In further edited excerpts from the original article* Marshall Adkins (www.raymondjames.com) goes on to say:

Ranked by their likely impact on the oil market (from least to greatest), they are as follows:
1. Iran cuts off oil exports and launches a wave of terrorism

It’s safe to say that Iran’s oil exports (currently about 2 MMbpd) will be immediately halted in the event of war. Even without a deliberate shutdown by Iran, pipelines are liable to be damaged by bombing, and tankers would obviously not risk sailing into a war zone. . .Iranian-backed militias are ready to attack U.S. forces in Iraq and perhaps other Arab countries. Iran would also utilize Hezbollah and Hamas to attack Israel directly. Terrorist attacks of this kind would not physically disrupt oil supply, but they carry the risk of the conflict escalating, thus sharply widening the geopolitical risk premium in oil prices.

2. Iran mines the Strait of Hormuz

The Strait of Hormuz, the sole waterway out of the Persian Gulf, is just 45 kilometers wide and is the tanker route for not only Iran but also Iraq, Saudi Arabia, Qatar, and the United Arab Emirates. With two shipping lanes just 3.2 kilometers across each, it would be quite simple for Iran to place hundreds of mines across the route, effectively bringing any shipments to a halt. This represents an immediate supply loss of roughly 15 MMbpd.

3. Iran destroys oil infrastructure around the Gulf

Remember the billowing smoke coming from Kuwaiti oilfields that Saddam Hussein’s army set on fire while retreating in 1991? Now picture this same scenario playing out again, except in every Arab country near the Persian Gulf. If you want to contemplate the nightmare scenario following airstrikes against Iran, this is it. . .Iran could retaliate by attacking producing fields, pipelines, shipping terminals (for example, Ras Tanura in Saudi Arabia), and other petroleum infrastructure across the region. The damage from such attacks could take years to repair. . .Some damage could well be permanent. In any case, the potential supply loss would be astronomical.

There are basically two roads ahead for the Iranian nuclear crisis.

1. The chances that Iran will travel down the road to a diplomatic solution are growing slimmer by the day, and last year’s revelations about the secret enrichment plant underscore this point.

2. The second road, the one Iran is currently on, leads to higher oil prices — potentially much higher. Because even meaningful sanctions are unlikely to curb the regime’s nuclear ambitions, we now believe that there is at least a 50% probability of military action (most likely unilateral action by Israel) against Iranian nuclear sites over the next 12 months.

For now the oil market is largely ignoring Iran but if war becomes inevitable then oil prices will go really high, really fast.

*http://seekingalpha.com/instablog/378432-bill-paul/30265-raymond-james-says-oil-markets-ignoring-big-iranian-war-risk

Editor’s Note:
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In further edited excerpts from the original article*/report** Terry Macalister (www.guardian.co.uk) goes on to say:

“While it is difficult to predict precisely what economic, political, and strategic effects such a shortfall might produce, it surely would reduce the prospects for growth in both the developing and developed worlds. Such an economic slowdown would exacerbate other unresolved tensions, push fragile and failing states further down the path toward collapse, and perhaps have serious economic impact on both China and India,” says the report.

The US military says its views cannot be taken as US government policy but admits they are meant to provide the Joint Forces with “an intellectual foundation upon which we will construct the concept to guide out future force developments.”

Glen Sweetnam, main oil adviser to the Obama administration, confirmed the US military’s contention stating in a recent interview with French newspaper, Le Monde, that “a chance exists that we may experience a decline” of world liquid fuels production between 2011 and 2015 if the investment was not forthcoming.

These warnings are the latest in a series from around the world that has turned peak oil – the moment when demand exceeds supply – from a distant threat to a more immediate risk.

Future fuel supplies are of acute importance to the US army because it is believed to be the biggest single user of petrol in the world. BP chief executive, Tony Hayward, said recently that there was little chance of crude from the carbon-heavy Canadian tar sands being banned in America because the US military like to have local supplies rather than rely on the politically unstable Middle East.

The Joint Operating Environment report paints a bleak picture of what can happen on occasions when there is serious economic upheaval. “One should not forget that the Great Depression spawned a number of totalitarian regimes that sought economic prosperity for their nations by ruthless conquest,” it points out.

*http://www.guardian.co.uk/business/2010/apr/11/peak-oil-production-supply
**http://www.jfcom.mil/newslink/storyarchive/2010/JOE_2010_o.pdf (Note pages 24-29 of 76)

Editor’s Note:
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
- Permission to reprint in whole or in part is gladly granted, provided full credit is given.
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In further edited excerpts from the original article* Chris Nelder (www.EnergyAndCapital.com) goes on to say:

UK Task Force on Peak Oil: Shortages by 2015
The first bombshell was actually dropped on February 10, when the UK Industry Task Force on Peak Oil and Energy Security issued a report called “The Oil Crunch: A wake-up call for the UK economy.” It was a stern warning that “oil shortages, insecurity of supply and price volatility will destabilise economic, political, and social activity potentially by 2015.” The task force comprised top UK executives and energy experts and the report was personally endorsed by Sir Richard Branson.

The British government, including energy minister Lord Hunt, responded by staging a closed-door summit meeting with the taskforce on March 22. As the UK’s Guardian reported, the government intended to develop an action plan to contend with a near-term peak, and to “calm rising fears over peak oil.”

Veteran peak oil analyst and taskforce member Jeremy Leggett explained: “Government has gone from the BP position — ’40 years of supply left, the price mechanism works, no need to worry’ — to ‘crikey’.” He urged the assembly to properly assess the risks of peak oil, and to immediately begin preparing for the end of globalization and an era of oil shortages in the West.

According to reports from attendees, the summit yielded some important conclusions:
1. Peak oil is either here, or close enough.
2. Prices will have to go higher as demand outstrips supply.
3. Governments will be forced to intervene to maintain critical levels of oil supply, and limit volatility.
4. Rationing measures may be unavoidable.
5. Electrification of transport must be pursued in order to reduce demand.
6. Communities will need to work quickly to reorganize around walking instead of driving, producing food and energy locally instead of importing, and generally try to reduce their need for oil.

