OPEC Production Data and the Feeble Deal

OPEC largely wrong-footed markets and expectations by announcing their first production cut since the financial crisis of 2008 last week. This sent Brent front month “soaring” toward $55 / bbl. This is certainly good news for producers and at face value bad news for consumers everywhere. But the deal and the way it is structured is far from straight forward. For example there is a 285,000 bpd “typographical error” in the record of Iranian production in October in the OPEC press release, equivalent to about one quarter of the whole feeble deal. This is the stuff of dispute and of feeble deals unwinding.

Let me begin with a look at the guts of the agreement that are detailed in this undated press release. There are two key points and a table was published of the new production quotas (Table 1).

1) In the fulfilment of the implementation of the Algiers Accord, 171st Ministerial Conference has decided to reduce its production by around 1.2 mb/d to bring its ceiling to 32.5 mb/d, effective 1st of January 2017;
5) This agreement has been reached following extensive consultations and understanding reached with key non-OPEC countries, including the Russian Federation that they contribute by a reduction of 600 tb/d production.

The promise, therefore, is for a total 1.8 Mbpd reduction in OPEC + Russia. But then I came across this article at Oilprice.com that said:

Russia alone will cut 300,000 barrels per day. Asked about the non-OPEC contribution, OPEC President Mohammed Al-Sada said that he is confident that they “can get 600,000 barrels per day out of them…maybe more.”

Table 1 Reference OPEC production from the OPEC press release based on Oct 16 (apart from Angola that is based on Sep 16). Production adjustment and new “quotas” for Jan 1 2017.

I decided to take a closer look at the numbers with a view to following this story as it unfolds but quickly found a host of complexities that will make the deal difficult to monitor and to enforce, not least that 285,000 bpd typo in Iran’s Oct 16 production. I should begin by saying that I want to use my IEA data base of monthly production figures, and so the first challenge is to see if these are the same as the OPEC figures above. Let me run through a series of audit questions.

Table 2 OPEC reference production from Table 1. IEA reference production from the Nov 16 OMR. Delta OPEC = arithmetic difference between the two. OPEC adjustment from the feeble deal (Table 1) apart from Iran that is based on arithmetic using real numbers. OPEC Jan 17 based on OPEC Oct 16 adjusted for OPEC adjustment. IEA Jan 17 based on IEA Oct 16 adjusted for OPEC adjustment.

In Table 1, Iran is recorded to have produced 3.975 Mbpd in October 16 while the OPEC Oil Market report suggests 3.690 Mbpd. Using the latter figure, Iran will be entitled to raise production by 107,000 bpd.

Auditing the labyrinth

OPEC-OPEC – do the OPEC figures in the press release tally with the OPEC figures published in the OPEC November Oil Market Report (Table 5.7, p58)? The answer is yes, though not always exactly. And there is that single glaring typo for Iran where reported figure is 3.690 Mbpd and not 3.975 Mbpd as per the press release (Tables 1, 2). But wait a minute, OPEC publishes two sets of numbers. Table 5.7 based on secondary sources (this is the source clearly used in the press release) and table 5.8 based on direct communication where Iran has declared a production figure of 3.920 Mbpd much closer to the OPEC press release. Go figure 😉

OPEC-IEA – The comparison with IEA is largely satisfactory with a mean difference of only 12,000 bpd. But this masks some large negative and positive discrepancies (see Table 2). The IEA data will be revised in the next two months.

Libya and Nigeria were exempted from the deal owing to on-going civil unrest disrupting production. OPEC have excluded these countries from their table while I include them with a zero adjustment.

Angola – October 2016 is the reference month for production cuts with the exception of Angola where September is used instead. There is a good reason for this since Angola experienced what appears to be a sharp cyclical fall in production of 170,000 bpd in October (see Figure 12). This is much larger than their OPEC adjustment, of 78,000 bpd. Hence Angola will be entitled to increase production from current levels!

