The Oil Drum: Australia/New Zealand

It seems as though I have inhabited two different worlds in the past 24 hours. I went from the relatively small (500 folk) meeting in Sacramento where Peak Oil is viewed as imminent, to the halls of the Convention Center in Las Vegas, where the Quadrennial MinExpo is showcasing the latest machines to over 41,000 folk involved in the Mining Industry. It overflows that very large (600,000 sq. ft) building and extends out into the parking lot. Here, with an industry in considerable profit, the displays were large and much more optimistic than I have seen them in previous years. The two meetings were, however, joined by a common complaint that the human resource, the engineers and scientists needed by both communities, are in critically short supply.

Wandering the booths, with only one day to catch all the new and different products, I did come across a couple of items that are, I believe, worth a brief comment before I write a concluding post to wrap ASPO-USA 4. In that post, I will give some of my own interpretation of the conference.

Annual production of cement by country in billions of metric tons. Click to expand. Source: USGS 2006 report (PDF) and the USGS 2008 report (PDF).

Cement is mainly used to make concrete, and is sort of the "active ingredient" in concrete - it is combined with sand and gravel in roughly fixed proportions. So cement production can be considered a rough proxy for the total amount of construction going on in a country.

This post updates Stuart's post about this two years ago (and yes, it's still a graph that will blow you away!) with two more years of USGS cement data, 2006 and 2007. The growth in China, from 1 GT to 1.3 GT in two years is mindboggling, even India and Russia are interesting...and there's more to think about under the fold.

edited to add: As a couple of folks pointed out--I have interchanged "production" and "usage" in this post incorrectly--however, China's 2007 cement exports were only 33 million tons out of 1.3 billion tons produced. So, at least for China, production is a good proxy for demand/consumption. My apologies for the mistake.

Following my recent post on the energy situation in India, I received an e-mail from Sreenivas Ghatty, the founder and CEO of Tree Oils India. Sreenivas told me that I was correct that the jatropha situation in India has been overstated, and wanted to provide some facts on where jatropha stands. Sreenivas is involved in trying to establish a jatropha industry, and he wrote in part:

There are no large scale commercial plantations in India as of now. The plantation activity has commenced here and there during the last few years, but, it may take few more years before the commercial yields start. We have been focusing on research to improve yields and expect meaningful outcomes this year. Based on the results, we intend to expand plantation on our own and through contract farming in the next few years.

Jatropha is not panacea to feedstock problems. It has limitations and would fail under certain agro climatic conditions. There are other species such as Pongamia, Moringa, Madhuca and Neem which could perform well where Jatropha could fail. If right species and right plantation material are selected and the right agronomic practices are adopted, the results might be profitable, viable and sustainable to all the stakeholders.

As I traveled through India on a recent business trip, the topic of energy was constantly on my mind (as it is every time I travel). I found out some interesting things about jatropha, toured a sugarcane ethanol plant, found a wind farm in the middle of nowhere, and encountered a native ethanol skeptic. Here are my impressions.

A week or so ago I wrote about the power supply debate going on in New England, with the controversy over the wind farm to be sited in the waters off Cape Cod. In that post I commented on the fact that, in response to an energy shortage that had appeared in 2004, the area had ensured additional supplies of LNG, and had converted some power stations so that, instead of relying on natural gas, they could also burn oil. The advantage of oil in this particular case is that it is somewhat more easily stored and thus is accessible when the gas lines are not available.

However I skated around the issue as to what would happen if there were neither oil nor gas available. This is not, unfortunately, a theoretical exercise. Chris Skrebowski has projected a supply shortfall by 2012. Yet already in India power plants are being idled because they cannot get enough LNG. And as for the supplies of oil, the likelihood of us being past peak by 2012 is increasingly real. So, that being the case, where can one look for alternate fuel. As articles in the New York Times and in the Washington Post have noted, for most of the rest of the world the short-term answer would appear to be from coal.

This is a guest post by Glenn Morton, a geophysicist in the oil industry. For Kerr-McGee Oil and Gas Corp., Glenn served as Geophysical Mgr Gulf of Mexico, Geophysical Mgr for the North Sea, Dir. of Technology and as Exploration Director of China. Currently he is an independent consulting geophysicist, and you might know him as seismobob.

