When OPEC decided on the production quotas

When OPEC decided on the production quotas , 2010/03/25

OPEC production quotas as expected

Without giving any room for surprises, OPEC has agreed to keep the production quotas unchanged this time too. Meeting in Vienna on March 17, this is the fifth time since 2008 that the output levels have been kept unchanged. The oil cartel expects the emerging markets to absorb the oil output, and help maintain their goal of a 'healthy crude price'.

As members do wrestle around by overproducing, calls were made to stick to the production cut agreements made in 2008. OPEC has 12 member countries and the twelfth member Iraq doesn't come under the production agreements. However, this adherence to the production quotas isn't as easy as it seems. Recent statistics from the OPEC stable show that the compliance of the members hinged at about 53 %. That is, OPEC is, in fact, producing more oil than the market needs. To be specific, OPEC is producing about 2 million barrels a day more than the official production cap of 24.845 million barrels a day. Non-OPEC oil output stands at 51.5 million barrels a day.

Angola and Nigeria have standing request with the OPEC to increase their quotas. The current production quota of Angola is at 1.65 million barrels per day. And, the oil minister did accept that his country was producing more oil than the permitted quota-production output is at 1.75 million barrels per day-for the reconstruction programme in his country. The country has potential to produce 2 million barrels of oil per day and is the largest producer of oil in Sub-Saharan Africa.

Though officially Nigeria hasn't asked for increase in production quotas, the country wants its output quota raised, as the present target was made when braving militant attacks on oil fields. "We are hopeful that when the time comes this will be looked at on its merit and an adjustment will be made. In the meantime we are having to do the best we can with what we have" said Oil minister Rilwanu Lukman.

OPEC has so far kept the issue on the sidelines; this time too it was no different.

Why the status quo on the production quota was as predicted?

That was by judging the reactions prior to the meeting. Just before the meeting, the Saudi Arabian Oil Minister Ali Naimi was quoted saying that OPEC would agree to leave the production quotas unchanged. He had said that his country would provide more oil if there was 'genuine' demand. Iranian oil minister Masoud Mirkazemi said, "OPEC should not take any decision to change production". Similar sentiments were echoed by Rafael Ramirez, his Venezuelan counterpart.

On the price of oil

Oil prices have increased by almost 15% since OPEC's last meeting in Angola where the production quotas were kept unchanged. In 2008, there were output cuts when oil prices fell from the $147-a-barrel and when the demand dropped with the onslaught of the economic crisis. And, since December 2008 the production targets have been kept unchanged.

On the face of it, OPEC is comfortable with the price range between $75-85 a barrel. Anything above this, the cartel feels, would harm the economic recovery, while low prices would lead to underinvestment. The cartel accounts for about forty percent of the world's oil. The oil prices rose after the news, reaching $82 a barrel and on the back of a weak dollar. And, some countries expressed concern over the rise in the price of oil. Angolan Oil Minister Jose Maria Botelho de Vasconcelos said that prices between $80 and $90 were good while $90 would be too high. Algerian oil minister, Chakib Khelil expects the crude prices to oscillate between the $75-$85 ranges for the rest of the year. Since the demand for oil in the U.S. is still low, Iran and Venezuela are happy with the present price.

Demand for oil

The IEA estimates the world demand for oil in 2010 to increase by 70000 barrels a day to 86.6 million barrels a day, with growing demand from Asian countries. This is an increase of about 1.8 percent from last year. Goldman Sachs has forecast demand at 86.6 barrels a day. Banks like Bank of America, Merrill Lynch, Goldman Sachs and Société Générale have optimistic forecast of recovery for demand this year.

In addition, Barclays Capital and Goldman predict fall in Non-OPEC supply due to underinvestment and decline of mature fields. Some spotlights from OPEC Monthly oil market report

• The world's oil demand is expected to grow by 0.9 mb/d this year, compared to the contraction of 1.4 mb/d last year
• For the OECD, growth in the U.S. has been lowered to 2.4%
• Oil demand from OECD is expected to remain negative with growth at around 0.15 mb/d-OPEC
• The demand for OPEC crude has declined by 2.2 mb/d compared to 2009, averaging 28.9 mb/d. The demand in 2009 was 29.0 mb/d

But, demand in the U.S. continues to be dreary with the IEA expecting the demand in the country to remain flat at 18.8 million barrels per day. If the world demand stays at the present pace, there may be surplus of oil in the market as OPEC output levels are at 29.35 million bpd-as noted earlier- while demand for it is lesser. If demand increases in the U.S., OPEC will have to increase the quotas to balance the supply. Not to forget, countries like Saudi Arabia Kuwait, Qatar and the United Arab Emirates could increase production if needed.

Meanwhile, OPEC has plans for additional 12 million barrels per day by 2015. If that does materialise and if the demand stands at the present rate, there would be more oil in the market.

Quote for the day

"Good demand, reliable supply, beautiful prices - we are very happy." Ali Naimi, Oil Minister, Saudi Arabia.

Increasing role of China in the oil market

Increasing role of China in the oil market, 2010/03/31

China, it seems, is everywhere. In what has become a routine, not a day passes without a mention of China in the news, in everyday conversations and predictions. As the next superpower, the country is wielding clout in every sphere possible. The growing influence is felt even in the oil market where the Asian giant is one of the biggest players.

Iraq's oil field is just emerging from the ravages of oil, but China is already there. PetroChina Co. has already got development projects for Halfaya and Rumaila Oilfield in Iraq. The company has also signed agreements for co-cooperation in the oil field with companies in Turkmenistan, Kazakhstan, Uzbekistan and Russia. Last year Chinese companies spent more than $32 billion to secure oil, metal, coal fields in Asia, Africa and Australia. The Chairman of PetroChina Co. has said that the company was planning to invest at least $60 billion for foreign acquisitions in the next decade.