The notion that peak oil will mean the end of economic growth, however, apparently fell on deaf ears. Still, the very fact that the government has engaged with the peak oil community and formed a parliamentary group to study the issue offers a sliver of hope that, at least in the UK, we’ll have some measure of consciousness about the issue and an idea of what to do about it as we drive off the peak oil cliff.

Kuwait Report: Peak by 2014
The next bombshell were the findings of a report that surfaced around March 12 by three authors from the College of Engineering and Petroleum at Kuwait University. They applied advanced mathematics to reserve and production data for the top 47 oil producing countries using a multi-cycle Hubbert model which demonstrated a much better fit to historical data than single-cycle Hubbert Curve analyses. What made this report interesting was that first, it was from Kuwait; and second, it brought a new level of mathematical rigor to the study.

The model estimates that:
1. the world’s ultimate crude oil production will peak in 2014 around 79 mbpd.
2. the annual depletion rate of world reserves was estimated to be around 2.1%.
3. non-OPEC production peaked in 2006 at 39.6 mbpd.
4. OPEC production will peak in 2026 at 53 mbpd with the majority of the increase coming from Iraq, Kuwait, and the United Arab Emirates.
5. OPEC production is expected to decline to 29 mbpd by 2050.

ConocoPhillips: Pursuing New Oil Reserves Not Worth While
On March 25, ConocoPhillips (COP) CEO Jim Mulva admitted that pursuing new oil reserves just doesn’t pay. The remaining resources have become too marginal and too expensive, and the competition for them has become too intense. As such, Conoco has decided to sell $10 billion worth of its assets over the next two years, all of them in the marginal category, and concentrate on producing its core assets using the proceeds to buy back its stock, reduce its debt, and raise dividends — just as rival ExxonMobil (XOM) has been doing for the last five years or so.

Oxford Report: Reserves Exaggerated by One Third
On March 22, another bombshell exploded in the press as former UK chief scientist David King and researchers from Oxford University released a paper claiming that the world’s oil reserves had been “exaggerated by up to a third,” principally by OPEC.

Specifically, the report maintains that:
1. conventional oil reserves stand at just 850-900 billion barrels — not the 1,150-1,350 billion barrels that are officially claimed by oil producers and accepted by the politically influenced IEA.
2. demand could outstrip supply by 2014-2015.
3. the belief that alternative fuels such as biofuels could mitigate oil supply shortages and eventually replace fossil fuels is a pie in the sky. Instead of relying on those silver bullet solutions, we have to make better use of the remaining resources by improving efficiency.

The future of fuel will indeed be all about efficiency and alternative energy. This process is well underway. Hundreds of billions will be made as a select group of companies slowly eradicate the rampant waste in our electricity distribution system, which has been estimated at upwards of 60% by analysts.

*http://seekingalpha.com/article/196876-officials-wake-up-to-peak-oil?source=email (Visit Energy and Capital to sign up for their free e-letter.)

Editor’s Note:
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
- Permission to reprint in whole or in part is gladly granted, provided full credit is given.
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See larger image Profit from the Peak: The End of Oil and the Greatest Investment Event of the Century (Angel Series) (Hardcover) By (author) Brian Hicks, Chris Nelder List Price: $27.95 USD New From: $3.19 In Stock Used from: $3.18 In Stock

In further edited excerpts from a speech* delivered at the Money and Oil Conference in London in 2009, John Hess (with Joseph Dancy**), Chairman of Hess Corp., went on to say:***

“In the interest of creating good energy policy, let us establish the facts:

Fact No. 1: Hydrocarbons
85% of the world’s energy comes from hydrocarbons: 35% oil, 30% coal and 20% natural gas. While renewable energy will be needed and should be encouraged to meet future energy demand and contribute to reducing our carbon footprint, hydrocarbons will fuel the world’s economy for decades to come – and oil will continue to be at the forefront. Renewable energy does not have the scale, timeframe or economics to materially change this outcome.

Fact No. 2: Oil demand
Once the economy recovers, it is projected to increase by 1 million barrels per day each year. A key driver is world population, estimated to grow from 6.8 billion today to 9 billion by 2050, largely in the developing countries of the world. With a corresponding increase in living standards, hydrocarbon energy, led by oil, will be needed to support economic development.

The other driver of demand growth is transportation, which accounts for 50% of oil consumption. An interesting statistic to keep in mind: The U.S. has 1000 cars for every 1000 people; China has 10 cars per 1000. As China closes that gap, growth in oil demand will be relentless.

Fact. No. 3: Oil supply
We are not running out of oil. We have produced 1 trillion barrels so far and estimates are that we have about 3 trillion barrels remaining to recover – 2 trillion barrels of conventional resources and 1 trillion barrels unconventional, such as tar sands and heavy oil. The issue is not our endowment of oil resources. It is the world’s production capacity. Resource additions from exploration last replaced annual production in 1987. Part of the challenge going forward is that the easiest oil to access has been discovered. Costs are increasing for new barrels as producers explore frontiers such as the deepwater Gulf of Mexico and Brazil, where wells can be drilled in . . .

Oil field declines are estimated at more than 5 percent per year. That means we have to add at least 4 million barrels per day each year just to keep production flat. When you add this number to the 1 million barrels per day required to meet demand growth, we need an extra 5 million barrels per day each year going forward. . .

Given these facts, we need to communicate the following message:

(1) Hydrocarbons are here to stay.

(2) Oil demand growth will be unrelenting, increasing 1 million barrels per day each year.

(3) We are not running out of oil but growth of production capacity over the next several years will fall short of the incremental 5 million barrels per day each year that we will need to meet demand.

(4) We will ultimately be at risk of supply rationing demand through skyrocketing prices that will threaten economic stability and prosperity. If we do not act now, we will have a devastating oil crisis in the next 5-to-10 years.”

Joseph Dancy, Adjunct Professor, SMU School of Law, agrees** with Hess’ premise stating that “The trends in long term supply and long term demand growth in emerging economies raise concerns about the pricing and availability of sufficient crude oil supplies in the future. Merrill Lynch*** have raised their 2010 crude oil price forecast to $85 per barrel from $75 a barrel. They see global growth above 4% versus a decline in economic growth in 2009. Merrill expects demand for crude oil to increase by 2 million barrels per day to roughly 86.9 million barrels per day.

