COMPARATIVE INVENTORY & OIL STORAGE REPORT JANUARY 25, 2023 (2023-4)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & OIL STORAGE REPORT JANUARY 25, 2023 (2023-4) appeared first on Art Berman.

COMPARATIVE INVENTORY & GAS STORAGE REPORT JANUARY 19, 2023 (2023-3)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & GAS STORAGE REPORT JANUARY 19, 2023 (2023-3) appeared first on Art Berman.

COMPARATIVE INVENTORY & OIL STORAGE REPORT JANUARY 19, 2023 (2023-3)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & OIL STORAGE REPORT JANUARY 19, 2023 (2023-3) appeared first on Art Berman.

They’re Not Making Oil Like They Used To: Stealth Peak Oil?

The good news is that U.S. oil production has recovered to pre-pandemic levels. The bad news is that only 60% of it is really oil.

U.S. oil production exceeded the 2020 pre-pandemic peak of 20.3 mmb/d in October and November of 2022 (Figure 1). Unfortunately, less than 60% of U.S. “oil” production is really oil. The rest is non-petroleum and comes from natural gas, corn & refinery gain.

Figure 1. Less than 60% of U.S. “oil” production is really oil. The rest is non-petroleum and comes from natural gas, plants & refinery gain. Source: EIA STEO & Labyrinth Consulting Services, Inc.

Natural gas liquids (NGLs) accounted for 6 mmb/d (30%) of U.S. “oil” production in 2022 (Figure 2). The NGL portion of total output increased 5% in 1H 2020 as crude production fell. Tight oil increased from 9% to 61% of crude + condensate from 2010 to 2022 and while it is oil, it has lower energy content than conventional oil.

Figure 2. Natural gas liquids accounted for 6 mmb/d (30%) of U.S. oil production in 2022. Source: EIA STEO & Labyrinth Consulting Services, Inc.

Natural Gas Liquids (NGLs)

NGLs do not come from crude oil but are produced from natural gas. They are gases in the subsurface but are separated as liquids at surface temperatures and pressures at natural gas processing plants (Figure 3). NGLs include ethane, propane, butane and pentane.

Ethane constitutes the largest share (~55%) of NGL production. It is used almost exclusively to produce ethylene, which is then turned into plastic bags, anti-freeze and detergent. Propane accounts for 31% of NGLs but only 3% of it is used as a transport fuel; its main use is home and water heating. Butane makes up another 16% of NGLs and its main uses are fuel for cigarette lighters and portable stoves, and as a propellant in aerosols.

 

Figure 3. What are natural gas liquids? Source: EIA, AFP tech and Labyrinth Consulting Services, Inc.

Refinery Gain

Refinery gain accounted for more than 1 mmb/d of U.S. oil production in 2022.

Gain occurs during refining because petroleum products coming out of a refinery are less dense than the crude oil going in. The volume of refined products is therefore greater than the volume of crude oil intakes. That volume difference is called refinery gain.

For example, the average density of crude oil is 846 kg/m3 (Figure 4).  Gasoline accounts for about 45% of each barrel of refined U.S. crude oil and its density is 744 kg/m3. That means that approximately 1.14 barrels of gasoline are produced from each barrel of oil. That is refinery gain.

 

Figure 4. What is refinery gain? Source: EIA & Labyrinth Consulting Services, Inc.

Fuel Ethanol

Fuel ethanol accounted for more than 1 mmb/d of  U.S. oil production in 2022. It is denatured alcohol made by fermenting the sugar in the starches of grains like corn (Figure 5). It is blended with gasoline to extend the use of that fuel.

Figure 5. What is fuel ethanol? Source: Resource Media and Labyrinth Consulting Services, Inc.

Tight Oil

Tight oil accounted for more than 7 mmb/d of U.S. oil production in 2022. Less than 5 mmb/d of conventional oil was produced in 2022. Unlike, natural gas liquids, refinery gain and fuel ethanol, tight oil is petroleum.

It has, however, a lower density and corresponding lower energy content than conventional oil. Permian tight oil, for example, has about 93% of the energy content (5.5 mmBtu/barrel) as the standard conventional oil required by U.S. refineries (5.9 mmBtu/barrel) (Figure 6).

Figure 6. Permian tight oil has 7% lower energy content than the average oil intake for U.S. refineries. Bakken & Eagle Ford tight oil have 4% lower energy content. Source: Enverus, EIA & Labyrinth Consulting Services, Inc.

Some may argue that 7% is not that much when it comes to a fuel as potent as oil but it is the difference between an “A” and a “B” in school. Put differently, imagine if world oil crude & condensate supply fell by 7%. That’s half of what Saudi Arabia produces. It’s five times more than Libya produces yet whenever its production falls because of civil conflict, world oil price is profoundly affected.

More importantly, tight oil does not contain the middle distillate compounds necessary for diesel production. Figure 6 shows the density (API and specific gravity) of the key conventional grades of oil, and for the Bakken, Permian and Eagle Ford tight oils. Tight oil is fine for making kerosene, jet fuel and gasoline. It cannot, however. be used for producing diesel without blending it with heavier oils, and diesel is the main cash product and workhorse of the modern global economy.

The U.S. can never be oil-independent because it will always need to import heavier oil to make diesel.

Figure 7. Many U.S. oils lack the heavy compounds needed to make diesel but are good for making kerosene, jet and gasoline. Source: Global Security, Enverus, EIA & Labyrinth Consulting Services, Inc.

 

Stealth Peak Oil

If any of this sounds strangely familiar, it is because it was anticipated 20 years ago by Peak Oil.

Peak Oil was a flawed concept because of its preoccupation with predicting a date for world oil production to peak. Many of its key precepts, however, were sound namely, that price would rise as oil quality decreased and decline rates increased. I have shown the pronounced decrease in oil quality at least in the United States.

Figure 8 shows that the total production base decline rate for the U.S. is about 37% per year. The data is for all wells drilled from 2000 through 2022 in the largest American producing regions that account for 88% of total crude oil and condensate output.

Figure 8. The red queen effect. The U.S. oil production base declines at 37% per year. Source: Enverus & Labyrinth Consulting Services, Inc. This is the aggregate decline for all wells, not just the rate for any given vintaged year shown in the figure.

The Peak Oil assumption that oil prices would increase chiefly because of the depletion of known reserves was simplistic. First of all, reserves are a moving target. The values published by BP or EIA are resources, not reserves. Reserves are a volume at a price, not a fixed quantity. When the price of oil increases, proved reserves increase, and vice versa.

Second, new reserves are always found despite the direst expectations to the contrary. The world has been 10 years away from producing all of its reserves since I began my career in the oil business 45 years ago.

More importantly, price formation is more complex than an inverse correlation with reserves especially in an increasingly financialized world. Markets care more about supply more than about reserves. Supply is current production plus inventories and spare capacity (the amount of production that can be converted into supply in about 90 days). The tens of billions of barrels of resources or potential reserves in plays unlikely to become supply in the near-term (like Orinoco tar sands) do not impress oil markets.

Supply urgency is what moves oil prices higher and markets have felt urgency for most of the last two decades. As Colin Campbell and Jean Laherrere insightfully observed 25 years ago,

“The world is not running out of oil—at least not yet. What our society does face, and soon, is the end of the abundant and cheap oil on which all industrial nations depend.”

WTI prices averaged $90 per barrel in 2022 dollars since 2003 (Figure 9). That is more than twice the average price during the preceding two decades. That $90 average includes the low-price periods from 2014 through 2017 (price collapse from shale output), and 2020 through mid-2021 (Covid) in which prices fell to their lowest levels in modern history.

Figure 9. WTI prices averaged $90 per barrel for two decades despite lower prices from 2015 through 2017 and during the Covid pandemic. Source: EIA, U.S. Dept. of Labor Statistics & Labyrinth Consulting Services, Inc.

Total world liquids production has recovered to 99% of 2018 average level but crude oil plus condensate has not and remains more than 4 mmb/d below late 2018 levels (Figure 10). The world is not running out of oil but investors and credit markets are unwilling to underwrite the drilling necessary to increase oil output.

Figure 10. Total world liquids production has recovered to 99% of 2018 average level but crude oil plus condensate remains more than 4 mmb/d below late 2018 levels. Source: EIA, Cansim, Enverus & Labyrinth Consulting Services, Inc

As David Fickling recently stated,

“Ultimately, it will be central banks that will read crude its last rites.”