Indonesia rejoined OPEC in December 2015 after a 7 year absence. The reason Indonesia left was because it had switched from being an oil exporter to an oil importer. It still was an importer in December 2015 as it is today. So it is unclear why OPEC allowed Indonesia to rejoin. In the event, Indonesia argued the corner of consumers and wanted prices to stay low and has suspended membership from OPEC again in protest.

Gabon rejoined OPEC on 1 July 2016 and was rewarded with a 9,000 bpd production cut. With 200,000 bpd production, Gabon sits within the rounding errors of the Gulf giant producers. I don’t understand why OPEC should wish to have Gabon as a member, nor why Gabon should wish to be a member. This simply adds noise to the data.

How does it add up: taking into account the Iran correction I reach a number of 1.147 Mbpd production cut by 1 January for a ceiling of 32.682 Mbpd that includes suspended Indonesia (Table 2). It is not clear if the declared ceiling of 32.5 Mbpd includes or excludes Indonesia.

Data, charts and consequences

Setting aside the labyrinth of statistics I now want to place the planned cuts into context. The charts exclude Indonesia and Gabon and use the IEA data adjusted for the planned OPEC cuts (dashed line on each chart). I divide the OPEC countries into “strong” and “weak”. The OPEC strong (Saudi Arabia, Iraq, Iran, UAE, Kuwait and Ecuador) are those who have managed strong production growth in recent years and arguably are making real production cuts. The OPEC weak (Venezuela, Nigeria, Angola, Algeria, Qatar) have witnessed a decade of production decline (Figure 3). Their quotas therefore are symbolic since natural decline would waste their production to agreed levels within months. For example the OPEC weak have seen their production fall by 740,000 bpd already in 2016. Their projected cut of 253,000 bpd is paltry in comparison.

Figure 1 Looking at 12 OPEC countries (excluding Gabon and Indonesia) we see that the new production cap of 32.1 Mbpd (IEA datum) merely undoes the small production growth that has occurred this year. The total OPEC constraint amounting to 1.147 Mbpd will result in 419 Mbbls less oil produced in the course of a year. This number needs to be compared with OECD industry stocks of 1179 Mbbls at end September 2016 and OECD government stocks of 1287 Mbbls for a total of 2466 Mbbls in the OECD alone (IEA OMR Table 4). Adding in a further 300,000 bpd constraint from Russia brings the withheld production to 528 Mbbls.

My expectation is that this constraint may provide modest price support with a new price range of $50 to $70. Enough to send the US and Canadian frackers back to work that will quickly undo any price increase that may occur.

Figure 2 The last time OPEC cut production was in the wake of the 2008 finance crash where these 5 countries alone cut back 2.83 Mbpd reaching a low point of 18.94 Mbpd in February 2008. Since then these 6 strong countries have grown production to 25.43 Mbpd in Oct 2016. That’s an increase of 6.49 Mbpd from February 2009. Their combined sacrifice under the new agreement is 885,000 bpd (Table 2), small compared to their increased strength over the last 8 years.

Figure 3 The 5 weak OPEC producers present a strikingly different picture. Note that Nigeria is included since Nigerian production has been on the skids since 2005, and while production may be marginally impacted by civil unrest right now, the overall direction is down (Figure 11). Libya is not included here since its inclusion would distort the picture.

The production from these 5 weak OPEC countries has been in decline since 2011 from a combination of above and below ground factors. Their new combined “quota” of 6.867 Mbpd (IEA datum) is barely below where they are right now. This comes about from Angola’s reference month being September, not October that accounts for 170,000 bpd and using IEA instead of OPEC production data that accounts for another 63,000 bpd. The target reduction in this group is 253,000 bpd – JOB DONE!

