Is UK Oil Output Running On Empty ?  

Adam Porter's latest article on the BBC looks at the decline of UK oil and gas extraction and the implications for the local economy.

As Britain becomes a net importer of oil, as it first did this summer, not only does falling output cost money. So does the very expensive energy - oil, gas and liquefied gas - bought to replace it.

In this respect, government figures do not provide much hope for North Sea gas output either. Output fell 5.5% in the second quarter of 2005, according to DTI figures, while imports increased by 53.5%. "Gas has replaced nearly all our power generation," says Dr Smith. "But gas has its own problems. UK gas imports are increasing dramatically but otherwise there is no [other] significant energy source. For transport, where most of our oil is used, there isn't a viable alternative right now nor will there be one in the next five to ten years."

The UK is facing a sea-change in attitudes towards oil. Whilst high prices may ease the pain right now by providing extra tax for the chancellor, our own supplies are dwindling. "I am forecasting that the UK will be a net importer of oil around 2007," says Dr Smith. "By 2015 the UK will need to import between 600-700,000 bpd."

How much those imports will cost you and your family is an open-ended question. But unlike North Sea oil, it is one that will not simply fade away.

The BBC also reports that Tony Blair and the Confederation of British Industry are (shortsightedly) pushing the nuclear power option - and given the rapidly rising cost of gas imports and Britain's increasing dependence on these its not entirely surprising given the PR campaign the nuclear industry has been waging.

"A decision on the future of nuclear power has been allowed to drift too long," said the CBI's director general Sir Digby Jones. "It is high time this nation had an integrated coherent energy policy." And he warned that high-use large industrial outfits would have to "throw the switch" if the price of gas continued to rise. "This government is going to have to hold a proper constructive debate on nuclear power. We want them to have a public debate and stop prevaricating."

The call comes as the price of wholesale gas has almost doubled during the past week, prompting fears about winter supplies to industry in the UK. Experts believe tight supplies have triggered the rise. UK supplies are low as a pipeline from Europe is running at half capacity and shiploads of gas are being diverted to Spain and the US where prices are high.

UK energy minister Malcolm Wicks said the government was looking into why the gas interconnector was not working properly, but said it was operated by private companies and "is not something the government switches on and off". He admitted that the rundown in North Sea supplies and the delay in getting new pipelines from Norway up and running meant that some sectors of UK industry may experience a difficult winter or two. "We have got a tight equation between supply and demand of gas," he said.

Former Labour energy minister, Brian Wilson, told the Midday News on Radio Five Live he hoped the government would "give a clear steer in favour of nuclear power stations". He added: "Both in order to meet our environmental responsibilities but also to maintain security of supply and avoid this gross over-dependence on gas."

But former environment secretary Michael Meacher said that while the government had "to act quickly... I think we need nuclear like a hole in the head".

One final link from the BBC - this one on Russian Green's concerns about the energy boom in Siberia. I imagine if they kick up too much of a fuss that's where they'll all end up (assuming the CIA isn't using all the camps already of course - just kidding !).

"Do you know what is the brightest place on Earth in satellite images?" asks Aleksey Yablokov, leader of the new Green Russia party. "Not Los Angeles, not Tokyo. It's western Siberia."

The vast expanses of this sparsely populated region are lit by the flares of associated gas burned at oil wells. "I once flew there by night - the view was unforgettable. But these flares killed not millions, but billions of migrating birds", says Mr Yablokov, one of Russia's leading biologists and a member of the Russian Academy of Sciences.

Former US Vice-President Al Gore called Siberian oil flares one of the main causes of global warming, in his book Earth In The Balance. The number of oil wells where gas is being burned has fallen considerably with the arrival of modern oil extraction technology in the post-Soviet era, Mr Yablokov admits. But he estimates that about 20,000 such flares are still lighting up the taiga (virgin forest).

...

Two years ago the Greens with enormous efforts thwarted an attempt by the oil company Yukos to lay a pipeline from Siberian deposits to China through pristine forest on the shores of the world's largest fresh-water lake, Baikal. It is also a highly seismically active zone.

But in October the government suddenly lifted its objections to a very similar project proposed by another company, after it had received the public backing of President Vladimir Putin. "Environmental impact assessment should not become an obstacle to the development of the country and its economy," he said then.

President Putin has set a target of doubling the country's GDP by 2010. He sees the oil industry as the engine that will drive the country's economy there and the Greens - as a fifth column standing in the way. Speaking in July, he said he knew that at least some environmentalists were sponsored by Russia's international competitors.