The likelihood of a secular return to lower oil prices is as unlikely as is a technological breakthrough that results in enough new oil supply to modify pricing. That is because the “lower-for-longer” pricing after 2014 because of shale plays was a relatively insignificant anomaly in the larger price scheme in Figure 9.

The consequences of higher energy prices following Russia’s invasion of Ukraine have made the world more energy-aware. For some, they have increased the resolve to make a transition away from oil and other fossil fuels. At the same time, they have shown just how dependent we are on fossil energy, and will continue to be for decades to come.

Peak oil was a model that made reasonable if simplistic assumptions based on M. King Hubbert’s method of forecasting future oil production trends from proved reserves.

What I am describing is not a model. Oil quality has decreased, production decline rates have increased, and long-term secular prices are higher. Those are facts, not theory.

The sooner we stop expecting a miracle of technology or a quick transition to renewable energy, the better we will be able to cope with a more difficult energy future.

The post They’re Not Making Oil Like They Used To: Stealth Peak Oil? appeared first on Art Berman.

COMPARATIVE INVENTORY & GAS STORAGE REPORT JANUARY 12, 2023 (2023-2)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & GAS STORAGE REPORT JANUARY 12, 2023 (2023-2) appeared first on Art Berman.

COMPARATIVE INVENTORY & OIL STORAGE REPORT JANUARY 11, 2023 (2023-2)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & OIL STORAGE REPORT JANUARY 11, 2023 (2023-2) appeared first on Art Berman.

COMPARATIVE INVENTORY & OIL STORAGE REPORT JANUARY 5, 2023 (2023-1)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & OIL STORAGE REPORT JANUARY 5, 2023 (2023-1) appeared first on Art Berman.

ART BERMAN NEWSLETTER: JANUARY 2023 (2023-1)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post ART BERMAN NEWSLETTER: JANUARY 2023 (2023-1) appeared first on Art Berman.

COMPARATIVE INVENTORY & GAS STORAGE REPORT DECEMBER 29, 2022 (2022-47)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & GAS STORAGE REPORT DECEMBER 29, 2022 (2022-47) appeared first on Art Berman.

COMPARATIVE INVENTORY & OIL STORAGE REPORT DECEMBER 29, 2022 (2022-46)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & OIL STORAGE REPORT DECEMBER 29, 2022 (2022-46) appeared first on Art Berman.

COMPARATIVE INVENTORY & GAS STORAGE REPORT DECEMBER 22, 2022 (2022-47)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & GAS STORAGE REPORT DECEMBER 22, 2022 (2022-47) appeared first on Art Berman.

COMPARATIVE INVENTORY & OIL STORAGE REPORT DECEMBER 21, 2022 (2022-45)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & OIL STORAGE REPORT DECEMBER 21, 2022 (2022-45) appeared first on Art Berman.

Why Analysts Are Wrong About Oil Prices: What The Market Knows

Analysts have been wrong about oil prices for most of 2022 and continue to be wrong. Why?

Goldman Sachs provides a good case history.

In early June, the bank predicted $140 average Brent price between July and September. It was $100. In late August, when prices fell below $100, Goldman’s Jeff Currie said that Brent would return to $120. The September through October average was $92. In late November, the bank forecasted an average Brent-price of $100 for the fourth quarter of 2023. It has averaged $89 through December 19. In mid-December, Goldman’s latest forecast is for $90 for the first quarter of 2023 and an $98 average price for 2023.

My point is not to criticize Goldman Sachs but to try to understand why analysts have been consistently wrong.

The first problem is that supply and demand are central to their forecasts but supply-demand balance is a poor predictor of price. In fact, it has a statistically meaningless correlation to oil price (Figure 1). The R² correlation coefficient from 2015 to the present is 0.11. Leaving out the 2020 anomalies, R² gets worse and falls to 0.02.

Figure 1. Supply and demand have a statistically meaningless correlation to oil price, 2015-2022. Source: OPEC, EIA & Labyrinth Consulting Services, Inc.

I’m not saying that supply and demand don’t matter. The difficulty is that supply and demand are at best gross estimates. It is impossible to integrate every nation’s production, consumption and exports into a single framework. The data simply doesn’t exist. More importantly, supply and demand are transactional factors that largely exclude storage.

That’s right. Storage is not part of supply. Supply equals production, and demand equals consumption plus net imports minus storage withdrawals. That’s like saying that someone’s net worth only includes investments and savings when withdrawals are made from them.

Price formation in oil markets is all about supply and inventories are a big part of supply. Demand is of course important but markets cannot control demand. They can, however, use price as a lever to encourage drilling when there are concerns about under-supply, and to discourage drilling when over-supply dominates.

Oil price is not an input factor for either supply or demand. It’s relationship is implied or deduced.

The way that most analysts use supply and demand is unrealistic.  It assumes that markets are ordinarily in equilibrium with occasional periods of  dis-equilibrium. The truth is that, like all complex systems, markets are rarely in equilibrium except in the human imagination. Here’s what Goldman’s Jeff Currie said on December 15:

“Commodity prices perform an economic function. They have to rebalance supply and demand, bring them back into line, when they get out of line like they did in the end of 2021 and the early part of this year.”
–Jeff Currie, Goldman Sachs Head of Commodity Research

In other words, commodity markets are equilibrium systems that occasionally get out of whack.

Comparative inventory (C.I.), on the other hand,  assumes that oil is a mainly a disequilibrium system in which equilibrium is the exception rather than the rule. Crucially, oil price is a direct input factor. C.I. accounts for additions to and withdrawals from storage based on supply and demand, as well as for the reserve base that represents the storage equivalent of investments and savings.

Markets are always long or short (Figure 2). When C.I. is in deficit, markets are long and use higher price to encourage producers to drill more wells. When C.I. is in surplus, markets are short and use lower price to discourage drilling.

Figure 2. Markets are always long or short based on comparative inventory (C.I.) not the supply-demand balance, Source: Aperio Energy Research & Labyrinth Consulting Services, Inc

In a recent written communication, Mike Bodell who originated the comparative inventory method, stated,

“Simply, price formation requires a comprehensive, integrated view incorporating equilibrium and disequilibrium economic approaches.”
–J.M. Bodell

Not surprisingly, comparative inventory has a stronger correlation to oil price than supply-demand balance with an R² of 0.72 from 2015 through the present (Figure 3). It’s not perfect but its correlation coefficient is 6.5 times better than supply and demand.

Figure 3. Comparative inventory and oil price (quarterly data) have a much better correlation than supply and demand to price. Source: EIA & Labyrinth Consulting Services, Inc.

That brings me to the second reason that analysts have consistently gotten oil price forecasts wrong in 2022. Because they treat oil as an equilibrium system, they focus mainly on areas that are upsetting that equilibrium while treating most other factors as more-or-less static. Here is Jeff Currie again.

“Markets are re-balanced now today. Why? Because China is being locked down so demand came back down on top of supply and prices collapsed back down.

“We have not been investing in supply. Supply is stagnant.

“So I have to simply ask, What happens when China, the largest commodity consumer, the largest oil importer in the world, begins to rebound significantly in the first part of next year? It’s going to tighten all of these markets tremendously and put a lot of upward pressure on prices.”

I respect Jeff Currie and always pay attention to what he says but this is an incorrect view of market dynamics. In his model, the rest of the world is static and China is the only variable. According to his narrative, China’s zero-Covid policy put the market back into equilibrium by lowering demand; its rebound after lockdowns end will put the market into disequilibrium until higher prices “re-balance supply and demand.”

Felix Zulauf offers a very different perspective from Currie’s about what is happening in China. In a podcast with Wealthion’s Adam Taggart, he states that the risk is high for a Chinese “credit event” or financial collapse. There are at least $3 trillion in dollar-denominated loans to Chinese companies along with a major real-estate bust led by the downward spiral of developer Evergrande. This may put deflationary pressure on the global economy and may even result in a cascade of credit events outside of China.

In another podcast with Mauldin Economics’ Ed D’Agostino, Zulauf says that Chinese demand for commodities including oil may not rebound for perhaps a decade.

“I think that the lockdowns [in China] are sort of a camouflage to not show the world how structurally weak China has become.

“Because the Chinese economy has hit the same point as Japan in the early 1990s. It was exhausted after one of the biggest investment and credit booms of mankind…So, my guess is at least 10 years to get over this restructuring of the economy. It took Japan 20 years, and the excess is real small.

