[Rhodes22-list] alternative energy & a rant...

brad haslett flybrad at yahoo.com
Thu May 18 20:05:00 EDT 2006


Bob,

Your assessment is on the mark!  There are no
non-guilty political parties, or Presidents on this
issue.  I still remember Jimmy Carter, educated in
nuclear energy, telling us to wear a sweater. 
Actually, it wasn't bad advice but hardly something
you can run an industrial economy on.  Here's some
reading from Business Week.

Brad

--------------
MAY 15, 2006 

COVER STORY 

Why You Should Worry About Big Oil  
Beyond the fat profits, the giants are surprisingly
vulnerable worldwide. That's bad news for business --
and consumers 

 
 
COVER STORY PODCAST
 
 
You'd think the Apr. 26 oil summit in Qatar would have
been an occasion for the industry to celebrate. The
world's top energy executives were there, and they
could all point to record profits and record demand.
But rejoice? John Browne, CEO of London giant BP PLC,
(BP ) says instead that the atmosphere was strangely
glum. "There wasn't anyone smiling," he says. "They
were worrying that the price was too high."



 
Slide Show >>Browne's comments underscore a surprising
point. Big Oil, that clutch of oil and gas giants in
the U.S. and Europe, has big problems. Yes, we know it
sounds ridiculous. Exxon Mobil Corp. (XOM ) has been
reporting the lushest earnings in the history of the
business, notching up $8.4 billion in its latest
quarterly report. Combine the forecasted 2006 earnings
of BP, Royal Dutch Shell (RD ), Chevron (CVX ), Total
(TOT ), ConocoPhillips (COP ), and ExxonMobil, and you
get roughly $135 billion, a sum greater than the gross
domestic product of the Czech Republic or Israel.
These companies, moreover, enjoy huge political clout
in their home countries, have spotty environmental
records, and staunchly defend outrageous prices at the
gasoline pump. Why worry about them?

Well, you don't have to love the big oil companies to
worry about their ability to provide us with the
energy we need. That job is getting difficult, thanks
to huge technical challenges, competition from
national oil companies, and demanding, even hostile
foreign governments. Just look at events in Bolivia on
May 1, when the government abruptly nationalized the
nation's gas fields.

So the majors may be making billions, but they are
struggling to put them safely and soundly to work.
Overall production at the oil majors is struggling to
keep up with demand, and the reserve replacement
ratio, the measurement of how well they are
replenishing their supplies, is slipping. A healthy
ratio should always be over 100%. But ratios for most
of the six oil majors will slip below that level over
the next five years, according to Sanford C. Bernstein
& Co. "That's nowhere near the rate of reserves needed
to satisfy world demand," says Robert E. Gillon, an
analyst at oil research firm John S. Herold Inc. While
most analysts think oil will hover at its current
price, some think that if prices mimic the last big
runup between 1970 and 1980, oil could hit almost $200
a barrel by decade's end, or about $6 for a gallon of
gas. Some options traders are already betting that
oil, now around $72 a barrel, could rise to $100 by
December. Washington consultants PFC Energy figures
the world is consuming oil at more than two times the
rate of discovery of new supply. Conservation and
efficiency gains have already saved billions, but they
have not been enough to offset sharply rising demand
from China and India.

 
Slide Show >>But even if oil prices were to slump --
and pros like BP's Browne believe that prices could
still "turn on a dime" -- the predicament of Big Oil
and its customers would persist, since so much of the
global oil patch is now off-limits. In theory that
shouldn't matter, as long as someone is getting the
oil to market. In practice, though, the private oil
companies are better than national companies at the
technology and innovation that get the best results.
Over the long haul, if Big Oil can't apply its skills
fully, consumers will suffer more than they expect.

A decade ago, in a time of low prices, countries like
Russia and Venezuela happily offered good deals to the
majors. Now, the big reserve holders figure they can
dictate the size of their cut. They are adjusting tax
regimes and contracts so that the higher the price
climbs, the fatter the percentage that goes to
government coffers. Russia and Saudi Arabia are
becoming wary of allowing the majors in at all.
Gaining access to reserves keeps oil CEOs awake at
night. Recent auctions of exploration blocks in
Algeria, Libya, and Egypt have yielded terms that many
executives believe won't generate returns to
compensate for ever-higher risks. "It is becoming
increasingly difficult to find attractive ways to
reinvest today's profits," says PFC Energy Chairman J.
Robinson West.

