July 31, 2004
Wrapping Up Oil Week, and It’s Not Looking Good
Results from the first week of oil company earnings reports are in; of the super majors, only Total is missing, and it reports next week. Below are two plots of the change in daily oil production from these leading international oil companies and a few others.
It’s a sobering picture. From the second quarter of 2003 to the second quarter of 2004, the combined production from these companies dropped some 437,000 barrels per day. Only ExxonMobil managed a significant increase. At the same time, combined capital spending on exploration and production from those companies has increased more than $1.5 billion.
Companies did not uniformly lose production across the globe. For those who have a presence there, Africa was a prime source of increase.
Russia and the Caspian area are also contributing a great deal. If we factor in BP’s new joint venture with TNK (TNK-BP), it pushes BP into positive ground, with a net increase of 560,000 barrels per day, or 31.6%. Production from BP’s own core resources—the ones it had in 2003—declined the charted 15%.
Then again, there was the decline from Kazakhstan I noted in the ChevronTexaco post below.
Some suggest that this picture of declining production reflects a global conspiracy on the part of greedy oil executives to maintain high prices at a time of increasing need. I don’t think so.
First, the results are uneven, with ExxonMobil, for one, increasing production.
Second, even for companies that posted a production loss, certain regions within those companies saw gains—in Africa, for example.
Third, regional drops in production tend to correspond to areas either known to have peaked, or that have been under production for a long time.
Fourth, companies are spending billions on Exploration and Production. As a percentage of revenue, the top oil companies’ average capital expenditure on exploration and production dropped slightly from 4.16% in 1H 2003 to 3.92% in 1H 2004. Given the increase in revenue—that’s a lot of extra money. In most cases, those expenditures would already have been approved well before the price increase hit. In other words, the execs thought they would be spending more as a percentage of revenue than they actually did because of the pricing windfall.
These results also highlight the increasing power of the national oil companies in various areas of the globe; the increase in supply to meet demand isn’t coming from the companies one traditionally thinks of as “Big Oil”.
I think that what we are seeing is a reflection of just how difficult it is to find major new oil systems in a world that has been drilling for more than 100 years, and that has been heavily explored with increasing technological sophistication for at least 60. Finding and producing more oil is difficult, and getting more so.
At a certain point, this becomes like a game of musical chairs. There are only so many chairs, there is only so much oil. Depletion removes both, some players lose.
The market concerns over Yukos and Iraq specifically, and terrorism in general, are overshadowing the larger fundamental issues about exploration and production. As long as global demand continues to grow, the supply-demand situation will keep prices high—and rising.
The only way out is through conservation, efficiency and multiple alternative sources of energy. None of this is quick. We’ve gotten started—but with nowhere nearly enough urgency and focus.
July 30, 2004
ChevronTexaco: Profits Up, Production Down..and What’s With Kazakhstan?
ChevronTexaco brought in record 2Q net income of $4.1 billion, slightly more than 2.5 times the $1.6 billion on the same quarter last year. Half-year to half-year, net income rose to $6.687 billion from $3.520 billion.
Production of crude and liquids dropped 4.4% quarter-to-quarter (4% half-to-half). The charts below show the volume picture for each quarter (left) and the amount of change for each region. Note again that Africa is the area of only substantial growth.
I was intrigued to see the production drop in Kazakhstan (albeit very slight) and in the Neutral Zone (Saudi-Kuwaiti, not Romulan).
Kazakhstan is one of the critical Caspian Sea region countries, and is expected to be a significant player in world oil markets in years to come. There are three enormous Kazakh oil fields: Tengiz, Karachaganak and Kashagan.
ChevronTexaco has stakes in two of these three (Tengiz and Karachaganak) and is the largest single producer in Kazakhstan. It expects Tengiz eventually to be able to produce 700,000 barrels per day. (Map to the right. Click to enlarge.) ChevronTexaco is the leader of the Caspian Pipeline Consortium, and just recently contracted an engineering study on doubling the capacity of the Tengiz-Novorossiysk pipeline.
So why the drop in production? One would think—given the developmental work and the presumed potential—that output would be increasing.
The Partitioned Neutral Zone (PNZ) is an area between Saudi Arabia and Kuwait. In 1984, ChevronTexaco acquired the Getty Oil Company, including its operations in the onshore PNZ. There it operates on behalf of Saudi Arabia in a joint operation with the Kuwait Oil Company. According to Chevron Texaco (April 2004), production from the PNZ has roughly tripled since 1990; output passed the 1 billion barrel mark in 1997. The PNZ currently has some 700 active wells. Recent area discoveries indicate the presence of significantly lighter crude—excellent for gasoline.
So why the drop in production? Estimates place the total PNZ recoverable reserves at 5 billion barrels—split equally between Kuwait and Saudi Arabia. Conceptually, then, PNZ was almost at the Saudi midway production point 7 years ago. (50% of 5 billion = 2.5 billion. Midway point = 1.25 billion.) Saudi PNZ may have peaked.
