Cantarell Update, September 2009: The Peak Oil PosterChild Continues To Plummet

As we last reported, in May 2009, Cantarell Field's April 2009 production averaged 713,000 barrels per day, down from 862,060 barrels per day in late 2008.

Now, according to a September 9, 2009 article in the Wall Street Journal, Cantarell is down to 500,000 barrels per day. (presumably for August 2009, and not yet plotted on the above graph). This represents a 30 % drop over only 4 months, which far exceeds the last calculated decline rate of 35 % PER YEAR.

A subsequent article in the Oil and Gas Journal, dated September 14, 2009, quoted PEMEX's recent prediction that total production will average 2.5 MMBO/D in 2010 (Mexico's total oil production averaged 3.4 MMBO/D in 2004). The article notes that this rate is down 4 % from the first half of 2009, and down 5.7 % from previous estimates. According to PEMEX, actual production was 2.561 MMBO/D in July 2009, so it is difficult for us to imagine that production could average 2.5 MMBO/D in 2010, given the precipitous decline of Cantarell and small increases seen in the KMZ and Chicontepec fields.

The OGJ article went on to state that exports were 1.2 MMBO/D in the first half of 2009, down 14.8 % from that period in 2008.

Background: Cantarell Field was producing 2,100,000 barrels per day in late 2004. Cantarell, at that time, supplied around 2.5 % of the world's liquid hydrocarbons (not just crude, but also condensate and natural gas liquids). So, here is a substantial portion of the world's oil production that is declining at a rate MUCH greater than 5 % per year ...

Oil exports supply 40 % of the Mexican government's annual budget. (This figure was reported in the recent WSJ article, but it has been quoted since 2007, or thereabouts.)

A few important questions:

• What will replace oil exports in Mexico's revenue budget - in a couple of years or less - when they have no oil to export?
• Mexico will need to import oil shortly after the exports stop - where will they get the oil, and what will they use to pay for it?
• Where will the US obtain the 1.3 MMBO/D that Mexico has supplied, in recent years?

For more information, please see our previous postings at:

http://peakopps.blogspot.com/search/label/Cantarell%20Field

Demand and more - 7/13/09

From Tom Whipple, 7/13/09:

China is the only economy that *claims* to be making progress, this despite a 21 % drop in exports ...

Chinese passenger vehicle sales rose 48 % in June 2009 ... full year sales for 2009 estimated to be 11 million. (MP Note: Some Chinese-released stats have, in the past, been "less than perfect".)

Vehicles on the road in U.S.: 250 million, 142,000 powered by natural gas ...

IMF forecast says world economy will expand 2.5 % next year ... (MP Note: ???)

IEA says demand for oil will increase 1.4 MMBO/D next year, or 1.7 % ... (MP Note: same as above.)

NGV incentives: Are we making some progress here?

From Tom Whipple, 7/13/09 update:

"A bill to increase tax incentives for buying vehicles fueled by natural gas is making its way through Congress."

FIT's, ART's, RPS', RES', Net Metering, more - Important New Renewable Energy Terminology

Below is an excellent outline, dated June 2009, which works towards explaining the basics of Feed-In Tariffs, Advanced Renewable Tariffs, Renewable Portfolio Standards, Renewable Energy Standards and Net Metering:

