could redistribute cash.

We believe that the payment of a special dividend of up to 23.5p a share (8% yield, totalling £1.2bn) is possible in 2012, although Centrica would likely target a lower payout in order to leave headroom for further acquisitions. Strong cashflows mean such a payment could also be repeated in future years.

Hunt repeated his buy recommendation and 330p price target, helping push the shares 4.1p higher to 299.7p.

Company says US group One Media Technology is considering an offer

Some excitement in the small cap sphere with shares in Worldlink more than doubling on news of a possible takeover.

The company, which specialises in mobile data and only joined the stock market at the end of November last year, said US group One Media Technology had made an approach about an offer. It has until 2 March to make a firm decision.

The news sent Worldlink’s shares soaring 29.5p to 53.5p

Just over a month ago Worldlink issued a statement saying it knew of no reason for a rise in its share price at that time, beyond a note being issued on the company by its broker Bridge Hall.

Last week Worldlink announced it was changing its adviser and had appointed XCAP Securities as its broker.

Worldlink’s technology allows information held on a mobile device to be updated automatically without the need for a manual refresh, and it holds patents in the UK and US.

One Media is a supplier of tablets and software products based in Chicago

Around £43.5bn added to the value of Britain’s top companies as markets welcome economic data and hope for Greek solution

Leading shares moved higher for the fourth day in a row yesterday, reaching their best level for more than six months, thanks to forecast-beating US jobs figures and continuing hopes of a resolution to the Greek debt crisis.

The FTSE 100 closed up 105 points at 5901.07, with insurer Admiral topping the risers. The group, which has been under pressure since a profit warning last November, jumped 76p to £10.38 after news it had extended its existing UK car reinsurance partnerships until 2014 at the same cost, as well as positive comments from Munich Re, one of its key partners. Ben Cohen at Collins Stewart said:

Munich Re expects €350m premium growth in 2012 due to ‘strong price increases in recovering markets (eg proportional UK motor)’. Munich’s biggest relationship in motor by some margin is with Admiral (40% co-insurance in the UK, 65% reinsurance outside the UK (ex-France)).

We think there is meaningful read-across to our Admiral forecasts. Since the third quarter update, we had been assuming flat premiums in the UK in 2012. Working backwards from Munich’s €350m, we assume €250m of the growth will come from Admiral, which we split three-quarters UK, one-quarter international. This leads us to a 6% increase in UK profits in 2012 and 10% in 2013 (because commissions earn through over time), slightly offset by a higher loss in international, for a 4% earnings per share increase in 2012 and 9% for 2013.

We raise our price target from 880p to 975p.

Since Monday the FTSE 100 has added 168 points – nearly 3% which has added £43.5bn to the value of Britain’s top companies over the week. Investors’ spirits were lifted by positive manufacturing data from around the globe on Wednesday and the surprisingly good US non-farm payroll numbers yesterday, which showed 243,000 jobs created in January compared to expectations of a 150,000 rise. Joshua Raymond, chief market strategist at City Index said:

The FTSE 100 has now firmly broken past resistance at the 5800 level to close the week higher by over 2% and at its week’s trading highs. This is a positive sign for the FTSE and if the Bank of England can deliver next week with announcing more quantitative easing, there is every chance that the FTSE 100 can recover the 6000 level sooner rather than later.

On the corporate front, a proposed £50bn merger between Glencore, up 20.85p at 482.55p yesterday, and Xstrata, 52.5p higher at £12.83, ignited the mining sector. Anglo American – a possible target for the merged group – added 79.5p to £29.10.

There was a mixed picture from the week’s trading updates, with disappointing figures from Unilever, up 35p to £20.29 yesterday, Royal Dutch Shell, down 4p at £22.61 and AstraZeneca, up 26p at £30.10.

Elsewhere Tullow Oil added 22p to £14.62 yesterday after the exploration company signed two new production licences with Uganda and said it was going ahead with a deal to partner with Total and China’s CNOOC in the fields involved at the Lake Albert Rift Basin. Tullow expects the transfer of funds to take place as soon as possible. Tullow has also been awarded a production licence for the Kingfisher project.

British Gas owner Centrica was on the rise after analysts suggested it could return up to £1.2bn to shareholders.

The company raised its stake in the Statfjord field in the north sea earlier in the week, but UBS said further such deals were unlikely to fit its acquisition criteria. Analyst Stephen Hunt said:

Even though Centrica’s preferred strategy remains vertical integration, if the company doesn’t find sufficient investment opportunities, then it could redistribute cash.

We believe that the payment of a special dividend of up to 23.5p a share (8% yield, totalling £1.2bn) is possible in 2012, although Centrica would likely target a lower payout in order to leave headroom for further acquisitions. Strong cashflows mean such a payment could also be repeated in future years.

Hunt repeated his buy recommendation and 330p price target, helping push the shares 5.3p higher to 300.9.

Takeover speculation returned during the week to waste management group Shanks, down 2.5p at 110.5p on profit taking yesterday, and recruitment company Hays, up 5.8p at 85.75p.

Old Mutual added 6.3p to 157.8p after it said it would return £1bn to shareholders via a special dividend after the sale of its Nordic businesses to Skandia.

Lower down the market Enterprise Inns rose 2.75p to 42p following the sale of 15 tenanted pubs to Fuller, Smith & Turner, up 17.5p at 740p, for £22.9m, compared to their £18.4m book value.

Game Group jumped 25% to 6.64p as the troubled retailer agreeing revised lending terms with its banks.

Dixons Retail rose 0.69p to 14.39p after John Lewis reported strong demand for electrical goods last week – up 19.2% helped by continuing demand for tablets and notebooks. Freddie George at Seymour Pierce said:

The news on electricals should help to support the Dixons Retail share price and shows that the positive trend seen in electrical sales in the first couple of weeks of January has continued throughout the rest of the month.

Finally, drug discovery firm Summit Corporation closed 37% higher at 6.5p. A new scientific paper on the progress in understanding and treating Alzheimers drew investors’ attention to Summit’s work in this area, where it is developing possible treatments for the disease.