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Head scratching news from the open energy frontier

Patriot missile launcher. Photo courtesy of DollarPhotoClub.com

Patriot missile launcher. Photo courtesy of DollarPhotoClub.com

A series of posts at Million Dollar Way has me scratching my head on the amazing things happening in energy and what may be down the road. Consider the following:

7/30 – Saudi Arabia Begins Buying New Patriot Missiles From The US – Lots of countries in the Middle East are doing some serious shopping for serious defensive weapons. Today’s news is that Saudi Arabia wants to buy 600 more Patriot missile interceptors at a cost of over $5 billion.

Why?

In five years Iran will be able to openly buy any conventional weapons and in eight years they are allowed to deploy ballistic missiles. From several articles it looks like there is a new arms race in the region. Trace this report back to the initial article in the string at Defense One and you will find that Saudi Arabia just bought $2 billion of patriots in April. Presumably that would be another 220 or 240. The Pentagon announced in the previous week sales of $1 .5 billion of Patriots to four other countries.

If you think you may need to knock down a ballistic missile sent from the direction of, say Iran, you would need a lot of anti-missile batteries to protect a country as large as Saudi Arabia.

MDW thinks this may lead Saudi Arabia to cut their oil production in order to drive prices up. That makes sense. They have to come up with the cash somewhere to pay for that $7B worth of defensive missiles. Don’t forget the operational costs of staffing all those batteries, maintenance, and providing security. Oh, Saudi Arabia also has a shooting war going on too.

7/29 – Crying “Uncle”? – Saudi Arabia To Cut Production At End Of Summer – A Wall Street Journal article says Saudi Arabia will drop production by 0.2 or 0.3 million bopd after the summer. This would bring their production down to around 10.3M bopd. Stated reason is the falloff in demand when air-conditioning use drops. To sustain exports and domestic consumption, unnamed experts say the country would need to produce 11M bopd.

How long will it take to pay for those Patriot missiles?

Let me do some simple math based on the preceding two articles. Covering the $7B purchase price of the missiles would be equal to:

  • 13.6 days of all production at 10.3M bopd at $50/bbl ($7B / (10.3m bbl x $50/bbl) ), or
  • 6.8 days of all production at 10.3M bopd at $100/bbl ($7B / (10.3m x $100) ), or
  • 467 days of the available extra production capacity that may be available starting in October (7B / (.3 x $50) ). That would be over a year of their available capacity.

7/30 – Wow, Natural Gas Kills Nukes – The super-abundance of natural gas on the market (thank you fracking!) is putting price pressure on the electricity market. In turn that is making nuclear plants less economical.

Three of the six nuclear power plants owned by Exelon are losing money. The utility’s CEO said the company has to decide by September whether it will close its nuke plant at Quad Cities.  A planned increase in electricity rates paid to producers which is expected to go into effect this fall will help. Not likely enough to keep this plant open but that might be enough to keep another of their nuke plants from closing.

Coal plants are closing rapidly. Looks like nuclear plants are starting to shutter as well.

7/29 – Wednesday – part III – One big data point and one aside in this post which is part of a long string of posts which caught my attention.

There were very high winds in North Dakota last week. I already knew that. One impact of high winds is fracking has to halt until the winds died down.

Another impact?

All those slice-and-dicer turbines have to be turned off to prevent damage to the turbine. Wind power can only be harnessed when the wind is blowing within certain speeds.

The big news? The initial production rate (IP) of wells coming online through June 2015 is much higher than the IP of wells completed in the first six months of 2014.

Check out the amazing graph here. Productivity of wells is going up dramatically in just the last year.

Observation from the graph is that over 60% of wells this year and last year are showing IPs over 1,000 bopd. Amazing.

By the way if you have read to this point in my post even if you merely browsed it you really, really ought to be reading Million Dollar Way every day.

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One thought on “Head scratching news from the open energy frontier

  1. Pingback: Who will break first, Saudi Arabia or the American shale oil industry? | Outrun Change

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