Concluding comments

  • OPEC should disband and reform with five members: Saudi Arabia, Iraq, Iran, UAE and Kuwait. These are the large producing and exporting nations that have potential for swing production. All other exporting nations are there simply for window dressing. Excluding weak countries will have no impact on global supply – demand balance and it would streamline the decision making process, albeit in a politically tense atmosphere.
  • The current deal, while no doubt well intentioned, is a dog’s dinner that will prove difficult to police and enforce since the reductions are so small compared with statistical variances between different data sets that are revised over time. If I were Russian, I’d view the numbers with a degree of scepticism.
  • Russia I imagine may contribute with a 300,000 bpd cut. But it is hard to see where the other 300,000 bpd may come from non-OPEC countries.
  • The deal, if implemented, will provide limited short term support to the oil price. This will send the frackers back to work which will likely undo any near term gain in price by the end of 2017.

The Appendix below provides individual charts for xx OPEC countries.

Appendix: OPEC country charts and commentary

The following charts are based on IEA monthly data. The dashed line represents the new “quota” applying the OPEC “adjustment” to October 2016 IEA data.

Figure 4 Saudi Arabia, as is usual in OPEC, shoulders most of the responsibility as the largest producer. Saudi Arabia’s cut of 486,000 bpd takes The Kingdom back to the pre-Jan 15 bumpy plateau production level. The Kingdom will for a short while enjoy increased revenues and decreased expenditure maintaining these high production levels.

Figure 5 Iraqi production has shown truly miraculous growth since the end of GWII. Oct 16 4.59 Mbpd production outstrips historic records by a long margin. I am unsure if the IEA stats includes production from Iraqi Kurdistan, perhaps commenters can elaborate. Pegging production to 4.38 Mbpd simply undoes the surge of recent months.

Figure 6 Iran has bounced back from sanctions but may rediscover gravity under President Trump. Under the feeble deal, Iran may increase production by as much as 107,000 bpd if its reservoirs and infrastructure are up to the job.

Figure 7 The UAE has certainly surprised me by growing production from 2 Mbpd in 2002 to over 3 Mbpd last month. Pegging production to 2.94 Mbpd simply undoes the production growth of the last few months.

Figure 8 Kuwait has also boosted production in recent months and the new quota sees this reversed and Kuwait return to more comfortable plateau production levels.

Figure 9 OPEC minnow Ecuador is included with the strong countries because it has shown resilience since 2009. The cut of 26,000 bpd is of no consequence for anyone but will help Ecuador maintain plateau production that it has done skilfully since 2004.

Figure 10 With Venezuela we move onto the weak producers. Because of political management Venezuelan production has been declining for 5 years. On current trajectory, Venezuela will meet its new quota without showing constraint within months. This of course provides good cover for political incompetence!

Figure 11 Nigeria is not included in the feeble deal. But the production history shows production in decline from a combination of geology, political management and civil unrest. Are any of these about to end soon? I don’t think so.

Figure 12 Angola with exclusive offshore oil production is rather like the UK. It is faced with high costs, but with the protection offered from civil unrest by offshore operations controlled by IOCs. Production has effectively been on a bumpy plateau since 2008 and is marked by cyclical downturns that may be linked to maintenance programs. One such downturn occurred in Oct 16, hence Angola’s new quota, based on Sep 16, actually lies above current production levels.

Figure 13 Algeria is principally a gas producer with pipeline links to Europe. Many years ago they nationalised all their oil industry but then invited IOCs back. They were successful in opening up new plays, especially oil in the Berkine Basin. My company did a fair amount of work for these brave new operators and I actually had staff visit the area. But the Algerian authorities did everything they could to confound timely and profitable exploitation of these new-found riches by foreign companies. Algerian oil production has been on the skids since 2008 and will meet the new production ceiling of 1.07 Mbpd without the need to exercise constraint.

Figure 14 Qatar is a giant natural gas and natural gas liquids producer and is not to any significant extent dependent upon oil production. Without checking, I believe they have one significant oil field that now appears to have passed peak production. Hence relegation of Qatar to division 2 of oil producers.