It won't get any easier. In the 1960s, 85% of known
reserves worldwide were fully open to the
international oil companies. That number is now 16%.
The rest of the world's oil and gas is either
restricted or entirely cordoned off. "You don't have
an infinite number of prospects to drill anymore,"
says T. Boone Pickens, the raider and oil patch
veteran. In 1979, U.S. and British companies accounted
for 27.8% of world oil and gas production. By 2004
their share was just 14%, says Bernard J. Picchi, an
analyst at Foresight Research Solutions LLC in New
York. National champions such as Saudi Aramco, Kuwait
Petroleum, and Mexico's Pemex outweigh publicly traded
oil companies in the production contest. "Everyone is
pointing their fingers at the ExxonMobils, but they
are relatively small players," says Gal Luft,
co-director of the Institute for the Analysis of
Global Security.

DIFFERENT AGENDA 
While the international majors are not the altruistic
utilities that U.S. politicians might wish them to be,
their main interest is in efficiently extracting and
selling oil and gas. Even when they struggle, as Royal
Dutch Shell PLC has in Sakhalin in Siberia, the
Western oil majors are usually best equipped to tackle
the hardest projects. National oil companies, though,
often have a different agenda. "More and more
production and reserves are controlled by governments
or institutions that have more of a political than a
commercial motive," says Gerald Kepes, a managing
director at PFC Energy. "That has a huge impact on
pricing."

The track record of Petróleos de Venezuela (PDVSA),
the Venezuelan national oil company, is a striking
example. For President Hugo Chávez, PDVSA is a cash
cow for social programs, and developing new production
is apparently a low priority. Since 1998, just before
Chávez took power, PDVSA's output has fallen by 46%.
Iran, which has largely excluded foreign companies,
has seen capacity fall from 7 million barrels per day
before 1979 to below 4 million barrels. These
collective shortfalls have driven OPEC'S capacity from
more than 38 million barrels a day in 1979 to 32
million, according to Edward L. Morse, a senior
analyst at Hetco, an energy trading company in New
York. And since many OPEC producers won't divulge
vital data, it's impossible to figure out what OPEC's
true reserves are.

PERSONNEL SHORTAGE 
Given these ever-tighter restrictions, the oil majors
are milking the acreage they hold in politically
stable zones for all that it's worth. They include the
North Sea, the Gulf of Mexico, and the North Slope of
Alaska. Discovered in the 1960s and '70s, they are
being depleted. As these fields dwindle, their
scarcity value as safe zones is shooting up: BP
recently sold fields in the Gulf of Mexico to Apache
Corp. (APA ) for $22 a barrel. Two years ago the price
might have been around $7 per barrel.

With the older fields fading, the industry is turning
to nonconventional sources like liquefied natural gas
and tar sands. "The easy energy is already tackled,"
says Malcolm Brinded, Shell's executive director for
exploration and production. "The industry is going to
have to do more and more challenging projects." Shell
should know: Its Sakhalin II oil and gas project has
reported a cost overrun of $10 billion.

New strides in technology were supposed to lower the
cost of finding these fresh reserves, but the
complexity of new ventures adds to the expense. Morgan
Stanley figures the costs of finding and developing a
barrel have tripled since 1999, to over $10. Donald L.
Paul, Chevron's chief technology officer, notes that
offshore wells now often have to drill 10,000 feet or
more to find oil: 600 was once the limit. "Wells are
$50 million and up," says Paul. A decade ago, they
cost $10 million.

Companies also say it's not easy finding the personnel
needed to man these projects, especially in the West.
In Russia, China, and elsewhere, it's a different
story. Russia's Gubkin Institute of Oil & Gas has an
enrollment of 8,000 students and adds 1,500 each year
-- more than the total native British and U.S.
students studying petroleum science, says Joseph A.
Stanislaw, senior adviser to Deloitte & Touche's
energy practice. The scarcity of people and equipment
is delaying projects, putting further pressure on
costs and prices. Rigs are being channeled to
development projects, which provide quicker profits,
rather than pure exploration, possibly diminishing
future prospects.