Energy analyst Neil McMahon of Sanford Bernstein Co. forecasts $100 a barrel prices within the next 18 months, then generally moving up from there. From an investment standpoint they recommend finding firms that are leveraged to oil prices, can grow production, and are flexible enough to find new fields.

The profile of firms that can meet the Sanford Bernstein benchmarks mean that they are mostly recommending small producers, with high beta, which should outperform in this environment for investors looking for growth. Of course, investor strategy depends on an investors risk tolerance and objectives. Larger energy firms may perform well but smaller firms should perform much better. Many larger firms are having difficulties increasing production.

Global consumption and production has been roughly 85-87 million barrels per day until the recent recession—when in fell back to roughly the 84 million barrel per day level. Goldman Sachs also raised their forecast recently for reasons noted above. The International Energy Agency have increased global demand estimates to 86.2 million barrels per day in 2010, up from estimated average demand in 2009 of 84.9 million barrels per day.

The long term trends in the energy sector favor the bulls.”

*http://www.napipelines.com/news/2009/articles/11nov/5.html
**http://www.financialsense.com/fsu/editorials/dancy/2009/1201.html
***http://www.reuters.com/article/idUSTRE5AC1QH20091113

Editor’s Note:
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
- Permission to reprint in whole or in part is gladly granted, provided full credit is given.
- Sign up to receive every article posted via Twitter, Facebook, RSS feed or our Weekly Newsletter.
- Submit a comment. Share your views on the subject with all our readers.
- Buy the book below from Amazon. It’s pertinent to this article and inexpensive too.

See larger image Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization (Hardcover) By (author) Jeff Rubin List Price: $26.00 USD New From: $11.97 In Stock Used from: $7.23 In Stock Release date May 19, 2009.

In further edited excerpts from the original article* Cam Hui (www.qwestfunds.com) goes on to say:

New Discoveries Insufficient to Avoid Peak Oil
To illustrate the concept of flows versus reserves, imagine that you had $1 billion in the bank but you could only take out $1 a year. You have lots of wealth (reserves), but you are short on usable cash (or extractive) flows. The International Energy Agency’s (EIA) 2008 outlook estimates that the world needs to replace production equivalent to six Saudi Arabias by 2030. Even if we were to assume that oil consumption stays flat to 2030, we would then need to replace four Saudi Arabias of production (instead of six). While these new discoveries do help alleviate future potential shortages, they are, to excuse the pun, a drop in the bucket in efforts to offset future production declines.

The Theory Behind Peak Oil
The theory behind what is commonly known as “Peak Oil” is that global oil production capacity cannot meet rising global demand. In fact, production capacity is expected to peak and begin to fall in the near future. When that happens, oil shortages will develop. The world is not running out of oil, but running into the Malthusian limits of extraction and production capacity.

An important assumption behind Peak Oil is that we are about to use up half of all of the extractable oil that there is in the ground. Once we hit that peak, production starts to fall. Meanwhile, world demand continues to rise, driven by industrialization and rising affluence in the developing world. When rising demand and falling supply meet, you get an energy shortage and rising prices. The realization that there are limits to production growth would highlight to investors the scarcity of oil as an energy source, as well as create constraints on world growth.

A Profile of Falling Oil Production
You turn on the taps and get a big ramp up in production, which is followed by a plateau and eventually by a slow decline until it is no longer profitable to keep the field running. What many analysts have done is aggregate the data for all oil fields around the world and create a global cumulative oil production profile. The depletion rates come to 4-6% when you come to the down slope, and the figures are corroborated by various sources like the IEA. That means a minimum of three million barrels of daily output is disappearing a year due to old age. In the meantime, announced finds that are due to come on stream can’t keep pace with lost production.

Putting Three Million Barrels a Day into Perspective
To understand what three million barrels a day really mean, the oil industry has gotten very excited about big finds such as Atlantis (Gulf of Mexico) and Plutonio (Angola). However such fields are only expected to produce 220,000-240,000 barrels per day. For another perspective, consider that the mammoth Ghawar field in Saudi Arabia produces 5 million barrels per day. We need six Saudi Arabias… Even if we assumed flat demand growth to 2030, we need to replace production equivalent to four Saudi Arabias.

When global oil production peaks or when the investing public gets a whiff of the prospect of a production peak, the markets will panic and energy prices will skyrocket. So for investors the question is “when is the peak?” The IEA estimates that the peak would be in 2020 under certain optimistic assumptions. Fatih Birol, chief economist of the IEA, stated a year ago:

“In terms of non-Opec we are expecting that in three, four years’ time the production of conventional oil will come to a plateau, and start to decline. In terms of the global picture, assuming that Opec will invest in a timely manner, global conventional oil can still continue, but we still expect that it will come around 2020 to a plateau as well, which is, of course, not good news from a global oil-supply point of view.”

Wow! Non-Opec production is forecast to peak in three to four years time (2012). Peak in world production by 2020, but only if Opec (massively) invests in its infrastructure in a timely manner. The world is currently gripped by a global recession. With oil well off its $147 high and prices volatile, who is willing to invest in significant new capacity under these conditions? The answer also depends on your definition of “oil”. Commonly cited statistics lump oil output with other liquids (condensates and natural gas liquids). As Qwest Investment Management president Maurice Levesque pointed out we may have seen the peak in crude oil production in 2005.

The Politics of Oil
The IEA forecast is dependent on a lot of things going right.
1. there has to be enough large discoveries and sufficient capital invested to raise output.
2. that demand and supply are market driven and supply is not affected by political considerations.

In reference to the aforementioned, if and when the public believes that a global production peak is around the corner, there will be tremendous pressures for resource nationalism. Oil exporting countries will be tempted to enact legislation “to keep the oil for ourselves”, or to use oil as a weapon. The blogger Fabius Maximus calls this process “political peaking”. Remember Canada’s National Energy Program in the early 1980s? That was an example of political peaking, albeit a few decades early.

Today, we are seeing another example of political peaking and resource nationalism in Brazil, where legislation is being enacted to “include additional measures to give Petrobras the upper hand in future rounds of bidding for the deep-sea deposits”. For an example of the use of energy for geopolitical gain, consider what Russia did with gas supplies to the Ukraine and Europe in January 2006. The dispute flared up again in January 2009. Both incidents not only affected natural gas supplies to the Ukraine, but curtailed supplies to the EU as well. Now think about what Russia might do if there were widespread concerns about Peak Oil. Moving to the Middle East, what might a new government’s policy be should the House of Saud fall?

