Daily Archives: May 27, 2009

Sheila McNulty

The shareholders of ExxonMobil and Chevron have, once again, chosen to focus on their shareholder returns instead of hot-button issues such as executive compensation, renewables and environmental protection.

While executive compensation and governance issues have taken shareholder meetings in Europe by storm this season, the annual meetings of both Exxon and Chevron were far less reform-oriented.

After company executives recounted the successes of the past year, shareholders had their say. Chevron’s meeting was in California and Exxon’s in Texas, but the end result was the same.

Kate Mackenzie

McKinsey has joined the oil crunch gang, pointing in a recent report to both the prospect of rising oil prices as demand improves, and the underlying increase in demand from China and other emerging markets:

As of late April 2009, the price of oil stood at around $50 a barrel—down from a high of nearly $150 a barrel in July 2008, though many observers doubt that oil demand will rebound enough after the current economic downturn to prompt another price shock. However, research from the McKinsey Global Institute conducted in 2008 and 2009 reveals the potential for a new spike in the price of oil between 2010 and 2013.

As Paul Kedrosky notes, the news is not all bad: McKinsey say it could be avoided with immediate efforts to redirect demand. The outlook for stability is a little depressing: after all, Opec and the IEA have both, thought from opposing camps, had stability as a common goal since the 1970s.

At least now Sarkozy is on the case.

Related stories:

Energy crunch time (FT Alphaville, 27/05/09)
IEA puts a number of oil crunch: three years to go (FT Energy Source, 26/05/09)
The disadvantages of low oil prices, a primer (FT Energy Source, 20/02/09)

Kate Mackenzie

Energy crunch time

Geoengineering: you’re probably already doing it

Opec: $75 – $80 oil is okay, says Naimi

Shell confirms shake-up; vague on job cuts

Elsewhere:

Resources: Navigating the natural resources curse Why a big oil find can be bad for poor countries (Freakonomics/NY Times)

Emissions: Stern breaks the east-west deadlock on who’s responsible for CO2 George Monbiot gets an interesting answer from Nicholas Stern on emissions importing (Guardian)

Ethanol I: If the ethanol lobby really believes in biofuels, why aren’t there more E85 pumps in corn-growing states? And other criticisms of corn ethanol (BusinessWeek)

Ethanol II: Big oil embracing biofuels? As they scale back investment in other renewables (NY Times)

China: China’s Yuan: The next reserve currency? The evidence is mounting (BusinessWeek)

Efficiency: Jevons paradox does apply to cars Fuel efficiency will increase use. Just look at the Tata Nano (Bit Tooth Energy)

The International Energy Agency has posted its recent report on the impact of the financial crisis on global energy investment on its website. The analysis was first submitted to the G8 Energy Ministerial meeting in Rome last weekend, but the charts and detailed commentary are worth a closer look.

The agency’s conclusions are most neatly summed up in the following table:

IEA Total Investment plans of 50 leading oil and gas companies

Kate Mackenzie

Stephen Chu has been asked about geoengineering before, especially since White House science advisor John Holdren said it ‘had to be looked at’. Yesterday he was asked about it again in London and said there were no plans “at this time”, but he proclaimed the effectiveness of one form of geoengineering: painting roofs white.

“Now you smile, but if you look at all the buildings and make all the roofs white, and if you make the pavement a more concrete-type of colour than a black-type of colour, and you do this uniformly… It’s the equivalent of reducing the carbon emissions due to all the cars in the world by 11 years,” he said.

“It’s like you’ve just taken them off the road for 11 years. It’s actually geoengineering.”

Kate Mackenzie

Updated: A big restructure of Royal Dutch Shell by its incoming chief executive Peter Voser has been confirmed and it is set to affect 24,000 jobs, although the company will not say exactly how many of those jobs will be cut. As expected, the gas and power unit is being merged with exploration and production into a broader upstream business; oil sands, which had been separate, will also be included. The new upstream business will be divided into two units: one covering the Americas and one for the rest of the world.

A total of 22,000 people work in upstream, and Shell has indicated there will be job losses from among this group as the three groups become two upstream units.

Also affected are 2,000 people in The Hague in support functions such as administration, corporate affairs and IT. Many of those jobs will either be cut or “redistributed” to specific parts of the business.