Feed-in Tariffs: A Mechanism, Not a Goal
June 2009


News Flash: City of Gainesville FL, Vermont and Ontario Canada Passed FITs in 2009
What are Feed-in Tariffs (FITs)?
• A FIT is a per kilowatt-hour (kWh) payment for electricity produced by a renewable resource.
• The amount paid differs by technology; for example, rooftop solar PV gets a much higher payment than larger-scale wind, which is already cost-competitive. Technologies we want to develop further, such as building-integrated thin-film solar, get a higher payment to encourage installation and innovation.
• The amount paid also varies by geographic location (to encourage the development of all locations, not just the prime locations); and by size (to encourage smaller-scale projects).
Various Names for Feed-in Tariffs
• “Feed-in tariff” is a literal translation from Germany’s 1991 Stromeinspeisungsgesetz (StrEG), the law on feeding electricity into the grid, and is the term used in Germany, France and Spain.
• North Americans have used the term “payments” rather than “tariffs” because many people associate the term “tariff” with “tax.”
• Other terms include Renewable Energy Payments and Renewable Energy Producer Payments.
• FIT advocates in Ontario, Canada are using the term Advanced Renewable Tariffs (ARTs), which uses different payments that vary by technology, size, application, and resource intensity; term “ART” is also used in U.S.
What are FITs in North America and the U.S. called?
• Like FITs, ARTs are differentiated by technology, project size, and application.
• Vermont and Ontario Canada just passed FIT laws in May 2009 (see below).
• California is currently considering a number of FIT bills.
How Do Feed-in Tariffs Enable Distributed Generation?
• FITs encourage development of renewable projects of all sizes, types and locations, from residential rooftop solar systems to farms of large wind turbines. When well designed, these differentiated tariffs result in the geographical distribution of various kinds of renewable energy. While FITS can be used to develop centralized renewable sources of generation, they are best known for increasing the role of distributed generation (DG).
• FITs also provide long-term investor security and replace imported fossil fuel with domestic jobs – even if more expensive in the short term.
What Renewable Energy Sources Are Included?
• FITs can be used only for solar, or only for wind. Germany, France, and Spain’s FITs are for many different technologies, including onshore and offshore wind, rooftop and ground-mounted solar, hydro, biomass and biogas, geothermal, and concentrating solar power.
How Are the Tariffs Calculated?
• By a transparent political process with input from industry, independent consultants, and users.
• In Advanced Renewable Tariffs, prices based on the cost of generation (from a specific source such as offshore wind) plus a reasonable profit.
• Tariffs are designed to be high enough to spur development but not create excessive profits.
Do Feed-in Tariffs Eliminate Environmental Review?
• No. Projects using feed-in tariffs must comply with the same laws and environment requirements as any other projects. Feed-in tariffs typically only apply to the mechanism for getting access to the grid, for selling electricity to the grid, and for setting the price that is paid for the electricity.
What Are the Key Elements of Advanced Renewable Tariffs?
• Simple, comprehensible and transparent,
• Simplified interconnection,
• Sufficient price per kilowatt-hour to drive development,
• Long contract length to reward investment, and
• Tariffs differentiated by technology, size, and resource intensity.
• NO credits, NO monitoring, NO penalties and NO caps.
FITs and the Public Utilities Regulatory Act (PURPA)
• Under PURPA, the price for long-term power contracts = utilities avoided cost of fuels.
• German FITs decrease every year; so acts to spur immediate investment.
• PURPA does not prohibit FITs, only regulates qualified facilities, or QFs. States retain jurisdiction to regulate electricity rates and special programs for developing RE.
Other Reasons to Embrace FITs
• Money spent locally re-circulates 300-600% more than money sent out-of-state for fuel etc.
• Arizona sends about 60% of its electricity and heating dollars out of state.
• FITs encourage local renewable energy projects in diverse locations, so that generation can be truly distributed.
Solar in U.S Much Better than Germay: 20% Efficient in U.S. v. 11% in Germany
• RPS = goals; FITs = mechanism. Think long-term, building manufacturing and skillset and long-term value v. short-term cheap fossil fuels.
Why Should We Use Feed-in Tariffs?
• FITs have been successful at developing large amounts of geographically dispersed Renewable Energy (RE) quickly, at low cost and with minimal administration.
• Because FITs are not dependent upon the tax status of the owner – in other words, only valuable for the tax credit -- they are available to everyone.
• FITs promote Distributed Generation (DG).
Where are FITs being used right now?
• FITs helped Germany achieve 53% of the world’s total installed solar PV; and are used in Spain, France and Switzerland as well; Germany also one of the top wind markets in the world.
• Many European countries are implementing FITs, where a vigorous debate is taking place.
• Ontario Canada and California have implemented FITs.
• Since 2007, FITs are being increasingly considered in various states: HA, IL, MI, MN, OR, RI, WA, WI.
• Gainesville FL implemented a FIT in February 2009; is similar to Germany’s FIT
• - pays 32 cents/kWh for solar PV with a 20 year contract
• - program hit its 4 MW goal for 2009 before it even started; 4 MW for 2010 also sold out;
• - However, state of FL failed to pass a RES despite plea from Governor Charlie Crist;
• Washington state (WA) has a special net metering program that pays up to 54 cents/kWh for electricity from solar PV components that were assembled in-state.
• State of Texas has also killed a RES; since legislature only meets every two years, can’t reconsider until 2011.

What is the relationship between Net Metering, FITs and Renewable Portfolio Standards?
• Net-metering allows ratepayers to produce electricity on-site – for example, with rooftop solar – and run the kilowatt-hour meter backwards. Net metering allows a customer to offset their own electricity use or a slightly larger amount.
• In Arizona 125% of use can be net metered.
• FITs, unlike net metering, have no cap – in other words, a customer can put up as many solar panels or wind turbines as he/she wishes, and get paid for electricity produced.
• FITs pay for electricity delivered to the grid. To use FITs, you need a kilowatt-hour meter that measures the electricity delivered for sale to the grid.
• There are “hybrids” being introduced, such as a program in Florida that would allow a customer to offset his/her own use through net metering; but also pay that customer XX cents/kWh for solar electricity fed into the grid in excess of the customer’s own use.
• FITs can be implemented alongside net metering.
What’s the difference between a Renewable Portfolio Standard (RPS) and FITs?
• An RPS is a target, while FITs are a mechanism.
• For example, Arizona’s RPS requires regulated utilities to get 15% of electricity from RE by 2025, with an eventual 30% of that electricity to come from Distributed Generation (DG). The FIT will make it easier to get to the DG goal, because it will spur smaller-scale, local DG.
• Currently, about 26 states have mandatory RPSs; and six states have voluntary RPSs.
Can Feed-in Tariffs Work in Parallel with Net Metering and RPSs?
• Yes, the feed-in tariff programs proposed in North America have all been designed to work alongside and in parallel with net metering and renewable energy standards.
Will Feed-in Tariffs Allow “Double Dipping” into State Rebate or Subsidy Programs?
• Feed-in tariffs are designed to provide sufficient financial incentives without capital grants, rebates, or other capital subsidies. Thus, in most states or provinces where they have been proposed, those who opt for feed-in tariffs cannot also use capital grants or rebates.
• However, in the United States the federal Investment Tax Credit (ITC) for solar systems and small wind turbines has been extended for eight years. Most U.S. feed-in tariff programs will allow the federal ITC alongside the feed-in tariff.
FITs in the U.S.
• In 2006, several states were looking at FIT-like policies; by 2008, about a half dozen states had introduced FIT bills, another eight states are considering; while WA, OR and WI enacted utility-based FITs that are different than Germany’s or Vermont’s FIT law.
Vermont’s New FIT Law
• Passed May 2009, is the first true FIT passed in the U.S., mirrors Germany’s FIT;
• Would implement a pilot FIT policy:
• - costs are borne by ratepayers, not taxpayers
• - program cap is 50 MW; project size cap is 2.2 MW
• - Wind tariff: less than 15 kW is 20 cents/kWh; over 15 kW is 14 cents/kWh
• - Landfill and biogass tariff: 12 cents/kWh
• - solar tariff is 30 cents/kWh
• - tariffs are differentiated by size, technology
• - tariffs are based on cost of RE technology, plus profit
• - Profit based on Rate of Return for VT utilities
• - regular review of tariffs by Public Service Commission