Industrialization = More Energy Demand
Energy demand is being driven inexorably higher by growth in the developing world. As countries industrialize and become more affluent, higher living standards are contributing to increased energy consumption. In addition, high energy consumer appliances have become cheaper and more readily available. Many of the developed world’s lifestyle advantages are now within reach of more and more people in the developing world.

The Energy Information Administration (EIA) of the US Department of Energy’s 2009 outlook shows that most of the demand increase is coming from non-OECD (developing) countries. In fact, 63% of the projected demand increase is coming from the BRIC (Brazil, Russia, India and China) countries. Most of the remaining demand growth is coming from other non-OECD, or developing, countries.

What About Alternative Energy?
The Obama Administration has made it clear it wants to encourage the development of alternative and renewable energy. Will a migration to alternative energy be able to save us from impending energy shortages? Frankly, you need oil to get from A to B. There aren’t many good alternatives to petroleum based fuels for transportation. The last time I looked there weren’t any solar or wind-powered cars, electric ships or nuclear airplanes in production or on the drawing board.

Adoption times for new technologies are also an issue. Robert Hirsch’s best case analysis of how long a Peak Oil mitigation program might take finds that even after a 20-year “crash program” an aggregate output increase of about 35 million barrels of oil equivalent a day. That figure is roughly equal to the production of four Saudi Arabias, which would be not enough to alleviate shortages in the IEA’s forecast to 2030.

What About all the Big Discoveries?
There has been a flurry of large oil finds lately. Won’t they change the outlook? BP announced a “giant” discovery at its Gulf of Mexico Tiber field. Iran also announced some large finds over the summer. These headlines are a ray of sunshine after years of gloom about diminishing reserves. To understand the impact of the recent discoveries, let’s go beyond the headlines and look at the numbers.

Analyzing BP’s Gulf of Mexico Discovery
BP did not release an estimate of the size of the field, but major integrated companies do not use the term “giant discovery” lightly. It is said that BP hopes that Tiber will be on par with its crown jewel, the Thunder Horse development. Thunder Horse produces about 300,000 barrels of oil equivalent per day, which is about one-half of Alaska’s North Slope daily output. Even after a 20-year “crash program” to mitigate Peak Oil, Hirsch projects an aggregate increase equivalent to about four Saudi Arabias, which would not be enough to alleviate shortages in the IEA’s base case scenario forecast to 2030.

Iran: Technology, Capital and Politics
The Iranian finds are problematical in other ways. While the new discoveries affirm Iran’s position as a major oil supplier for decades to come, its infrastructure is aging, its technology lagging and the country has demonstrated a suspicion of foreign investors in its petroleum industry. Consequently, the country’s oil production capacity has remained flat despite a number of new discoveries in the past decade. The Iranian oil ministry spends about $3 billion a year just to maintain
production but they are currently having problems sustaining their current output because of a lack of technology. Given the size of the projects, significant capital and technology are needed to exploit the new discoveries. Without foreign involvement, production increases are highly unlikely.

Then there is the geopolitical dimension to development. Iran has yet to find an investor for its giant Azadegan field, which contains an astounding 26 billion barrels of oil equivalent. During the summer, a consortium of Japanese companies backed off a $2 billion contract with the Iranian oil ministry under US pressure. Iran’s infrastructure is aging and the country can’t get the capital to upgrade its technology. Iran’s oil production capacity has remained flat despite new discoveries in the past decade.

Peak Oil = Peak in Flows
There are several points to keep in mind about threat posed by Peak Oil:

 It’s about how much you can take out (flows), not how much you have (reserves); and the world is running short of flows.

 The IEA forecasts that the world needs to replace production equal to six Saudi Arabias by 2030. While these new discoveries are a welcome respite from the threat of an imminent collapse in oil production, these finds are not game-changers in big picture terms.

Today, the world is gripped by the Great Recession, which serves as a temporary reprieve as it has the effect of dampening demand growth. Global demand should begin its inexorable rise again as soon as economic recovery takes hold.

A century ago the world migrated from coal to petroleum as an energy source. Hopefully it can smoothly transition to new energy sources in a way that does not significantly disrupt the global economy. I expect that the transition period to be extremely bumpy.

The imbalance between oil demand and supply is likely to result in a decade long upward trajectory in energy prices, marked by volatility. The world is going to be running short of oil production in the not too distant future and these new discoveries don’t change that reality.

*http://www.qwestfunds.com/publications/newsletters_pdf/newsletter_october_2009.pdf

Editor’s Note:
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
- Permission to reprint in whole or in part is gladly granted, provided full credit is given.
- Sign up to receive every article posted via Twitter, Facebook, RSS feed or our Weekly Newsletter.
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See larger image The Great Waves of Change: Navigating the Difficult Times Ahead (Paperback) By (author) Marshall Vian Summers List Price: $14.95 USD New From: $9.23 In Stock Used from: $6.88 In Stock

So amazingly destructive has Canada become … I am watching the astonishing spectacle of a beautiful, cultured nation turning itself into a corrupt petro-state. Canada is slipping down the development ladder, retreating from a complex, diverse economy towards dependence on a single primary resource, which happens to be the dirtiest commodity known to man. The price of this transition is the brutalisation of the country … Until now I believed that the nation that has done most to sabotage a new climate change agreement was the United States. I was wrong. The real villain is Canada.” The Guardian, United Kingdom.

In further edited excerpts from a variety of articles Lorimer Wilson (www.FinancialArticleSummariesToday.com) posts the following (Words: 1275):

“Canada, the Dudley Do-Right of the international community, insists on exploiting its vast and dirty oil reserves in the so-called “tar sands” under Alberta. The intro to an article by British eco-scold George Monbiot declared: “Canada’s image lies in tatters. It is now to climate what Japan is to whaling.” The South Florida Sun Sentinel, United States

Is Canada’s Sullied Image Deserved?
Says Eric Reguly of Canada’s Globe and Mail: “Canada has had a rough ride at the Copenhagen climate-change summit. It is unloved, even despised, by the scientists, the environmental groups and most developing countries. It will leave the summit with a sullied image – the arrogant, rich country that is part of the problem, not part of the solution.

