Exxon Mobil has considerably raised its forecast for the global switch to natural gas from far-dirtier coal. Exxon -- whose energy models have much influence because of the intellectual firepower the company's forecasters brings to bear -- says that not only will natural gas surpass coal use in the next two decades, but it will also start to come close to oil consumption, as Angel Gonzales reports at the Wall Street Journal. The big takeaway from Exxon's 20-year forecast, released today: China's natural gas demand will rise six-fold.
These are enormously consequential forecasts. We've been discussing what we think is coal's dim future for some months. Energy forecasts going forward are almost entirely founded in China's voracious appetite; it's been presumed that China will account for some 90 percent of the increase in global coal use over the coming two or three decades. But that's never made sense, unless you presume that China's Communist Party has a death wish. Unrest has already broken out in China over pollution, and it is simply absurd to conclude that the population will tolerate an order of magnitude greater coal smoke, or even more.
As we've discussed, the direction of the global energy supply will relatively soon trigger a sectoral shift in how China produces electricity. We will have supply-push demand: So much natural gas is sloshing around the world -- from Qatar, Australia, Yemen, and now possibly liquefied natural gas from the United States -- that China will shift massively to gas-fired electricity plants. This has enormous implications in terms of climate-change forecasts. In a nutshell, global warming may be less of a problem than a lot of people currently think because natural gas emits one-third of the CO2 as coal.
The research firm Sanford C. Bernstein put out a report late last month (write-up from Bloomberg here) making the bold prediction that Australia will soon emerge as the "Qatar of the Pacific" -- a phrase that doesn't mean much to non-energy wonks, but means a great deal to anyone who follows the liquefied natural gas (LNG) business. In the past thirteen years, Qatar has transformed its economy by becoming the world's largest exporter of LNG -- a form of energy it hardly sold at all before the mid-1990s -- a move that gave the country's economy an enviable stability and relative diversity in the petroleum-dependent Middle East.
A series of high-profile energy investments Down Under over the past year have indicated that Australia is poised to make a similar leap from also-ran to world leader in the industry -- a development that has the potential to remake not only the international gas industry, but also the politics behind it.
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The end is nigh! BP announced on Thursday that it had completed pouring cement into the Macondo well, moving one step closer to permanently sealing it off. The announcement came on the heels of a new report this week estimating that the well had leaked 4.9 million barrels of oil into the Gulf of Mexico since April. It's been three weeks since oil has actually leaked from the well, but BP is continuing to drill relief wells anyway to head off potential problems below the now-cemented casing of the original well.
Oil legislation shelved, moratorium scaled back. With the House off on August recess this week and the Senate preparing to close up shop today Senate Majority Leader Harry Reid decided on Tuesday to delay a floor vote on the oil spill response bill until September. Under pressure from some Senate Democrats opposed to removing the $75 million cap on oil spill liabilities and unified opposition from Republicans, Reid concluded that the votes were not there to pass the bill, even after it was pruned of broader regulations on energy and carbon emissions. The bill's shelving may buy time for the bill's consideration, but it may also allow legislators to craft amendments to further scale it back. Combined with the potential early ending of the deepwater drilling moratorium, Big Oil may face a less stringent regulatory future in the Gulf than it was expecting.
Crude prices shatter three-month ceiling. Oil futures prices broke the $80 mark for the first time since May this week, based on optimistic speculation on Chinese economic indicators. After Chinese manufacturing contracted in July, Beijing is expected to reverse slow-growth policies it put in place earlier this year. China also announced that it planned to expand its oil-storage capacity by 50 percent by 2015. The price of crude reached a peak of just above $82 a barrel, only to back down after U.S. inventories rose to near-record highs and a negative jobs report curbed investors' enthusiasm in New York. In any case, China's renewed appetite may be offset by negative U.S. economic reports, which should leave oil swinging in the $75-$85 per barrel range.
BP's yard sale continues. The beleaguered company kept up its efforts to raise $30 billion by selling assets this week, putting oil and gas interests from Latin America to Southeast Asia on the auction block. On Tuesday BP announced the sales of its Colombian assets to a consortium of Colombia's Ecopetrol and Canada's Talisman Energy for $1.9 billion. Talks moved ahead on its plan to sell its 60 percent stake in Argentina's Pan American Energy as well. After BP's Tony Hayward and Bob Dudley conducted a charm offensive in Moscow this week, reports surfaced that the two offered to sell energy ventures in Vietnam, Pakistan, and Venezuela to Russia's OAO Rosneft and TNK-BP -- mostly mature oil fields or projects that BP has deemed peripheral to its core focus area of deepwater drilling in Russia, West Africa, and the Gulf of Mexico.
South Korea's and U.A.E.'s energy swap. National oil companies from South Korea and the United Arab Emirates signed an agreement on Monday that would create a joint venture to explore for oil in Abu Dhabi and create a Korean oil storage facility in the emirate. The stockpiling facility would have a capacity of 10 million barrels, about 7 percent of Korea's entire oil storage capacity. The deal comes less than a year after Abu Dhabi awarded a $20 billion nuclear power plant contract to Seoul-based Korea Electric Power Corp., signaling a deepening of commercial relations and strategic links between Korea and the U.A.E.
