ANYBODY HAVE AN EXTRA 400,000 BARRELS?

KCI Communications (Email) | 8/9/2006 | Neil George

[colrpfournier]

OK, BP Plc (NYSE: BP) isn't so green--especially for its shareholders. Despite the millions it's spent on full-page advertisements in newspapers worldwide and countless television spots plugging a focus on making the world a cleaner, energized place, the company has been doing the exact opposite behind the scenes.

Oil spills and refinery explosions during the past couple years have become almost the norm for BP. And now we have another big spill that's going to cost the market some 400,000 barrels of crude every day for weeks or even months.

BP is one of three major oil producers that operate in the Prudhoe Bay oil fields in Alaska. Out of the 1,100 miles of pipe that transport crude on the North Slope, currently some 16 to 22 miles are leaking and are in need of reconstruction.

The resulting shutdown of a section of the three-pipe network--known as Prudhoe East, Prudhoe West and Lisburne--will mean a pullback in local crude supplies.

This crude represents a big chunk of the US daily crude production that currently amounts to around 8 million barrels. And with BP's pipe problem hitting the news, it's not that far-fetched to think that other pipes feeding down the Trans-Alaska Pipeline System's 800 miles of pipe could face similar problems and leaks, which will call for further shutdowns or interruptions in flows of crude.

Forget for a moment that there's blame to be passed around, as well as some liability and legal troubles. The key here is that the refineries in the western US have only a couple weeks of reserves; the current shutdown in BP's pipes alone is a huge problem for the markets to deal with on top of the other issues of the moment.

This means that yet again we need to focus on other alternative production sources for oil if we're going to continue to expand production--if only to help offset some of the inescapable interruptions that will continue to hit us now and again.

Recently, oil shale has also garnered significant attention among investors, most likely because there's a tremendous amount of oil shale in the western US. Several sensational pieces lately have detailed how shale might solve America's energy problems. The truth is that oil shale may be promising, but isn't the yellow brick road to US energy independence.

Oil sands are a combination of sand (and dirt) mixed with water and a form of heavy oil known as bitumen. Oil shale is a bit different: It's rock (and sand) mixed with heavy oil and very little water. Oil sands are heated to remove the bitumen from the sands, an energy-intensive process that's economical (in fact, highly profitable) at current crude prices. The presence of water in the bitumen aids significantly in this process.

But because there's little water in shale, it's much more difficult to remove the oil from the rock. Specifically, it takes significantly more energy (heat) to separate oil from shale and is far more expensive.

Moreover, shale isn't a new resource or something we just discovered. Back in the late 1970s and early '80s, ExxonMobil (NYSE: XOM)--among other big oils--was active in trying to develop shale. In fact, it was working on a $5 billion project in Colorado's Green River Basin to produce shale. The company canceled the project and abandoned its shale-production efforts virtually overnight in 1982 because it was too expensive to separate the oil from shale. And even in the late 19th century, there was talk of producing America's oil shale reserves.

There are some new processes that may aid the production of shale. Some involve superheating the shale underground using special equipment and producing the shale through wells. This is similar to in-situ mining of oil sands, but requires more heat and power. The key players in the US shale market right now are once again big integrated producers that have staked out large claims in Colorado and have already spent considerable sums on new technologies for shale development.

US oil shale reserves are vast by many accounts. But much of that shale isn't recoverable economically at anything close to current oil prices. And even using the most-advanced technology, it's not possible to produce every ounce of shale oil that's in the ground.

Huge reserves don't readily translate into giant production volume or rapid growth in production. In the case of shale, it takes tremendous energy to heat the rock; this energy has to be supplied by burning natural gas or producing power from nuclear energy or coal. The infrastructure to produce and supply energy of sufficient quantity isn't present in the region--or anywhere else in the US--at this time.

Bottom line: Production of oil shale will grow, but not enough to offset declines in conventional US crude oil production. Developing shale reserves will require continued strong pricing for crude oil. The key plays in shale will be a handful of larger producers with highly advanced shale-production technologies. And in the meantime, shareholders would do better to focus on many of the other less-costly and less environmentally-challenging sources for crude.

[colrpfournier]

The key here is that the refineries in the western US have only a couple weeks of reserves...

Dwindling sources, lack of refineries...we're in trouble and while we're passing out blame make certain a large chunk of it drops on the heads of our legislators in Washington and in the statehouses. (Especially those in California.)

[Michael Goldsberry]

1. We're doomed
2. Bush's fault

[SpaceBar]

Al Gore did before he sold it off to Occidental Petroleum.

[coconutt2000]

I wonder how many environmentalists have worked their way into middle management in BP.

A little carefully placed incompetence here and there can wreak havoc years later.

[.cnI redruM]

I wonder which part of the pipeline Al Quaida successfully sabotaged.

[backhoe]

I have covered, ( Or, as Seamole calls it...-backhoe's pseudoblog--...-more- ) pseudo-blogged, this issue for years-- My tongue-in-cheek collection of energy-related links:

Sticker Shock-$3 a gallon gas? Click the picture:

And kindly note, and note well-- the first reply to this post ( when gas was $1.45 a gallon ) was snarky... so, who's laughing now?

Vest-Pocket Summary:

1- drill for gas and oil like crazy- onshore, offshore, and in Alaska
2- go nuclear for power
3- convert stationary plants to clean coal technology or Next-Gen Nuclear
4- slash taxes and regulations like crazy

Our consumer-based economy is driven by and dependent upon readily-available, reliable energy-- choke that off, and we'll all be back to using one rotary dial phone in the dining room, watching one TV in the living room, and driving one car per family-- probably a Hudson Hornet or a Nash Metropolitan...