Washington, Wisconsin and Oregon Have FITs
• WA state and WI have tariffs that pay more than the PURPA-defined “wholesale” rate.
• WA has a special net-metering program that pays up to $0.54/kWh for five years for generation with solar photovoltaics (PV) components that were assembled in the state. This tariff is well above the wholesale cost in the Pacific Northwest.
• Several utilities in Wisconsin also pay special incentive rates above wholesale for small solar, wind, and biomass generators.
Six States with FIT Legislation Introduced: CA, MI, MN, IL, HI, RI
• Relevant features include: capacity limits (for example, capped at 1.5 MW); contract terms of 10-20 years; similar to net metering in that generators can either sell 100% or just sell excess electricity; pricing based on time-of-use rather than individual technology; see table below for general information from the six states. Highlights from each state below:
• California: initial cap of 1.5 MW increased to 20 MW; 250 MW total statewide cap increased to 478 MW. California’s peak summer rate is 31 cents/kWh so payment by time-of-use makes sense. California Energy Commission holding workshops, and concluded that state RPS (Renewable Portfolio Standard) needs more transparency, less complexity, and full valuation of RE.
• Michigan: Introduced by State Rep. Kathleen Law in 2007 (HB5218), similar to Ontario FIT; 20 year, technology-specific payments that start at 10.5 cents/kWh for larger wind up to 25 cents/kWh for small wind.
• Illinois: initial FIT bill met with significant opposition, then amended to replace FITs with net metering that would compensate generators for excess solar PV generation at 200% of the retail rate (14 cents/kWh).
• Minnesota: Rep. David Bly introduced HF3537; similar to Michigan proposal. MN addition: generators must be majority-owned by Minnesotans. MN has history of cooperative ownership; bill is built on existing law: Community-Based Energy Development (C-BED); C-BED task force looking at how to improve and whether it can be structured like FITs. Any actions taken by MN will affect Nebraska, South Dakota, Iowa and Ohio since these states are also considering C-BED legislation.
• Rhode Island: Rep. Ray Sullivan introduced H7616 in 2008; based on Michigan model but with key differences; PV payments are significantly lower than other bills; resources without specific rates are guaranteed a payment that’s 1.15 times greater than avoided cost.
• Hawaii: several FIT bills introduced in 2006-2007 (HB 1748-Kaiki; SB1223-Menor; SB1609-Hannabusa). All bills included 20 year, 0.70 cents/kWh FIT for solar PV up to 20 MW. FIT rates apply only to excess electricity from net metered systems. FIT capped at 5% of peak demand; rate for solar PV is 0.45 cents/kWh. Bills did not pass in 2007 but will be re-introduced.
States that are considering FITs:
• Florida: a number of FL organizations have endorsed FITs; Florida’s clean energy plan supposed to be good, according to Hunter Lovins.
• Maine: MidCoast Green Collaborative calling for FITs;
• Massachusetts: considering; Governor Deval Patrick announced target of 250 MW of solar electricity by 2017.
• New Jersey: one of the first states to have a solar set-aside target; Board of Public Utilities analysis determined that FITs would increase investor security and comparatively low ratepayer impacts.
• New York: considering.
• Vermont: SB209 (Lyons) introduced, includes 15 year contract and directed Vermont Public Service Board to set cost at levels “adequate to promote” renewable energy; Vermont allows environmental externalities to be taken into account.
• Oregon: Oregon Department of Energy’s Wind Working Group recommended looking into FITs.
• Wisconsin: Governor set up Global Warming Task Force, which is considering a FIT.
General Terms and Prices for FITs in Various States
• Contract term: 20 years
• Caps: 20 MW common; 1.5 MW per system in IL; 51% ownership by MN residents in MN;
• Costs: wind has a lot of variation, depending on location and size, from 10.5 to 25 cents/kWh; solar PV: from 48 to 71 cents/kWh, depending on type (ground-mounted gets lowest tariff, while building-integrated PV gets the highest); biomass 10.5 to 14 cents/kWh; landfill gas 8.5 to 10 cents/kWh.
• IL innovation: all excess kWh generated through net metering pay 200% of retail rate.
Federal FIT: proposed by Congressman Jay Inslee from Seattle (WA-1st CD); includes:
(1) guaranteed interconnection and uniform minimum standards;
(2) mandatory purchase through 20-year fixed rate contracts; and
(3) rate recovery through regional national systems benefits charge.
Concerns with Federal FIT:
• States are protective of ratemaking authority; precedent goes back to 1935 Federal Power Act; in 1978 Congress passed PURPA, and Section 210 requires all utilities to connect non-utility power producers and to purchase electricity at the “avoided cost” rate; but implementation of “avoided cost” rate left to individual states.
• Expansion of FERC’s power over states a problem;
• National benefits charge would be a line item on customer bills;
• Conventional industry doesn’t like bill, but solar industry isn’t necessarily united behind Inslee.
Canada and FITs: Ontario Passed Law May 2009
• Province of Ontario Canada passed FIT law May 2009; the Green Energy and Economy Act
• Bill was introduced in November 2008; 87% of people polled support
• Estimate it will create 90,000 jobs per year in conservation, RE and grid upgrades
• Specifics:
• - provides clear, transparent path for approval of RE projects
• - domestic content requirements for RE projects to jump-start manufacturing
• - allow local communities and tribes to build, own and operate RE projects
• - specific rates for different technologies
• - right to connect to the grid
• - make EE (energy efficiency) a key purpose of Ontario’s building code
• - require home energy audits before sales
• - set conservation targets for local utilities
• - paying 42 cents/kWh for solar PV guaranteed for 20 years
• Ontario already has about 1,000 MW of RE online since October 2003; will bring 1,200 more RE MW online in 2009; RE investments total $4 billion so far.
• The Ontario Power Authority (OPA) did a survey to determine interest in building RE, and received bids from 150 developers for 15,000 MW of RE (13,000 wind and 1,200 solar PV).
• Builds on Ontario’s initiative to eliminate coal from power supply.
Who can benefit from FITs?