How will the majors respond to these challenges?
Seasoned fields like the North Sea are enormously
profitable. But as the majors switch to far more
expensive fields, returns will drop. The big companies
of course have huge resources. ExxonMobil, for
example, has $33 billion in cash, and it has made some
promising deals recently. And the majors have a head
start if the industry shifts to alternative fuels. But
the oil companies are still finding it easier to
return billions to shareholders than find sensible new
investments. Last year the six majors spent $71
billion on capital investment, but $74 billion on
share repurchases and dividends.

In the long run, the big oil companies that can't find
a way to invest profitably in their industry could
find themselves vulnerable. "Companies can't go on
returning cash to shareholders. Otherwise they might
as well give the assets to someone else," says Mark
Bentley, head of global energy investment banking at
HSBC (HBC ). Bentley says hedge funds and investors
are closely scrutinizing oil company performance.
Consumers take note: Big Oil has a future. But despite
that gusher of profits, it's not an easy one.


By Stanley Reed, with Christopher Palmeri in Los
Angeles, Peter Coy and Rose Brady in New York, and
Mark Morrison in Austin, Tex.




--- Bob Keller <r22yankeeclipper at hotmail.com> wrote:

> Hey All,
> I just can't take it any more, so here goes:
> 
> French Fry oil was being "burned" in a car which I
> took to mean that the car 
> burns oil so is on its last legs...  Still think
> Mobil 1 would be a whole 
> lot more efficient than French (Freedom) Fry Oil... 
> I'm in Lyon, France as 
> I write this and as I read what is being said on
> this list recently and in 
> the media always I am beginning to think I am living
> in the future for the 
> U.S. by being in France.  Guess what folks, the
> future sucks!
> 
> The U.S. is still the envy of the world and it is
> NOT because we (1) refuse 
> to defend ourselves because it might offend a
> particular ethnic or religious 
> group (like, say the Muslims - the religion of
> peace), or the fact that the 
> NSA has the gall to listen in on phone conversations
> to proactively protect 
> our country.  I think Bush should be impeached if he
> did NOT authorize such 
> activities-isn't that what Commander-in-Chief is all
> about (although I grant 
> you that Geena Davis would not do that on the TV
> show...)  BTW, you don't 
> think that TV show has anything to do with the media
> promotion of Hillary, 
> do you?  Nah, probably just a coincidence... (2) all
> this consternation over 
> oil/gas prices, alternative energy and the impending
> doom.  Do we know why 
> oil/gas prices are so high?  I have tried to find
> this out from the media 
> and it is not being reported on TV (even O'Reilly is
> avoiding it) - you 
> would have to read it, but not in newspapers.  Here
> it is: EW's - that is my 
> abbreviation for Environmentalist Wackos.  It really
> is pretty simple, 
> folks.  The U.S. has a refining capacity problem
> because we have not built a 
> new refinery in 20 years.  Why? Because it is cost
> prohibitive. Why? Because 
> environmental permitting, compliance and potential
> remediation costs are out 
> of control.  Our domestic oil & gas production is a
> fraction of what it 
> should be because the largest domestic reserves are
> off-limits to drilling, 
> ie: Alaska (where the Alaskans have been trying for
> 20 years to get drilling 
> approved, but the California liberals are not
> letting it happen, presumably 
> because some of them might one day in their lives
> visit Alaska and would not 
> want to see an oil well) and the Outer Continental
> Shelf which is off the 
> Atlantic Coast and off the Gulf Coast of Florida
> which is off limits for 
> drilling (have you heard that Cuba and Trinidad are
> the next new sources of 
> oil, it's true).  Why off limits you ask?  Because
> it would litter our 
> coastline (albeit 200 miles offshore!)  with rigs,
> and that would be 
> asthetically unpleasant (as unpleasant as $3 gas?) 
> Nevermind that there is 
> some great new technology being developed off the
> coast of West Africa 
> (Chad) that will enable offshore production without
> stationary rigs - it is 
> amazing and the reserves are huge and will begin