Figure 15 I conclude with Libya that is excluded from the OPEC feeble deal. Utterly destroyed by the Arab Spring, UK and French bombing, misguided intransigence by the UN and the USA, is now the conduit for the disaffected and disenfranchised populations of the whole of Africa into Europe. The EU needs energy, not refugees. This chart shows a clear picture of how the EU has failed its people and the people of North Africa. It is time for change!

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39 Responses to OPEC Production Data and the Feeble Deal

  1. David E says:

    Would the new ‘core OPEC’ of five members that you propose not also benefit from the direct accession of other key players, notably Russia?

    • Euan Mearns says:

      I think that OPEC in its current form is somewhat a joke. Outside of these 5 hard core producers / exporters, Russia is the only other non-OECD country in the world with significant production and exports. Thus, it would make a lot of sense for the exporters to form an alliance of the strong.

  2. Syndroma says:

    The interesting thing here is that Russia now has to create a mechanism to reduce its output. Once created, it can be used without any OPEC deals if necessary.

    • Euan Mearns says:

      Does Russia still have 100% State controlled oil production? (that’s maybe a silly question). If so, then reducing production is quite easy. But even in OPEC countries like Iraq, Nigeria and Angola where the IOCs participate, its possible to cut output. The IOCs are probably only too pleased to see something done to increase price.

      • Syndroma says:

        No, oil production is fragmented into many separate companies, although their independency from the government is debatable. Only Rosneft, the biggest producer, is undoubtly 100% government controlled.
        https://www.bloomberg.com/news/articles/2016-12-01/russia-s-pledge-to-opec-will-mean-herding-cats-to-deliver-cuts

        That’s why the implementation of limiting mechanism is interesting per se. It’s something Russia never tried the last couple of decades.

      • Aslangeo says:

        Euan – as Syndroma says below oil production in Russia is split between many companies – With only Rosneft and Gazpromneft under direct state control (government golden share with minority shareholders) – however the Private companies rely on the Transneft monopoly pipeline system and also need export licences to sell outside the CIS. The Russian companies also pay a special export duty on all oil exported. In other words they will do what the government says regardless of foreign or domestic shareholdings.

        As in all government bureaucracies worldwide there is a fair amount of infighting and lobbying so what happens in reality is to be seen

        A

  3. OpenSourceElectricity says:

    Just a comparison to keep the number in mind. The Solar power contract in Dubai was signed for 800MW and 2,99ct/kWh recently. With 1750kWh thermal in a barrel of Oil (Approximately) this is equivalent to a oul price of 52,33$/barrel.
    So a oil price of 50-70$ will not only send the frackers back to work, but also more solar panel instainto the world’s deserts. At least till the last oil or diesel powerd station goes offline during daylight.

    • Euan Mearns says:

      https://cleantechnica.com/2016/05/02/lowest-solar-price-dubai-800-mw-solar-project/

      I’ve not paid too much attention to this but am paying attention now! By my reckoning $20 / MWh equates to oil at around $60 if you are to use electricity to make synfuel. So $30 / MWh is not quite there yet but it is still CHEAP electricity. But how have they managed to halve the bid price in the space of 12 months?

      • OpenSourceElectricity says:

        Several Factors.
        a) the prices have not been halved. they have been lower before already. 9ct in germany /UK are equivalent to 4,5ct/kWh or less in a desert. 5,63ct/kWh in Danmark are equivalent to 2,8ct/kWh in a desert, or 2ct/kWh in chile (atakama).
        b) All components (Modules, Inverters, Structures, Labour hours per kWh, project management) have become cheaper by 20-30%
        c) Solar power with a power purchase agreement is extremely bankable and low risk investment today. All banks know the O&M Costs to be expected (which are low), and just a few months, sometimes weeks after first substantial money flows out first income from electricity sales comes in.
        So capital costs are low.
        Installation costs for the projects in Damnmark are surely below 800€/kWp, lowes installation costs reported from china and India are around 600€/kWp, indian workers in Dubai are not significant more expensive than in India, and there are trained teams available now which install fast.