• Anyone, not just utilities. They are more equitable than Renewable Portfolio Standards (RPSs) because homeowners, farmers, small and large businesses and cooperatives can all participate.
• Anyone who installs Renewable Energy (RE) can profit, spreading out the value among citizens and not just owners of large-scale power stations.
• The cost of Renewable Energy (RE) has come down 80% over the past twenty years. Just twenty years ago wind was expensive – now it’s usually cheaper than natural gas and sometimes as cheap as coal.
Feed-in Tariffs and Tax Credits
• No. Feed-in tariffs are simply payments for generation – not taxes or subsidies. Thus, FITs are more egalitarian because they allow everyone to be paid for generating electricity, even those who do not pay a lot in taxes.
• FITs: no credits, no monitoring, no penalties and no caps; so easier to administer.
Are Feed-in Tariffs Just Another Subsidy?
• Feed-in tariffs are not subsidies. They do not subsidize the cost of the equipment used to produce renewably-generated electricity, like solar panels or wind turbines, nor do the payments come from taxpayers.
• Instead, feed-in tariffs are simply payment for the generation of electricity.
• The idea behind FITs is that there’s a benefit to all citizens to invest in and build renewable energy. The payment for Renewable Energy (RE) – small or large wind, or solar PV, biogas, landfill gas, geothermal etc. – is determined by the cost of production, plus a small profit.
• If FITs had the same payment for all types of RE, then the U.S. would only build wind, because wind is always cheaper than solar. Solar payment is higher to spur innovation and reduce costs.
Are Tariffs Taxes?
• No. Tariffs are the rate paid for commodities like electricity. An electricity tariff is the price paid per kilowatt-hour of electricity generated.
Who Pays for Feed-in Tariffs?
• Ratepayers pay for FITs through charges on their electric bills.
• There are also programs in most states and provinces that protect low-income consumers from paying high prices for their electricity, especially during the winter months.
How Much Do Feed-in Tariffs Cost Consumers?
• In Germany in 2007, the average household paid less than $50 per year for the world’s largest concentration of wind turbines, solar panels, and biomass plants, and the 250,000 new jobs these industries have created; 40,000 people were employed in PV manufacturing.
• FITs added 0.6 cents/kWh to retail rates.
• In Germany and Spain, the additional cost of renewable energy is modest because the costs are spread fairly across all consumers.
• The German government estimates that the actual cost is near zero, because the benefits of reducing carbon emissions and other air pollutants, as well as reducing the cost of expensive fossil-fired generation offsets the cost of the renewable energy.
Do Feed-in Tariffs Allow You to Sell “Back” to the Grid?
• No. Feed-in tariffs allow you to “sell” to the grid, not “sell back” to the grid. Selling “back” to the grid implies that you are already buying from the grid; that is, that you are a customer and already have a kilowatt-hour meter. Feed-in tariffs allow you to generate electricity and sell it to the grid even if you are not presently a customer.
• Feed-in tariffs allow the development of green-field sites, such as the installation of wind turbines that are owned by groups of neighborhood investors, cooperatives, or traditional business.
How Do We Know That Feed-in Tariffs Will Work?
• Like any policy mechanism, feed-in tariffs can be misapplied. The most common problem is setting the prices, or tariffs, too low and not attracting the desired amount of development.
• Another common problem is setting a limit on project size. However, where there was serious political commitment for the programs to succeed, they have done so. This is seen especially in Germany, France, and Spain.
• Germany reduced CO2 emissions 18.5% by 2006;
• Germany on target to get 25% of electricity from RE by 2025;
• 400,000 German households have installed solar PV.
Germany – Renewable Energy and FITs
• Largest wind project in Germany is about 100 MW and owned by dozens of entities;
• Farmers in Germany are working with “middlemen” like John Deere to put up community wind;
• Original Germany goal of 12% RE by 2010 was at 14.2% in late 2007;
• Increase in RE in Germany: was ~6% in 2000; 14.2% by 2008;
• In Germany, PV market is: 10% ground-mounted field systems; 40% residential; 50% commercial.
• TWO percent of all of Bavaria’s electricity comes from solar but on sunny days up to 20% from solar PV; and no problems from this short-term high penetration.
• German wind is so-so but has over 20,000 MW of wind (compared to total wind in U.S: 28,000 MW; Germany as sunny as southern Alaska.
• German RE industry: $40 billion in revenue 2007; up 10% from 2006 and four times 2000.
Utilities in Germany v. U.S.
• All German utilities are regulated; with full retail competition and applies to both publicly owned and privately owned utilities; both types own generation and buy wholesale markets;
• German wholesale and retail prices higher: 15-20 cents/kWh wholesale; 25-40 cents/kWh retail.
• Vast majority of distribution (and some transmission) lines are buried in Germany;
• German residential meters read only once/year, but bills are sent monthly (with year-end true-up).
Why were Germans so supportive of the FIT?
• Citizens were supportive because they could participate in, and profit from, FITs.
• With RPSs, only large-scale utilities can participate;
• Net metering focuses on “avoided generation” cost which does not reflect the true value of distributed solar feeding into the grid at peak times;
• Germany placed a premium on building its RE manufacturing base and accompanying jobs and skillsets. Germany sees traditional industries such as steel, chemicals and automobiles moving to lower cost regions, growing slowly or not growing at all.
Cost of FITs in Germany
• FITs add 0.06 cents Euro to a retail rate around 0.19 cents Euro per Craig Morris, author and journalist (Energy Switch: Proven Solutions for a Renewable Future).
• Per municipal utility Badenova located in Frieburg Germany, in 2007 the FIT cost US$52.00 for a three person family for a year – less than 5% of total electricity costs.
External Benefits of RE Estimated at $4.3 billion Euros Annually
• Most “external” costs due to pollution from coal and lignite (cheapest and dirtiest form of coal).
Germany and FITs: Key Data on Electricity from RE and Employees in RE