> production next year.  On 
> top of all this, we have discontinued nuclear power
> projects because they 
> are potentially harmful to the environment and
> generally unsafe (according 
> to some who do not consider facts important), we
> have stopped using coal to 
> generate power because it might contribute to this
> global warming fantasy, 
> thereby forcing all power generation to natural gas,
> which we have 
> restricted!!!  So, Natural gas went from $3/MBTU to
> $14/MBTU and has now 
> dropped and stabilized at $7/MBTU which is more than
> half the previous 
> levels, and consumers can't believe their heating
> bills.  Why so high?  
> Demand is strong and supplies have been limited by
> the aformentioned 
> environmental insanity.  Get it?  Natural Gas (NG)
> cannot be shipped from 
> elsewhere cost effectively (granted, there is LNG
> that can be shipped, but 
> the cost will be $6+ and supplies are limited).
> 
> Let's review where we are, shall we?  We can't use
> nuclear or coal as power 
> sources because of the EW's, which leaves only NG. 
> We can't develop 
> domestic NG resources because of the EW's. 
> Gasoline?  We can't build new 
> refineries and we can't develop our substantial
> domestic reserves because of 
> the EW's.  So, let's talk about fictitious new
> sources of energy and how we 
> should walk to work, drive smaller cars, raise gas
> taxes (a favorite 
> solution that has worked so well in Europe...) and
> how evil the oil 
> companies are...
> 
> There was recently a $4B (yes, that's billions)
> investment in a new 
> petrochemical complex by Exxon that was commited for
> the Middle East (I 
> think Oman).  The CEO said there was one (1) reason
> it was being made in the 
> Middle East instead of TEXAS:  the high cost of
> natural gas @ $7/MBTU.  We 
> are no longer competitive and it is our own fault. 
> We have lost so many 
> high paying jobs because of this insanity.  I think
> we are heading toward an 
> economy of Wal-Marts, chiropractors and lawyers. 
> They don't pollute, right? 
>   They only pollute our standard of living...
> 
> I have been in the chemical industry for 25 years
> (not the oil industry) and 
> I study this stuff regularly and intently.  I have
> tried to find it reported 
> on all the TV specials promising to tell us why "gas
> prices are so high," 
> but they never mention any of this stuff.  Don't you
> wonder why?  Maybe 
> because liberals are never ones to let facts
> interfere with their opinions 
> or positions.
> 
> While the EW's are the cause of our problems, it is
> Congress that is the 
> heart of the problems because all the EW's can do is
> lobby - it is our 
> Congress that is doing nothing.  It makes me puke
> when Congress wants to 
> have hearings about high oil prices and the greedy
> oil companies price 
> gouging, yet it is their refusal to act on the many
> bills to open drilling 
> in ANWR and OCS that is digging our graves for the
> future: our standard of 
> living will suffer (speaking from France where gas
> is $6/gallon - what an 
> example!).
> 
> So, the only conclusion I can come to on all this is
> (1) It's George Bush's 
> fault, (2) it's those evil, greedy oil companies,
> and (3) don't confuse me 
> with the facts.
> 
> Good Night and Good Luck.
> 
> To those of you still reading - thanks - I feel
> better now............
> 
> Bonsoir,
> 
> Bob K
> Yankee Clipper (soon to be converted to fuel cell
> technology)
> 
> 
> >From: brad haslett <flybrad at yahoo.com>
> >Reply-To: The Rhodes 22 mail list
> <rhodes22-list at rhodes22.org>
> >To: The Rhodes 22 mail list
> <rhodes22-list at rhodes22.org>
> >Subject: Re: [Rhodes22-list] alternative energy
> >Date: Wed, 17 May 2006 17:12:05 -0700 (PDT)
> >
> >Robert,
> >
> >We have enough fat people in this country without
> >getting them addicted to french fries to fuel their
> >cars.  Used fry oil to biodiesel is a pretty simple
> >process.  Better that it gets burned in a car than
> the
> >other options but it won't make a dent in the
> national
> >energy budget.  If we plant rapeseed, not soybeans,
> >hedgerow to hedgerow nationwide, we can replace
> about
> >10% of our diesel demand.  Not a total solution but
> 
=== message truncated ===


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