Seemingly, at present, China is the fourth largest oil producer in the world. Last year oil output was put at 189.49 million tons, (3.79 million barrels a day) a fall by .04 percent than expected. According to the National bureau of statistics, China produced about 15.11 million tons of oil in the month of February. But, the country consumes oil many times more. As a result of which imports contribute to as high as 52 percent of the oil consumed.

Indeed, China became an oil importer only in 1993 but has come a long way since. China's oil imports could reach a record 210 million tonnes this year, up by 5.5 %. So how does China go about for energy? Let's see:

In one of the largest export deals for Australia, China National Offshore Oil Corp has decided to buy LNG from BG Group Plc's proposed export terminal in Queensland. Based on the deal signed, China would get 3.6 million metric tons of LNG yearly for the next twenty years from 2014. The deal is estimated to be worth more than $80 billion. Last August PetroChina Co. signed an agreement worth A$50 billion ($46 billion) with Exxon Mobil Corp. to buy 2.25 million tons of LNG with Chevron Corp.-led Gorgon LNG venture.

Of course, this is despite the tensions on the political front. One would remember the Rio Tinto trial where an Australian citizen and three of his colleagues were standing trial (since given 7-14 years of prison sentence) on charges of bribery and for infringing on commercial secrets. Anyway, the trial didn't stand in the way of growing trade relations with China. Also, PetroChina Co., and Royal Dutch Shell agreed to a $3.44 billion deal to buy most of the Australian assets of Arrow Energy Ltd., the coal seam gas producer.

"Australia's trading relationship with China is healthy and mutually beneficial" says Australian Energy Minister Martin Ferguson, "Australia is committed to strengthening that relationship and being an important partner in our region's economic growth."

In other deals, China's largest oil and gas producer, PetroChina Co., which holds about 7.5% stake in China Petroleum Finance decided to raise its holdings to 49%. The move made possible by buying stakes from the parent company China National Petroleum Corp. Thus, PetroChina Co. gets better returns on investment, as it gets finance quite easily.

On the oil reserve front:

• According to China Petroleum and Chemical Industry Association the volume of oil processing grew by 29 percent this January. The country processed about 7.13 million barrels per day (bpd) in January.
• China National Petroleum Corp (CNPC) is filling its commercial oil reserve tanks in Dalian. The total capacity of the oil reserve is 240,000 cubic meters (reports Shanghai Securities News)
• PetroChina co. is building an oil hub in Chongqing municipality-capacity 3,000,000 cubic meters.
• A new refinery with the capacity of about 200,000 bpd is being built up in the city of Tianjin
• A recent poll suggests that the refineries had planned to process oil at a record rate of 2.88 million barrels per day (bpd) of crude in the month of January, this year
• Dushanzi Petrochemical project, the 10-million-ton largest integrated refining project became operational and started production. Also on the completed list were Urumqi Petrochemical aromatic hydrocarbon facility and Guangxi Petrochemical refining facility

China National Petroleum Corporation has presence in twenty nine countries in Africa, Central Asia-Russia, South America, the Middle East and in the Asia-Pacific. In 2008, the company produced about 138.75 million metric tons of crude oil and 66.41 billion cubic meters of natural gas.

Last year, PetroChina Co., under its 'High Growth in Oil and Gas Reserves program' made a number of discoveries in Erdos Basin, Tarim Basin, Hailar-Tamsag Basin, Sichuan Basin, Junggar Basin, Songliao Basin, Bohai Bay Basin and Qaidam Basin with 'favorable prospects.' CNPC says it was successful making discoveries in Songliao, Bohai Bay, Ordos, Tarim, Qaidam, unggar, , Sichuan, and Hailaer basins, The company says the discoveries added to more than 500 million tons of proven oil for the next five years.

Report from Chinese Academy of Social Sciences (CASS) suggests oil production to be between 177 and 198 million tons in 2010, which could increase to 182 to 200 million tons by 2015. Still, as stated earlier, China needs huge imports of oil. The crude oil imports were likely to bolster by 9.1 percent this year, according to a February report of China National Petroleum Corp. The domestic output is expected to decline after 2020, says the study. So, after 2020, nearly 64.5 percent of the consumption is set to be met by imports. At the start of the year the oil imports rose as high as 33 percent compared to the same time a year ago.

And, Africa is one potential place for China's oil expansion program. The country is the third largest trading partner of Africa with Angola being the largest source of oil. The top three countries on the crude oil import list last year were Saudi Arabia, Angola, and Iran respectively. As the Nigerian government is planning to increase its reserve capacity to 40 billion barrels of oil with four million barrels a day, it's looking to China for more investment. The country has been battering militants and political tension and is seeking to bring back investments. There are more than twenty licences up for renewal in the oil domain from China with investment of more than $50 billion riding on them.

China's march to find more oil for imports, hasn't been without controversies:
The government has been accused of supporting corrupted governments for oil-Sudan, the case in point. China is Sudan's biggest foreign investor and supplier of weapons to the Sudanese government. In 2007, CNPC signed a deal to explore for oil in North Sudan on the Red sea, in a joint deal with PT. Pertamina, the Indonesian oil company. The trade between China and Africa has crossed $100 billion on a yearly basis.

What China is doing:

The country is offering aid to countries rich in natural resources even if the governments have dubious human rights records. It also doesn't work to forget that Chinese investments in Africa have helped the continent with infrastructure like roads, hospitals, clean water, schools and electricity. This month the Chinese Foreign Minister Yang Jiechi said that Africa's oil imports from Africa accounted for just 13 percent of the total imports, lower than exports to the US and Europe. But then, China is all set to overtake the U.S. as Africa's second largest investor very soon.