Key Data on German Renewable Energies 2006 – 2007
www.petiteplanete.org and the German Environmental Ministry

2006 2007 % change
Share of RE in total gross electricity consumption 11.7% 14.2% +21.4%
Share of RE in total final energy consumption for heating 5.8% 6.6% +13.8%
Employees in RE sector 236,000 249,000 +5.5%

• Germany Exported More Goods from 2003 to 2007 than the U.S., China, France and Japan: www.countryreports.org
What about integrating RE into the grid? Aren’t there problems?
• Research shows that even with high grid integration of 20-30% solar into the grid, there aren’t integration problems.
• Utilities are finding solar provides grid stability.
What are Degression Rates?
Degression rates = declining tariff due to expected lower future cost of RE; however, sometimes the cost doesn’t always decline – cost of wind energy from 2006 to 2008 increased.
Is Legislation Required to Implement Feed-in Tariffs?
In some states FITs can be implemented administratively; most municipal utilities can implement directly.

Where Can I Find More Information on Feed-in Tariffs?
There are several web sites that feature news and articles about feed-in tariffs. The most comprehensive site can be found at http://www.wind-works.org/articles/feed_laws.html. On this page there are links to more detailed information on the following subjects.

Books on Feed-in Tariffs
There several books with detailed information on feed-in tariffs and renewable tariff policy. You can find information about these books at the links below.
• Feed-in Tariffs by Miguel Mendonca--a Review
• Energy Switch: Proven Solutions for a Renewable Future
• Switching to Renewable Power by Volkmar Lauber
Research Sources:
Solar Fact Finding Mission to Germany for Utility Decision Makers; Summary Report, June 9-13, 2008, Solar Electric Power Association: http://www.allianceforrenewableenergy.org/2008/07/solar-fact-find.html;
Feed-in Tariffs and Renewable Energy in the USA – a Policy Update, by Wilson Rickerson, Florian Bennhold and James Bradbury, May 2008: http://www.wind-works.org/FeedLaws/USA/Feed-in_Tariffs_and_Renewable_Energy_in_the_USA_-_a_Policy_Update.pdf
Craig Morris, cm@petiteplanete.org, author of Energy Switch: Proven Solutions for Renewable Future, a book about FITs www.petiteplanete.org

Oil Demand

As someone who seeks to determine what is "really" going on - oil supply and demand-wise - this author finds the constant barrage of varying petroleum statistics to be confusing and essentially useless. Most useless are the inventory stats that show "gasoline inventories up", "distillate inventories down", "crude up", etc. - and usually by only a few percentage points. However, these are often picked up by the media to explain some minor movement in oil prices.

We are constructing a "reported demand matrix" which summarizes reported demand drops over the last few years, across a number of categories. However, this "demand matrix" currently remains a "confusion matrix".

In the meantime, here are some stats from Tom Whipple of ASPO-USA and the Falls-Church News-Press, from June 25, 2009:

Total demand for petroleum products in the US: down 6.6 % YOY

Distillate demand (which is mostly diesel at this time of year): down 9.3 % YOY

Jet fuel demand: down 13.9 percent, YOY

Gasoline consumption: up slightly (prices $1.40 less than last year)

Many of us believe liquid production peaked in 2008, and that initial declines should be in the 4-5 % per year range. So it looks like, on a gross estimate basis, demand destruction is outrunning Peak Oil, for now. On the other hand, Mexico, Venezuela and Nigeria - the third, fourth and fifth largest suppliers of imported crude to the US (not necessarily in that order) are experiencing catastrophic declines or loss of production for other reasons. More on that in the future.

Raymond James reports on Mexico's Oil Production Decline

On June 15, 2009, the highly-regarded energy investment banking firm of Raymond James published a brief discussion of Mexico's oil exports, and of Cantarell Field. Their Raymond James Energy "Stat of the Week" paper was titled "Aye Carubma! Mexico's Oil Production Continues to Slide".