This image is both deserved and undeserved. It is undeserved in the sense that Canada’s new emissions output target – 20 per cent less than 2006′s level by 2020 – is actually slightly more than the [17%] U.S. pledge. And get this: When you dig into the numbers, the drop between 2006 (to use Canada’s arbitrary base-year number) and 2020 is roughly the same as the European Union’s [20% - 30%]. Canada is also pumping small fortunes into clean-energy technology but the Americans and the Europeans will emerge from the summit as good guys, if not heroes. Not the Canadians.”

The Pros and Cons of Canada’s Actions
Julius Melnitzer of Canada’s Financial Post reports that [from the get-go] Canada was not prepared to act independently of the U.S. on climate change legislation. “Rather, our policy will always closely parellel U.S. law [because] when push comes to shove, we have little choice.”

“It’s hard to imagine Canada not following on the U.S. lead because we desperately need to get inside their carbon market and we desperately need to ensure that their laws don’t work against the interests of our exporters,’ said Gray Taylor of [the law firm] Bennett Jones in Toronto. “Harmonization will be critical not so much from the perspective of regulatory ease but from the perspective of financial necessity,” said Elizabeth DeMarco, who leads Macleod Dixon’s energy practice in Toronto.

“Whatever and whenever the U.S. decides what it is going to do, Prime Minister Harper will follow suit,” said Jean Piette, chair of Ogilvy Renault’s environmental practice in Montreal.

Be that as it may Reguly goes on to say (with Nathan Vanderklippe) in an edited excerpt from another article: “Of the almost 200 countries who attended the recent Copenhagen conference few of them had [and still have] a more blackened image [than Canada]… What shocks some countries is Canada’s response to Kyoto. When it ratified the treaty in 2002, then Prime Minister Jean Chrétien vowed that Canada would reduce emissions by 6 per cent by 2012 over the 1990 base year [yet] they are up 26 per cent or more instead as a result of the turbo-charged expansion of the Alberta oil sands, one of the single biggest sources of planet-warming carbon dioxide emissions.”

“Canada did not take its Kyoto obligations seriously, particularly under Stephen Harper, and that goes against Canada’s image,” said Saleemul Huq, a lead author of the reports of the Intergovernmental Panel of Climate Change, the United Nations scientific body that assesses climate change. “Prime Minister Stephen Harper has committed to a 20 per cent reduction by 2020, but from a new base year – 2006 – when the Canadian economy was on fire. [To emphasize its position] in late 2007 Canada blocked a Commonwealth resolution to support binding emissions targets for industrialized countries.”

Sarah Powell of Davies Ward Phillips & Vineberg also believes Ottawa could have done more. “The government originally said it was going to establish a Canadian regime and then harmonize it instead of just being a follower. They haven’t gone about it that way and that’s not acceptable because the government’s stumble means that Canadian business, which could have had the advantage of domestic experience with GHG regulation and a carbon market, will be left behind once the Americans gear up.”

Shabby Image Not Entirely Justified
Not everyone thinks Canada’s shabby image is justified, however. Matthew Bateson, director of energy and climate for the World Business Council for Sustainable Development (whose members include B.C. Hydro and Canadian oil sands giant Suncor) says “It’s unfair to paint Canada with a black brush.” He notes that, in spite of the fact that Canada only generates 2% of the world’s greenhouse gases, “Canada is one of the world leaders in developing carbon capture and storage (CCS), a new technology that strips carbon dioxide from the flue gases of coal-burning plants or refineries and buries it underground. CCS is one of the technologies needed to transition to a new, low-carbon economy and Canada is putting its money where its mouth is” [and the oil sands are just 4% of Canada's total emissions with transportation accounting for the highest GHG percentage right across the country].

Reguly concludes that “much of Canada’s task lies in trying to dab green onto the grubby oil sands – or at least convincing others that some green exists but its efforts have been decidedly low-key and ineffectual. To the public, the image of the oil sands has been shaped by Greenpeace campaigners. Indeed, even some of Canada’s respected business leaders acknowledge that they have fallen behind in the image campaign.” [Even the Premier of Ontario, Canada's largest and most populous province, has chimed in recently suggesting that Canada's moral authority in the world has been damaged by the lack of leadership on the climate file and that "when it comes to the climate change debate we've been punching below our weight."]

“The industry has to accept some responsibility,” said Murray Edwards, vice-chairman of oil sands miner Canadian Natural Resources Ltd. of Calgary “It has not been as pro-active as it should have been or could have been over the last decade in making sure the public understands the balance in the oil sands between the economy and the environment.” One company, Cenovus Energy Inc., has bought TV spots aimed to show the benefits of its products. The Canadian Association of Petroleum Producers delivers representatives to various debates to help shape the “conversation” and works to correct inaccuracies in anything written about the oil sands but even strong voices aren’t getting much attention.

1606 Dead Ducks and Counting
“This clearly has the hallmarks of being a situation in which the reputation is under siege and it needs to be managed,” said Niraj Dawar, a professor of marketing communications at the Richard Ivey School of Business.

“A picture of a dead duck [1,606 died in an oil sands tailings pond] is far more powerful than the data or information that they can provide. What they need to come up with is pictures of their own.”

Editor’s Note:
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See larger image The Canadian Oil Sands: Energy Security Vs. Climate Change (Council Special Report) (Paperback) By (author) Michael A. Levi List Price: $10.00 USD New From: $8.87 In Stock Used from: $20.58 In Stock

Both critics and environmental groups concede that 78% to 80% of carbon dioxide is created when fuel is burned in cars or factories or jets, regardless of where or how the crude is produced and recognize that the complicated processes used to recover bitumen make it more greenhouse-gas intensive than lighter, conventional crudes. That is the extent of their mutual understanding.

