Isaac threaten "monster" oil price jump

Brent crude jumped to $115 a barrel last week and petrol costs across much of Europe are now at record levels.
Diesel is above the political pain threshold of $4 a gallon in the US, hence reports circulating last week that the International Energy Agency (IEA) is preparing to release strategic reserves.
Barclays Capital expects a “monster” effect this quarter as the crude market tightens by 2.4m barrels a day (bpd), with little extra supply in sight.
Goldman Sachs said the industry is chronically incapable of meeting global needs. “It is only a matter of time before inventories and OPEC spare capacity become effectively exhausted, requiring higher oil prices to restrain demand,” said its oil guru David Greely.
This is a remarkable state of affairs given the world economy is close to a double-dip slump right now, the latest relapse in our contained global depression.
A further risk to oil production has materialized with Tropical Storm Isaac which now looks set to threaten New Orleans and the Gulf. Weather trackers are predicting an increase in intensity given its size and the storm's predicted paths are set to cross straight through the middle of the Gulf's oil production in a replay of the terrible August of Katrina. All major rig operators are evacuating which leaves output notably down already.
24% of oil and 8,2% of natural gas output has been shut down for tropical storm Isaac and markets will be monitoring the situation closely tomorrow.
During Katrina prices rose by 75c and given tight reserves at this moment the situation could get even worst.
Isaac's predicted path (via NOAA)






goes straight through the oilfields... (source: Forbes)

Peak Oil Pain is back!

For anyone interested to understand what is the effect of peak oil on economy I would recommend reading this excellent article on The Telegraph, brief excerpts below:

[Energy costs at 9pc of global GDP] That proved to be the pain barrier in the 1970s and again in 2008, and we are just shy of that level right now. “Oil is already capturing a higher level of European GDP than in 2008,” said Francisco Blanch from Bank of America.

The unpleasant fact we must all face is that the relentless supply crunch - call it `Peak Oil’ if you want, or `Plateau Oil’ - was briefly disguised during the Great Recession and is already back with a vengeance before the West has fully recovered.
The IEA said non-OPEC production stalled in 2010 and 2011. There was no net increase. While there was a boost from Canada’s tar sands, and America’s shale-oil, and Brazil’s offshore rigs, this was offset by the relentless erosion of the North Sea fields and Mexico’s operations, a collapse in the Sudan, and Libya’s woes.
Meanwhile OPEC spare capacity has fallen to 2.5m barrels a day (bpd), compared to 3.7m this time last year during the Arab Spring, the event that caused a comparable spike in crude prices and arguably triggered the sharp global slowdown a few months later.

The issue is not whether Iran has the military kit to close the Straits of Hormuz and cut off 18pc of global oil shipments for more than a few days (probably not), but whether an Israeli/US attack on the regime’s nuclear facilities would later set off an uncontrollable chain of events in the Middle East.
There is clearly danger of a spill-over into Bahrain and the eastern province of Saudi Arabia, home to the Kingdom’s aggrieved Shia and most of its oil. Even so, the Iran risk premium in global crude prices is only $10 to $15. We must still face the overwhelming fact that global energy supply is on a knife-edge regardless of events in the Gulf - with no relief in sight.

The IEA warned in its annual report that energy demand will rise 40pc by 2035. 

China alone will be adding 125m cars to its roads over the next five years, with auto production targets of 30m annually by 2016. India is spending $1 trillion on infrastructure projects over the next five years.
Variants of this are happening across Asia and Latin America. Two billion people in the emerging world are joining the global economy and competing toe-to-toe for scare resources with the West.

Cyprus energy disaster: what to expect when energy crunch hits

The international media has ignored a real energy crisis developing in the Mediterranean island of Cyprus, the story itself is quite surreal and symptomatic of how dire and fast the situation can develop when an energy crisis hit a country.
For the majority who never heard of this story which was decently covered only by BBC for few days let us do a recap:
On the 11th of July flames from a small fire on the Evangelos Florakis Naval Base near Zygi reached 98 containers of explosives that were being stored on the base.
The resulting explosion killed 13 people, 12 of them immediately, including Captain Andreas Ioannides, the Commander of the Navy (Cyprus's most senior naval officer), and the base commander, Lambros Lambrou. Also killed were four navy personnel and six fire-fighters, while a further 62 people were injured. The explosion severely damaged hundreds of nearby buildings including the island's largest power station, responsible for supplying over 60% of Cyprus' electricity.
As a result, much of Cyprus is without power and rolling blackouts have been initiated in order to conserve supplies.
The 98 containers of Iranian high explosives where seized in 2009 and since then were sitting calmly under the scorching sun of Cyprus at the naval base right next to the power plant.
No comment on the total stupidity of leaving explosives under the sun next to a strategic energy hub with temperatures that reach 45 Celsius in summer.
The more interesting part though is the current situation with an entire country lacking electricity with rolling blackouts running wild and with remaining old power plants struggling to cope, just today the other remaining power plant suffered a failure and technicians are scrambling to avoid a disaster.
It could take up to 1 year, to rebuild the destroyed power plant supposed the government is able to find 1 billion Euro they do not have at this moment, and it will be interesting to see what damage a prolonged energy crisis can do to a country.
Cyprus is in a dire economical situation with industry and services paralysed by the lack of electricity, there are no scheduled black-outs so there is no telling when lights will be off and no planned working activity is possible, motorists are facing the greatest risk at crosslights and emergency services are in complete chaos.