Changing dynamics

In essence, China is pumping in massive investments into the oil domain in the form of exploration and licence deals. In fact, that is a good thing as underinvestment could increase the oil prices in the long run. But then Crude oil consumption is rising in China too. The IEA revised the oil demand forecast for China up by almost 100,000 barrels a day. China is expected to consume about 8.7 million barrels a day next year, or 3.6% above 2009, says the IEA. IEA predicts that China will account for about seventy five percent of global oil consumption by 2030.

On the face of it, a multi-polar world is for the better but could the globe afford to have another superpower consuming energy just like the U.S.? Ironically, on the clean energy front, China invested $34.6 billion in 2009, while the U.S. investment was $18.6 billion. But before rejoicing check this news too: In the search for unconventional energy sources the country has signed agreements with Canadian Athabasca Oil Sands Corporation to develop the environmentally disastrous oil sands project. Clearly, China is leaving no stone unturned in its quest for energy.

US opens more areas for oil exploration By MERLIN FLOWER for OIL-PRICE.NET, 2010/04/07

Sarah Palin is the one allied with the campaign "Drill, baby, drill", but in an inventive merger the President has laid claims for it too-very nearly. In a bold attempt to boost the domestic oil and gas production, he has opened up large offshore areas along the southern Atlantic coastline, the eastern areas of the Gulf of Mexico and northern shore of Alaska for drilling.

The U.S. has had a long-term moratorium on oil exploration for almost twenty years. The move towards more exploration is aimed to reduce oil imports, obtain more revenue from lease and licence and to whip up support for the comprehensive energy and climate legislation.

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The move towards more exploration is aimed to reduce oil imports

US opens more areas for oil exploration By MERLIN FLOWER for OIL-PRICE.NET, 2010/04/07

Sarah Palin is the one allied with the campaign "Drill, baby, drill", but in an inventive merger the President has laid claims for it too-very nearly. In a bold attempt to boost the domestic oil and gas production, he has opened up large offshore areas along the southern Atlantic coastline, the eastern areas of the Gulf of Mexico and northern shore of Alaska for drilling.

The U.S. has had a long-term moratorium on oil exploration for almost twenty years. The move towards more exploration is aimed to reduce oil imports, obtain more revenue from lease and licence and to whip up support for the comprehensive energy and climate legislation.

As expected there was an angry backlash from environmentalist. Detractors say the move:

Contributes to global warming with increase in pollution

Kicks in fears of chemical and oil spills

Threatens coastal communities dependent on the sea

Affects the habitat of endangered polar bears, whales and other wildlife

Will open up more areas like the west coast for oil exploration

Won't bring in energy security or reduce oil imports

"This is not a decision that I've made lightly" Mr Obama said, aware of the objection from environmentalists. "But the bottom line is this: given our energy needs, in order to sustain economic growth, produce jobs, and keep our businesses competitive, we're going to need to harness traditional sources of fuel even as we ramp up production of new sources of renewable, home-grown energy."

In the meantime, supporters of the move, for their part, see this as an attempt to decrease dependency on foreign fuel. They say, it adds jobs and brings in more energy security; that when oil is produced locally, it helps the economy with more income and demand for goods.

The announcement comes as a 'give and take' policy to garner support and momentum for a new energy and climate bill that proposes cuts in green house gases. The senate is expected to take up the climate bill shortly, almost the last chance before the mid-term elections. The bill has already been passed by the House of Representatives, and the President is hoping to get Republican support in the senate. The US Press Secretary Robert Gibbs said that the move was more to give energy support to the American people as the country was about sixty percent dependent on foreign oil, and that the proposals still weren't sure to win support from senators close to the oil industry. Republican support or not, ten Democratic senators from the coastal states have already signed a joint letter expressing opposition to the exploration.

Already the President has made major concessions on coal and nuclear power to garner support for the bill. In the announcement unveiled at Andrews Air Force Base Mr Obama had also included plans to expand the production of nuclear power to "move us from an economy that runs on fossil fuels and foreign oil to one that relies more on home-grown fuels" and clean energy. Only last month, the President had announced a $50 billion loan guarantee to build eight new nuclear power plants.

Said Mr. Obama, "While our politics has remained entrenched along worn divides, the ground has shifted beneath our feet. Around the world, countries are seeking an edge in the global marketplace by investing in new ways of producing and saving energy." Further he added, "The only way this transition will succeed is if it strengthens our economy in the short term and the long run. To fail to recognise this reality would be a mistake."

Other energy proposals include ordering of 5,000 hybrid vehicles to the federal fleet and more stringent fuel economy standards for new cars. "This rule will not only save drivers money; it will save 1.8 billion barrels of oil," Mr Obama said. "That's like taking 58 million cars off the road for an entire year."

Drilling already taking place in the western and central areas in the Gulf of Mexico would come now closer to just 125 miles from Florida. But officials said that a buffer would be put in place off the Florida shore line so that the rigs aren't visible from the land. The first drill would take place off the coast of Virginia within two years. However, it all depends on the Congress lifting the moratorium on drilling.

The administration, in effect, is thus adopting some measures put forward by President Bush, which were challenged in court on environmental basis. The Interior Department had set aside the proposal after President Obama came to power. But one notable difference from Bush's plan is exception given to the ecologically sensitive Bristol Bay in south-western Alaska, which has several endangered species of whales and fishes. The moratorium would also remain for the Pacific coast from California to Washington. Of course, the Oil companies aren't happy with the exempted areas, either.

The Interior Department says the untapped oil would meet three years of U.S. oil demands. Though at this point the oil estimates aren't clear, the reserves would be relatively smaller than the Department's estimates, and would not impact the price of oil. A clear picture will emerge only after the exploration begins. And, it will take years, anywhere between 14-16 years, before the oil is seen. For a comparison, EIA's Short-Term Energy Outlook, for March 2010 shows that domestic crude oil production averaged 5.32 million bbl/d in 2009, up about 370,000 bbl/d from 2008. The projected growth in crude oil production this year is by 210000 bbl/d.