July 29, 2004
Ethanol Fuel Cell
Physorg.com. Intelligent Energy has successfully completed trials of its stationary, ethanol-based fuel cell system. The company is targeting distributed power generation in Latin America as an opportune market for technology such as this.
Intelligent Energy formed in 2001 and set about acquiring three other companies that became the building blocks of its business. Those companies were:
- Advanced Power Sources, a UK PEM fuel cells research and development company
- Element One Enterprises, US-based hydrogen fuel experts
- MesoFuel, a New Mexico company that develops micro-devices for the conversion of liquid and gaseous hydrocarbons into pure hydrogen for storage and use in PEM and other fuel cells.
The combination of the three allowed Intelligent Energy to deliver the solution described above. The Mesofuel technology reforms the ethanol to hydrogen, which then fuels the PEM fuel cell. Apparently the reformers work with light and heavy hydrocarbons (natural gas through to diesel), renewable fuels (such as ethanol, biodiesel and others) and decarbonized fuels (such as ammonia). The company is targeting stationary and mobile applications.
On the PEM side, they claim to have a unique stack architecture that is simpler and thus earier to build, offering a range of power outputs. Neat. I’d love to find more substantive detail.
I’m expecting to see many more rollups or combinations such as this, in multiple sectors, as business entrepreneurs combine with technology innovators.
Doing the Math
Dave Guilford, from Automotive News.
There are an estimated 835 million motor vehicles on the world’s roads, according to J.D. Power and Associates.
The big number — global vehicle count — is expected to swell from today’s 835 million to 1.1 billion within 15 years. That would be an increase of 265 million vehicles — more than the total number on U.S. roads today.
Other industry sages see similar growth. Garel Rhys, director of the Centre for Automotive Industry Research at Cardiff University in Wales, predicts that the industry will crank out more vehicles in the next 20 years than the 1.8 billion it built in its first 110 years.
But we have to look at what is visible today. What we can see coming vastly increases the pressure to replace petroleum-fueled engines with fuel cells, ethanol, electric vehicles, compressed natural gas or some combination of those.
As Larry Burns, General Motors’ fuel cell point man, put it recently, “We really have to ask ourselves, can the world sustain 1 billion automobiles?“
If they all burn petroleum, probably not.
ConocoPhillips: Profits Up, Production Down
ConocoPhillips (COP) reported a 53% increase in profit for the first half of this year, climbing to $3.691 billion from $2.408 billion for the same period last year. Second quarter profit increased a whopping 75% to $2.075 billion from $1.187 billion in 2Q 2003.
Crude oil production declined half to half 2.5%. If we back out the production from the equity affiliates of COP, the decline in consolidated COP production increases to 5.4%
I’ve posted the results in my standard format for this “oil week” below and to the left. Because ConocoPhillips provides some additional regional detail, I plotted the regional changes, half to half, below and to the right. (Click to enlarge.)
For ConocoPhillips, Asia has been the key area of growth, while production in the US and Europe (UK and Norway) steadily declines.
ExxonMobil: Record Revenue, Production Up
ExxonMobil posted a record quarter, excluding special items, of $5.8 billion, up 39% from the second quarter of 2003. It also posted a gain in crude oil production, up 4.2% to 2.58 million barrels of oil per day.
ExxonMobil, the world’s largest energy company, has a geographically balanced portfolio. You’ll see in the chart to the right, however, that Africa is rapidly increasing in importance as a source. If all goes as planned, it will become the largest contributor by region sometime around 2010.
No accident, then, that Lee Raymond, the chairman, paid his first official visit to Nigeria two weeks ago and met with the president, Olusegun Obasanjo.
ExxonMobil did not do so well with natural gas, posting a 3% drop in global production quarter to quarter, despite new projects coming online. Overall, using the BOE measure (barrels of oil equivalent), XOM’s production increased 1% quarter to quarter, up to 4.08 mboe per day.
Announcement material is here.
Shell Production Dropping, Reserve Replacement Low
Pushed by the “strong tailwind” of oil prices, Royal Dutch Shell posted a hefty $8.7 Billion profit for the first half of 2004, up 7% from the same period the year before. This incorporated a $4B profit for the second quarter, up 54% from 2Q 2003. At the same time, the company announced it was paying penalties to both US and UK regulators to resolve the reserve scandal from earlier this year—some $150 million worth. That works out to about 4% of the profit just from the second quarter. Not a bad deal to get that off your back.
The timing of the penalty announcement also deflected attention on more serious underlying conditions:
- Shell’s upstream production, both in crude oil and natural gas, is dropping.
- Shell’s reserve replacement ratio is extremely low.
Globally, Shell’s crude oil production dropped 6.5% from the first half of 2003 to the first half of this year. As you can see from the chart, the only area of substantial increase is in Africa. Shell will look to increase production from Russia and the Former Soviet Union as well. Shell is also putting a great deal of effort into oil production from oil sands to offset the decline in regular oil.
With all that, however, Shell sees no net increase in production for the next several years.
Production in 2005 and 2006 is likely to remain in the range of 3.5 to 3.8 million boe [barrels of oil equivalent—everything in, normalized to the measure of a barrel of crude] per day, again subject to price effects.