As previously noted on this blog, the Wall Street Journal picked up on the significance of this issue in early 2006. Nevertheless, most folks have never heard of Cantarell Field, and don't understand the significance of the near term loss of 1.4 million barrels of oil per day (MMBO/D) of oil imports into the United States, from Mexico. Nor do most folks realize that oil revenue provides some 40% of the total revenue for Mexico, the country! What happens when most of this goes away, in a year or two?

Highlights from this article:

Mexico's crude production currently accounts for about 7% of Non-OPEC production, and roughly 4 % of the world's.

"The falling output is the result of steep decline rates from maturing oil fields (mainly Cantarell Field), a lack of foreign investment, and a high tax burden on Pemex." (MP Note: Their deepwater needs to be developed, and they need help from US and other foreign companies in order to do so. And "living off PEMEX" needs to be stopped. Unfortunately, neither will make up for the decline of the huge, unique, now elderly field known as Cantarell.)

"These declines are so bad that Mexico may become an oil importer within the next five years." (MP Note: emphasis is theirs, and it understates the problem. What will they use to pay for the oil? What will they use to pay for the things that their oil revenue currently pays for?)

As we have mentioned in the past ,Cantarell Field in particular, and Mexico in general, are "Poster Children" for why some of us are really concerned about what is sometimes called "Peak Oil". Namely, we're not finding any more of these wonderful, easy to develop and produce, supergiant oil fields (Tupi doesn't compare), and production from the ones currently producing in the world can go away very, very quickly - as we see with Cantarell.

It is interesting to note that the RJ article doesn't relate the Mexico/Cantarell Field decline to "Peak Oil"; this despite the fact that their last article even focused on the fact that "Peak Oil" likely occurred in 2008! Also, they fail to point out where the US will obtain the oil it currently imports from Mexico. There may be a little surplus in the world, currently, due to the economic activity-based decline in demand, but that will likely be gone due to further depletion, within a year or two. Our guess is that it will be far sooner than five years when Mexico stops exporting.

Cantarell Update, May 2009

Cantarell Field, the world's second or third largest field, produced at a rate of 713,000 barrels per day in April, 2009. In late 2008 (perhaps December) it was producing at a rate of 862,060 barrels per day. This is an annual decline rate of around 35 %, which is not unusual for a solution gas drive field. Most projections of worldwide decline quote overall decline rates of around 5 % per year. Cantarell was producing 2,100,000 barrels per day in late 2004, or around 2.5 % of the world's liquids (not just crude, but also condensate and natural gas liquids). So, here is a substantial portion of the world's oil production that is declining at a rate MUCH faster than 5 % ...

For more information, please see our previous postings.

From: www.upstreamonline.com, May 21, 2009:

Mexico oil exports plummet
By Upstream staff

Mexican oil exports plunged 18.2% in April to levels unseen since 1990 outside hurricane seasons, in more grim news for a key economic motor relied on for a major chunk of government revenues.

Crude export volumes tumbled to 1.177 million barrels per day as yields at Mexico's aging Cantarell field continued to plummet, state oil monopoly Pemex said today.

Oil production declined 4.2% year-on-year to 2.642 million bpd in April, the fourth month in a row that it has been below a targeted level of 2.7 million bpd, according to a Reuters report.

Oil revenues are a key plank of Mexico's economy and the slide in exports was the latest gloomy data for a country already knocked into recession by a drop in US demand for its factory exports.

Tourism revenues have also been dented this year by the H1N1 flu outbreak.

The government depends on oil earnings to fund more than a third of its budget.

The head of the central bank warned this week that a plan to wean Mexico off of its dependence on oil was urgently needed given the dim prospects for boosting output in the medium term.

Mexico is a top three oil supplier to the United States but production has declined steadily since 2004 as the country struggles to replace capacity lost at Cantarell.

The United States risks becoming more dependent on less politically stable sources of oil as Mexico's output dwindles.

Cantarell, which was pumping more than 2 million bpd in 2004, yielded only 713,000 bpd in April, down more than 35% from a year ago, according to energy ministry data.

The latest fall at Cantarell was partially offset by increased output at the nearby Ku Maloob Zaap offshore heavy oil field.

Ku Maloob Zaap, which recently overtook Cantarell as Mexico's biggest producer, yielded a record 814,000 bpd in April, near the maximum 820,000 bpd Pemex thinks it can produce.

Output at Ku Maloob Zaap is expected to begin to decline to 810,000 next year, however.

Pemex has vowed to end this year with oil output at 2.7 million bpd.

Executives say meaningful increases in production from the Chicontepec onshore project starting in July should reverse the trend of declining output in the first half of the year.

Analysts remain skeptical that Pemex will be able to achieve its production goals at Chicontepec, where billions of barrels of crude oil are tightly locked in isolated geological formations, making oil production costly and challenging.

Mexico's deep economic recession has cut at least temporarily Mexico's need for costly gasoline imports.

Pemex said gasoline imports dropped 4.6% to average 302,700 bpd over the first four months of the year.

Mexico depends on imports for approximately 40% of its gasoline supplies due to a shortage of domestic refining capacity.

Construction on a new 300,000 bpd refinery is due to start next year although the plant will not be finished before 2015.

The Coming Liquid Fuels Crisis: the Natural Gas (partial) Solution

Recently, Dr. Robert Hirsch wrote an article titled "Peak oil - what do we do now?". This brief but content-laden article opined that Peak Oil was essentially past tense, and it correctly implied that little mitigation has taken place, to date. The last paragraph included some mitigation action ideas, but notably missing was any mention of natural gas. Perhaps it was simply an oversight; but with a future liquid fuels/transportation fuels crisis in the works due to Peak Oil, citizens of the United States of America - and their leaders - need clarification.