Only 5% to 10% Worse than Conventional Oil?
The government of Alberta and the synthetic crude oil industry are fighting back against such suggestions. The Alberta Energy Research Institute (AERI) and the Canadian Association of Petroleum Producers (CAPP) point out that recent analyses of the amount of greenhouse gas emissions created by oil sands crude, based on a life cycle analysis from the moment it is extracted to the moment it comes out of a tailpipe, i.e. “well-to-wheels” analysis, and other research by Jacobs Consultancy, has determined that oil sands crude is actually only 5% to 10% worse than other oil producers in their class and that, in the case of California’s heavy crude, their oil sands’ emissions level is actually even lower than that.

The report created was different from prior analyses in that it took into account parts of the production process previously omitted such as the energy required for the flaring of hydrocarbons used in the production of conventional crudes as well as the amount of water created when the bitumen is separated from the sand.

10% to 40% Worse than Conventional Oil?
Simon Dyer of the Pembina Institute is quite critical of the Jacobs Consultancy report calling its statements “misleading” and “inaccurate” because the report doesn’t take into account the loss of bicarbon — the clearing of trees and peatlands — and compares oil sands bitumen to oils much heavier than conventional crude. This makes the oil sands oil “look less bad.”

In addition, Dyer said the Jacobs Consultancy results are not conclusive because they don’t use real, available data for emissions caused by “in situ” which is the more energy intensive of the two recovery methods used in the oil sands, where steam is injected deep into reserves to heat the oil and make it flow. Also, instead of collecting actual statistics from Saudi or Venezuelan suppliers, all the data in the Jacobs report is modeled with computers.

Dyer, citing research taken from other reports on greenhouse gas emissions, has calculated a “life cycle” figure that shows the emissions from oil sands as being 10% to 40% worse than conventional oil.

The disagreement between both sides of the debate continues. Both AERI and CAPP point out that the supply of conventional light crude is declining and that to compare the “worst-case scenario” of oil sands’ heaviest crude to the “best-case scenario” of the lightest conventional crude will soon no longer be relevant.

Information By The Numbers
Acoording to research and analyses by Jacobs Consultancy and the Alberta Energy Research Institute:

1. The difference in greenhouse gas emissions created through the production of oil from Alberta’s oil sands, relative to conventional oil sources: 200% to 300%

2. The difference in emissions between the two sources, when the entire “life cycle” of the oil is taken into account: 5% to 10%

3. The difference in “life cycle” emissions between the two sources, according to the Pembina Institute: 10% to 40%

4. The percentage of oil-related greenhouse gas emissions that comes from vehicle use: 78%

5. The percentage of oil-related greenhouse gas contributions that comes from crude production: 8%

6. The percentage of oil-related greenhouse gas contributions that comes from crude refining: 13%

7. The percentage of crude oil in U.S. refineries that comes from the oil sands: 11%

8. The percentage of crude oil in U.S. refineries that comes from Saudi Arabia: 9%

9. The percentage of crude oil in U.S. refineries that comes from Mexico: 9%

10. The percentage of crude oil in U.S. refineries that comes from the United States: 37%

Sources: Jacobs Consultancy; Alberta Energy Research Insitute; Rebecca Ryall’s National Post article “How Crude”.

Editor’s Note:
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
- Permission to reprint in whole or in part is gladly granted, provided full credit is given.
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See larger image Tar Sands: Dirty Oil and the Future of a Continent (Paperback) By (author) Andrew Nikiforuk List Price: $15.95 USD New From: $8.96 In Stock Used from: $3.00 In Stock

Further edited excerpts from the original article* by staff at www.OilPrice.com go on to say:

Shale oil, otherwise known as “Kerogen;” is a non-conventional, “synthetic” oil that is produced by a process called “Pyrolysis,” a deconstructive distillation method that converts the organic matter (rich hydrocarbons) naturally found within the rock into oil.

During the “pyrolysis processing,” this thick, almost globule, dark brown oil is extracted from the kerogen by altering its chemical make-up at extremely high temperatures inside an environment devoid of oxygen. Then the gooey liquid is cooled, condensed and collected.

The simplest way to think of shale is as a rock made up of the very same compounds that make up oil, i.e. bio-matter from ages ago, that through intense pressure and heat over time was turned into a metamorphic rock instead of a thick gooey liquid.

Some scientific researchers and oil analysts see shale oil as an exceptional alternative energy that is just within our reach that could be utilized to help us rehabilitate ourselves from our present addiction to oil as it progressively declines. Others see it as yet another expensive and time consuming distraction that keeps us from focusing in on “renewable” energy replacements which need to be in place, functioning smoothly, well before oil officially “taps out!”

One point not being contested by either side of the argument is the fact that shale oil is extremely abundant and is simply sitting here, already safely on, or should I say, “in” certain soils, waiting to be harvested and utilized.

Oil rich shale can be found all throughout the world, but the largest deposits are below the ground within the United States itself. That’s right, just one thousand feet beneath the surface of the Rocky Mountains, in and area known as The Green River Formation, is the world’s largest untapped oil reserve holding an estimated two trillion barrels of oil which is simply sitting there ready to be claimed.

Exactly how valuable are these shale oil reserves hidden in the underground recesses of Colorado, Utah, and Wyoming? Experts estimate that if less than 50% of the entire amount of oil available at “The Green River Formation” was successfully mines and refined, it would provide more than “three times” the amount of oil known to be present in Saudi Arabia.

According to the U.S. Department Of Energy, there are over 16,000 square miles of land containing large deposits of oil shale making this area the most concentrated energy source on planet Earth. In the U.S. alone, while being only 4% of the world population, the demand for petroleum products has grown to around 20 million barrels per day or 25% of the all the oil consumed by the entire planet. If oil shale could be used to fulfill even one quarter of that thirst, that 800 billion barrels of oil recovered each year from the Green River Formation would last for more than 400 years!

Wherever there is oil, there is shale oil. This means there are huge, currently untapped reserves of oil shale available, just below the surface of the ground in Saudi Arabia, Russia, Iran, Mexico, China, Canada, United Arab Emirates, Venezuela, Norway, Kuwait, Nigeria, Brazil and Iraq, just to name a few of the top oil producing nations.

So what’s the hold up? Why are we still talking about this instead of actively turning this dream into a manifest reality? The answer to that shale must be mined and therefore risks serious potential environmental degradation or all out devastation should something go wrong. The highly complex and expensive extraction process to get the energy out of the solid rock, pyrolysis, is still very much in its experimental infancy phases, with many of the experts complaining that thus far, results are way behind predicted schedules, as well as being extremely disappointing.