“So, I think, China you can forget as a locomotive for the world economy. And it has been the locomotive for the world economy in the last 15 years.”
–Felix Zulauf

Bloomberg’s David Fickling wrote an article on December 18 that seems to support some of Zulauf’s views about China’s economy. He points out that a smaller percentage of China’s oil consumption is used for transport than in other major economies. Although gasoline and jet fuel use have declined substantially because of 2022 lockdowns, total refined product consumption is only marginally lower (Figure 4).

Figure 4. It is not clear that Chinese oil demand was significantly lower in 2022 compared with previous years. Source: Bloomberg.

He states that,

“In fact, the only factor that’s prevented China’s crude oil consumption from hitting a fresh record this year has been a precipitous collapse in asphalt production….

“That parallels the bust in the country’s real estate sector: bitumen is mainly used for surfacing the roads that connect new property developments to towns, as well building materials such as roofing.”
–David Fickling, Bloomberg

His concluding observation sounds very similar to Zulauf’s comment cited above.

“It’s a sign China’s long period as a driver of oil growth is near its end.”

For most of 2022, analyst forecasts were based largely on supply and demand. If there was an expected supply-demand deficit, that meant “tight markets” which, in turn indicated higher prices. As projected deficits got larger, so did the correlative oil price forecasts.

A simple look-back at the correlation of supply-demand balance and oil prices was either not done or was disregarded.

OPEC expects an a smaller supply-demand deficit in 2023 than in 2021 when the maximum Brent quarterly price was $79.59 and the maximum monthly price was $81.48 (Figure 5). Why would supply-demand considerations lead to substantially higher prices for 2023?

Figure 5. OPEC expects an a smaller supply-demand deficit in 2023 than in 2021 when the maximum Brent quarterly price was $79.59 and maximum monthly price was $81.48. Source: OPEC, EIA & Labyrinth Consulting Services, Inc.

I expect low-to-mid $90 Brent prices in 2023 but if comparative inventory continues to increase as it has since early June, prices will continue to fall. In order to reach $90/barrel, C.I. must decrease about 40 mmb. That is feasible now that U.S. strategic petroleum releases are finished but first C.I.needs to stop increasing.

Throughout the second half of 2022, the analyst chorus proclaimed that inventories were at record lows when in fact, comparative inventory was increasing since June. U.S. total crude oil + refined product comparative inventory has increased 120 mmb since late June (Figure 6). Based on the dashed black yield curve, the current, implied market-clearing price for WTI is about $70. Why are people surprised that price has fallen from $120 to $76?

Figure 6. U.S. total crude oil + refined product comparative inventory has increased 120 mmb since late June. Why are people surprised that price has fallen from $120 to $76? Source: EIA & Labyrinth Consulting Services, Inc.

If we disregard Zulauf’s and Fickling’s views on structural problems with China’s economy, it is still unlikely that its demand for oil demand will recover quickly.

First of all, the changes to China’s zero-Covid policies are not a full reopening, and the most optimistic rebound forecast is for second quarter 2023. The latest models suggest more than 1 million deaths through 2023 with virus cases peaking around April 1. Nomura Holdings warns  “We continue to caution that the road to a full reopening may still be painful and bumpy.”

It is also worth noting that U.S. transport fuel consumption has not recovered from the effects of Covid after almost three years.

A lot of what passes for oil-market analysis is just a re-shuffling of popular memes to headline simplistic reasons for daily price movements. Once these stories are repeated enough, they become embedded in our thinking with more weight than they deserve.

Rather than disagree with oil prices or try to fit them into some pre-existing framework, I try to pause and ask, What does the market know?

The spectacular price collapse in November and December was because the market knew something that analysts did not. Oil supply was no longer tight and markets were risking Chinese demand differently. Instead of anticipating China’s re-opening as the best case for higher oil prices, the market was pricing in the more-likely case that China’s long period as a driver of oil growth is near its end.

 

 

The post Why Analysts Are Wrong About Oil Prices: What The Market Knows appeared first on Art Berman.

COMPARATIVE INVENTORY & GAS STORAGE REPORT DECEMBER 15, 2022 (2022-46)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & GAS STORAGE REPORT DECEMBER 15, 2022 (2022-46) appeared first on Art Berman.

COMPARATIVE INVENTORY & OIL STORAGE REPORT DECEMBER 14, 2022 (2022-46)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & OIL STORAGE REPORT DECEMBER 14, 2022 (2022-46) appeared first on Art Berman.

FUSION BREAKTHROUGH IS A NUCLEAR NOTHING BURGER

The U.S. Lawrence Livermore National Laboratory kicked off  its year-end Go-Fund-Me drive last week announcing a nuclear fusion breakthrough.

“The fusion energy breakthrough by US scientists boosts clean power hopes. Net energy gain indicates technology could provide an abundant zero-carbon alternative to fossil fuels.”
–Financial Times, December 11, 2022

These claims are nonsense. The Wall Street Journal called the fusion announcement nuclear fusion hype noting that nuclear power stations are at best decades away. 

The experiment used lasers to put 1.8 megajoules (MJ) of energy in and got 2.5 MJ out – proving that energy can be successfully released and gained by a Deuterium-Tritium fusion reaction. Unfortunately, they had to use 500 MJ of energy into the lasers so the EROI was 0.005. That’s the worst net energy ratio ever.

No electricity was produced in the experiment. The energy released was mostly waste heat.

But the announcement was timed to support a huge funding measure by the U.S. Congress:

“I’m…proud to announce…the highest-ever authorization of over $624 million this year in the National Defense Authorization Act for the ICF [Inertial Confinement Fusion] program to build on this amazing breakthrough.”
–U.S. Senate Majority Leader Charles Schumer

Let’s suppose for a moment that this experiment proves that fusion is now a commercially viable new source of energy.

Building fusion nuclear power stations for the country is a big project and big projects take time. If, for example, there were full funding and permits to build a major new airport, it would take about nine years to complete.

“Building a major nuclear site with the handling of radioactive waste would make things many times harder. For an experimental and totally unproven nuclear technology like fusion, the problems are nearly insurmountable and would require decades at a minimum.”
–Thomas Overton, nuclear scientist and publisher of PowerMag

Overton went on to say that

“The announced breakthroughs are a “nothing burger” designed to attract investment. There is no substance there. Demonstrating a small amount of fusion reaction is in no way a guarantee that the method could even theoretically be scaled up to produce electricity.”

The more important problem is that nuclear energy can only be used for electric power generation and that is a relatively minor part of world energy use. Electricity was only 17% of total U.S. energy consumption in 2022 and is not expected to increase to more than about 19% by 2050 (Figure 1). Wind, solar hydro-electricity and nuclear all face the same problem.

Figure 1. Electric power generation is a relatively minor part of world energy use. Wind, solar, hydro & nuclear are only used for electric power generation. Delivered electric power is only expected to be 19% of U.S. energy consumption by 2050. Source: EIA & Labyrinth Consulting Services, Inc.

Since transportation is the largest part of oil consumption, many believe that electric cars will solve the world’s carbon emissions problems. Sadly, those assumptions are built into EIA’s forecast.

In fact, electric cars & trucks are expected to increase from 0.5% today to only 6.5% of the total U.S. light-duty vehicle fleet by 2050 (Figure 2). Including hybrids, hydrogen and other alternative vehicles, unconventional transport may account for almost 25% of the U.S. fleet by 2050.

Figure 2. Conventional cars & trucks to decrease from 86% to 76% of U.S. light-duty fleet by 2050 Electric cars & trucks to increase from 0.5% to 6.5%. Electric + other alternative vehicles will account for almost 25% of total fleet by 2050. Source: EIA & Labyrinth Consulting Services, Inc.

Many will not accept this forecast and it may turn out to be too pessimistic. Nevertheless, double or triple the growth of electric vehicles and it still will not be enough to get carbon emissions under control or come close to ending the use of fossil fuels.

Most experts acknowledge that nuclear fusion will take decades to become a feasible technology. The same is true for renewable energy.

People would rather believe that there is some quick fix to our energy and climate predicament. So would I.

Unfortunately, we are in that predicament today because people preferred to believe in the magic of technology rather than to accept the constraints of physical reality.

Nuclear energy is a solution in search of a problem. The most pressing environmental need is to phase out coal consumption for electric power generation. This can be done fairly quickly using renewable energy plus natural gas. The problems of methane leakage and fracking are trivial compared to the obstacles of time, cost and safety faced by nuclear alternatives.

This assumes that it’s okay to continue using energy at or near present levels but it’s not.

