Daily Archives: May 26, 2009

Kate Mackenzie

Updated: A paper by James Hamilton argued that the recent oil price shock was a key factor putting the US into recession – at least between Q4 2007 and Q3 2008. It received a lot of coverage, including some from us.

Merril Lynch’s London-based commodities team has joined the club:

In our opinion, the Great Recession of 2008-09 is the result of a simultaneous
shock of surging energy prices and mounting credit problems (Chart 8). The crisis was precipitated by the collapse of Lehman Brothers, but it was the oil price spike that killed emerging market growth. We firmly believe that the world economy would not have contracted so sharply in 4Q08 without the tremendous oil price spike to $150/bbl that occurred in 3Q08 (Chart 9). [Scroll down for charts]

But what’s interesting is their analysis of what this could mean. The central problem of this crisis, they say, is “a fundamental misallocation of capital”.

Sheila McNulty

Ali Moshiri, president of Chevron’s African and Latin American exploration and production businesses, sees the US move to remove some tax benefits for the oil and gas industry as setting a dangerous precedent.

He says the best way to discourage investment in any country is taxation. And a lot of countries look at the US attitude toward these issues before formulating their own. How the US funds its stimulus package might well come back to haunt US companies as they seek fair treatment abroad. “Taxation is a quick solution to the problem, but a long term danger,” he says.

Kate Mackenzie

Today we’ve heard a couple of rumours that the departure of Shell’s gas and power chief, Linda Cook, came ahead of some major changes to the company’s structure.

One of those sources, both of them at Shell, said that the exploration and production unit was likely to merge with the gas and power unit.

Kate Mackenzie

Oil prices caused the recession, redux; and what it could mean for recovery

NRG argues Exelon is not a done deal

Markets: Opec, North Korea weigh on oil prices

Nuclear sector ramps up efforts to gain government support

Oil price warnings gather pace: IMF, Saudi Arabia, Opec join in

Anadarko rates the US as a risky prospect
Elsewhere:

Gas: The halving of natural gas rigs is not reflected in production output says consultancy Bentek Energy, attributing this to innovation and improvements in efficiency (Platts)

Geopolitics: Up to 20bn barrels of oil lying under the sea off Cuba’s northwest coast could help thaw relations with the US (Washington Post)

China: More

Cap-and-trade: Why is the government proposing to give away 85% of carbon permits, despite previously saying any giveaways would amount to corporate welfare? (WSJ)

Ken Saro-Wiwa and Shell The executed Nigerian activist’s son on why he wants this week’s court hearing to bring about understanding, rather than retribution (Guardian)

Book review: Investment tips and Absolute Peak Oil in Stephen Leeb’s ‘Game Over’ (SeekingAlpha)

Sheila McNulty

NRG, the US power generator, is objecting to talk by Exelon that it will have its hostile takeover of NRG completed by the end of the year to form the largest US power producer.

NRG, which has been pushing back against the $6.2bn bid, notes that the approval from FERC (Federal Regulation and Oversight of Energy) regulators, granted last week, in no way guarantees the deal will go through. Indeed, NRG says, numerous approvals still must be obtained:

The proposed transaction must receive approval from both NRG and Exelon stockholders as well as approvals from the Department of Justice and the Nuclear Regulatory Commission. Exelon must also obtain regulatory approval from the state public utility commissions of California, New York, Pennsylvania and Texas, as well as file a notice in Illinois.  A Massachusetts law may give the state public utility commission jurisdiction to review the proposal and, if applicable, would require a high level of shareholder approval.

Exelon hailed the FERC approval as a milestone. But NRG notes that FERC approval has been granted in the past, only to have a transaction fail.

Oil prices dropped by more than $1 a barrel while gold sank below the $950 an ounce level on Tuesday as commodity markets staged a broad retreat.

Nymex July West Texas Intermediate lost $1.89 at $59.78 a barrel after ending trading in New York on Friday at $61.67. The Nymex exchange was closed on Monday for a US public holiday.

ICE July Brent fell $1.33 to $58.88 a barrel.

Ahead of the Opec meeting this week, comments from Saudi Arabia that that the oil producers’ group was likely to “stay the course” was seen as an indication that current production quotas would be maintained.

Kate Mackenzie

The nuclear industry should be onto a good thing right now, as governments struggle to reduce emissions around the world. But it is showing signs of anxiety as subsidies and quotas around the world are directed towards alternative energy such as solar and wind power.

Vincent de Rivaz, the chief executive of EDF’s UK subsidiary, liked to make a point of arguing that government subsidies were not needed for nuclear power.

He likes to ask: “Look at my business plan and tell me, where is the line for government subsidy? It is not there.”

However now Mr de Rivaz says without financial support from the government, no new nuclear power stations will be built.

Sheila McNulty

Anadarko Petroleum, one of the biggest US independent oil and gas companies, has decided to err on the side of caution – something it wishes the government would do when setting energy policy.

With natural gas prices far below last year’s highs and the economic downturn and banking crisis contributing to a credit squeeze, the Texas company just finished an offering of 30m shares of common stock to raise about $1.3bn operating funds.

Jim Hackett, chief executive, told the FT that if natural gas prices continued to soften, the company would have had to look for funding later in the year and, by then, the markets could have worsened. “We thought we’d take some execution risk off the table,” he says.

Kate Mackenzie

The warnings are not new, but they’re getting louder. Ever since oil prices began their plummet from July’s peak, concerns about investment in ever more difficult oil sources have been growing.

The IEA last month warned that falling investment could lead to an oil supply crunch/price rise in 2013 or 2014, and last week it made a much more plaintive warning – and moved it closer, to 2012.

- BP moves to settle TNK clash
UK group nominates Russian as new chief (FT)

- Rio Tinto agrees 33% cut in iron ore price
Move sets benchmark after prolonged negotiations (Reuters)

- Germany set to cut industry power bills
Plan could fall foul of Brussels (FT)

- Oil market cautious before Opec meeting
Saudi oil minister’s comments suggest no change in output (FT)

- Saudi warns of $150 oil within three years
G8 energy ministers urge more investment in capacity (FT)

- EDF chief calls for support for nuclear industry
Aims to compete with other low-emission sources (FT)

- Pressure rises on Miliband’s energy policy
Industry urges support for nuclear power (FT)

- Nigeria hopes to learn from Shell ‘mistakes’ in oil-rich region
Plans to revive Ogoniland production face legacy of mistrust (FT)

- Ogilvy Earth veers away from traditional role
Will create practice to launch sustainability-themed campaigns (FT)

- Business Life: Old law exumed by rights fighters
Chevron case highlights complexity of legal actions (FT)

- Lex: PetroChina

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