Monday, June 23, 2008

Mexican Oil Decline Cont.

As noted here before Mexican oil production, which was the 3rd largest producer for the U.S. is in significant decline. Here is more info from Peak Opportunities as to why the downward slope gets slipperier:

"Update on Mexican Production, Exports
The May 5, 2008 issue of the Oil & Gas Journal included the following articles:

Mexico imports more gasoline as oil production drops

* Gasoline imports rose to 367,000 bbls per day in March 2008 (6.5 % increase from February).
* Oil production declined in the first quarter of 2008 to 2.91 MMBO/D.
* And this shocker: "Mexico's premier Cantarell field produced 1.15 MMBO/D in March 2008 ..." Note that this is below the year end rate we projected in our last post, shown below.

Mexico to reduce oil exports to US in 2008

(Didn't take long for our March "prophecy" to be manifest.)

* "Mexico will reduce its crude exports to the US by an average of 184,000 BO/D throughout 2008, a situation that could continue for 2 years longer ..." The latter, quite an understatement!
* "... original plan for exports in 2008 envisioned some 1.678 MMBO/D ..."
* "... US EIA earlier this month predicted a 13.2 % shortfall of imports from Mexico during the current fiscal year. According to EIA figures, Mexico exported 1.533 MMBO/D to the US in 2007."
* "Based on its December 2007 Short-Term Energy Outlook, EIA forecast Mexico would produce 3.52 MMBO/D in 2007 and 3.32 MMBO/D in 2008." It looks like the EIA's forecast for 2008, done in December 2007, is off by some 410,000 BO/D - for the first quarter of 2008! You'd think they could get a little closer than that!

To refresh your memory, Mexico nationalized oil in 1938. A Constitutional provision was created that prohibited ownership of oil and gas reserves by anyone other than the Mexican government. Mexico and Mexicans take great pride in their nationalism regarding their oil resources. Pemex is the national oil company which are operates Mexico's oil and gas projects.

Unfortunately, some of Mexico's largest remaining reserves likely exist in a "deepwater" (water depths greater than 1300') area in the Gulf of Mexico. And despite the fact that Pemex employs some very intelligent folks, they don't have the years of experience in research, development, engineering and construction of deepwater drilling and production projects.

Previously, it was believed that Pemex could rely on the world's largest, most capable service companies - Schlumberger and Halliburton - in order to provide everything needed for deepwater exploration and production. However, Schlumberger and Halliburton cannot even do this. Deepwater exploration and production is the realm of Shell Offshore, ExxonMobil, ChevronTexaco, BP and just a few others. To give one an idea of what is required, a deepwater project can cost several billion dollars, and each well can cost $20 - $50 million. And ExxonMobil invests $200 million dollars per year in just researching deepwater technologies.

Now, none of the the companies listed above desire to risk billions of dollars if they don't get a share of the oil and gas that might be found. Their shareholders insist on this! But the current Mexican Constitution won't allow it. Talks have been held, followed by intense protests, led by the former mayor of Mexico City and defeated Presidential candidate, Andres Manuel Lopez Obrador. It doesn't look good for the development of Mexican deepwater areas - but anything could happen.

On the other hand, to give you an idea of the scope of the problem with the dwindling giant oilfields like Cantarell, take a look at Shell's Perdido project, which was in the news in early June. Perdido will be anchored not far from Mexican deepwater areas, in 8000' of water. It is costing billions, has taken years to construct and when in place, it will produce 100,000 barrels of oil per day.

That is about one-third of what Cantarell LOST in only 3 months, from December 2007 through March 2008! Getting the picture about Peak Oil?"

Many do not get the picture but suffice it to say there is a major piece missing which I and others refer to as the "Ever Receding Horizon", in other words as the price of energy continues to go up the associated costs do as well. What this translates into is ever increasing prices for development that are never figured into costs that will inevitably occur.

Saturday, June 21, 2008

Loose Nukes American Style

More disconcerting news regarding the day to day security of American nuclear weapons, this one from that hotbed of disarmament the Stars and Stripes :

" KAISERSLAUTERN, Germany — An internal Air Force investigation has found that most military bases in Europe that store nuclear bombs do not meet the most basic Defense Department security regulations.