LNG delays thwart Russia's aspirations. A series of project delays on liquefied natural gas projects has put Russian gas giant Gazprom in the unfamiliar position of being outpaced by the competition. As the company continues to decide whether to move ahead in expanding its Sakhalin LNG facilities or developing the vast Shtokman field in the Arctic, a surge of investment in Australia, Qatar, and Southeast Asia has allowed these areas to target potential customers of Russian gas. Russia had hoped to supply a quarter of the world's LNG, but with projects like Australia's Gorgon field giving it a run for its money and increasing world gas supplies undercutting prices, that aspiration now seems increasingly unlikely. These combined pressures may force Gazprom to join in some of these new investments abroad, or even cause a re-evaluation of Russia's energy export-based economy.
Drilling on the Hill. The U.S. House of Representatives opened debate today on new legislation intended to reform regulation of offshore drilling in U.S. waters. The bill includes safety measures and penalties, and -- more controversially -- would lift the liability cap on future oil spills and block companies with poor safety records (read: BP) from getting future offshore leases. Unsurprisingly, House Democrats and Republicans are at loggerheads over the bill, while the Senate unveiled its own energy bill, minus carbon emissions provisions, earlier this week. The House bill is expected to be approved later today, but neither bill seems likely to make it to the White House before the summer recess begins on August 6.
BP's relief well and static kill on schedule. Coast Guard Adm. Thad Allen has announced that the sealing of the Macondo well is set to be complete within two weeks. On Monday, BP will try a "static top kill" maneuver, where it will pump heavy drilling fluid through the old Macondo blowout preventer, likely followed with cement. If it works, crews will be able to finish the relief well and pump the same fluid and cement into it. But the upside for now is that the end of the oil spill finally appears in sight.
BP rebuffs Chinese suitor. China's Sinopec told reporters today that BP rejected its bid for some of BP's assets. Sinopec officials declined to name the assets in question, but reports indicate that they could have included oil fields in Latin America, Vietnam, or BP's stake in Argentina's Pan American Energy. BP announced that it was putting $30 billion worth of assets up for sale this week, and Sinopec has been looking to expand its holdings. Analysts cited strategic reasons for the snub, but others expect that Sinopec will be back to bid higher.
Hayward defends his reputation. After announcing his departure this week, BP CEO Tony Hayward told the Wall Street Journal that he "did everything possible" in handling the Deepwater Horizon disaster, though he admitted that some of his comments had been misguided. Hayward says he was confident BP would bounce back after the oil spill, but believed that the company would face fewer obstacles without him. While his comments have drawn criticism from U.S. legislators and activists, he has earned the sympathy of many in the U.K. who feel that American criticism towards BP was unfairly focused on him. Hayward is set to depart in October, leaving the task of rehabilitating BP's reputation in the United States to his successor, Bob Dudley.
Australia projected to rival Qatar in LNG exports. The research firm Sanford C. Bernstein predicted this week that Australia will become a major exporter of liquefied natural gas over the next five years, driven by continued strong demand from Asian markets. According to the report, Australia is expected to account for 60 percent of new LNG production capacity, which could see it rival Qatar as the world leader in LNG exports. Gas companies have been rushing to develop both onshore and offshore reserves in Australia, while the country has worked to strengthen diplomatic ties with its Pacific neighbors, particularly China, over the past decade.
Tullow moves ahead in Uganda. British exploration and development firm Tullow Oil is set to begin developing Uganda's offshore oil reserves in Lake Albert. The fields are estimated to hold over 2 billion barrels of oil, some of the largest in East Africa. Having acquired half of the oil reserves this week, Tullow is now expected to sell two-thirds of the reserves to France's Total and China's CNOOC. The development of the Lake Albert oil blocks, along with a large onshore gas field, is expected to turn Uganda into a major African exporter of fossil fuels, strengthening its economic and political position in the region. It will also continue to boost Tullow's profile within the industry, following on the company's announcement of a major discovery in Ghana earlier this week.
When Big Oil breaks ranks, and one partner in a world-class deal accuses the other of gross negligence, you know that fear has overcome the industry. But fear of what? One presumes it's the permanent loss of future -- or even currently permitted -- drilling rights in the Gulf of Mexico because of the disastrous oil spill, in addition to offshore deals around the world. After all, as I've written here before, the primacy of Big Oil rests on its claim to technological superiority.
In a similar vein, we have a piece in the London Observer by Richard Wachman and Jon Stibbs, who write that, around the world, "the oil majors stand accused of a blatant disregard for local communities and the environments in which they operate." The Associated Press's Jane Wardell takes a look at re-evaluations of drilling practices being undertaken by petrostates in the wake of the spill. Where might such states focus their attention? One clue comes in a long piece in The New York Times today on blowout preventers, the ostensibly fail-safe technology meant to prevent a catastrophic spill, but which actually work just 45 percent of the time, according to a comprehensive review of their real-world use.
So not just BP, but oil multinationals generally, and the handful of Big Oil companies in particular, are under threat of losing their seed corn, right?
Wrong, it seems.
Going down the list of the world's petrocountries, I can't find a single one that is adopting anything approaching a tough new stance against offshore oil drilling by foreign oil companies. On the contrary, some, like Australia, seem to regard the spill as an opportunity to attract more interest in their fields. Perhaps this will change as the BP spill continues to drag on. But for most oil-rich nations, some noise about evaluating spill responses notwithstanding, it's business as usual -- which means the typical headlong rush to development.
There is a company-specific backlash, of course -- BP is under the microscope, for example, in Brazil. And BP CEO Tony Hayward has been dispatched to Russia in the coming days to reassure President Dmitry Medvedev that the company isn't going to collapse. But these are exceptions. After the jump, a rundown of how petrocountries -- those on which the world relies for its oil -- are responding to the spill:
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Steve LeVine is the author of The Oil and the Glory and a longtime foreign correspondent.