The petroleum yield in shale oil pyrolysis provides only “25 gallons per ton” of shale oil and uses large amounts of electricity in the process, so many energy experts believe making such small amounts of energy per ton of material is actually a “lose – lose” energy – environmental scenario, claiming that the extraction process actually eats up more energy than it is able to provide.

This process involves several meticulously complex & extreme circumstances, from the heating the shale to over 700 degrees in compartments that must remain absolutely devoid of any oxygen and to the quick cooling of the extract with lots of water supplied from the local mountain lakes and streams. Any mistakes or technological breakdowns could quickly prove to be ecologically horrific.

Which leads us to another major snag in the dream is that most of the oil shale reserves lie in wait under the surface of federal and state protected national parks and wildlife preserves and as we have observed the political dances for decades, when natural resources are located within the environs of a government protected wildlife sanctuary so much of the argument, at this point, is probably mute anyway.

The retort process actually causes the left over debris to expand in size, making the “left-overs” far too big to fit back into the hole that the material originally came out of. Where would all of this debris be put? No one knows! Meanwhile, this slag becomes a sticky, gooey ooze, creating additional concerns that the waste material could easily collect and clog the filters designed to separate and remove it. If it were ever to somehow leak into the ground or water, it would be a mess multiple times larger than the Exxon Valdez catastrophe!

The jury is still out when it comes to shale oil. Many experts believe that if we can improve on the technology utilized to extract the oil, it could well serve our needs well into a greatly uncertain future!

*http://oilprice.com/article-Oil-Shale-So-Just-What-Is-It.html

Editor’s Note:
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
- Permission to reprint in whole or in part is gladly granted, provided full credit is given.
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See larger image Oil shale: Oil Shale (journal), Oil shale geology, Oil shale reserves, History of the oil shale industry, Oil shale industry, Shale oil extraction, Oil shale economics (Paperback) List Price: $65.00 USD

In further edited excerpts from the original article* at www.oilprice.com it goes on to say:

In its natural, unrefined state, crude oil ranges in density and consistency, from very thin, light weight and volatile fluidity to an extremely thick, semi-solid heavy weight oil. There is also a tremendous gradation in the color that the oil extracted from the ground exhibits, ranging all the way from a light, golden yellow to the very deepest, darkest black imaginable.

For the purpose of having a set, agreed upon “vocabulary,” the petroleum industry often uses references to “Geographical Locations” in order to descriptively classify crude oils due to the fact that oil from different geographical locations will naturally have its own very unique properties. These oils vary dramatically from one another when it comes to their viscosity, volatility and toxicity.

Viscosity
- relates to the oil’s resistance to flow – higher viscosity crude oil is much more difficult to pump from the ground, transport and refine.

Volatility
- describes how quickly the oil evaporates into the air. Oils that are naturally highly volatile need additional effort to ensure that temperature regulation and sealing procedures loose as little oil as possible.

Toxicity
- refers to how poisonous the oil and its refining processes are to local life, from humans, to flora and fauna as well as other environmentally fragile living entities and organisms. If an oil spill were to occur, each type of oil presents quite unique “clean up” challenges, procedures and priorities.

The four primary types of oil are:

1. Very Light Oils / Light Distillates
- Includes jet fuel, gasoline, kerosene, light virgin naphtha, heavy virgin naphtha, petroleum ether, petroleum spirit, and petroleum naphtha. These oils tend to be highly volatile and can evaporate within just a couple of days, which quickly diffuses and decreases toxicity levels.

2. Light Oils / Middle Distillates
- Includes most Grade 1 and Grade 2 fuel oils and diesel fuel oils as well as most domestic fuels and light crude marine gas oils. These oils are moderately volatile, less evaporative and moderately toxic.

3. Medium Oils
Most of the crude oil on the market these days falls into this particular category. Low volatility makes for messier and more complex “clean ups”.

4. Heavy Fuel Oils
- Includes the heavy crude oils, Grade 3,4,5 and 6 fuel oils (Bunker B & C) as well as intermediate and heavy marine fuels. These oils have very slow and little evaporation and therefore toxicity is highly increased. This not only means potentially severe contamination for fish, fowl and fur-bearing creatures, but possible “long term” contamination of water and soil as well.

There are over 160 different oils traded on the market theses days, but for simplicity’s sake, let’s discuss the three primary oils that get most of the serious attention in the news and in the markets.

The three primary oils are:

1. West Texas Intermediate Crude (WTIC)
- an extremely high quality crude oil which is greatly valued for the fact that it is of such premium quality, more and better gasoline can be refined from a single barrel than from most other types of oil available on the market.

The WTIC “API Gravity” is 39.6 degrees, which makes it a “light” crude oil, with only 0.24 percent sulfur, which makes it a “sweet” crude oil. The term “API Gravity” refers to the “American Petroleum Institute Gravity, which is a measure that compares how light or heavy a crude oil is in relation to water. If an oils “API Gravity” is greater than 10 then it is lighter than water and will float on it. If an oils “API Gravity” is less than 10, it is heavier than water and will sinks.

These combined qualities as well as location make WTIC a prime crude oil to be refined in the United States. The vast majority of WTIC oils are refined in the Midwest and Gulf Coast regions. Even with production of WTIC oil in decline, WTIC is often priced from $5 to $7 higher per barrel than “OPEC Basket” oil and on average, $1 to $2 higher per barrel than “Brent Blend” oils.

2. Brent Blend
- a combination of different oils from 15 fields throughout the Scottish Brent and Ninian systems located in the North Sea.

The Brent Blend “API Gravity” is 38.3 degrees, which makes it a “light” crude oil, but clearly not quite as “light” as WTIC. It also contains about 0.37 percent sulfur, which makes it a “sweet” crude oil, but then again, not quite as “sweet” than WTIC.

Brent Blend is excellent for making gasoline and middle distillates, both of which are utilized in large quantities in Northwest Europe, where Brent blend crude oil is most often refined. Brent Blend production, much like that of WTIC, is also on the decline, but it remains a major benchmark for other crude oils in Europe or Africa. Brent Blend is often priced at a $4 higher per barrel compared to the OPEC Basket price.