The report reveals some startling deficiencies in nuclear security in Europe in the wake of nuclear safety concerns and a historic Air Force leadership shake-up.

The report stated that each site had "unique security challenges."

"Inconsistencies in personnel, facilities, and equipment provided to the security mission by the host nation were evident as the team traveled from site to site," the study reads. "Examples of areas noted in need of repair at several of the sites include support buildings, fencing, lighting, and security systems."

At some places, the duty of protecting nuclear weapons fell upon foreign conscripts with as little as nine months of military experience, the report said.

The Pentagon released a summary of the report, titled "The Blue Ribbon Review of Nuclear Weapons Policies and Procedures," in February. The study found that the Air Force needed to improve how it safeguards its most lethal weapons and that numerous factors led to a B-52 mistakenly carrying six live nuclear warheads from Minot Air Force Base, N.D., last year.

Problems with nuclear safety at bases in Europe was unknown until Hans Kristensen of the Federation of American Scientists obtained a declassified version of the full report and posted it on his blog earlier this week.

"A consistently noted theme throughout the visits," the report states, "was that most sites require significant additional resources to meet DOD security requirements."

Investigators also found that periodic and routine inspections might not have been as effective as they could be because Air Force inspectors had to give prior notice to host nations and NATOs before visiting the sites....
The U.S. military does not reveal the number of nuclear weapons it has at European bases due to security reasons, but the Federation of American Scientists estimates there are between 200 and 350 warheads at bases in Germany, the Netherlands, Belgium, Italy, United Kingdom and Turkey.

Kristensen wrote in his blog that the report shows that nuclear weapons in Europe have been "a security risk" for the past decade.

"But why it took an investigation triggered by the embarrassing Minot incident to discover the security problems in Europe is a puzzle," he wrote.

Air Force leaders launched the internal investigation after the Minot incident involving the B-52 and the live nuclear warhead. Earlier this month, Defense Secretary Robert Gates fired the Air Force’s top uniformed and civilian leaders for allowing nuclear safety to slip."

I beleive this is the same country that was going to "show" the Russians how to secure their nuclear weapons.

Wednesday, June 18, 2008

Bakken-Oil Boom or Boondogle

Lately I've been hearing from normally sane people about the "undeveloped" oil riches of North America in particular the Bakken Oil fields of the northern prairies. While I would like to think my Brother Blue Eyed Arabs of the North have finally stumbled on the mother lode, the reality is likely to be less than optimal as per the "Oil Drum":

"What's next for the Bakken?

Bakken production is trending upward and should continue for some time. The October 2007 production of 75,000 BOPD equates to 27 million barrels per year, a substantial amount by most measures for the US onshore sector. This only amounts to about 0.4% of US consumption (using a base of 20,700 BOBP, based on EIA data), or 0.6% of US imports.

Drilling activity in the Bakken continues at a frenetic pace. It's difficult to predict how long the upward trend in production will continue. Over the long term, economics will play a significant role in determining how much production will be expanded.


1. The Bakken shale has produced about 111 million barrels of oil during the last 50+ years in Montana and North Dakota.

2. Total Bakken production is still rising, and producing at the rate of 75,000 BOPD in October 2007.

3. Because of the highly variable nature of shale reservoirs, the characteristics of the historical Bakken production, and the fact that per-well rates seem to have peaked, it seems unlikely that total Bakken production will exceed 2x to 3x current rate of 75,000 BOPD.

4. The latest boom in Bakken production is driven by the application of horizontal wells and hydraulic fracturing technology, which has added about 70 million barrels of production in 7 years. Ultimate recovery of the already-drilled wells should be at least double this volume.

5. The USGS estimates the mean volume of technically recoverable hydrocarbons to be 3,649 million barrels of oil. This is roughly 7 to 12 times the size of already known resources.

6. Based on current production and areas likely to be drilled, the USGS estimate of technically recovery resources seems optimistic.