This move for oil drilling isn't surprising as during his presidential campaign in 2008, President Obama had said that he supported expanding offshore drilling for oil and gas. A senior counsel at the Center for Biological Diversity, Brendan Cummings, said the announcement was "all too typical of what we have seen so far from President Obama - promises of change, a year of 'deliberation,' and ultimately, adoption of flawed and outdated Bush policies as his own".

If not oil, then what?

In fact, the US is the third largest crude producer in the world, but imports almost 57 percent of the oil it needs. The top fifteen countries in the list of crude oil imports to the US last year were, are Canada, Mexico, Nigeria, Saudi Arabia, Venezuela, Algeria, Iraq, Angola, Brazil, Colombia, Russia, Kuwait, Azerbaijan, Congo, and Ecuador.

According to EIA, there is substantial decline in production from oil fields in the federal Gulf of Mexico and Alaska. Further, the US liquid fuel consumption was a staggering 18.7 million bbl/d in 2009 even when it declined by 810000 bbl/d to previous years.

So, there is need for oil and do we have an alternative at present? The pill is bitter to swallow but the answer is 'no'. To limit the opposition to oil drilling in the U.S. alone is to see a small picture of the whole problem. Oil drilling wherever it's done (not only in the U.S., which has better resources to tackle problems of the kind) could cause ecological damage, whatever precautions taken. The proposed explorations will not markedly reduce the dependency on foreign oil. Neither are they 'the' solution for the energy needs.

Hence, what's to be done is to decrease the dependency on oil. Small but significant steps are the need for the hour with increased investments in safe and clean renewable sources of energy. This announcement, at best, is just a temporary measure, whichever way you think.

How Exxon paid zero taxes in 2009

The move towards more exploration is aimed to reduce oil imports

How Exxon paid zero taxes in 2009 2010/04/15

Here's a simple question in Economics: If Exxon Mobil, the largest U.S. energy company, made a profit of $35 billion, and if the income tax paid is $15 billion at a tax rate of 47%, how much did it pay to the IRS? The answer is, according to a report published recently in Forbes magazine, zero.

How come the results when 47 percent of the profit had been paid as taxes? Well, it helps to have wholly owned subsidiaries domiciled in countries such as Bermuda, Cayman Island and Bahamas to pipeline cash flows from operations in Azerbaijan, Abu Dhabi and Angola.

The report, as expected, created a huge outcry in the media as well as among the general public when it detailed the taxes paid by corporations in the US last year. Truly, Exxon is not alone. GE submitted a mammoth 24,000-page tax return and managed to avoid income tax for profits worth $10.3 billion last year.

Likewise many companies though benefiting from corporate welfare in the U.S., use tax shelter practices to send their earnings overseas. According to a report by the Government Accountability Office (GAO), 2008, two out of three US companies paid no federal income taxes from 1998 through 2005. The report had covered 1.3 million corporations in the US with collective sales of $2.5 trillion.

So to the important question: Is it illegal to do so? No, not at all, in fact, it's well within the purview of law. Under Net Operating Loss Carry forwards (NOLs), if a company makes a profit of, say, a million this year but incurs a loss of a million the next year, the previous year's loss could be tallied against the gain. Thus a company could get a zero tax liability in the US. It's the same story in the case of foreign tax credit too.

The foreign tax credit is applied to situations where the company has already paid taxes elsewhere in the world. This is done by the IRS to prevent double taxation for corporations. Thus there is a choice of tax credit or deduction against the US taxes. If a corporation pays over the US corporate rate of 35%, that could offset the tax in the US. Since in Exxon's case the rate was 47% it helped the company offset the income tax in the US.

Since the news broke out, Exxon has clarified that it had paid substantial income tax to the U.S. Treasury in 2009, and that it had overpaid taxes in 2008. The company says that it was expecting a significant income tax liability for 2009. Still, unclear is the actual income tax liability as the company hasn't disclosed it so far. Besides, the company has recorded U.S income tax benefit of $46 million, with non US income taxes accounting to $15.165 billion.

The company's 2009 Financial and operating review, states, 'strong earnings of $19.3 billion in a challenging business environment' with 'sales and other operating revenue include sales-based taxes of $26,936 million for 2009'.
Still, some points to ponder upon:

Last month the unemployment rate in the US was 9.70%. Exxon Mobil provides stable jobs 79,000 employees- as of march 2009. These 79,000 employees pay income and property taxes, a taxable bounty to local government.

If Exxon had to pay income taxes it would most likely shed some of its 79,000 workforce, which would have a devastating effect on families and the local economy (schools, hospitals, etc...) Society may better off not taxing the company but its employees instead.

Taxes paid by Exxon employees are taxes paid by exxon indirectly through salaries. This is accounts for billions in Federal tax revenue generated by Exxon, which usually isn't reported by mainstream media

Most of the profit earned by the company was from operations abroad

The company hasn't done anything illegal. Ultimately, it is for the US government to plug all loopholes in the tax extraction process.

Ironically the oil giant has agreed to pay $32.2m in a settlement with the US government, last week. This is to resolve claims that the company intentionally and falsely reduced royalties for natural gas from Federal and Native American leases. The company, it seems, had claimed deductions for money spent on transporting the gas, and had understated the value of their natural gas production every month.

Exxon Mobil, meanwhile, continues to lament its increased tax burden saying that additional taxes raise prices and reduce supplies. It says its U.S. tax burden is already very large, that for the first three quarters of 2009, the worldwide income tax rate had increased to over 48 percent with total tax obligations exceeding $59 billion. "From 2004 to 2008 our earnings grew by 79 percent, but our income taxes grew by 130 percent" says the oil giant.