        I would see the final limit for the oil price set by synfuel still abve 100$/barrel, but for any use where i kWh electricity is as valuable as 1kWh (thermal) in oil or more, Oil has a competitor now which can be installed at most places in the sun belt of the earth at any time at any amount and provide power during sunlight.
        Being fast to install is a advantage for solar power. The Kariba dam in Zambia delivers low power this year due to drought conditions in spring. So they decided in early summer with the worldbank to ad a solar power generation to the hydropowerstation in early summer, if it worked as intended the solar power plant should deliver power by now and help the hydropower dam to save water.

        • gweberbv says:

          OpenSourceElectricity,

          you did not mention the elephant in the room: Dirt cheap credit.

          For all investments with large upfront costs but low running costs, this is a huge boost with respect to profitability.

          • Euan Mearns says:

            This plays to one of my beliefs which is that capitalism as we know it, one where banks pay rent on money, is founded on abundant, growing supplies of cheap fossil fuel. I doubt that solar could pay 10% rent on capital. Thus going the renewables route we abandon the notion of receiving rent on savings – the way things are going we have to pay rent on savings. This means, for example, the end of pensions.

            So the logical thing is to own RE. But where I live solar PV quite simply does not work. And you have to own land to deploy wind that remains parasitic.

          • OpenSourceElectricity says:

            Lignite plant in the 1980′ or 1990’s also never payed 10% interest, they payed 2-4% interest. And I doubt the frackers in the US are able to pay 10% of interest on their invested / lent capital.
            10% are usually neccesary to pay those projects which fail. (which happens more frequent with fossile fuel as it seems), long term average received interest from investments was much, much lower. Long term stable (average payed) interest rate is inflation rate+growth of productivity.
            Here some interview about calculation in a similar project. http://www.pv-magazine.com/news/details/beitrag/interview–the-story-of-phelan-energy-groups-abu-dhabi-solar-bid_100026210/#axzz4SEHaR5QX

          • Euan Mearns says:

            abundant, growing supplies of cheap fossil fuel

            Historic oil and gas projects paid rent and tax. European coal has been subsidised mainly because imported coal, surface mined, was so much cheaper.

          • gweberbv says:

            Euan,

            Japan is a zero interest rate economy since about two decades. This was not caused by energy prices/low ERoEI but by the burst of a huge speculative bubble in combination with a decline of the working age population (accompanyied by an increase in the number of pensioners). The latter leads to a stagnant demand for goods and services, thus it does not make any sense for companies to ask for credit to expand their capacities. In such an environment the ‘natural interest rate’, which does not overstimulate the economy but also does not lead to slow down is *negative*.

            Now a good portion of the global economy is trapped in a similar situation. But with the difference that now in Europe it is mainly fiscal austerity that emulates the falling demand for goods and services that in Japan is caused by too few young people and too many old ones.

            Prices for energy and other commodities for sure played their part in the crisis of 2008. But I doubt that there is any connection to what is happening now.

          • Euan Mearns says:

            Gunther, there is no doubt truth in what you say. But Japan is an energy poor, overcrowded islands with I’m guessing a very conservative immigration policy. Europe is fast approaching same situation. That is why Merkel decided to steal the future prosperity of Syria to help guarantee the future of Germany. The US economy powers along based on migration and an abundance of energy.

            What I wrote about energy and rent is of course over simplified. But in the big picture, economic and population growth is underpinned by energy growth.