Climate change is not the biggest problem facing the world. It is a symptom of the much larger problem of overshoot. Overshoot means that humans are using natural resources and polluting at rates beyond the planet’s capacity to recover.

The main cause of overshoot is the extraordinary growth of human population made possible by fossil energy.

“We cannot solve climate change or other major symptoms of overshoot – biodiversity loss, tropical deforestation, overfishing, land and soil degradation, pollution of everything, the possibility of pandemics, etc., in isolation from the others.
–Bill Rees

Substituting one energy source for another—renewables or nuclear fusion—does not address the problem of overshoot. If we continue to degrade the biosphere, the risks of economic decline and even the collapse of civilization increase.

“Without a biosphere in a good shape, there is no life on the planet. It’s very simple. That’s all you need to know.”
Vaclav Smil

All forms of renewable energy production including nuclear energy require materials that use substantial amounts of fossil fuels for their mining, transport, processing, manufacture and distribution. Moreover, we know of no way to produce the four pillars of modern civilization—steel, cement, plastic and fertilizer—without fossil fuels.

Magical thinking about the possibility of nuclear fusion in the future does nothing to address our bad energy behavior today.

The post FUSION BREAKTHROUGH IS A NUCLEAR NOTHING BURGER appeared first on Art Berman.

COMPARATIVE INVENTORY & GAS STORAGE REPORT DECEMBER 8, 2022 (2022-45)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & GAS STORAGE REPORT DECEMBER 8, 2022 (2022-45) appeared first on Art Berman.

COMPARATIVE INVENTORY & OIL STORAGE REPORT DECEMBER 7, 2022 (2022-45)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & OIL STORAGE REPORT DECEMBER 7, 2022 (2022-45) appeared first on Art Berman.

Why Are Oil Prices Crashing?

WTI price was above $92 on November 4 and closed less than $75 on December 6. Brent closed below $80 for the first time since January 3.

What’s happening now in oil markets is probably a squeeze in which traders are unwinding their long positions, and it should pass. That said, it has all the signs of a price collapse. Whatever the explanations, structural changes are being reflected beyond the ordinary interplay between fundamentals and sentiment.

The 12-month spread between the WTI January and December 2023 contracts has fallen -$1.55 (-72%) since last Friday, December 2  to its lowest level since December 2020. WTI went from 3-month contango last Friday to 8-month contango on Tuesday, December 6 (Figure 1).

Figure 1. WTI in 8-month contango & 12-month spread has fallen -$1.55 (-72%) since December 2. 6-month spread fell -$0.86 (-430%). Front-month price decreased -$5.73 (-7%) from $79.98 to $74.25. Source: CME & Labyrinth Consulting Services, Inc.

Cross-over of WTI 50-day, 100-day and 200-day exponential average curves corresponds to major, structural price declines in 2008, 2014, 2018 and 2020. Cross-over also occurred in December 2022 (Figure 2).

Figure 2. Cross-over of WTI 50-day, 100-day and 200-day exponential average curves corresponds to major, structural price declines in 2008, 2014, 2018 and 2020. Cross-over also occurred in December 2022. . Source: CME, EIA & Labyrinth Consulting Services, Inc.

Analysts have been offering a daily chorus about “incredibly tight markets” for most of 2022.  For awhile, it seemed reasonable. Certainly the Russian invasion of Ukraine created extraordinary market dislocations that pushed energy prices to 10-year highs. But for 75% of the time since June 15, WTI price has been less than its 20-day average (Figure 3).

Only OPEC’s threat to cut production in late August (‘ABS Cut Comment’ in Figure 3) and subsequent delivery on that threat in early October (‘OPEC+ Cut Oct 5’ in Figure 3) lifted prices above that threshold before the descent that began on November 4.

Price has fallen -$18.36 (-20%) since November 4 and has decreased -$5.73 (-7%) from $79.98 to $74.25 since last Friday, December 2

Figure 3. WTI futures price has decreased -$5.73 (-7%) from $79.98 to $74.25 since December 2. Price has fallen -$18.36 (-20%) since November 4. Source: CME & Labyrinth Consulting Services, Inc.

Two weeks ago, Goldman Sachs forecasted an average Brent-price of $100 for the fourth quarter of 2023. At that time, Brent needed to average $110 for the rest of the year to reach $100. Since then, it’s averaged $84. As of December 2, Brent needed to average $118 for the rest of the year to reach an average of $100. That’s not going to happen.

Goldman’s call should be dismissed as misleading and irresponsible. In other words, they are pitching their book.

Things Are Not Returning to Normal

The 2020 global pandemic was a watershed event that completed a paradigm change for oil markets that began with the Financial Collapse of 2008.

 

LIKE WHAT YOU’RE READING? SUBSCRIBE TO THE NEWLETTER TO READ THE REST OF THE POST

The post Why Are Oil Prices Crashing? appeared first on Art Berman.

ART BERMAN NEWSLETTER: DECEMBER 2022 (2022-10)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post ART BERMAN NEWSLETTER: DECEMBER 2022 (2022-10) appeared first on Art Berman.

COMPARATIVE INVENTORY & GAS STORAGE REPORT DECEMBER 1, 2022 (2022-44)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & GAS STORAGE REPORT DECEMBER 1, 2022 (2022-44) appeared first on Art Berman.

COMPARATIVE INVENTORY & OIL STORAGE REPORT NOVEMBER 30, 2022 (2022-44)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & OIL STORAGE REPORT NOVEMBER 30, 2022 (2022-44) appeared first on Art Berman.

COMPARATIVE INVENTORY & GAS STORAGE REPORT NOVEMBER 23, 2022 (2022-43)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & GAS STORAGE REPORT NOVEMBER 23, 2022 (2022-43) appeared first on Art Berman.

COMPARATIVE INVENTORY & OIL STORAGE REPORT NOVEMBER 23, 2022 (2022-43)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & OIL STORAGE REPORT NOVEMBER 23, 2022 (2022-43) appeared first on Art Berman.

COMPARATIVE INVENTORY & GAS STORAGE REPORT NOVEMBER 17, 2022 (2022-42)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & GAS STORAGE REPORT NOVEMBER 17, 2022 (2022-42) appeared first on Art Berman.

COMPARATIVE INVENTORY & OIL STORAGE REPORT NOVEMBER 17, 2022 (2022-42)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & OIL STORAGE REPORT NOVEMBER 17, 2022 (2022-42) appeared first on Art Berman.

ENERGY AWARE #4: THE DEVIL IS IN THE DIESEL

Global diesel is in short supply.

Analysts are concerned about diesel because it is the hemoglobin of the global economy. The world’s mines, oil rigs, construction, ships, trains and trucks run on diesel.

Typically, inventories should be 30% higher this time of the year. Such low levels are alarming because diesel is the workhorse of the global economy. It powers trucks and vans, excavators, freight trains and ships. A shortage would mean higher costs for everything from trucking to farming to construction.
–Javier Blas, Washington Post, October 18, 2022

Most government leaders, journalists and industry analysts don’t understand why there is a problem. That’s because it’s a refining issue and it’s not something simple that can easily be fixed by pressuring refiners to make more diesel. Let me explain.There is a sequence of products made in a refinery that includes gasoline, kerosene, jet fuel, and diesel that all must be distilled from each barrel of oil. It’s not an a la carte menu in which you can order diesel but tell the waiter to hold the gasoline, kerosene and jet fuel.

Petroleum products are distilled from crude oil like whisky is distilled from fermented grain. For both petroleum and whiskey, a liquid is heated to create a vapor that is then condensed back into a liquid again. In the case of whiskey, distillation removes the heavier molecules that condense at the bottom of the still—the wash—and are later thrown away. Only the lightest fraction—the whiskey—that condenses at the top of the still is kept.

For petroleum, the whiskey is gasoline and a few lighter molecules. The wash is everything else including fuel oil, diesel, jet fuel and kerosene. These are not thrown away because in today’s market, they are worth more than gasoline.

Oil is a complex molecule that consists of a long chain of mostly carbon and hydrogen atoms (Figure 1).

Figure 1. Oil is a complex molecule that consists mostly of long-chains of carbon and hydrogen. Source: Labyrinth Consulting Services, Inc.

Refineries upgrade crude oil into higher value gasoline and distillate products by breaking this long molecule down into smaller chains of carbon and hydrogen by a process called fractional distillation. The general molecular structures of propane, butane, gasoline and diesel are shown in Figure 2.