7. The Bakken potential resource, while large by US onshore field standards, will have only a minor effect on US production or imports. Using 2006 US imports and consumption for comparison, the Bakken undiscovered resource of 3,649 million barrels of oil, if subsequently discovered and fully developed, would provide us with the equivalent of six months of oil consumption or 10 months of imports, spread over 20 or more years. In reality, the reserves developed are likely to be many times smaller than this value.

8. The October 2007 production rate of 75,000 BOPD amounts only 0.4% of US oil consumption, or 0.6% of imports.

9. Per-well Bakken production peaked in August 2005 at 116 barrels a day, and was down to 79 barrels a day in October 2007. If the Bakken production history in the 1990s can be used as a guide, the peaking of per-well production may portend a peak in total Bakken production."

I think point #7 is especially well taken, for in the long run world demand will overshadow American demand and production by a long shot. We can only wonder when U.S. politicians on the Right and Left will start dealing with reality or in other words Peak Oil.

Saturday, June 14, 2008

Gazprom in Alaska?

Last week Gazprom the Russian state Oil and Gas monopoly announced interest in "helping" develop an Alaska to Canada to U.S. pipeline. According to the International Herald Tribune:

"Gazprom has made a proposal to BP PLC and ConocoPhillips, which in April submitted a bid to build a multibillion-dollar pipeline that would carry natural gas from Alaska's North Slope to the lower 48 U.S. states, Gazprom director Alexei Miller said.

"Gazprom has unique experience, knowledge and modern technology and is the most advanced company in the world in the realm of gas transport in trunk pipelines," Miller told an international business forum in St. Petersburg, Russia. "So participation in such a large-scale project as the construction of a pipeline from Alaska is interesting for us."

He did not say whether there had been a response from BP and ConocoPhillips. The BP-ConocoPhillips proposal, dubbed Denali, competes with a similar pipeline plan put forward by TransCanada Corp., which was given the nod by Alaska's state government in January.

State-controlled Gazprom has been aggressively increasing its presence in Europe, drawing concerns of over-reliance on Russia for natural gas."

This is even more interesting given Russia's recent decline in petroleum production as reported by the International Energy Agency, a previously rather conservative group when it came to the subject of Peak Oil, as reported in the Globe and Mail:

"But even as Mr. Miller waxed lyrical on Tuesday about the scramble for resources, equally alarming data about oil supplies was tumbling out of the offices of the International Energy Agency in Paris.

The IEA has been trimming its forecast of non-OPEC oil supply growth and it now reckons that the great might of the world's multinational companies, including Russia and China, will barely produce any extra oil this year - just 770,000 more barrels per day.

This is even less than the IEA's prediction for growth in demand, which has fallen below 1 per cent thanks to shrinking demand for oil in the United States and Europe. The weak supply figures make a mockery of the aggressive output ambitions of the West's leading oil companies - ambitions that are always frustrated by hurricanes, war, despots and technical delays.

But the key to Gazprom's warning is Russia, and its failure to continue raising its oil output. The steady rise in Russian oil output over the last decade has almost single-handedly fed the ravenous growth in demand for crude in China. Without Russia, China's economic boom would probably have stuttered to a halt several years ago. But the output growth rate is now fading fast and voices have been raised within the Russian oil fraternity that 10 million barrels per day may be as far as it can go. Russian oil production has declined for five months in a row to less than 9.5 million b/d. The IEA is still reckoning 10 million b/d for the year, an optimistic forecast given the turmoil at one of the country's biggest producers, TNK-BP, where a power struggle is being waged between BP, several oligarchs and, again, Gazprom.

Western investors are making ever more frantic warnings about Russia. Rex Tillerson, Exxon's chief, said recently that there was little confidence in the rule of law in Russia, and Tony Hayward, BP's chief, gave warning that the world's energy problems are political, not geological.

He is partly right and he speaks from recent experience. The oligarchs with whom BP shares ownership of its Russian affiliate have suborned Russia's regulatory and judicial system to gain the upper hand in a dirty battle for control of TNK-BP. Gazprom is waiting in the wings to see which side emerges triumphant. Either way, the state will take a large slug of the asset and in the meantime TNK-BP's oil output languishes.