          • OpenSourceElectricity says:

            @ Euan,
            When I look at the paralel marktes of fossil fuels, I see for wind and solar where there are low amounts of red tape, for solar prices varying between 3ct/kWh in MENA with high irradiation, and 5,5ct/kWh in Danmark with very low irradiaton, leading to something liken 50-100$/barrel based on the kwh thermal, or 25-50$/barrel when calculated in electricity with power stations with 50% efficiency for over the thumb calculations. (And the power plant for 0$/kW for capacity costs and O&M)
            With 8000kWh thermal in coal, this would be equivalent to coal prices of 240$/t to 480$/t for the thermal equivalent of solar power in MENA, and 450$/t for solar power in Danmark. 0r 120-225$/t for electricity with 50% eficiency and free coal pwoer plants.
            For wind the low red tape prices are between 2,5ct/kWh in Morocco for high wind areas and 7-8 ct/kWh in low wind areas in germany’s south. Which leads to similar results.
            Which tells us that every rise in price for fossil fuels, or any reduction in prices for wind or solar power will shift ever bigger parts of the market to other ways of production.
            Prediction tells a price reduction of 10% per year for solar power (which I would translate in no reduction for the next 3 years, and then another slide of prices), and wind power equipment producers commit themselves to bring down prices per kWh by 9% per year.
            If this happens in the next 3 years, it will ultimately break the backbone of thermal power generation, and make this industry collapse. Still tha collapse will take two decades. Variabillity will not stop the process.
            I know this is a uncomortable analysis result for those who commited themselves on oil and nuclear industry.
            Everybody is free to come to a different analysis result. We will all see how things go on in the next years (hopefully)

          • Euan Mearns says:

            If this happens in the next 3 years, it will ultimately break the backbone of thermal power generation, and make this industry collapse.

            I agree with that and our grids will collapse too. The FF generators will have to be rescued by The State and all the savings made by cheap renewables will be lost in the chaos.

          • OSe

            I am not sure how often I will need to keep repeating this. However as the links GW posted about the Danish solar project, that 5c/kWh is the surcharge.

          • OpenSourceElectricity says:

            I do not see collapsing grids. Wind and solar can be regulated in seconds. Just expansions of grids. There were some improvemts regarding the amout of power and distances as far as power lines are concerned during the last 60 years. Many people did not notice them because they were not used in their direct neighbourhood.
            A plant where the input materials cost more than what the output of the factory is worth should never be rescued, be it a usual plant or a power plant. If price reductions for wind and solar will go on, this will happen for fossil power plants most of the time. which means power plants which need hours per year of profitable power sales will die. Plants which can live with fewr year due to low capital costs might survive, depending on the speed of grid expansions or storage costs.
            There is no point in burining a ton ol which costs >120€/t when it has reached the storage of the power plant to prioduce electricity with a market value of 80€.
            Which means in most regions of the world, there is no market for fossil powerd plants when the sun shines or the wind blows. which results in a “year” tht shrinks from 8760 hours to something like 2200 hours.
            Which means the logical “base load” generator for the times when either fossil powerd plants OR storages OR long grid connections have to power local demand is a open cycle gas turbine or similar. And the equivalent to todays “peaker plant” is a diesel generator or a battery, running few hundred hours per year or not at all.
            This is the logical result when new wind or solar capacity can deliver power below fuel costs of fossil power plants. Which will happen if prices will keep falling the next years.

          • OpenSourceElectricity says:

            doug,…. it is the average price payed for the electricity from these plants in Danmark, not the price premium. read the original texts in the german law, according to which the kWh are payed. Seems it is neccesary to repeat this endless for you.
            The “surcharge” is the average payment, which is caluculated as it was previously shown:
            there is a price premium which is calculated by the 5,37ct/kWh (a) – average wholesale price per kWh (b).
            The owner of the plant gets actual wholesaleprice (c) +(a-b). So if during delivery the wholesaleprice is above average, he might get a bit more than 5,37ct/kWh, if it is below average wholesaleprice, he might get a bit less than 5,37ct/kWh.
            If you thin that “surcharge” is not the right name for this price, complain to the one who translated it to english.
            But what the contractor will get i s 5,27ct +/- deviation of actual to average wholesale price.