Figure 2. The general molecular structure of propane, butane, gasoline and diesel. Source: Labyrinth Consulting Services, Inc.

 

In a refinery, crude oil is heated under pressure in a furnace into a vapor and then fed into the bottom of a distillation tower (Figure 3).

Longer-chain molecules have higher boiling points than smaller molecules and condense back into liquids at the bottom of the distillation tower. The vapor cools as it rises through the column and different hydrocarbon molecules or fractions condense and run out of the tower at different levels.

The figure shows the main intermediate products that come out of a distillation tower with their average number of carbon atoms (C1 – C4, C5 – C8, etc. in the figure). These intermediates are then put through a series of blenders, treaters and catalytic processes that result in final products like gasoline, diesel and jet fuel.

Figure 3. Crude oil is heated in a furnace, vaporized and put into the bottom of a distillation tower. Source: Valero & Labyrinth Consulting Services, Inc.

 

Most U.S. refineries were built in the 1970s and were optimized for gasoline production because that was the most valuable cash product at the time. Diesel has since become more important but no large refineries have been added in the last 50 years. Increasing the volume of diesel means increasing the volume of all other refined products. The problem is that gasoline accounts for more than half of all petroleum product consumption today in the United States but diesel (distillate) accounts for only 24% (Figure 4).

Figure 4. Gasoline accounts for 53% of U.S. finished petroleum products in 2022. Distillate accounts for 24% and kerosene-jet for 9%. Source: EIA & Labyrinth Consulting Services, Inc.

To make matters worse, gasoline consumption has been weak. U.S. gasoline consumption has been below the 5-year average since June 2022 (Figure 5). Refining is a business. For as much as refiners would like to produce and sell more diesel, they can’t justify making more gasoline and other products that cannot sold at a profit.

Figure 5. U.S. gasoline consumption has been below the 5-year average since June 2022. Source: EIA & Labyrinth Consulting Services, Inc.

In other parts of the world, refinery configurations are different and often designed to optimize diesel production. In Europe, for example, diesel yields are sometimes as high as 40% and gasoline yields as low as 15 or 20% (Figure 6).

Figure 6. Typical EU refinery fuel consumption as % of yield in simple and complexrefineries. Source: Bourgeois et al (2012) and Labyrinth Consulting Services, Inc.

Refineries that produce higher diesel yields use heavier crude oil as input. Not all oil is the same even though this is rarely considered or discussed by journalists or analysts. Some crude oils are heavy and others are light. That property of oil is expressed by its API gravity, a variant on specific gravity or density. Heavier oils have lower API gravities and lighter oils have higher API gravities. Lighter oils have limited middle distillates and heavy gasoil compounds that are need to make high-quality diesel.

Figure 7 shows a range of common crude oils used in U.S. refineries arranged by sulfur percent and API gravity. Most U.S. onshore oils including tight oils, and Brent oil are light and sweet (orange circles). Many Saudi Arabian and Iraqi oils, and Alaska North Slope oil are heavier and have higher sulfur content (blue circles). Many oils from Canada, Mexico, South America and West Africa are heavy with a range of sulfur content (black circles).

Most U.S. and Brent is fine for refining gasoline but must be blended with heavier grades to produce diesel. This is why the U.S. cannot be oil independent no matter how much oil it produces.

Figure 7. A range of  crude oils arranged by sulfur percent and API gravity. Source: Valero & Labyrinth Consulting Services, Inc.Refineries cost billions of dollars to build and are designed to operate for decades.

Figure 8 shows the intermediate product cuts for a range of oil types and API gravities. The red and green columns indicate distillate and heavy gas oil products that are suitable for diesel production, and the yellow and orange bars indicate gasoline components and naphtha products suitable for gasoline production. This clearly shows that an oil’s potential for diesel production is inversely and progressively proportional to its potential for gasoline production.

Figure 8. Potential Intermediary Products of Different Oils. Source: Carnegie Endowment and Labyrinth Consulting Services, Inc.

 

The last refinery built in the U.S. with significant capacity was in 1977 although smaller new plants and existing plant upgrades have occurred more recently. New complex refineries have operating lives of about 40 years can cost $15 to $20 billion. That’s a stretch for an industry that struggles with investor expectations of a limited future for fossil fuels.

Refiners understand that low diesel inventories are a relatively temporary problem triggered chiefly by Russia’s invasion of Ukraine. The European Union imported 39% of its diesel and gasoil from Russia in 2021 and its loss leaves a huge hole in worldwide supply.

There is little flexibility to modify the kind of crude oil input or distillate yield once the refinery is built. Suggestions by some people to re-design, to build new refineries, or to use new technologies to boost diesel output are not realistic.

Refining is a complex system that cannot be adjusted without unanticipated consequences. Simple solutions are incompatible with complex systems. The world is connected and interdependent for energy and refining in unavoidably fundamental ways. The lesson of the Ukraine War should be that energy cooperation is a far more important and strategic factor than territorial or ideological disputes.

 

The post ENERGY AWARE #4: THE DEVIL IS IN THE DIESEL appeared first on Art Berman.

COMPARATIVE INVENTORY & OIL STORAGE REPORT OCTOBER 19, 2022 (2022-41)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & OIL STORAGE REPORT OCTOBER 19, 2022 (2022-41) appeared first on Art Berman.

COMPARATIVE INVENTORY & GAS STORAGE REPORT OCTOBER 13, 2022 (2022-41)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & GAS STORAGE REPORT OCTOBER 13, 2022 (2022-41) appeared first on Art Berman.

COMPARATIVE INVENTORY & OIL STORAGE REPORT OCTOBER 13, 2022 (2022-40)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & OIL STORAGE REPORT OCTOBER 13, 2022 (2022-40) appeared first on Art Berman.

ENERGY AWARE #3: U.S. ENERGY INDEPENDENCE AND OTHER DUMB MEMES

The United States is energy independent. Banning oil exports would lower oil prices. Strategic Petroleum Reserve releases lowered gasoline prices. There is a shortage of refinery capacity in the U.S. The cancelation of the Keystone XL Pipeline has limited U.S. oil supply and contributed to higher energy prices.

These popular memes are wrong.

The U.S. is not Energy Independent

The U.S. produced about 11.3 mmb/d of crude oil in 2021 and imported about 6 mmb/d of crude oil per day. That doesn’t sound very energy-independent.

When politicians and journalists talk about American energy independence, they’re not really telling the truth. They’re playing with truth. The energy independence meme confuses oil and refined products. They’re not the same. Let me review the facts.

The U.S. is a net importer of crude oil. U.S. net imports of crude oil averaged 2.9 mmb/d in the first seven months of 2022 (Figure 1 blue fill). That’s way down from almost 9.4 mmb/d during the same period in 2001, and moving in the right direction but it’s hardly energy independent.

The U.S. is a net exporter of refined products. Net exports averaged 5.9 mmb/d in 2022.

Figure 1. The U.S. is a net importer of crude oil & a net exporter of petroleum products. U.S. net imports of crude oil have averaged 2.9 mmb/d in 2022 and net exports of products have averaged 5.9 mmb/d. Source: EIA & Labyrinth Consulting Services, Inc.

The problem arises when crude oil and the products refined from it are combined.  That’s the blue curve in Figure 3 and voila. A country that imports more oil than Europe uses, magically became a net exporter in October 2021.

Figure 3. The U.S. is a net importer of crude oil & a net exporter of crude + petroleum products. U.S. net imports of crude oil have averaged 2.9 mmb/d in 2022 and net exports of crude + product have averaged 0.9 mmb/d. Source: EIA & Labyrinth Consulting Services, Inc.

No other country in the world accepts this definition of being a net exporter. A country is a net exporter of oil only if it exports more crude oil than it uses. Saudi Arabia’s net crude oil exports are about 7.3 mmb/d. Canada exports almost 3 mmb/d of crude oil. The U.S. is a net importer of 3 mmb/d of crude oil.

About ten years ago I read article by Michael Levi in which he discussed this peculiar notion of American energy independence. Imagine, he wrote, a country that produces no automobiles but buys millions of unpainted cars from other countries. It brings them to domestic factories, paints them green, and then sells them on the world market. Is that country a net exporter of automobiles? Of course not. It’s a net exporter of green paint.

In the first seven months of 2022, America imported an average of 6.3 mmb/d of crude oil and exported an average of 5.9 mmb/d of refined products. Green paint.