Still, BP's plight would not be so great if it had many more irons in the fire. Oil output is not growing anywhere much. Three quarters of OPEC's meagre spare capacity of two million b/d is in the hands of Saudi Arabia. If Russia were found to be pumping at the limit of its potential - whether for geological, technical or political reasons - where should we turn?

That is scary stuff. Back in Deauville Mr. Miller beats his drums, but the bravado about $250 per barrel conceals a great deal of nervousness. It's great to be a player on a winning streak with a big pile of chips. But when the casino manager breaks out in a sweat as he watches the game over your shoulder, you might get a bit scared too."

Saturday, June 07, 2008

Airforce Purge What's Up?

As noted here earlier the recent concerns regarding the security of nuclear weapons controlled by the U.S. Airforce have attracted a fair amount of attention. As a result Defense Secretary Robert Gates sacked the Airforce Secretary,Michael Wynne and Chief of Staff, General Michael "Buzz" Moseley ostensibly for the failures associated with the "temporarily misplaced" nuclear cruise missiles in 2007,the "accidental" shipment of nuclear nosecone fuses to Taiwan in 2006, and the most recent failure of the nuclear surety inspection of the 5th Bomber Wing at Minot AFB in North Dakota.

The World Socialist Web Site now reports on other aspects of this story which have seemingly not registered. Among other things:

"Given the context of the incident, which transpired amid reports of planning within the Bush administration for an attack on Iran, including possible use of nuclear weapons, the perfunctory statement from the Air Force that the transfer was an “error” and that “the munitions were safe, secure and under military control at all times” hardly allayed concerns.

Taken together, the claims of innocent errors as the explanation for sensitive nuclear devices being sent to one of the tensest areas of the globe and a nuclear armed flight in the midst of mounting war threats strain credulity. Both incidents strongly suggest that much more is taking place behind the scenes in the US military and state apparatus than the American people are being told......

"While no doubt the incidents raised grave questions, the manner in which the two officials were forced to resign evinces a level of urgency that suggests that far more was involved than the release of an investigator’s report.

Both Wynne and Moseley were attending an Air Force leadership summit at Wright-Patterson Air Force Base in Ohio. Moseley was hastily summoned to Washington Thursday for a meeting with Adm. Mike Mullen, chairman of the Joint Chiefs of Staff, and asked to resign. Later that same day, Deputy Defense Secretary Gordon England was sent to Wright-Patterson to find Wynne and demand his resignation as well...."

The article goes on to point out intriguing economic and political aspects of the whole affair which can only make one wonder what was really going on:

"Resignations hit Lockheed Martin

Perhaps not coincidentally, the resigning air force secretary, Wynne, was recruited to the Pentagon by the Bush administration in 2001 after a 30-year career in the aerospace industry, where he had headed the space divisions of both General Dynamics and Lockheed Martin, maker of the F-22 and America’s number one military contractor.

The purge at the top of the Air Force was clearly seen as having substantial financial implications. “This can’t be good for any of us,” a Lockheed Martin official close to the F-22 program told Aviation Weekly. “I was completely surprised and nobody I know knew anything about it beforehand,” the official is quoted as saying.

It is now nearly half a century since the Republican President Dwight Eisenhower urged the American people to “guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex.” The ever-closer relations between America’s expanding military and a financially powerful arms industry, he warned had the “potential for the disastrous rise of misplaced power.”

The threat indicated by Eisenhower in his farewell speech of 1961 has mushroomed into something far beyond anything the World War II general could ever have imagined.

The Air Force alone now disposes of a budget of close to $130 billion, while military spending as a whole - including the successive “emergency” funding for the wars in Iraq and Afghanistan and the nuclear weapons appropriations for the Energy Department - is fast approaching one trillion dollars a year.

US generals and admirals who serve as regional commanders now act as American pro-consuls, not only in Iraq and Afghanistan, but in many other parts of the world, where they wield far greater power than any ambassador or other civilian representative of the US government.

Meanwhile, an officer corps that in a previous period generally avoided partisan politics has become highly politicized, influenced not only by the Republican Party, but increasingly by the Christian right.

Finally, in pursuit of its strategy of global militarism, the Bush administration has sought to portray the military as entitled to virtual veto power over the elected government, insisting that it is the commanders in Iraq and Afghanistan-hand-picked supporters of the administration’s policies—who must decide the course of the wars.