We need to

1) end the nonsensical ban on offshore drilling off California and Florida--read and weep:
Castro Plans to Drill 45 Miles from US Shores, But We Can't

2) build a lot of next-generation nuclear power plants, not just for electricity, but for any process requiring heat, power, or steam.
And if we replaced our existing nuclear plants with this one... there would be significant benefits.

3) end Jimmy Carter's idiotic ban on recycling nuclear waste, and reprocess the stuff rather than fighting over where to bury it. Europe has done this for decades.-- what to do with spent nuclear fuel? Answer here: http://www.freerepublic.com/focus/f-news/1468321/posts?page=50#50  Hattip: Mike (former Navy Nuclear Engineer)

4) use the 300-500 years worth of coal we have on our own land, using the new clean-coal technology.
-Clean Coal Centre--

5) and finally, there's nothing wrong with conservation, we should all practice it- but you can't conserve your way out of a shortage. You have to produce more. Nor is there anything wrong with "alternative" energy sources- except they don't supply the vast ( not to mention readily-available and affordable ) amounts of power we need at a price competitive to more conventional sources.

Then again, there is this to ponder:

Energy from the Restless Sea

Energy From the Gulf Stream
http://www.energy.gatech.edu/presentations/mhoover.pdf

More:
Tidal energy farm proposed for Vineyard Sound

We do need to get serious about this before we get strangled by a bunch of petty thieves and dictators who don't like us much.

[HAL9000]

I'm wondering why this pipeline has no redundancy? Instead of one big pipe, why not two or more pipes? It would be more expensive, but only incrementally so. Multiple pipes would allow scheduled maintenance and repairs without shutting down everything.

[colrpfournier]

1- drill for gas and oil like crazy- onshore, offshore, and in Alaska

2- go nuclear for power

3- convert stationary plants to clean coal technology or Next-Gen Nuclear

4- slash taxes and regulations like crazy

The above is what HAS to be done; however, we just stand by and watch our congress posture and listen to them emote.

[colrpfournier]

Stop it!

You're making too much sense!

[nascarnation]

I'm already p*ssed at BP for their price fixing scheme that screwed me on propane prices for home heating.
Now these idiots are "surprised" that a 30 yr old pipeline is corroding? With all the technology that exists today to monitor this stuff?
Companies like this hurt the image of capitalism.

[flynmudd]

US oil reserves has been opened because of this situation. We can also get the 400,000 from our other resources Saudi Arabia et al. This is a temporary fix for a long-term problem, but until the environazis stop their warfare against drilling elsewhere, they have us by the short-hairs.

[colrpfournier]

Remember the American company who used to own those sources and pipelines?

[nascarnation]

good old Standard Oil........

[backhoe]

The above is what HAS to be done; however, we just stand by and watch our congress posture and listen to them emote.

And we should have started in 1973... you can't say we were not warned by the Arab oil embargo.

[JLAGRAYFOX]

The Democrat Party is totally responsible for this oil mess. The morons would allow no drilling. Now, China is about to drill offshore of Cuba for tons of oil. This Democrat Party needs to be totally destroyed at the voting booth. They will kill the American economy, and then kill the American nation with their love and adoration for Muslim terrorists. Be afraid America, be very afraid. The enemy is right here in the good old USA!!! And....it is the Democrat Party!!!

[Valin]

I'm going to hide under my bad.

[DannyTN]

"A little carefully placed incompetence here and there can wreak havoc years later."

This isn't the type of mistake that gets made by an environmentalist. This is the type of mistake that gets made routinely in companies because of a focus on short term results.

Some manager figured out he could come in under budget by not running the pig down the pipes every so often. He probably collected a bonus for doing so. And there is a good chance that such techniques got him promoted before stuff hit the fan. He's probably now in senior management and blaming some middle manager as a scapegoat.

I've seen stuff like this many times in business.

[RSmithOpt]

Many may disagree with me, but I think this Prudhoe Bay thing is a sham....and a f'n big one. Though I'm not a petroleum engineer, but, seems to me that laying 16 miles of brand new replacement pipeline right beside the 'corroded one' should have not been a big issue. This would have (still could) allowed for a 1 week tie-in from old to new pipe with probably no flow interruption.

The engineers on the North Slope knew 5 years ago that the line was going to need replacing and laying a duplicate beside the existing appears not to have been considered based upon anticipation of increased demand, increase in oil prices and eventually record profits. The same can be said for the Trans-Alaska pipeline. Does anyone else smell a RAT???

I still think the GOP has been in power in Congress and the White House more than long enough to have initiated / passed / implemented legislation to allow for 2 or 3 new refineries and more exploration.

It's not the shell game (I like the pun) of 'market pressures and demands' or government denial of the before-mentioned as some would like to the public to be convinced of; it is about record profits and improving the bottom line. And don't think that the appeasement of OPEC since April 2003 hasn't had a major play in all this run-up in the price of gas and oil.

Believe what you want, but greed is what has driven the prices up with speculation 'cause the very rich need a place to make money with their billions. The housing industry has been played out now for the short term as well as gold. Next? Food, or home insurance or telecoms, maybe??

[OldFriend]

About all that clean burning coal that was locked up in Utah....compliments of slick willie and robert redford!

[norraad]

..BP management gets promoted for screwing up the company.

BP is the worst in this regard, but the others are close behind.

I wish I knew a cure for this type of corporate cancer.