          • OSE

            Take your own advice. It is the price surcharge, as per your linked to texts. Oh wait, links?

            It is absolutely not the wholesale price.

          • Also

            i would love to see a contract that guarantees the wholesale price.

          • Euan Mearns says:

            Hi OSE and DS, even though this is a thread on the OPEC feeble deal, I’m intrigued by this exchange. If I understand correctly, DS maintains that the low bids are for the subsidy and not the subsidy+price. Is that correct? This is a really important point! Please continue in normal civil manner since not many seem interested in OPEC.

            We need to have a dedicated thread on this. Not sure how to approach it.

          • OpenSourceElectricity says:

            Euan, german law is clear on this point.
            the bid price is equivalent to the feed in tarif in the market premium model.
            Every month the avarage wholesaleprice is calculated. lets say its in January 3 ct. so if the bid is 5,38 ct, during february the bidder gets wholesaleprice + (5,38-3)ct/kwh. If the price is higher while he delivers, he gets more, if the price is low when he delivers, he gets less than 5,38 ct/kwh. If in february the wholesaleprice in average was 1ct/kwh, the bidder gets in march wholesaleprice +(5,38-1ct) so wholesaleprice +4,38 ct. If in march average wholesaleprice is 6ct/kwh in average, the bidder gets in April the wholesaleprice without premium.
            In average, since price curve is flat especially during summer, the price will be quite exactly 5,38ct/kWh.

            Problem seems to be the translation.
            The pricing model is well known here in germany since it is used now for about all produces above a certain power generation. but to follow the way from the offer threw the not well readable documents to the rule in the EEG which calculates this price in the known way is difficult even for a native german speaker.

          • Euan

            The problem the word “surcharge” (in English and equi. in German). What exactly this means is not clear to me but certainly it cannot be a wholesale price. However OSE answers the question exactly for us.

            OSE has stated
            “it is the average price payed for the electricity from these plants in Danmark, not the price premium”

            Now we get OSE saying that (sic)
            “Euan, german law is clear on this point.
            the bid price is equivalent to the feed in tarif in the market premium model…
            Every month the avarage wholesaleprice is calculated. lets say its in January 3 ct. so if the bid is 5,38 ct, during february the bidder gets wholesaleprice + (5,38-3)ct/kwh.”

            ??? I will let you make up your own mind but I maintain that the price quoted in the reports is 5 ct that then gets added onto wholesale price afterwards. So if the wholesale price is -25, then the operator is only charged for -20 but if it is 0, then the operator gets + 5.

            Another example of this issue is the poor reporting around Kriegers Flak. According to Vattenfall, their CAPEX is 1.1-1.3 billion . The reports are putting the electricity at around 50 €/MWh. Many outlets have reported this as the price of the electricity out from it but Vattenfall specifically do not mention that (OPEX anyone?). If we did take it as the wholesale price, then it has what, a 10 year lifetime? It does not add up as reported by the outlets.

          • OpenSourceElectricity says:

            @dounoug..
            There would be a premium of 5ct if in the previous month the verage price would be 0,38ct/kWh.
            And at a negative price there is a likeliehood that the producer switches off. especially if the negative prices last longer than 6 hours, because then no premium will be payed any more : https://www.next-kraftwerke.de/wissen/direktvermarktung/6-stunden-regel
            If you do not believe, you will have to learn german fluently and read the texts yourself.

          • OSE

            You stated

            “it is the average price payed for the electricity from these plants in Danmark, not the price premium”

            However from your German law texts you state
            “Euan, german law is clear on this point.
            the bid price is equivalent to the feed in tarif in the market premium model…
            Every month the avarage wholesaleprice is calculated. lets say its in January 3 ct. so if the bid is 5,38 ct, during february the bidder gets wholesaleprice + (5,38-3)ct/kwh.”

            You cannot have it both ways.