Banning Oil Exports Would Not Lower Oil Prices

Several congressmen recently proposed that President Biden ban oil exports. They argued that this would lower make the country more energy independent and lower oil prices. It sounds like a good idea but it’s wrong because most of the oil exported from the United States cannot be used in U.S. refineries.

Refined products are made by heating crude oil in a distillation tower (Figure 4). The lightest fractions—butane, propane and gasoline—are separated first and the heavier fractions—jet fuel, kerosene and diesel come off later at higher temperatures.

Figure 4. Crude oil is refined into increasingly heavier petroleum products through heating in a distillation tower. Source: Energy Education & Labyrinth Consulting Services, Inc.

Not all oil is the same. It comes in different grades like most commodities. Crude oils are classified by their densities. Some oils are heavy and some are light. Some contain relatively complex hydrocarbon molecules and others contain simpler compounds. Some are good for making diesel and the entire spectrum of refined products while others can only be used to make gasoline and lighter products.

These different properties of oil are expressed in the API gravity scale which is a variant of specific gravity or density. Figure 5 shows where major U.S. crude oils fall on the API scale and the approximate API ranges needed for production of key refined products. Many U.S. oils lack the heavy compounds needed to make diesel but are good for making kerosene, jet and gasoline.

Figure 5. Many U.S. oils lack the heavy compounds needed to make diesel but are good for making kerosene, jet and gasoline. Source: Global Security, Enverus, EIA & Labyrinth Consulting Services, Inc.

The average API gravity crude oil input for U.S. refineries is about 33° but Figure 5 shows that the average values for many U.S. oils do not meet this requirement.

Figure 6 shows the API profiles of key U.S. oils and imported oil. Most U.S. regions produce oil that includes some refinery-ready grades that are 35° or less (light blue fill) that can be used to refine diesel but only in small proportions. They all have ample light grades of 36° to 45° (yellow fill) and greater to produce kerosene, jet and gasoline.

The 6 mmb/d of imported oil (right-hand profile), on the other hand, is refinery-ready or heavy enough to be blended with lighter U.S. oil to create a refinery-ready mix although special refineries are needed to manage the heavy fractions and bitumen.

Figure 6. U.S. imports mostly heavier grades of oil that are not produced domestically in significant volumes except from Alaska and the offshore Gulf of Mexico. Source: Enverus, ExxonMobil, USGS & Labyrinth Consulting Services, Inc.

Most of the oil that the U.S. exports is the surplus of light oil that is not needed to produce the range of refined products that U.S. consumers demand. Banning or restricting exports of that oil would not result in greater usable supply or lower prices. Re-designing U.S. refineries would not change the underlying light composition of U.S. oil so would do little to increase the domestic supply of diesel.

I’m not arguing for or against crude oil exports. I’m merely making the point that banning or restricting exports would probably make little or no difference for oil price.

There is no shortage of refining capacity

Analysts and journalists have been hyperventilating about the fact that the U.S. “lost” about 1 mmb/d of refining capacity during the COVID recession in 2020. It’s true but most of those shuttered refineries were old, small and inefficient, and would have been closed anyway. The economic closure during the pandemic was simply a good time to make those changes.

Figure 7 shows U.S. refinery utilization compared to the pre-Covid 2018-2019 average level. It shows no evidence that refinery capacity is a problem since so far, 2022 refinery utilization is consistent with 2018-2019 levels.

Figure 7. There is no evidence that refinery capacity is a problem in the U.S. 2022 refinery utilization is consistent with 2018-2019 levels. Source: EIA & Labyrinth Consulting Services, Inc.

Refining is an industry, not a public service organization. The industry chose to close refineries and may decide in the future to build new ones. At the moment, however, it does not seem to agree with analysts who think it has a capacity problem.

Lower Gasoline Prices Because of Lower Demand, Not SPR

The U.S. government announced plans to release approximately 260 mmb of crude oil from the its Strategic Petroleum Reserve (SPR) between October 2021 and October 2022 in order to lower high gasoline prices. Releases actually began earlier in August 2021 and so far, about 205 mmb have been released or 3.7 mmb per week. Gasoline prices have fallen so the Biden administration has claimed “mission accomplished.”

Figure 8 shows U.S. gasoline price, consumption and the consumption 5-year average since November 2021. It seems fairly clear that demand destruction was the main reason for lower gasoline prices and not SPR releases.

U.S. gasoline consumption fell below the 5-year average in early June when gasoline prices reached more than $5.00 per gallon. Lower consumption led to lower prices. It appears that consumers are sensitive to an approximate price threshold of $4.00 per gallon. When the price falls near that level, consumption increases but remains far below the 5-year average which includes the pandemic years of abnormally low vehicle use.

Figure 8. U.S. gasoline consumption fell below the 5-year average in early June when gasoline prices reached more than $5.00 per gallon. Consumption has increased since price fell below $4.00 but remains less than average. Source: EIA & Labyrinth Consulting Services, Inc.

Energy is a complex system so I would not want to conclude that the SPR releases had no effect on refined product prices. At the same time, the evidence does not suggest those releases were the principle cause.

The Keystone XL Pipeline Has Had Little Effect on Oil Supply

Some Americans believe that failure to build the Keystone XL Pipeline is a cause of high energy prices. It’s not. How can something that never was be a cause of anything?

I supported the project because it would have made imports from Canada more efficient and therefore, less costly. I publicly criticized Obama for canceling the pipeline a decade ago.

At the same time, presidential politics have not slowed increased oil imports from Canada to the U.S. Imports have increased 1.9 mmb/d (98%) since the pipeline project was announced in 2008, and 20% since Obama canceled the Keystone XL Pipeline in November 2015 (Figure 9).

Figure 9. Presidential politics have not slowed increased oil imports from Canada to the U.S. Imports from Canada have increased 20% since Obama canceled the Keystone XL Pipeline in November 2015. Source: EIA & Labyrinth Consulting Services, Inc.

Energy Blindness

We are energy-blind. Energy is the basis of life and yet we know less about it than how to search for cat videos on our phones.

Fossil fuels have provided the unparalleled productivity of human society over the last 75 years. They allowed population to grow from 2.5 to almost 8 billion over than period, and lifted billions of people out of poverty.

“Instead of appreciating this giant one time windfall, we developed stories that our newfound wealth and progress had emerged purely from human ingenuity…One barrel of oil represents almost 5 years of human labor, and human economies only pay the cost of its extraction…not the tens of millions of years of natural processes to create it. We have underpaid for the main input to human economies – and economic texts do not recognize this fact…We had become Energy Blind.”
–Nate Hagens, The Great Simplification

There is some limited truth behind all of the memes that I have discussed but not nearly enough to say that they are true. Most Americans want to believe in energy independence so they are eager to accept it as true. Analysts invent what become memes to get attention and pitch their companies’ products. Other analysts and journalists repeat them and before long, most people believe that they are true. We like simplistic reductions of a complex world because it’s easier than thinking which requires study and work.

I’m not suggesting that everyone needs to become an energy expert. I’m saying that memes are a lazy approach to something too important to be lazy about.

The post ENERGY AWARE #3: U.S. ENERGY INDEPENDENCE AND OTHER DUMB MEMES appeared first on Art Berman.

COMPARATIVE INVENTORY & GAS STORAGE REPORT OCTOBER 6, 2022 (2022-40)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & GAS STORAGE REPORT OCTOBER 6, 2022 (2022-40) appeared first on Art Berman.

COMPARATIVE INVENTORY & OIL STORAGE REPORT OCTOBER 5, 2022 (2022-39)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & OIL STORAGE REPORT OCTOBER 5, 2022 (2022-39) appeared first on Art Berman.

ART BERMAN NEWSLETTER: OCTOBER 2022 (2022-9)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post ART BERMAN NEWSLETTER: OCTOBER 2022 (2022-9) appeared first on Art Berman.

COMPARATIVE INVENTORY & GAS STORAGE REPORT SEPTEMBER 29, 2022 (2022-39)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & GAS STORAGE REPORT SEPTEMBER 29, 2022 (2022-39) appeared first on Art Berman.

ENERGY AWARE #2: THERE IS NO CLEAN, CHEAP ENERGY

There is no clean, cheap energy.

Clean energy requires materials that use energy for their extraction, transport, manufacture and distribution. That includes the steel, cement, and batteries for wind turbines and electric vehicles. We don’t know how to do any of that without using fossil fuels.

That seriously complicates the popular idea that fossil fuels can be replaced by renewable energy.