I have intentionally paraphrased this wonderful Christmas song because it has much to say about the future after peak oil which I am now ready to say has already happened. As energy declines, we will indeed go to our grandmother's house--one without electricity and running water, sewer or septic and deep, mechanically pumped water wells. At least that was MY grandmother's house. She lived on the Kansas prairies of the 1890s. In the 1960s I asked my grandmother what the greatest invention of her life had been. She said electricity because before they had lights, everyone went to bed shortly after sun down because it was simply too dark to do to much. There was no air conditioning, so the summers were very hot. In the winter, trips to the outhouse were cold (and brutally awakening if during the middle of the night). While she had wood where she lived, about 100 miles west of her home, people had to burn dung as is done in Tibet today. See the picture below of the dung plastered against the house. When one wants to cook, one retrieves a patty.

Without cheap energy, we go back to my grandmother's house or one quite like it...

Wall Street's ratings agencies are starting to abandon their efforts to hide the real market value of the debts that are ironically still marked as assets in the books of countless institutional investors. To say unpleasant surprises will be revealed would be a tragic understatement. Credit markets are tightening in anticipation, and spreads are set to widen dramatically.

Hedge funds and banks are heavily exposed to the derivatives market, and losses will be colossal and widespread. Increasingly, pension funds look to be the biggest losers of all. The key-word will be 'leverage' - cheap credit borrowed to make 'easy' profits, that will now lead to hard losses.

On the energy scene, Americans are concerned about rising costs, labour constraints and environmental issues in the Alberta oil sands. Combined with increasing Canadian domestic energy demand, this could reduce energy exports to the US just as it was looking to Canada to fill its looming energy supply gap.

Resource ownership and control in Canada continue to be hot issues at the national, provincial, and territorial levels. Alberta looks to carbon trading and Ontario will have to get through a hot summer with a reduced electricity supply.

S&P May Cut $12 Billion of Subprime Mortgage Bonds

Standard & Poor's said it may cut the credit ratings on $12 billion of bonds backed by subprime mortgages, prompting investors to dump the securities....

...."S&P's actions are going to force a lot more people to come to Jesus," said Christopher Whalen, an analyst at Institutional Risk Analytics in Hawthorne, California. "When a ratings agency puts a whole class on watch, it will force all the credit officers to get off their butts and reevaluate everything. This could be one of the triggers we've been waiting for." _{(emphasis added)}

S&P finally says subprime is mostly junk

S&P, one of the three main credit-rating agencies that served as enablers of the subprime-mortgage boom, announced Tuesday that it would lower its ratings on 612 bonds, a small portion of the mortgage-backed securities it had given its seal of approval to.

But the bigger news is that S&P isn't going along with the charade anymore. S&P said it would change its methodology for rating hundreds of billions of dollars in residential-mortgage-backed securities. And it would review its ratings on hundreds of billions of dollars in the more complex collateralized debt obligations based on those subprime loans.
A lot of debt will be downgraded to junk status. A lot of that debt will have to be sold at fire-sale prices. A lot of pension funds and hedge funds that once thrived on the high returns they could get from investing in subprime junk will now lose a lot of money. _{(emphasis added)}

Today, I wanted to bring to your attention the human cost of Cyclone Gonu on Oman. The area has been getting very little coverage, but from what I can tell, this was quite a tragedy. As newsbriefsOman is reporting:

49 people have been reported killed in the aftermath of Cyclone Gonu and 27 people are still missing, according to Oman News Agency. The Ministry of Information website cannot be reached at the time of writing. I have seen no published estimates of the cost of damage, but it is likely to be huge.

There are three sites that I can find that have any information about what you can do to help these people and/or raise awareness (and even those (that I can find as of today) do not have links to legitimate and/or accessible charities or philanthropy that anyone outside of the area can donate to--anyone have any ideas on this?):

* http://sleeplessinmuscat.blogspot.com/
* http://gonu.blogspot.com/ (created by the founder of Sleepless in Muscat--but there's nowhere in here to send help)
* http://www.newsbriefsoman.info/ (this one seems to be a news aggregator that existed prior to the storm from someone in Britain)

Please feel free to list other sites, ideas, news and information in the comment thread below.