3. OPEC Basket
- a collective of seven different crude oils from Algeria, Saudi Arabia, Indonesia, Nigeria, Dubai’, Venezuela and the Mexican Isthmus. The acronym OPEC stands for “Organization of Petroleum-Exporting Countries” which is an organization that was formed in 1960 in order to create some common policy for the production and sale of oil within its jurisdiction.

Because OPEC oil has a much higher percentage of sulfur within its natural make-up and therefore is not nearly as “sweet” as WTI or even Brent Blend and since it is also not naturally as “light” as well, the prices of OPEC oil are normally consistently lower than either Brent Blend or WTI. Nevertheless, OPEC’s willingness or ability to quickly increase production when necessary makes OPEC a consistent “Major Player” in the oil industry.

*http://oilprice.com/article-a-detailed-guide-on-the-many-different-types-of-crude-oil.html

Editor’s Note:
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
- Permission to reprint in whole or in part is gladly granted, provided full credit is given.
- Sign up to receive every article posted via Twitter, Facebook, RSS feed or our Weekly Newsletter.
- Submit a comment. Share your views on the subject with all our readers.
- Buy the book below from Amazon. It’s pertinent to this article and inexpensive too.

See larger image Crude World: The Violent Twilight of Oil (Hardcover) By (author) Peter Maass List Price: $27.00 USD New From: $13.44 In Stock Used from: $13.49 In Stock Release date September 22, 2009.

In further edited excerpts from the original article* Keith Schaefer (www.oilandgas-investments.com) goes on to say:

1. What is the decline rate?
Decline rates are something management teams don’t really hide, but don’t really talk about either. Every well has declining production until it’s uneconomic. The new shale gas plays often have 85% decline in production in the first year. Tight oil plays (Bakken, Lower Shaunavon etc) have 75% initial decline rates. Decline rates are increasing over time now as the industry drills deeper and tighter plays. Ask management what the initial decline rate is, both company wide, and specifically on their main, big play that they believe will be the growth engine of the company. Then ask what the decline rate flattens out to—it’s usually 20-30%.

Why is this important? Because many investors, when forecasting growth, use the only public numbers given for a well – the ones in the press release. Most companies have a production decline graph in their powerpoint, but few actually say what the production levels in the wells in the area flatten out at (and many research reports from analysts don’t either—don’t let The Machine fool you).

2. How strong are their political connections?
If the company is operating in a foreign country, what kind of political connections do they have – who from that country is in management or on the board of directors?

3. What is the break even cost?
What is the break even cost, company wide, and in their main play, in terms of price per barrel? Management should be able to tell you a very good ballpark number.

4. What is the cost per flowing barrel?
How much does it cost them to bring up a barrel of producing oil? Costs can range from $8,000 per flowing barrel to over $30,000. Obviously, the lower the better, as this will be more profitable. Then you compare it to what companies are being bought out for. If a company can produce a barrel of oil for $10,000, and the stocks are being bought or merged at valuations of $70,000 per barrel, that’s a very accretive oil or gas play! Again, management should be able to answer that question on the phone.

5. What is the recycle ratio?
What is the recycle ratio both overall corporately and specifically on their main play that will be the growth engine for the company. The recycle ratio is a key measure of profitability for an energy company. It’s a fairly simple calculation, and many companies put it in their quarterly and a few even put it in their powerpoint. Management will know this number off the top of their head like they know their wife’s name, so don’t be afraid to ask.

The recycle ratio is the profit per barrel (called the “netback”) divided over the cost of finding that barrel–“F&D”—Finding and Development Costs. Both the netback and the F&D costs are in all the quarterlies – usually broken out in simple charts and language in the notes. The higher the recycle ratio the better. Anything over 3 is great, 2 is really good and under 2 can still be OK if it’s a big field and lots of wells can be drilled. Different companies report differently so not all recycle ratios are equal, but it will give you a general idea. The higher the recycle ratio, the higher the valuation should be.

6. How much infrastructure do they own?
How much of their own infrastructure do they own and are they the operator of their plays? Infrastructure includes things like local or regional pipelines, storage facilities, processing facilities. If they don’t own them, they have to pay charges to use them, and are subject to somebody else’s maintenance and upkeep. The market often pays a lot less for a non-operating interest in a play, as the operator gets to call the shots most of the time.

7. What kind of discount or premium do they get for their production and why?
What kind of discount or premium they get for their production, from quoted prices like WTI crude or Brent Crude – and why that is. For example, heavy oil gets a discount – up to 50% – from the WTI price or Brent crude price that is always quoted in the media. Maybe their oil or gas has a high sulphur content (which would also give them a tougher time with environmental permits). A company may say they are producing 10,000 bopd, but if their price is much lower than world price, their future cash flow could be much lower than you think.

8. How much stock does management own, which people on management are the largest shareholders in the group and how much hard cash – not stock options – does management have in the company?

9. What else is there about your company that you want to tell me?

10. Where do you want to improve the most over the next 2-3 quarters?

The list of questions goes on and on.

Investors should remember that the answers to these questions are already priced into the stock; it’s highly unlikely you will find any bargains on the stock market from these questions but the answers will give you a better understanding of how stocks are valued and why, and give you more confidence in acting on your own intuition about a stock.

*http://www.investorideas.com/News/r110409a.asp (Keith Schaefer, Editor and Publisher of Oil & Gas Investments Bulletin, writes on oil and natural gas markets and stocks and writes about them in a public blog. He also has a subscription service which provides company specific information and recommendations. For more information about the Bulletin or to subscribe visit his site.)

Editor’s Note:
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
- Permission to reprint in whole or in part is gladly granted, provided full credit is given.
- Sign up to receive every article posted via Twitter, Facebook, RSS feed or our Weekly Newsletter.
- Submit a comment. Share your views on the subject with all our readers.
- Buy the book below from Amazon. It’s pertinent to this article and inexpensive too.

See larger image Sarah takes on Big Oil: The compelling story of Governor Sarah Palin's battle with Alaska's 'Big 3' oil companies, as told by the state's top oil and gas editors, Kay Cashman and Kristen Nelson (Hardcover) By (author) Kay Cashman, Kristen Nelson List Price: $21.95 USD New From: $17.92 In Stock Used from: $14.34 In Stock