Here is the company statement, with links left intact:

Shell’s Upstream activities are currently managed in three separate organizations – Exploration & Production, Gas & Power, and Oil Sands. Upstream will now consist of two businesses: Upstream Americas covering North and South America, and Upstream International covering the rest of the world. Marvin Odum, currently Shell’s Executive Vice President for EP Americas, will become Director for Upstream Americas.  Malcolm Brinded, currently Shell’s Executive Director Exploration & Production, will become Executive Director of Upstream International.

Kate Mackenzie

When an Opec meeting is held in Vienna, it includes a curious ritual for reporters: jogging alongside Saudi Arabian oil minister Ali Naimi early in the morning the day before the cartel’s decision for any hints of what may come. Our own commodities correspondent Javier Blas was up and ready with his running shoes at 7.30am to try and get some insight. Naimi told him he sees demand pushing prices up and that the cartel may not have to cut production this time around.

More from the story on FT.com (emphasis ours):

Mr Naimi added that Opec did not need to cut its production, arguing that the cartel would “stay its course”.

Opec, which produces about 40 per cent of the world’s oil, has reduced sharply its production since September to combat the decline in oil prices.

The oil market is likely to keep its options open before Thursday’s meeting despite the comments by the cartel’s de facto leader and other ministeres as Opec has surprised traders in the past, reversing its course at the very last minute.

Opec output cut’s campaign has so far brought its fruits, with prices jumping above $60 a barrel from a 4-year low of $32.7 hit in mid-February. In early trading on Wednesday, West Texas Intermediate, the US oil benchmark, jumped to a fresh 7-month high at $63.05 a barrel, up 60 cents. Brent rose 32 cents to $61.43.

Mr Naimi said that the global economy has now recovered enough to cope with even higher prices, around $75-$80, and added that level – a tacit target for the kingdom – might be reached later this year as oil demand continues to improve.
“The price rise is a function of optimism that better things are coming in the future,” Mr Naimi told reporters during his morning jogging, adding some customers were now asking Riyadh for more oil. “Demand is picking up, especially in Asia.”  When asked to describe how large was the increase, he said: “It is a good pick up.”

Mr Naimi’s comments come as many traders in the physical oil market are far less optimist, pointing to still weak demand outside Asia and record high inventories. The International Energy Agency, the western countries’ oil watchdog, forecast oil consumption will contract this year by 2.6m barrels a day, the steepest drop since 1981.

Mr Naimi conceded, nonetheless, that all the increase in oil prices was “not purely fundamental”, suggesting that speculative money was also a factor driving prices.

Yesterday we wrote about comments from Banc of America Securities-Merrill Lynch which suggested $70 – $80 would be tolerable, but higher than that would put pressure on OECD countries.

Related stories:
Naimi says world can live with $75 – $80 oil
(FT, 27/05/09)
Oil prices and the recession redux, and what it could mean (FT Energy Source, 26/05/09)

James Fontanella-Khan

- Shell clears way for senior shake-up
Oil group expected to unveil a wide-ranging restructuring (FT)

- Obama supreme court pick discussed climate-change stance
Sotomayor indicated government has right to curb greenhouse gases (Platts)

- Rio Tinto to hold off revising Chinalco tie-up
Revision only after shareholder meetings are over (FT)

- CEOs urge clarity in emissions pact
Business leaders call for certainty from December’s Copenhagen agreement (WSJ)

- Lombard: Collateral damage
Linda Cook’s move has consequences beyond the energy sector (FT)

- Shell showing three into two will go
Peter Voser not wasting any time in re-shaping the company (FT)

- BP and Russians put ceo nominees forward
At least two outsiders to enter at TNK-BP (FT)

- Lex: BP in Russia
‘Like watching dogs fight under a carpet’

- Gazprom unit tightens hold on Sibir
Oil group offered an exit plan (FT)

- Lex: Gas pipelines
Race to build a new pipeline in southern Europe is hotting up (FT)

- UK behind US and India on renewable energy spending
UK is lagging behind on renewable energy investment (FT)

- Power-sharing accord at Meralco
An uneasy alliance at the top of the power utility (FT)

- Chevron expected to come under fire over lawsuit in Ecuador
Oil company facing potential liabilities of $27bn (FT)

- Uskmouth plant faces ownership by creditors
Could be owned by its creditors for the second (FT)

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