The use of energy inevitably rearranges additional materials in the environment. This posits a problem that goes beyond the carbon content and specific material requirements of given technologies, and thus cannot be solved through energy substitution.
Leiva and Schramski (2022)

Nuclear Energy

Many believe that nuclear power is important for decreasing reliance on fossil fuels for electric power. That is partly because an operating nuclear power plant emits almost no carbon dioxide or other greenhouse gases. This ignores the energy and emissions that go into the components and construction of a nuclear plant.

It is wrong to ignore the use of fossil fuels in the construction (and ultimate decommissioning) of the power plant as well as the mining, milling, transport and eternal storage of nuclear material. To this must be added the fossil fuels used in the building of the array of machinery to make nukes possible and the disruption of aquatic ecosystems from the emptying of hot water.”
Don Fitz (2019)

Solar Energy

It takes energy to produce solar panels. This includes mining the raw materials and transporting them to a factory. Most of that work is done with diesel.

A solar cell is made of silicon. Sand, quartzite gravel or crushed quartz are melted at temperatures of 1800°C in an arc furnace. Today, most of the electric power comes from coal and natural gas. The resulting silicon dioxide is then treated with phosphorous and boron that must be mined using fossil fuels. The chemical processing of these elements also produces considerable toxic waste.

More electric power is needed to manufacture the panel. The finished product must be transported and distributed by ship, train or truck, all of which use diesel.

I am not suggesting that it takes more energy to make a solar panel than it produces. I’m simply pointing out that it is misleading to call solar energy clean.

Wind Energy

Wind energy also has a carbon footprint. Wind turbines are made of of steel, concrete, fiberglass, copper, as well as rare earth metals.

Mining metals and rare earths is energy intensive. Making steel requires the use of metallurgical coal in blast furnaces. The manufacture of concrete emits lots of carbon dioxide.

“The biggest contributors to the carbon footprint of wind turbines are steel, aluminum and the epoxy resins that hold pieces together — with the steel tower making up 30% of the carbon impact, the concrete foundation 17% and the carbon fiber and fiberglass blades 12%.”
Chris Helman, Forbes (2021) 

Then, there’s the problem of disposing of worn out solar panels and turbine blades. Renewable equipment is not renewable.

Wind and Solar Aren’t As Cheap As Advertised

Low price has become the clarion call for renewable energy.

“Today, renewables are the cheapest source of power,” said IRENA’s Director-General Francesco La Camera.

Whenever I hear statements like that I ask, “What costs are included and excluded?”

La Camera’s claim is based on leveled cost estimates that compare the cost of generating electricity from different types of power plantsLeveled cost does not account for the cost of providing “backup” electricity for renewable power with natural gas or battery storage.

A recent study of leveled costs in Minnesota concluded that wind and solar are much more expensive than nuclear, coal and natural gas for electric power generation.

Figure 1. New solar facilities are the most expensive form of new electricity generation built under the Walz Proposal. Once costs such as property taxes, transmission, utility returns, battery storage, and overbuilding and curtailment, are accounted for new wind costs $272 per MWh, and new solar costs $472 per MWh. Source: The American Experiment

Those findings are consistent with net energy or EROI, an approach that calculates the amount of usable energy output from an energy source versus the amount of energy input to produce that energy resource.

Figure 2 shows that the net energy (EROI) for wind and solar PV including backup generation for periods when the wind doesn’t blow and the sun doesn’t shine. They are an order of magnitude lower than for other energy sources used in electric power generation.

Figure 2. The net energy (EROI) for wind and solar PV are an order of magnitude lower than for other energy sources used in electric power generation. Source: Weissbach et al (2018) & Labyrinth Consulting Services, Inc.

Another way to look at this is to compare power densities—the measure of how much electric power can be extracted from the same unit area supplied by different energy sources.

In Figure 3, I show power density values and a comparison based on the number of energy “workers” indexed to natural gas.

It takes 176 solar workers or 470 wind workers to equal 1 natural gas worker for the same time rate of energy transfer. As in the previous examples, wind and solar compare unfavorably to natural gas, nuclear, heating oil and coal.

Figure 3. It takes 176 solar workers or 470 wind workers to equal 1 natural gas worker for the same time rate of energy transfer. Power Density = how much electric power can be processed per unit area. Source: Van Zalk & Behrens (2018) & Labyrinth Consulting Services, Inc.

There is No Clean, Cheap Energy

The energy debate today is largely about whether renewable energy sources can substitute for fossil fuels in time to avert an ecological and climate catastrophe. A secondary theme is whether economic growth will continue without fossil fuels.

That’s the wrong way to think about energy and the earth. It’s not a competition between energy teams. It’s not about which energy source we think is better but instead, how the earth’s ecosystem can survive if humans don’t start using a lot less energy.

“Without a biosphere in a good shape, there is no life on the planet. It’s very simple. That’s all you need to know.”
Vaclav Smil

No energy is clean or cheap, and earth’s future is bleak unless humans use a lot less energy.

Wind and solar energy are not clean but they are cleaner than fossil fuels. They are not cheaper and that has implications for economic growth.

What about technology?

Technology is the deus ex machina (god from the machine) common in ancient Greek and Roman plays. Plots got so complicated that a god had come down to earth to fix everything so the story could resolve and have a happy ending.

Technology does not create energy. Instead, it is a way of extracting existing energy faster and concentrating it.

The…growing…size and scale of modern human economies…allows for new inventions and adds to social and physical complexity. This in turn requires a larger energy spigot to keep things running without recession or dislocation.
–DJ White and NJ Hagens, The Bottlenecks of the 21st Century: Essays on the Systems Synthesis of the Human Predicament 

Technology isn’t cheap either—check the price tag on your mobile phone, roof-top solar panels, replacement EV battery or fracked shale well.

We live in a complex society that relies on energy to maintain that complexity. Nothing about a complex system is black and white. Yet, the energy debate assumes that there is some sort of black-and-white choice between fossil and renewable energy. That is not only wrong—it’s impossible.

The real deus ex machina for human civilization is biophysical and economic collapse, mass migration, civil strife and war unless we face the harsh reality that the energy consumption party is ending.  History suggests, however, that we will not change our behavior until bad things start to happen in earnest.

“You have to use less because we’re in a world crisis—It’s not going to happen. The only thing will be the price.”
—Kiril Sokoloff, The Great Simplification (August 2022)

In the meantime, let’s at least embrace the reality that energy is not a biblical struggle between the forces of good and evil.

The problem is overshoot and population growth enabled by massive levels of energy consumption. Climate change is a result.

The earth’s problems can’t be blamed on any industry. Instead, they result from the collective behavior of the human race. The idea of clean versus dirty energy is an infantile passion play that reflects energy & reality ignorance.

Be energy aware. There is no clean, cheap energy.

The post ENERGY AWARE #2: THERE IS NO CLEAN, CHEAP ENERGY appeared first on Art Berman.

COMPARATIVE INVENTORY & OIL STORAGE REPORT SEPTEMBER 28, 2022 (2022-38)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & OIL STORAGE REPORT SEPTEMBER 28, 2022 (2022-38) appeared first on Art Berman.

COMPARATIVE INVENTORY & GAS STORAGE REPORT SEPTEMBER 22, 2022 (2022-38)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & GAS STORAGE REPORT SEPTEMBER 22, 2022 (2022-38) appeared first on Art Berman.

COMPARATIVE INVENTORY & OIL STORAGE REPORT SEPTEMBER 21, 2022 (2022-37)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & OIL STORAGE REPORT SEPTEMBER 21, 2022 (2022-37) appeared first on Art Berman.

Energy Shock, Energy Transition: A Perspective from Inside the Energy Industry

Energy Aware #1: There Is No Energy Transition Away From Fossil Fuels

This is the first in a series of posts intended to provide a practical understanding of energy, its central role in human civilization, and a spectrum of realistic options that may exist for our collective future. I do not presume to know the solutions to our planet’s ecological and climate problems. I merely hope to share the knowledge I have gained in over four decades in the energy industry with those who want to become more energy aware.

 

Most people believe that an energy transition is underway in which fossil fuels will be a thing of the past some day.

The number of people who searched Google for the term “energy transition” has increased seven-fold since 2005 (Figure 1).

Figure 1. The number of people who have searched Google for “energy transition” has increased 7-fold since 2005. Source: Google Trends & Labyrinth Consulting Services, Inc.

More than 30% of Americans favor ending the use of fossil fuels completely.