But Mr Yablokov believes it is the Greens who serve Russia's real national interests and protect it from imminent threats: "If Russia doubles its GDP, it will be a catastrophe," he warns.

Heading down to the southern hemisphere, Mobjectivist's latest modelling ffort takes a look at how long it will be until NZ topples off its own natural gas cliff. Presumably they'll either have to get lucky with a good find off Taranaki somewhere or they'll be shipping in some LNG from us.

The Australian reports that the marketing program for gas from the proposed Gorgon development offshore Western Australia is proceeding rapidly, with Chevron selling a large proportion to a Japanese customer. Environmental issues around their plan to sequester CO2 on Barrow Island still remain a concern though.

Chevron, the operator of the proposed $11 billion Gorgon export LNG project, has set itself a target of winning contracts for the rest of its share of production by the middle of next year, after yesterday reaching the halfway mark. Chevron reached agreement yesterday to sell Japan's Chubu Electric 1.5 million tonnes of LNG a year for 25 years, starting in 2010.

The deal, if confirmed, is expected to be worth $10 billion to Chevron and takes to 50 per cent commitments for its share of production from the giant project off the West Australian coast.

Last month, Chevron, which owns 50 per cent of the project, struck a deal to supply Tokyo Gas 1.2 million tonnes of its share of Gorgon production, also for 25 years beginning in 2010.

Both Japanese companies were foundation customers of the North West Shelf LNG project, which began export shipments in 1989, and are also seeking equity in the Gorgon project. The latest deal means arrangements are in place to market 5.2 million tonnes a year of Gorgon's initial production, with only ExxonMobil yet to announce marketing details for its 2.5 million tonnes a year share.

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Chevron's marketing effort is concentrating on China, Korea, Japan and North America, with Mr Theobald noting Japanese customers were keen to take gas from Gorgon's scheduled start-up date of 2010. This is similar to the reported experience of the marketing team for Woodside's Pluto LNG development.

Public submissions on the Gorgon environmental impact statement closed on Monday, with conservationists continuing to express concern about the Gorgon joint venture's plans to sequester carbon dioxide in saline aquifers below the Barrow Island oil field.

Alan Kohler has a look at the imbalances in world trade and financial flows (exacerbated by higher oil prices) in "Somethings's gotta give in America".

Since September gold has risen 9 per cent to an 18-year high as the dollar has risen 7 per cent - which is virtually unprecedented. It has happened because oil revenues are being recycled as much into gold and domestic investments as petrodollars (remember them?), while Asia continues to recycle trade surpluses into US treasury bonds (and thus dollars).

So what's the problem? It's that the US dollar is overvalued and the country's competitiveness has eroded to the point where the cash rate arbitrage will be pitifully inadequate to hold the currency. This has occurred because Asian central banks, led by China, have been buying US bonds at ridiculously low interest rates in order to keep their own currencies and improve their own competitive position.

US consumers and businesses have been buying their goods from - and outsourcing their services to - cheap currency countries, which has stopped what would have otherwise been a natural depreciation of the dollar. As a result, the US current account deficit is now pushing $US800 billion ($1086 billion), $US300 billion higher than when, as research house Bridgewater Associates puts it, "private sector capital gave up on the dollar in 2002". It is also the biggest financing task the world has ever known.

Meanwhile, Asian current account surpluses are declining and those of oil-exporting countries are rising. According to the ANZ Bank's Saul Eslake, current account surpluses of the Middle East have quadrupled in two years to more than $US200 billion. Russia's surplus is up to $US120 billion and even Latin America is running a surplus now because of oil from Venezuela. In fact, Australia is about the only commodity exporting nation still running a deficit (because we are bigger consumers).

TreeHugger points to an article on New Scientist on the folly of turning rainforests into biofuels (something I complained about a while ago). TreeHugger also got a mention in BusinessWeek, which seems to be well ahead of most business periodicals in recognising the future of business. And one more link from them - a vibration and solar powered bike light.

We have griped before that biofuels are not perfect- that it takes a lot of energy and land to make it, and we are still better off living with less and not driving bio-hummers but riding bikes and driving smart cars. Now the New Scientist weighs in- In Asia rainforests are being chopped down to make room for palm oil; in Brazil, the paragon of biofuel and ethanol development, the rainforest is turning into soybean fields; The third world is being turned into a plantation to keep the SUV's running. We need sustainable, fair trade, subsidy free biofuel or we are trading one ecological disaster for another.

Update: I had a look through the logs a little after writing this and was rather surprised to see someone from the CBI had come along to read what I was saying about Digby Jnes within minutes of this being published. This real time media monitoring stuff is getting beyond a joke...