Cyprus economy is in a state of emergency comparable to 1974 and is facing an imminent EU bailout. 
Cyprus Central Bank governor Athanasios Orphanides warned yesterday: "To avoid the worst, including admission into (a) support mechanism and all that that entails for the economy ... further and more drastic measures must be taken immediately,"
Cyprus was already under market pressure because of its links to debt-laden Greece, and following the tragic explosion economists have warned the island could face a bill of up to €1 billion just to reinstate electricity supplies.
"Weighing all the facts, the unfavourable international environment, the difficulties in resorting to external borrowing and the additional economic impact from the recent events, I believe the economy is in a state of emergency, comparable to that of 1974," Orphanides said, referring to the Turkish invasion and its aftermath.
Cyprus is unfortunately set to become the first reality laboratory for an energy crunch crisis, worth keeping an eye on this small Mediterranean island in the following months.

G7 facing High Risk of short-term energy shortages

An interesting new research evaluates the state of worldwide energy security.
The G7 economies of France, Germany, Italy, Japan, UK and USA according to the study are at ‘high risk’ in the short-term, whilst China and countries from the oil producing MENA region are highlighted as facing increasing challenges in the future.

The Energy Security (short-term) Index has been developed by Maplecroft to identify the countries most vulnerable to shocks in energy supplies and price fluctuations in the international market on timescale of days to months. It assesses immediate risks to the availability, affordability and continuity of energy supplies in 196 countries by evaluating energy imports, diversity of supplies, import security and energy costs.

Only three countries, Sierra Leone (1), Gambia (2) and Guinea Bissau (3), are categorised as ‘extreme risk’ in the short-term index. However, a further 122 nations are rated ‘high risk,’ including the G7 economies of Italy (13), Japan (73), UK (90), Germany (104), France (107) and the USA (112).

Recent instability in the MENA region and the impact of increased crude oil prices has highlighted the dangers of an economy heavily dependent on imported fuels from a specific region. “Rising fuel prices in response to the political turmoil in the MENA region in early 2011 have shown that energy security is of paramount importance,” states Maplecroft CEO, Alyson Warhurst. “Many countries are greatly reliant on imported oil and gas from these regimes. In order to support economic growth and energy demands, they will need to diversify energy supplies by increasing import partners and expanding domestic production and renewable energy sources.”

Global nuclear risk map

The recent Fukushima Daiichi crisis has reopened the nuclear debate. Risk analysis and mapping firm Maplecroft has produced a global map of nuclear power stations, revealing the vulnerability to seismic, tsunami and storm surge risk of these facilities and the levels of energy security risks that countries face in the long-term.
The highest concentrations of seismic risk are concentrated around the ‘Pacific Ring of Fire’. Japan clearly stands out as having the highest concentration of nuclear facilities in an active seismic area, however Taiwan, South Korea and mainland China also have nuclear plants in areas exposed to either seismic or tsunami and storm surge hazards.
Further risks exist in the potential destructive power of storm surges. The eastern seaboard of the United States and northern coastal Europe are exposed to storm surges from intense low pressure weather systems (either tropical cyclones or severe extra-tropical cyclones). There are nuclear power facilities located in each of these regions and construction of these facilities will need to account for the storm surge potential.

Will Saudi Arabia be next?

Image via Wikipedia

Yemen, Sudan, Jordan and Syria all look vulnerable. However, the greatest risk in terms of both probability and severity is in Saudi Arabia," said a report by risk consultants Exclusive Analysis.

Saudi King Abdullah is alarmed by fast-moving events in Egypt and the Arab world. In a statement published by the Saudi press agency he said agitators had "infiltrated Egypt to destabilise its security and incite malicious sedition".
The accusations seem aimed at Iran's Shia regime, which has openly endorsed the "rightful demands" of the protest movement. There is deep concern in Sunni Arab countries that Iran is attempting to create a "Shia Crescent" through Iraq, Bahrain and into the Gulf areas of Saudi Arabia, hoping to become the hegemonic force in global oil supply.
Goldman Sachs said the Mid-East holds 61pc of the world's proven oil reserves – and 36pc of current supply – which may compel global leaders to make "concentrated efforts" to stabilise the region. The bank said high levels of affluence should shield Saudi Arabia and the Gulf's oil-rich states from "political contagion".
However, a third of Saudi Arabia's 25m residents are ill-assimilated foreigners and the country faces a "youth bulge", with unemployment at 42pc among those aged 20 to 24.

Credible Energy Policy

Credible Energy Policy sets out why current energy policy is no longer fit for purpose, and provides a comprehensive overview of what is now required to address our ambitious climate change objectives, whilst maintaining security of supply.

Professor Helm examines the precarious position of our global gas supplies and draw out the implications for Britain in strategic gas storage, generation capacity and networks. It will also propose how government should set the overarching energy policy framework and explain why existing energy policy institutions need reform, and in particularly why Ofgem should be rolled up into an integrated single energy agency, charged with delivery.

READ IT: Credible Energy Policy (Pdf)