These people, especially those we of in Oman, look to have suffered greatly from this storm. (We are also hearing that people living on the southern coast of Iran are also in bad shape, but I can't find a site, etc., or much news on them either).

There is nothing wrong with visiting these sites and giving them comfort and leaving them a "Salaam 'alaikum" (which means "peace be unto you"). If you are so inclined, we can certainly at least raise awareness and try to get these people some help.

As of noon EDT on 6/7, this is the Gonu post of record.

The final models from Chuck Watson of KAC/UCF are in and they are forecasting, based on their damage models, that:

* Qalhat (Sur) LNG terminal: 18 days down time
* Mina al Fahal oil terminal: 14 days down time

(NB: These final damage estimates decreased a bit from initial runs but have been close to these numbers all along--all assume US construction standards.)

Why did we spend so much time on this? As I said before, that answer begins with the fact that the world production of petroleum is plateauing around 85 mbbl/day, so any slight blip in supply or exporting could be quite noticeable on the world markets--as a sizeable portion of the world's petroleum exports go through the Gulf of Oman. This has not changed. Had Gonu remained a more powerful cyclone, because of the lack of supply available to the market I mention above, the scenario could have played out quite differently.

And even so, there are a lot of things we do not know yet. The storm still may have affected petroleum exports from Iran and the UAE for that matter--mainly because of shipping disruptions in the Straits of Hormuz and the Gulf of Oman, but there could also be some real effects on infrastructure and assets depending on storm surge, track and landfall--factors we are still learning about.

I am happy that the human and material cost of this storm has been much smaller than we expected to this point. I hope that people do not forget the people whose lives have been changed by this storm...and there are many in Oman and other countries who need our charitable help. I hope that the news continues to be better than we expected--but I still stand by my decision to cover this storm closely on The Oil Drum.

Under the fold (hit "there's more") are links to previous threads and links to all of the resources we used over the course of the coverage of Gonu. We would ask that you deposit new material in this comment thread.

New thread for Cyclone Gonu as of noon EDT, 6/7 can be found here...please put new material in the comment thread there.

Exclusive--Please credit The Oil Drum and Chuck Watson of KAC/UCF. KAC/UCF and Chuck Watson are forecasting, based on their damage models, that the Qalhat (Sur) LNG terminal will be out for 20-30 days and the Mina al Fahal oil terminal will be down for 10-20 days--all of this assuming they are built to US standards. (NB: These damage estimates have decreased a bit since the last model run...and assume US construction standards.)

All tips and resources (*and there are already many down there in earlier threads, let's replicate that here today in the third thread! Thank you!*) welcome in the comment thread below. If you have any insights, please email the editors box with the word GONU in the subject.

Last updated at 10pm EDT, 6/6. This still could be an important event--but we are in a slow news time right now regarding Oman and the area. If you have any insights, please let us know--email us or put them in the comment thread. We're digging on this too...

Here are links to our first Cyclone Gonu Thread (6/4) and our second thread on the same topic (6/5).

Please put all new resources and insights here as of 1am EDT 6/6, but make sure to check out the first two threads as well.

Why might Cyclone Gonu matter? Well, that answer begins with the fact that the world production of petroleum plateauing around 85 mbbl/day, so any slight blip in supply or exporting could be quite noticeable on the world markets--as a sizeable portion of the world's petroleum exports go through the Gulf of Oman.

Particularly, Oman also matters in this because it produces 743,000 bbl/day; Oman is also a net exporter, non-OPEC, whose production peaked earlier in the decade.

Of course, this storm also has the potential to affect petroleum exports from Iran and the UAE for that matter--mainly because of shipping disruptions in the Straits of Hormuz, but there could also be some real effects on infrastructure and assets depending on storm surge, track and landfall. There are also refining and other production assets in Southern Iran that could be affected depending on the strength of Gonu.

Also, click "there's more" below for more graphics, forecasts, and links, and there's much more from our readers in the comment thread as well...