            The latter agrees with my POV. The price being quoted is not the wholesale price but what is added to the wholesale price.

          • OpenSourceElectricity says:

            @donoug…. it becomes boring
            a) I have it both ways. the tender was a “interstate” or how ever to translate “Länderübregreifend” tender. It happens that the winner sits in Danmark, but he is payed from germany according german law. Next tender in Danmark will allow german bidder in return.

            b) the price in the bid (“Zuschlagswert”) is NEITHER the wholesaleprice NOR the price premium. It is the base from which the price premium towards the wholesale price average of the month is calculated.
            If the price premium would be calculated not every month but every half hour (to fid to the EEX time frames) it would be exactly the feed in tarif.

            The idea is to have a feed in tarif which rewards deliviering power at times when wholesale prices are higher. The effect outside biomass is negible so far.

          • gweberbv says:

            Euan,

            if you want to end this debate, maybe you (or someone else) can contact these people: https://www.cleanenergywire.org/
            They are happy to provide the public with information on German energy policy. And maybe the audience of this blog will trust them more than OSE or me.

            However, I think the debate about this particular tender leasing PV prices below 6 Eurocents/kWh does not make too much sense at all. It was just 50 MW of installed capacity in a country that so far was nearly untouched by PV development. Thus developers can look for the best suited locations to build up their PV plants. You cannot scale this specific conditions up by a factor 100 or so.

            By contrast, in Germany there is already a lot of PV (=best locations are already used). And the recent tenders excluded arable land (with was not exluded in Denmark). Here we find that PV is now near 7 Eurocents/kWh: http://www.pv-magazine.com/news/details/beitrag/german-pv-tender–prices-fall-below-eur-007-per-kwh_100027166

        • But

          GW your send link is again not helpful as it states tariff. Also
          “The most popular capacity sizes for the successful bids were between 5 to 10 MW,”

          Now Fraunhofer has this to say about these capacities
          “New PV systems above 10 MWp no longer receive financial support.”
          &
          “For roof systems put into operation by Dec. 2016, the feed-in tariff is up to 12.31 €-cts/kWh guaranteed over the next twenty years, independent of size. For free-standing systems, the feed-in tariff is set by the licensing agreement. At the last licensing round of the Federal Network Agency, a mean value of 7.23 €-cts/kWh and a minimum value of 6.8 €-cts/kWh for small free-standing PV systems (<10 MW) was set as of Aug. 1, 2016"

          • OpenSourceElectricity says:

            Where is the problem ? 5-10MW is <10MW.
            Best tender results till 1.8.16 was 7.23 ct/kWh within germany where free sttanding systems are only alowed on old land fills and similar places, or along a narrow stripe parallel to railroads and highways.
            So places where construction is expensive (landfills keep moving usually, and along highways and railroads is often uneven because they run on dams or in cuts, rarely even with the ground. And power connections are often far away. Which makes the systems more expensive than in danmark, where every flat piece of ground next to a midvoltage cable can be used, pressing down costs.

  4. Anna Mac says:

    Suspect the lesser producers expect to gain consequence through association with the major players and maybe apprentice with the experts. Or, senior ministers crave better vacation destinations.

    I missed the nuance: Why did OPEC bother meeting? Except for the really impoverished small fry and the mainstream media, every energy professional and bureaucrat already has these same numbers. What’s the end game?

  5. David B. Benson says:

    Of course the climate projections require all oil production cease as soon as may be.

    • Greg Kaan says:

      It all depends on which climate projections based on which climate models based on which assumptions on atmospheric behavior, natural carbon absorption rates and greenhouse gas forcings. I am yet to be convinced that the IPCC models reflect reality to any great extent.

  6. Pieter Van Rensbergen says:

    Fascinating to read how a post on OPEC and oil prices turns into a lively discussion on renewables and its economics. A sign of the times for the oil industry?

  7. Pingback: Oil Production Vital Statistics November 2016 | Energy Matters

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