And the clincher, "Imposing punitive taxes on American energy companies, which already pay record taxes, would discourage the sustained investments needed to safeguard U.S. energy security." True, we do need investment in the energy field but not by denying income to the government.

And, though, Exxon boasts of 'record performance in workforce safety that continues to lead industry', check this: Last month, the company was ordered to pay $1.2 million to sixteen Louisiana workers for exposing them to dangerous radioactive materials while cleaning used oil drilling pipes between 1977 and 1992. Looks like words hardly match the deeds-What do you think?

Tar sand mining gaining force

Tar sand mining gaining force 2010/04/28

The picture above the ground: The Boreal forest of Canada, a unique blend of pristine forests, water bodies, and wet lands.
The picture below the ground: Tar sands, a source of oil, spread across 138,000 km2 of land. About 4.3 million hectares of the said forest has tar sand deposits.

And, one or rather both the pictures are about to disappear: it's not rocket science to discern that tar sands could be extracted only after mining the forest. For what? Well, tar sands are the source of liquid fuels- the dirtiest source of fuel on the planet, at present. Naturally, it comes at quite the cost to the environment, spoiling-you name it- the land, water and air. Up until recently, extracting oil from tar sands was very expensive, technologically difficult and complex. But advancement in technology and high price of oil-above $80 a barrel- has made it possible to extract oil with profit.

Needless to state, now we have companies flocking to get a piece of the cake, or should we say tar sand. And for good reasons, too: In 2008, production from Alberta tar sands was at 1.31 million barrels per day and Oil sands are the largest source of crude outside the Middle East. Further, Canada is politically stable and has an investment friendly government.

So, in one of China's largest investment in North America, the state owned Sinopec Oil Company is all set to buy a 9% stake in Syncrude project for Canada's oil sand. The oil company paid the US based ConocoPhillips $4.65bn for the stakes. Syncrude, is the largest project in Canada for tar sands, operating since the seventies, pumping around 350,000 barrels a day and accounts for more than 13 percent of Canada's oil output. The deal is yet to be approved by the respective governments in China and Canada. Analysts were expecting Canadian Oil Sands Trust, the largest owner of the Syncrude project, to buy the stakes of ConocoPhillips. But Sinopec clinched the deal, and by more than $2bn the expected cost, at that. Other companies associated with the Syncrude project are Suncor Energy Inc, Imperial Oil Ltd, Nexen Inc, Nippon Oil Corp and Murphy Oil Corp.

This is the latest in a series of investments, to the tune of billions of dollars, done in the energy sector by China. Demand for energy is growing in China with a booming economy-the demand fast-tracked by 28% in January this year compared to the same month last year- and the country is leaving no stone unturned in its quest for oil. In fact, last year, Sinopec bought a ten percent stake in the Northern Lights project and spent around $7.2bn for Addax Petroleum, a company with stakes in oil fields in West Africa and Kurdistan. In 2009, Athabasca Oil Sands Corp. (AOSC) divested 60 percent of its stake in Alberta oil sands project to PetroChina International for $1.9 billion. But the latest acquisition is, so far, the largest from China in oil sands.

Oil sands-tar sands or extra heavy oil-is a mixture of sand, clay, water and a heavy, dense, viscous form of petroleum called Bitumen. This Bitumen has to be subjected to expensive and wide variety of treatments to produce fuel. Oil sands are found in many countries including Venezuela, Russia, the US and Canada. In fact, Canada is the largest supplier of crude oil to the US and has the second largest reserve of oil after Saudi Arabia. Alberta oil sands produce crude oil rich in sulphur, and the place has almost 85% of the world's natural bitumen. The largest deposit of which is Athabasca oil sands. Some in-situ methods used to in the mining operation are cyclic steam stimulation (CSS) and steam assisted gravity drainage (SAGD). And in-situ extraction uses twice the energy as strip mining.

Environmental impact

Apart from pollution, the mining causes deforestation, destruction to the land, and impacts the livelihood of indigenous communities.

The extraction process is carbon-intensive as it produces three to four times green house gases than the conventional oil fields.

Nobody knows for sure how long it would take to reclaim the land- if at all they could be restored.

The Athabasca River passes through the mining areas of the forest. Water from this river is used in the mining operations and environmentalist fear for the aquatic life in the river.

The process in very energy intensive and two to three barrels of water are used for every barrel of crude produced, to separate the bitumen from the sand. The waste water, filled with heavy metals and chemicals, are left in ponds called 'tailing ponds'. These toxic ponds are a source of environmental pollution, the clean-up of which is very expensive.

Apart from the waste water other wastes like mine tailings- a mixture of water, sand, clay, and bitumen are produced which cause environmental damage too. Last month the Alberta government acknowledged that apart from the more than 500 migratory ducks killed in a toxic pond in 2008, there were more than 164 animals killed during 2000- 2008 because of the mining process.

Two decades ago, the Exxon Valdez oil spill occurred in the Prince William Sound, Alaska, when about 10.8 million gallons of crude oil spilled into the sea. And according to reports, the effects are still felt with Harlequin ducks living in the area showing effects of long-term exposure to the oil. And the Boreal forests are home to many animals like wolves, lynx, bears, and woodland caribou; to about thirty percent of North America's song birds and three to five billion land birds, including migratory ones. Last week Europe's largest oil company BP, beat a shareholder rebellion- co-ordinated by FairPensions and Co-operative Asset Management with support from WWF-UK, - over environmental, financial and social risks associated with BP's oil sand project in Canada. The advance votes showed that about 85% had voted against the resolution. The resolution will be discussed at the BP AGM and the company is expected to make a final decision on the oil sands venture by the end of this year. Though the resolution failed, it did succeed in bringing to the table BP's plans for tar sands projects. The oil company, for the first time, disclosed information on the company outlook on demand for tar sands oil. It also furnished details on regulations the company had planned while deciding on the proposed joint venture between them and Husky energy for the Sunrise project. The company contents that the extraction process in the Sunrise project was less damaging than the older methods. The project is expected to produce 200,000 of oil a day by 2012.