Even organizations whose core interest is energy talk about an end to fossil fuels in the relatively near term.

“The energy transition is a pathway toward transformation of the global energy sector from fossil-based to zero-carbon by the second half of this century.”
International Renewable Energy Agency (IRENA)

Many people believe this is possible but it is a fantasy. I say that based on facts, not on any preference or bias.

People believe the fantasy because they want to. That belief is only possible because of energy blindness.

 

There Is No Energy Transition Away from Fossil Fuels

Energy transitions are additive. New energy sources are added to older ones but nothing is replaced (Figure 2).

Biomass (wood, plant material and crop residue) was the principal form of human energy other than food until the 1880s when coal, oil, natural gas and hydroelectricity overtook it. Nevertheless, biomass use did not decrease. In fact, twice as much biomass is used today as it was in 1800.

Figure 2. Energy transitions are additive. No energy source has ever been replaced. Source: Our World in Data & Labyrinth Consulting Services, Inc.

Even when we look at energy sources as a percent of total consumption, there is no case for earlier sources being replaced by later ones either. Figure 3 shows the same data that is in Figure 2 except as percentages of total consumption.

The percent of biomass and coal has decreased over time but fossil fuels are not being replaced by renewables, hydroelectric power and nuclear energy. Renewable energy is less than 5% of total world consumption. All non-fossil sources actually declined from 23% of total in 2000 to 21% in 2019.

Figure 3. The percent of biomass and coal has decreased over time. Even on a percentage basis, fossil fuels are not being replace by renewables. Source: Our World in Data & Labyrinth Consulting Services, Inc.

The world has been in a continuous energy transition since coal became an alternative to biomass in the 18th century. The introduction of oil, natural gas, hydroelectricity, nuclear power and renewables were part of that continuum, not discrete energy transitions. No major form of energy has been replaced or eliminated in the last 200 years.

A new energy transition that will lead to a non-fossil energy future is a belief.

It is a beautiful belief but it is impossible based on everything we know about energy and technology today. All forms of renewable energy production require materials that use substantial amounts of fossil fuels for their mining, transport, processing, manufacture and distribution. Moreover, we know of no way to produce the four pillars of modern civilization—steel, cement, plastic and fertilizer—without fossil fuels.

It may be possible that some of these obstacles can be overcome in the future but almost certainly not in time to make a difference for the ecosystem or the climate.

Lower carbon emissions are critical for the future. That does not mean we can pick a fantasy and make it happen.

Most credible forecasts project that fossil fuel use will decrease over the next 25 years. It is unlikely, however, that they will account for less than about 50% of total energy consumption by 2050.

Fossil energy is fundamental to our way of life, and there is considerable momentum which favors its continued use. Ending or even substantially reducing its consumption would almost certainly lead to painful decreases in living standards and population. Only higher energy prices will cause the behavior change needed to make a difference.

I am not arguing in favor of fossil fuels but simplistic ideas like just ending their use are unrealistic and involve tremendous risk.

Purposeful change requires understanding the facts, events and choices that led to the present state. This suggests that we should become more energy aware.

 

The post Energy Aware #1: There Is No Energy Transition Away From Fossil Fuels appeared first on Art Berman.

COMPARATIVE INVENTORY & GAS STORAGE REPORT SEPTEMBER 15, 2022 (2022-37)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & GAS STORAGE REPORT SEPTEMBER 15, 2022 (2022-37) appeared first on Art Berman.

COMPARATIVE INVENTORY & OIL STORAGE REPORT SEPTEMBER 14, 2022 (2022-36)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & OIL STORAGE REPORT SEPTEMBER 14, 2022 (2022-36) appeared first on Art Berman.

COMPARATIVE INVENTORY & GAS STORAGE REPORT SEPTEMBER 8, 2022 (2022-36)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & GAS STORAGE REPORT SEPTEMBER 8, 2022 (2022-36) appeared first on Art Berman.

COMPARATIVE INVENTORY & OIL STORAGE REPORT SEPTEMBER 8, 2022 (2022-35)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & OIL STORAGE REPORT SEPTEMBER 8, 2022 (2022-35) appeared first on Art Berman.

ENERGY SHOCK

The world is in energy shock.

European imported coal prices increased 421% before Russia invaded Ukraine. German electric power price increased 518%. European natural gas jumped 765% and Asian spot LNG, 957%.  Since then, it’s gotten even worse.

U.K. natural gas futures price has increased +$99.86 (+574%) from $17.41 to $117.27 per mmBtu just since June 8 (Figure 1).

Figure 1. U.K. natural gas futures price has increased +$99.86 (+574%) from $17.41 to $117.27 per mmBtu since June 8. Source: MarketWatch, CME & Labyrinth Consulting Services, Inc.

Now Europe’s energy crisis is on a path to even worse outcomes.

Russia announced on September 4 that gas supplies to Europe via the Nord Stream 1 pipeline would not resume in full until the sanctions against Russia were lifted. Finland’s Economic Affairs Minister stated ,

“This has had the ingredients for a kind of a Lehman Brothers of energy industry.”
–Mika Lintilä

Many governments are planning to subsidize consumers with price caps and to help industry with loans. My friend and colleague Nate Hagens recently noted that,

“Europe is committing economic suicide.”
–Nate Hagens

That is because these bailouts are happening at a time of economic contraction, high inflation and rising interest rates. That means increased and unproductive debt at a time that states cannot afford its service except with more debt.

French President Emmanuel Macron recently stated,

“What we are currently living through is a kind of major tipping point or a great upheaval … we are living the end of what could have seemed an era of abundance…the end of the abundance of products of technologies that seemed always available.”
–Emmanuel Macron

Meanwhile, OPEC+ has decided to cut production by 100,000 barrels of oil per day reversing 15 months of output increases. Although oil is relatively less expensive for Europeans than natural gas and coal, many countries have begun using diesel as a substitute to generate electric power.

In August, Saudi oil minister Abdulaziz bin Salman (ABS) said that this may be necessary to correct problems in the market because “the paper and physical markets have become increasingly more disconnected.”

That is rhetorical nonsense but that’s not what is really going on. This is about the second Cold War to create a new world order.

It should be obvious by now that Russia’s war in Ukraine is about much more than territorial expansion. Ukraine is the staging ground for a larger conflict between states who are dissatisfied with the present world order versus those that are more-or-less satisfied. We only need to look at the countries that continue to buy Russian oil and cooperate with Russia on oil: China, India, Saudi Arabia and the rest of OPEC including Venezuela, Mexico, Kazakhstan, Azerbaijan, Malaysia, Sudan, South Sudan, Oman, Brunei and Bahrain.

Credit Suisse’s Zoltan Pozsar wrote a fascinating post about this in which he identifies the TRICKs bloc of nations—Turkey, Russia, Iran, China, and North Korea—an alliance of economies sanctioned by the U.S. getting ever closer economically and militarily. China and Russia held naval exercises with Iran earlier this year. Iran hosted talks in July between Russia and Turkey, and India, China and Russia held joint military drills a week ago.

The world has begun the descending arc of the Oil Age. Europe’s energy crisis, the war in Ukraine, and escalation of U.S. – Chinese tensions over Taiwan are all part of a struggle to dominate remaining fossil resources as well as new energy sources.

The world is in energy shock. That seems to be awakening people from the big sleep of energy blindness. A major economic contraction seems inevitable. The world order that has existed since the end of World War II is ending. It’s a lot to take in.

The post ENERGY SHOCK appeared first on Art Berman.

COMPARATIVE INVENTORY & GAS STORAGE REPORT SEPTEMBER 1, 2022 (2022-35)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & GAS STORAGE REPORT SEPTEMBER 1, 2022 (2022-35) appeared first on Art Berman.

COMPARATIVE INVENTORY & OIL STORAGE REPORT AUGUST 31, 2022 (2022-34)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & OIL STORAGE REPORT AUGUST 31, 2022 (2022-34) appeared first on Art Berman.

ART BERMAN NEWSLETTER: SEPTEMBER 2022 (2022-8)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post ART BERMAN NEWSLETTER: SEPTEMBER 2022 (2022-8) appeared first on Art Berman.

COMPARATIVE INVENTORY & GAS STORAGE REPORT AUGUST 25, 2022 (2022-34)

You are unauthorized to view this page.

Want access to this page? Select a plan here

The post COMPARATIVE INVENTORY & GAS STORAGE REPORT AUGUST 25, 2022 (2022-34) appeared first on Art Berman.

CURRENT PROJECTS