The truth is, current natural gas prices confirm that there is a substantial surplus of natural gas deliverability in the United States. This surplus is largely due to a rapid development of several huge gas fields which were only discovered in the last several years. These new fields are often referred to as "resource plays", or "shale gas", or "unconventional gas". They are termed "unconventional" because they produce from rock that was formerly not believed capable of being a reservoir, and also due to the fact that this rock forms both the source and the trap for the natural gas.

The two largest of these plays are the Haynesville Shale, located in East Texas and Northwest Louisiana, and the Marcellus Shale, located primarily in Pennsylvania, New York, Ohio and West Virginia. The Haynesville might cover around 3.8 million acres and, according to Chesapeake Energy's Aubrey McClendon, it might become the world's largest gas field, with 1500 trillion cubic feet (TCF) of reserves in place. The Marcellus, according to Penn State's Terry Engelder, encompasses 31 million acres, and contain 363 TCF of gas in place. These two plays are only about 2 years old - essentially old enough to have a rough idea of their potential, but brand new from a depletion standpoint. Both of these plays are excellent from both the deliverability and reserves standpoint.

To put that combined 1863 TCF into perspective, the total annual consumption in the US is under 25 TCF. So, with a recovery factor of 50 %, these two fields alone could supply the US with gas at the current rate, for about 40 years. But wait, there are lots of other fields in the US, both conventional and unconventional. And, there are even two more large shale plays, the Fayetteville Shale and the Barnett Shale. In addition to these "Big 4" shale plays there are others which are in the early phases of exploration and development.

So now you are starting to understand why this author is perplexed when folks say that natural gas may be in short supply.

Many of us in the "Peak Oil community" believe that in 2008, the worldwide rate of oil production likely reached a level which, for all practical purposes, will never again be exceeded. In other words, we believe Peak Oil likely occurred in 2008. Dr. Hirsch, in the 2005 report he co-authored for the Department of Energy, said the following:

* "Initiating a mitigation crash program 20 years before peaking appears to offer the possibility of avoiding a world liquid fuels shortfall for the forecast period."

* "Initiating a mitigation crash program 10 years before world oil peaking helps considerably but still leaves a liquid fuels shortfall roughly a decade after the time that oil would have peaked."

* "Waiting until world oil production peaks before taking crash program action leaves the world with a significant fuel deficit for more than two decades." (emphasis added) Additionally, he went on to say, "Late initiation of mitigation may result in severe consequences."

Perhaps we could say that some of the actions taken over the last several years - due to oil price signals - would count for a year or two of preparation; essentially, though, we are set up for Dr. Hirsch's "severe consequences" scenario.

So, given:

* our status regarding preparation for/mitigation of Peak Oil (or
lack thereof).
* the current and near term surplus of natural gas, and the
intermediate and longer term "sufficient" supplies.
* the ease of converting existing vehicles to natural gas.
* the ease of delivering new, dual fuel NG/gasoline vehicles.
(aftermarket conversions, if necessary)
* the existing natural gas infrastructure in terms of transmission
and distribution lines.
* the current availability of small gas compressors for home use.
(yes, they are expensive for one user, but there could be
work-arounds)
* the immediate "commuter solution" (fuel at home, drive 40 miles, return) provided by natural gas vehicles using current, off-the-shelf parts versus the still-being-developed vehicular electrical storage solutions.
* the carbon advantage of natural gas versus coal. (half our
electrical production is from coal, and natural gas produces half
the carbon when burned, in comparison to coal)
* the efficiency losses of converting coal to electricity and
delivering it for use as a car fuel.
* the badly needed jobs provided by the exploration for and the production of natural gas, the conversion of existing vehicles, the production of new dual fuel vehicles and the construction of fueling infrastructure.

... this author doesn't understand why our "policy" does not include natural gas vehicles (NGV's), as at least a partial mitigation to the coming liquid fuels crisis?

One idea, in order to solve the commercial fueling station/NGV availability "Catch-22", would be to subsidize fleets - such as school districts - to immediately incorporate NGV's into some portion of their fleet, while making the resulting fueling infrastructure available to the public. In other words, don't do a full conversion of all gasoline and diesel fleet vehicles to natural gas; rather, let's hedge our bets and get some infrastructure going by converting some of our fleet vehicles to NGV's.

In summary, given the abundance of low carbon emitting, domestic natural gas, the likelyhood for future oil supply shortages and the easy conversion technology and the need for domestic jobs, it is difficult to understand why action is not being taken to promote NGV's as a partial solution.

Endnote: Natural gas should not be counted on for a total replacement of liquid fuels. As James Kunstler would say, we need to re-think "Happy Motoring". With respect to transportation, we need to implement conservation, carpooling and mass transit retrofits, and we need to re-design where/how we work and live. In addition, we need to push the development of algal and biomass fuels, but with consideration of their total environmental costs. We should be accelerating research on electrical storage devices for vehicles so that the plug-in hybrid and full electric car can become reality. In all of the above there are wonderful opportunities for good jobs and a great economy. Natural gas can serve as a clean, convenient, low carbon transition fuel while all of the above are being rapidly implemented. Finally, a natural gas vehicle can become a renewable fuel vehicle. Yes, the same engine that runs on methane produced from a gas well will also run on methane produced from cow manure or sewage sludge, or gas that is pyrolyzed from wood or biomass (1800's technology).