The Chairman of the BP Carl-Henric Svanberg said the vote was "not about winning or losing". He added that "This resolution raises perfectly legitimate concerns" I understand the concerns, but I disagree with the analysis. And that "The decision to move into the sands is a strategic one " most analysts think it is a stretch to think we can meet future energy demands without fossil fuels, we will need at least 50 million barrels a day of new oil.

BP and Shell are saying that they would extract oil from tar sands in a responsible way. Shell states that the greenhouse emissions could be reduced using carbon capture and proper storage methods. Greenpeace climate and energy campaigner Melina Laboucan-Massimo said "BP's involvement in the toxic tar sands industry exposes the hypocrisy behind its carefully crafted image of being beyond petroleum". Further adding that, "With its stake in the tar sands, BP more accurately stands for 'Broken Promises' and can't claim any longer to be 'Beyond Petroleum'."

Strangely, the IEA has commended Canada for its commitment to 'increase the share of clean energy in electricity supply by 2020.' Said IEA Executive Director Nobuo Tanaka, "the goal to increase to 90% the portion of Canada's electricity needs that are provided by carbon-free sources such as hydro, nuclear or wind power by the end of the decade is progressive and ambitious." But, really, how's that possible with blatant destruction of forests?

It would be unwise, if not silly, to expect investors to be ethical and abstain from the project. However, there is, be assured, a way to save the forests. If the government imposes higher charges for carbon dioxide emissions, it would cut into the profit. This looks like the only possible way to save the Boreal forest. For, should the Canadian government dirty its backyard at the cost of its wildlife just to supply oil to the energy thirsty US? The US is not going to reclaim the land, anyway.

The bottom-line, as oil-price.net has always maintained, is more investment in renewable energies and reduced consumption of oil. As for Canada's tar sands project, spirited opposition is the only way to prevent an environmental disaster.

Use nukes to contain the oil spill

Use nukes to contain the oil spill 2010/05/11

The April 20 explosion on the Deepwater Horizon rig not only killed eleven people but also triggered a massive influx of oil into the ocean. President Obama has called the oil spill a "potentially unprecedented environmental disaster." The cause of the explosion is not known and equally obscure and hazy are the means to contain the oil gushing out from the sea floor. Already the south-easterly winds have enabled the oil to touch shore. And, oil prices continue to drop every day on the backdrop of this poisonous spill, possibly the only good news from a consumer point of view.

At present, efforts are on to prevent a re-run of the infamous oil spill caused by Exxon Valdez tanker, when 10.8 million gallons of oil was dumped into Alaska's Prince William Sound in 1989. Usually, a blowout preventer or BOP would shut off any oil leak from open wellheads. It is this valve that prevents blowout accidents due to heavy pressure. In the case of the gulf oil spill, the 450 ton, 48 foot tall BOP failed to stem the flow. BP, the oil company, did try to use robotic submarines to nudge the BOP but the effort was futile and a second BOP could, if it fails, trigger more oil spill.

Recently, the US president opened more than 500,000 square miles of coastal waters in his country for oil exploration. This accident has put that decision on hold. White House adviser David Axelrod said "No additional drilling has been authorised and none will until we find out what happened here and whether there was something unique and preventable here," And, the Governor of California, Arnold Schwarzenegger, even in the midst of a budget crisis, ended his support for oil expansion, while Sarah Palin was still seen sticking to the slogan 'drill baby drill'.

BP in the hot seat

Right now BP is definitely 'Beyond Petroleum' as it tries to stem the oil vent. Without entering into a fault finding mission, suffice to say, BP is in a terribly hot soup. Tony Hayward, chief executive of BP said "We will absolutely be paying for the clean-up operation. There is no doubt about that. It's our responsibility, we accept it fully." Last week, BP was successful in stopping one of the three leaks from the MC252 oil well. However, in a private briefing with congress members, BP is said to have admitted that the spill could touch 40,000 barrels a day if the flow continues. At present, the spill is spewing about 5,000 barrels of oil a day. At stake are environmentally sensitive areas across Louisiana, Mississippi, Alabama and Florida, livelihood of many people in the area and the wildlife with many species of fish, birds and mammals.

For its part, BP finds itself in the same position as David Cameroon was for Avatar, the first to do something without a precedent to follow. But unlike Cameroon, BP has to contend with many more variables- public anger, finding new ways to seal the flow, massive influx of funds running to billions of dollars, and plummeting stock value are just some of them. It is uncertain how long it will take to control the leak with current means used. The technical challenges to stopping this leak with classical means are... namely a lack of classical means. Leaks at that depth rarely occurred before. Human divers can't go that deep. The technology used for leaks occurring in shallow water cannot be used here as the source of the leak lies more than a mile below the water.

High-tech, experimental dome... but will it work?

