Resource Investor: Peak Oil Passnotes: Let Me Tell You an Inventory

EXTRACT: Another pointer to the general climate is that one of the major projects that was due to come on stream, namely the giant LNG project run by Gazprom and Shell – Sakhalin 2 has also hit some apparent problems. The deputy head of Sakhalin 2 one David Greer has just resigned, purportedly about a ‘motivational’ e-mail he sent out to his workforce that was widely derided. But also possibly because of the fact that the deadline for Sakhalin 2 to lay pipelines – before the winter sets in and freezes the ground hard – is going to be missed. The e-mail, copied from General Patton and ridiculed in the British press, may be a smokescreen for bigger problems.

THE ARTICLE

By Edward Tapamor
22 Jun 2007 at 02:13 PM GMT-04:00

PARIS (ResourceInvestor.com) — The prospects for oil prices rising have been knocked this week, so we are told. U.S. inventories are at nine-year highs, and the cost of a barrel of Brent crude fell back down below $70 this week, albeit by only a few cents.

But this is not the real story. Inventories in the United States are high because the refinery complex in the country is in such a weak state. Due to bits falling off, explosions, gas leaks and the odd death – another one at BP’s Texas City refinery recently – the U.S. cannot process the crude that is arriving on its shores.
 
This is the reason crude inventories have been building. The imports are still coming ashore, but the crude remains unused. There is also the fact that oil stored in areas nearby to the U.S. – either on offshore storage vessels or possibly in some domains such as Trinidad – has arrived in the U.S. due to the high costs of keeping it stored. So do not fret over the recent headlines – the situation is still tight.

What is more sobering is yet another year, or in this case half year, in which production from many countries has been slipping. Non-OPEC output has fallen once again, for the fourth successive year. We should by now learn not to trust the ever-optimistic forecasts from organisations such as the International Energy Agency (IEA).

They have constantly taken the industry at its word, as if nothing would ever go wrong. There would be no project slippages, no cost overruns, no leaks or sub station occupations.

There is about a 600,000 barrel per day shortfall from countries like Norway (unplanned maintenance) and the U.S. (over optimism) and of course good old Cantarell in Mexico. This is a year-on-year fall. Mexico is losing oil faster than George W. Bush is losing popularity, and that takes some doing.

There has long been talk that a mixture of air and water is fast approaching up the various spouts at the giant Cantarell field, and that appears to be the case. When revisions are taken into account,  Mexicans could be losing something like 200,000 barrels per day over 2007. Not a bad reduction for one country with just one major field.

Another pointer to the general climate is that one of the major projects that was due to come on stream, namely the giant LNG project run by Gazprom and Shell – Sakhalin 2 has also hit some apparent problems. The deputy head of Sakhalin 2 one David Greer has just resigned, purportedly about a ‘motivational’ e-mail he sent out to his workforce that was widely derided. But also possibly because of the fact that the deadline for Sakhalin 2 to lay pipelines – before the winter sets in and freezes the ground hard – is going to be missed. The e-mail, copied from General Patton and ridiculed in the British press, may be a smokescreen for bigger problems.

The oil industry, like many ordinary people, has managed to survive the inflationary effects of its own price rises for some time. But now the high cost of energy is feeding through into every asset class. It is hitting the attempts by oil companies, both national and international, to increase output by hiking costs and slashing profitability.

The result is that record prices may be about to arrive, like those stored barrels of crude offshore the U.S. Inventories will not save us now.

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