My belief is not that natural gas vehicles will reduce oil imports; rather, oil imports will be reduced by physics, namely "Peak Oil". Natural gas vehicles are simply a very effective tool to help mitigate the effects of the coming liquid fuels crisis - to help get our kids get to school, to help keep our country running - while we develop alternative transportation methods and lifestyles over a twenty year period.

We need to get rid of the divisiveness of, "fossil fuels bad, alternate energy good". Likewise, we need to avoid the reverse. For the next twenty years, we need BOTH fossil fuels and alternate energy.

Putting Liquid Fuels in Perspective: A visit to Perdido

A few weeks ago, in the name of Peak Oil and … fishing … we traveled to Shell’s Perdido Project in the Gulf of Mexico. Perdido is a floating spar platform in 7800’ of water. Despite the fact that the spar was put in place last summer, it has already created a mini-ecosystem that favors all marine life. Don’t tell anyone, but the fishing was great! Of course, getting there is a bit of an adventure, since Perdido is about 150 miles off the Texas coast!

Much like the engineer in the “girl and the bicycle” joke, I spent the first 30 minutes taking pictures of the spar, while everyone else was catching fish! Currently, the project is fairly unremarkable at the surface, as the topside deck has not yet been set. So, it looks much like a big floating tank, only it doesn’t move with the ocean since it is pulled tight against the seafloor with huge chains and ropes. (Yes, high-tech polyester ropes.) The spar itself is about the same height as the Eiffel Tower, but only the top 75’ or so is visible above the ocean. In the distance, Noble Drilling’s Clyde Boudreaux semi-submersible drilling rig is drilling some of the first wells, which will feature subsea controls and will be connected by flexible pipe to the Perdido spar. The Perdido project includes a number of subsea innovations.

Now, some math. When Perdido is put on production it is designed to produce a maximum of about 100,000 barrels of oil per day. That’s a lot of oil, right? And, it is domestic oil. It won’t contribute to our trade imbalance, and it won’t be subject to geopolitical problems. Perdido has created a lot of good jobs for steelmakers, welders, pipefitters, designers, engineers, roughnecks and a whole bunch of others. Overall, it is a great project for all of us - diatoms and fish included - and hats off to the folks at Shell Offshore, Inc. for getting it done.

But hold on, let’s put this $3 billion, state-of-the-art, deepwater project into Peak Oil perspective.

Cantarell Field, the world’s second or third largest field, is located in “shallow water” a few hundred miles to the south of Perdido, offshore Mexico. It is one of the “giant” oilfields on which the world has been unconsciously relying; in the case of Cantarell, since 1979. Unfortunately, Cantarell’s reserves and production make Perdido look like what we call a “stripper” project in the industry, by comparison. Cantarell had a peak production rate of 2,100,000 barrels of oil per day, as recently as the end of 2004. In 2005 it began to decline. And it had never declined, before. By the end of 2008, Cantarell was producing “just” 862,060 barrels per day.

That’s a decline of over 1,200,000 barrels, in just 4 years. And Perdido will produce at a maximum rate (before it begins to decline) of “just” 100,000 barrels per day. And it has taken 13 years to get the Perdido to the production stage, from the initial leasing!

So, you are beginning to see the picture. The old “giant” oilfields are going away (all have peaked like Cantarell, except maybe Ghawar), and our new, incredibly expensive, state-of-the-art projects that can take a decade or more - can’t begin to replace the declining “giants”. That’s Peak Oil.

What to do about it? Well, this doesn’t mean that we shouldn’t encourage projects like Perdido. Perdido is a win-win-win for mankind, the environment and the United States of America. Believe me, the fish are having a great time at Perdido! So, we should facilitate drilling and production offshore Florida and the East and West Coasts. Furthermore, in most of these areas the water is much shallower, so the projects will be simpler.

At the same time, we need to keep it all in perspective. No, offshore drilling won’t solve all of our problems. But alternatives won’t either. We need both, along with significant conservation! We need what has increasingly become known as the “all of the above solution”:

• energy conservation (this is where we can have the greatest effect, the soonest)
• mass transportation retrofits (likely optimized and marketed bus and carpool efforts)
• natural gas vehicles and stations (start with fleets to solve the Catch-22)
• expanded natural gas drilling (solve infrastructure & supply problems)
• wind energy (stop the tax credit hocus pocus - fix it for a reasonable time period)
• vehicular electrical storage research (cost effective and reliable batteries or other devices)
• design & production of more efficient cars (lighter, smaller EV's, plug-in hybrids and diesels)
• offshore drilling (offshore West Coast, East Coast, Florida Coast)
• biofuels research (enzyme & pyrolysis-based cellulosic ethanol, algae-based oil production)
• biomass (use grasses and waste products, but be cognizant of soil needs)
• nuclear plants (fast-track & standardize the design, licensing and construction, use breeders and reprocessing to minimize waste)
• coal plants (use best available, cost-effective clean up technology)
• coal-to-liquids (limited by rate, but part of the solution)
• solar thermal innovations & implementations
• geothermal and waste heat recovery installations

So, you offshore guys, don’t be tempted to scoff at the solar guys. And conservation guys, stop pointing your fingers at the “oil companies”. We need all of the above. In 2009 let’s get past the finger-pointing, and get on with good jobs leading to energy solutions! And quickly!

Endnote: For the record, given where we are now, we can’t keep liquid fuel supply flat, let alone grow it, even if we do all of the above. But, going this route could make the coming tough transition a more manageable process.