China could be on the verge of introducing a two-child policy, 35 years after enacting draconian birth control rules blamed for millions of forced abortions and the creation of a demographic “time bomb.” The new regulation, under which all Chinese couples would be allowed to have two children, could be implemented “as soon as the end of this year.

The World Bank says that the average price of fuels — coal, crude oil, and natural gas – will fall 39% from 2014 to 2015. The bank says commodities are now trading at their lowest level in 12 years following a decade long boom driven by rapid growth in China and India.

With low crude oil prices, the International Energy Agency said global oil demand is expected to increase 1.5 % this year, the most since 2010.

US crude oil imports continue to rise as oil traders around the world seek storage capacity to hold what they cannot sell. The demand for storage is so high that the monthly cost of storing and financing a barrel at Cushing, Oklahoma has tripled in the last two months.

The major international oil companies will likely report another sharp drop in quarterly profits which in turn could lead to another reduction in capital spending for oil exploration and production. This has implications for production in coming years. Unless the oil industry can replace some 6-8% of its current output with production from new wells each year, a decline in production is inevitable.

Iran has plans for $185 billion worth of investment in its oil and gas industry in the next five years that will significantly increase production. Like Iraq, Iran still has extensive oil and gas deposits that are relatively cheap to extract.

The decline in global oil prices is hurting Saudi Arabia as it is dependent on crude oil exports for the bulk of its income. The desert kingdom currently has a government deficit that may run anywhere from $40 to over $100 billion this year if world oil prices stay low.

The growing weakness in the Chinese economy is affecting its natural gas deals with Russia. In May the two countries signed an agreement for a new “western route” pipeline that was to deliver 68 billion cubic meters per year to the Chinese economy.  Last week it was announced that the project has been postponed indefinitely due to the slowing Chinese demand for natural gas. China’s gas consumption had been growing at around 12-13% a year, but last year fell to 8.5% and to 2% in the first half of this year. Building the new pipeline to China is expensive and Russia’s state-owned Gazprom was demanding a relatively high price for its natural gas. China also has the option of importing Australian liquified natural gas (LNG).

Russia’s oil industry is facing severe pressure.  Except in western Siberia, there has been little or no investment in crude oil production and the depletion rates in Soviet-era oil fields are now running 8 to 11% a year. Without access to foreign technology some believe oil production could fall by 5-10% by 2018. Lukoil has an even more pessimistic forecast — an 8% or 800,000 barrel per day drop in crude oil production by the end of next year. Russia’s long-term strategy for increasing oil production by drilling in the Arctic and exploiting shale oil reserves are on hold due to the economic sanctions by the West and its inability to partner with western oil and gas firms.

In the North Sea, oil firms are trying to sell aging oilfields and are considering shouldering hundreds of millions of dollars in future dismantling costs to help find buyers.  One of the world’s oldest and most important offshore oil and gas production basins, the UK North Sea faces dwindling output and a growing number of redundant platforms.

The Gulf of Mexico and the Caribbean Sea have become a parking garage for deepwater oil drilling ships — at a cost of about $70,000 a day each. Rig owners are putting equipment aside at unprecedented numbers as producers pull back from higher-cost deepwater exploration given the current low level of world oil prices.

In the US, orders for railroad tanker cars fell 29% in the second quarter of this year and 70% from the second quarter of 2014, reflecting lower shipments of crude oil amid falling prices.

Oil-field services providers Halliburton Co. and Baker Hughes Inc. disclosed last week that they had cut 27,000 jobs between them, double the 13,500 they announced in February. Initially, Halliburton expected to reduce its workforce by 8%, but ultimately cut it by 16%. Baker Hughes first announced it would cut about 10% of its jobs, but cut 21%. Meanwhile, Weatherford International said it is increasing its job cuts to 11,000.

Italian energy company Eni it made what it considers to be an important discovery of natural gas in Egypt’s Nile Delta, about 75 miles northeast of Alexandria. Preliminary estimates of the discovery account for a potential of 530 billion cubic feet of gas in place.

Israel has committed to building a thermo-solar power plant in the country’s south, aimed at increasing electricity production from renewable energy sources. The 121 megawatt plant, to be built near a solar photovoltaic plant, is expected to come on line in 2018 and will also be able to store electricity. The two plants will provide 2% of the nation’s total electricity production. Israel has set a target of 10% of its electricity coming from renewable sources by 2020.

Zimbabwe has approached China to assist in solving its chronic electricity shortages caused by antiquated power plants. Last year the African nation contracted Sino-Hydro to expand its second largest power plant, Kariba Power Station by 300 MW. The project is set for completion in 2017. Now it has hired China State Construction Engineering Corporation (CSCEC) to construct a 600 megawatt coal-fired power plant in the country’s northwestern region, using local coal supplies. Construction is to begin in early 2016.

US consulting firm Brattle says the transition from coal to natural gas for the generation of electricity is a threat to the nuclear industry. A recent study by the firm found the low cost of natural gas, due to a boon in shale gas production in the US, has made nearly every other form or electricity less economical, undermining nuclear, renewables and coal-fired power. The US is now the largest producer of the natural gas in the world. The study warns that if nuclear power were allowed to fade away, so would low electricity prices. “Without nuclear plants, the economy would rely more heavily on existing and new natural gas-fired generating plants, and to a lesser extent, additional generation from existing coal-fired plants. This greater use of fossil generation would mean higher electricity prices — wholesale prices would be 10 percent higher on average; retail prices would rise about 6 percent.”

 

with h/t Tom Whipple and Fred

 

 

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