BP has installed floating booms in the sea and along the coastline to check the oil spill using local fishermen in a program called Vessels of Opportunity. These booms are also used to catch the spills which are then subjected to burning. The plan is to remove the residue of the burn using net and simmers. The company has deployed more than 700,000 feet of the boom with another million feet available for use. Still, boom or sandbags do not work, albeit as a temporary reassurance, as winds damage the booms rendering them useless. BP has also given $25 million block grants to the states affected by the oil spill- Louisiana, Alabama, Mississippi and Florida. The company says the funds were disbursed to implement the Contingency Plans (ACPs) to prevent the spill affecting 'sensitive areas'

In addition, chemical dispersants were also used to check the spill. Thus 160,000 gallons of chemical dispersant called Corexit 9500 were sprayed on the spill and another 6,000 gallons of Corexit EC9527A were pumped directly on the source of the spill below. The dispersants are expected to break the oil droplets into billions of smaller droplets to hasten the degradation process. But concerns remain on the effect of the chemicals on aquatic life, in the short term or long term, as the exact mix used in the chemical is still a well-kept secret.

Against all this, we had untested futuristic technology in the form of giant boxes, four stories high, weighing 100 tonnes, called cofferdams to be placed over the larger of the two leaking wellheads. The idea was to collect the gushing oil leaking from about a mile under the water's surface and channel it through a pipe to the surface to be collected by Transocean's Deepwater Enterprise drillship. The device had been used previously during hurricane Katrina, but then it was in shallow waters and different conditions altogether.

Sure enough, it would be weeks before we know the success of this and none is wiser about the working condition of the dome under high deep sea pressure. Though the dome was successfully placed over the leak, it hit the first problem immediately: Gas hydrates, ice like crystal formed when natural gas and water mix under pressure, sealed the opening of the dome. Thus, the hydrates have plugged the large opening and have prevented oil being funnelled to the ship. So, the dome has been moved to the side of the well for the time being. Now the challenge is to find a ways to overcome the hydrates-either heating the cofferdams or adding methanol. Still at that water pressure -we are talking about pressure at 1,500m below the surface- the funnel would be difficult to maintain. BP is drilling two more relief wells in the area to provide an escape route for the pressurised oil. But that will take months. So what's the solution?

Nukes, a simple proven method to stop oil leaks

A leading Russian daily has come up with another option-nuke the spill. Though it sounds more like fiction and somewhat outlandish, the fact is that Soviet Russia had used controlled nuclear explosions to contain oil spills, on at least five different occasions.

The science is to drill a hole near the leak, set off the explosion and then seal off the leak-used in the soviet for an oil spill in the desert. If it is rocky surface the explosion would shift the rock which then squeezes the funnel of the well. The first underground nuclear explosion was done in Urt-Bulak in 1966 to control burning gas wells. The success ratio is quite high with only one of them failing to prevent a spill in Kharkov region in 1972.

There is an analogy between using nukes to stop the oil leak and using Chemotherapy on a cancer patient. Chemo nearly kills the patient in order to kill all cancerous cells. Yet it is the best known way to stop cancer. The same goes with using nukes underwater. Like chemo it is drastic yet has a 80% success rate, better than anything else.

Some analysts are against the use of nuclear explosions on fear of the effects on the environment. But the world has already done underwater testing of nuclear devices and if there was a huge environmental disaster as a result of it, we'd have known by now. Indeed, Commandant Cousteau, renowned biologist led numerous dives following French underwater nuclear explosions in the Mururoa atoll and noted very little impact on sea life.

using nukes to stop the leak is the most ecological alternative. Stopping the leak before too much oil leak is the key, speed is of the essence. Nukes would allow this to be resolved in a matter of days. This would save thousands of miles of shoreline, millions of animals by not allowing this toxic sludge to contaminate the shore.

One of the main issues with using nukes is public opinion. Even though it's the most ecological alternative, nukes have a huge public stigma hard to overcome, mostly due to ignorance. Nuclear bombs are not intended to be used for peaceful, ecological purposes and educating the public on this possibility is an uphill battle.

This technology was used by the Russians, the USA's sworn enemy at the peak of the cold war. Never mind the relatively high success rate of 80%, no politician in his right mind would sell a Russian solution to the public.

Of course, BP does not have nukes. The US military does, of which the Army Corps of Engineers would probably have to design a plan to use them on the leak. The United States has about 5,113 nuclear war heads, as revealed by Pentagon according to the Strategic Arms Reduction purpose. So, why not use them for peaceful purpose for once?

Katrina times 10 in the works

"We are continuing to do all we can to stop the flow of oil from the well and also attack and capture the spilled oil offshore," said Tony Hayward. "However, it is also vital that we work together with government and potentially impacted communities to protect the shoreline from any impact of the spill. We hope these grants will support the effective deployment of pre-prepared response plans in each state." Following its involvement with the faulty dam design during Katrina, the Corps understandably errs on the side of caution. Which means trying not to get involved at all.

Hurricane Katrina left Louisiana with unhealed wounds because of a lack of decisive response from the local authority. The same behavioural pattern emerges once again where a disastrous situation is not being addressed promptly and left to worsen. Surely Federal subsidies will shower the coastline of Louisiana and trickle down local pockets after all this oil has damaged the shore and killed most of the wildlife, but at what price?

Nuking the oil spill: nuclear option being considered?

Nuking the oil spill: nuclear option being considered?2010/05/24

The oil spill in the Gulf of Mexico continues to spill black venom into the sea. The world has got to see stirring images of oil gushing with decipherable great force, enough even to turn a staunch critic towards environmental protection. Initially scoffed and sniffed at, a radical solution in the form of a nuclear explosion is now trotting as a viable option to stop the oil spill. Why? Because no effort should be spared and so far, the stratagems used by BP have been futile. Might as well check out some of the efforts to contain the spill so far:

Chemical dispersants to the tune of 325,000 gallons have been used with planes spilling those 192 or more times in attempts to degrade the oil droplets. Last week, the US coast guard and the Environmental Protection Agency had authorised BP to use subsea dispersants to reduce the damage caused by the spill. These subsea dispersants are expected to break the oil into small droplets preventing them from reaching shore or surface. Billed an 'important step' in reducing the overall impact, according to initial reports these underwater dispersants are said to be 'working'. But concerns have been raised about the possible and 'not- known- yet' damage to the environment as the toxic dispersant are (Corexit 9500 and Corexit EC9527A) untested.