Under such a government, a sudden shakeup within the top ranks of the military like this week’s unprecedented simultaneous removal of a service’s civilian secretary and uniformed chief—or for that matter the forced resignation of Central Command head Admiral William Fallon in March—raises a number of disturbing possibilities.

Was there more to the unauthorized flight of a nuclear-armed bomber last August than the government dares reveal to the American people?

Are the Air Force chiefs being sacked in preparation for using America’s airpower in another criminal war of aggression, potentially against Iran, under conditions in which the Pentagon’s uniformed command is already deeply dissatisfied with the over-extension of US forces in Iraq and Afghanistan?

Had the near mutiny over military procurements, which apparently enjoyed the backing of powerful financial interests, gone further than has been revealed? Were they forced out to avoid a more open challenge to the civilian control of the military?

The answers to these and other crucial questions remained hidden behind a veil of “national security.” Clearly, however, under conditions of a protracted decay of basic institutions of bourgeois democracy in America, the ever-increasing power of the military poses the most fundamental threat to the basic democratic rights of American working people."

Did You Know?

This video via by wagthedog does such a great job of summarising why the present problems of the U.S. are not just a blip in the hitherto inexorable march of progress or more of the conventional "business cycle".Mandatory viewing for soon-to-be Collapse participants.

Sunday, June 01, 2008

Bent Spears and Collapsing Empires

With the collapse of the Soviet Union much attention was directed to the security of Russian nuclear weapons and the fear of loose nukes falling into the wrong hands due to deteriorating infrastructure and resources. This past August an incident of loss of control of six nuclear armed cruise missiles from Minot AFB came to light raising further fears that even the U.S. military may be incapable of securing it's own nuclear weapons.

In a report just released and reported in the AirForce Times the same Minot 5th Bomb Wing flunked its defense nuclear surety inspection.

According to the report incredible lapses in security were noted including the following:

"The DRTA report highlighted an incredible number of gaffes:

* An internal security response team didn’t respond to its “pre-designated defensive fighting position” during an attack on the weapon storage area, leaving an entire side of the maintenance facility vulnerable to enemy fire.

* Security forces didn’t clear a building upon entering it, which allowed inspectors to “kill” three of those four airmen.

* Security forces failed to use the correct entry codes, issued that week, to allow certain personnel into restricted areas.

* Security forces airmen failed to properly check an emergency vehicle for unauthorized personnel when it arrived at a weapons storage area, or search it correctly once it left.

* While wing airmen simulated loading an aircraft with nuclear weapons, security forces airmen failed to investigate vulnerabilities on the route from the storage area to the flight line, and didn’t arm three SF airmen posted at traffic control points along that route.

* While on the aircraft, one flight of security forces airmen didn’t understand key nuclear surety terminology, including the “two-person concept” — the security mechanism that requires two people to arm a nuclear weapon in case the codes fall into the hands of an airman gone bad.

“Security forces’ level of knowledge, understanding of assigned duties, and response to unusual situations reflected a lack of adequate supervision,” wrote the DTRA team chief.

Security forces leaders rarely visited their airmen on post, and routine exercises “were neither robust nor taken to their logical conclusion,” according to the report.

After reviewing base records, inspectors found “leaders were unengaged [in] the proper supervision of SF airmen.”

“If the leadership is still unengaged after all that has happened with the warheads, the missing ballistic missile fuses and problems with the first inspection, then they’re not fit to have this mission,” Kristensen said. “It’s really frightening.”

Security forces errors made up the majority of the 14-page DTRA inspection report, but inspectors found fault with other parts of operations, including late status reports and major errors in the wing’s personnel reliability program, which dictates who can handle nukes.

While reviewing records, inspectors found one individual cleared to handle nukes had been “diagnosed for alcohol abuse” but was allowed to keep his certification, according to the report."

This calls into question the whole idea that any country can in the long run manage large numbers of nuclear weapons safely. Additionally this stands as a signal of crumbling American security and the institutions supposedly safe guarding Americans from WMDs, in this case their own.