In other words, in an era of unprecedented energy demand, the best, stated case is that Shell cannot produce more—hence it will be steadily losing market share. Who picks up the slack? More disturbing from a long-term view is this:
The latest outlook for the proven reserves replacement ratio (RRR) for 2004 is some 60% to 80%.
The reserves replacement ration (RRR) is a measure of offsetting the production depletion of a company’s resources. An RRR of 100% means that for every barrel pumped, a new barrel appears in the reserves. An RRR of less than 100% indicates that your reserves are declining. Shell in essence is saying that it will be drawing down on its reserves accounts without replacing them fully. Not a good position for an energy company dependent upon hydrocarbons, and definitely worrisome for a global economy that maintains its dependency on the same.
Shell’s RRR has been low for several years now: down to 63% in 2003, and at an average 66% for the five years from 1999-2003.
Analysts were mildly disappointed by the overall financial results—as a group, they had expected Shell to benefit even more from the oil price surge. That it did not reflects the production issues, including the rising cost of production.
Presentations, financials and other documents from the results announcement are here.
Hydrogenics and Deere for Commercial H2
Hydrogenics entered into a five-year agreement with Deere & Company for continued R&D into hydrogen fuel cells in commercial vehicles. The agreement comes following earlier joint projects involving the integration of Hydrogenics’ fuel cell power module technology into Deere ePower vehicles.
Hydrogenics develops and manufactures fuel cell and related new energy technologies for portable, stationary and mobile applications. To complement its fuel cell product development initiatives, it is also beginning to develop and to manufacture hydrogen generation products.
Earlier this year, the company, in which GM has a minority stake, launched an off-road mobility initiative as it believes that sector offers earlier viable markets for hydrogen fuel cells than the broader consumer auto sector.
There is a nifty demonstration video of a John Deere concept H2 utility vehicle zipping around over a gentle off-road path (looks like a golf course) accessible from the home page here.
July 28, 2004
EPA, CARB: 2nd Gen Honda H2 Good to Go
Both the EPA and CARB (California Air Resource Board) have certified the 2005 Honda FCX fuel cell vehicle as ready for commercial use.
The second generation of the model, the 2005 FCX is the first to be powered by a Honda designed and manufactured fuel cell stack, and offers some performance improvements over the first model. The basic stats for each:
|2004 FCX||2005 FCX||%Δ|
|Peak Power (hp)||80||107||33%|
|Max Speed (mph)||93||93||–|
|Maximum torque (ft-lbs)||201||201||–|
|Fuel Cell Stack type||PEFC (Polymer Electrolyte)||PEMFC (Proton Exchange Membrane)|
|Fuel Cell Max Output (kW)||78||86||10%|
|Fuel type||Compressed H2||Compressed H2|
|Fuel Storage||High-pressure tank||High-pressure tank|
|Max pressure (psi)||5,000||5,000|
(In terms of energy efficiency, one mile per kilogram (mpkg) of hydrogen is almost equivalent to one mile per gallon (mpg) of gasoline.)
The improvements in power and range stem from the new Honda FC stack. It also allows the 2005 FCX to start and operate in temperatures as low as -20 C (-4 F). (Clearly a necessary hurdle to overcome.)
“The 2005 Honda FCX achieves a significant milestone in the progress toward a hydrogen economy,” said Terry Tamminen, Agency Secretary of the California Environmental Protection Agency. “This second generation fuel cell from Honda makes further simultaneous progress in key areas including performance, range, efficiency and cold weather operability while achieving zero emissions.”
According to Honda, the new FC stack utilizes a new structure made of stamped metal separators and new aromatic membrane material, features 50% percent fewer components than its predecessor, and is easier to manufacture.
There still remains much work to do in power, storage (range) and fuel infrastructure—but the steady pace of innovation and development is very encouraging.
Dan Neil at the LA Times on diesels. Nice backgrounder, review of the VW Touareg, and a good conclusion.
I would argue that diesel is highly underrated by environmentally conscious consumers. For as giddy as people are about gas-electric hybrids such as the Toyota Prius or the coming-soon Honda Accord hybrid, imagine a diesel-hybrid, perhaps with a plug-in option. Such a vehicle could return mileage of 50 to 70 mpg, with commensurate reductions in greenhouse gas and hydrocarbon emissions.
Even more tantalizing is the promise of biodiesel. Biodiesel is vastly cleaner than conventional diesel fuel, offering something like 75% improvement in greenhouse-gas emissions over petroleum; it is derived from sustainable resources; it works perfectly in any diesel engine and may be blended with regular diesel fuel; it qualifies as an alternative fuel, which means that vehicles using it may avail themselves of coveted high-occupancy vehicle lane access; nearly two dozen retailers sell biodiesel blends in California.
So how much imagination does it take? What if a large percentage of America’s rolling stock were diesel-electric hybrids fueled with super-clean renewable fuels made from products grown in America’s farm states which could comprise the Saudi Arabia of biodiesel?
Excellent! We need more pieces like this from mainstream media. Informed, analytical, raising the level of the discussion.