In a desperate move, BP is trying to use a 'Junk shot' method to stop the leak. That's right, junk like golf balls, rubber tyres, plastic tubes, ropes are being used to clog the well. These are to be fed into the Blow Out Preventer. Rewind: it was the failed BOP which started the spill in the first place after the explosion two weeks ago. This 'Junk shot' would be followed by a 'top kill' that is pumping in mud and then cement to overcome the pressure. This method has been used before in the Kuwait oil fields during the Gulf War of the nineties. All these work to be done, as earlier, by robotic submersibles operated by pilots on the surface.

Further, BP tried to insert a funnel directly into the well to pipe the oil to the surface. In the first two attempts a mechanical problem prevented the siphoning of oil using pipes. The tube was then withdrawn to the surface for readjustment after the frame holding the mile-long tube shifted and failed to connect to the leak. But in possibly the first good news the second attempt worked and a tube is expected to siphon oil and gas to the surface. How much and if that works? The answer will reveal itself slowly. BP is also trying to replace the upper portion of the BOP using robotic arms. But that could in fact cause more oil spill, thus a huge risk.

The huge containment dome built after two weeks of work, which was supposed to drain the oil has been abandoned after the build up of hydrates. Five controlled burns have been performed so far, then stopped due to winds and high waves. Skimmers are also being used to collect oil using absorbent conveyor belts which are then treated to extract oil to be used as fuel. Booms, sand bags and sponges are also in the scene deployed to soak up the oil, but the process is slow and dependent on good weather. Make no mistake; a relief well is the best option. Two relief wells are being drilled to ease the pressure off the damaged oil well. Once, the relief well comes in contact with the damaged well, blocking or easing the pressure would be easier. But that will take months to complete and these efforts can go only so far.

The blame-game:

Amid these attempts to conjure magic, the blame game continued with the three companies responsible BP, Transocean Ltd. and Halliburton Co. blaming each other for the oil mess. Transocean is the owner and operator of the Deepwater Horizon rig and Halliburton had supplied cement for the well. Lamar McKay, chairman of BP America Inc., says, "Transocean's blowout preventer failed to operate." And, Stephen Newman, Chief Executive of Transocean says, "All offshore oil and gas production projects begin and end with the operator". While Halliburton's line was that it was "contractually bound," to follow the oil company BP's instructions to it. Mr Obama put a stop to the game with stern words, 'I will not tolerate more finger pointing or irresponsibility.'

Still, risky is this blame game and equally risky is the delay, deferment and inaction in the absence of demonstrably proven precedent. The importance of ocean cannot be underestimated. More than sixty six percent of the global population lives within hundred kilometres to the coastline. Ocean is responsible for: feed for livestock, food in the form of fishes and other organisms, source of income for man, supplier of sodium chloride, oil-obviously, and as a source of water in arid regions of the world. And the ocean surface plays a vital role in the water cycle through evaporation and influences climate.

Nuclear option

At 5,000 feet below water, battling the low temperature and high pressure is not easy. The pressure of the oil was so high that the BOP couldn't prevent the explosion- and the resultant spill-when eleven people died on 20 April. Also the leak appears to be more than the 5,000 barrels of oil a day estimated earlier, now analysts say the spill was about 13m litres a day with oil plumes more than 10 miles long discovered. As it could only get worse, now is the time to consider the option on a nuclear explosion:

The public opinion, after the initial disbelief which was suspended by images of the spill has rallied in favor of a nuclear explosion. So, finally there's some hope at the end of the tunnel. President Obama has stepped in and has sent a team of nuclear experts to contain the spill. The man in charge to contain the spill is Steven Chu, U.S. Energy Secretary and also the one who helped develop the first hydrogen bomb in the 50s. The five member multidisciplinary team are a creative lot involved in the first hydrogen bomb, finding ways to mine in Mars and ways to position biomedical needles. The team will work along with BP's scientist to find a solution. Meeting at BP's crisis centre in Houston, Chief Executive Officer Tony Hayward said after the meeting, 'lots of nuclear physicists and all sorts of people coming up with some quite good ideas actually.' They are said to have reached 'one good idea' which he declined to reveal. A nuclear option perhaps?

Truth is that Russia has used it at least five times starting with a blast near Bukhara Uzbekistan in 1966. Then a 120 meter tall flame, fuelled by massive natural gas was blazing for three years with deafening sound. When all efforts to contain the flame in the desert failed, a 30 kiloton atom bomb was used. The explosion did seal the well-it worked displacing tonnes of rock over the spill thus cutting it.

Some people fear that a nuclear explosion would set the oil spill on fire. But Soviet Russia has used subterranean nuclear blasts as much as 169 times and the number would add up to more than 1,000 if all the tests by different countries are taken into account. And since the explosion would be underwater and in the absence of oxygen there is no chance of the well burning up. But yes, an explosion close to the surface can contaminate the water due to radioactivity but this spill warrants an explosion underground. The oil is beneath the rock and since there is no air in an underground nuclear explosion, the energy released would overheat and melt the surrounding rock, thus shutting the spill.

So that takes us to the next criticism-possible effects on the flora, particularly the phytoplankton and the marine organisms including fishes. But the spill itself, if unchecked, could cause more damage than the results of the explosion. Further, many tests have been carried underwater and no serious damage has been reported. Another blocker for the nuke option is that it would have to be government operated and a final solution. This goes against capitalism. There is much more money to be made by funding cleaning operations which have no end in sight. As dire times call for drastic steps, the better option is a nuclear explosion or be prepared to see carcass of innocent animals washed ashore.