Daily Archives: June 5, 2009

Kate Mackenzie

QUOTE:

National oil companies are like condoms: they aid inflation, retard production and give you a false sense of security while you are being screwed.

- Head of an unidentified national oil company at this week’s NOC conference in Abu Dhabi

IMAGE:

McKinsey’s global energy demand interactive guide

NUMBER:

$70

- Difficult to compete with a new seven-month high for crude

Kate Mackenzie

The Waxman Markey bill (or American Clean Energy and Security Act, as it is more properly known) has plenty of detractors, as battles in the environmental blogosphere show.

There are those who oppose cap-and-trade schemes outright; those attacking the giving away of the initial allocations instead of auctioning them all off; and those who believe that the 25 per cent renewable energy goal will be ineffective.

At the same time, some good defences to all three broad criticisms have been put forward – for example, economist Robert H. Frank wrote about the benefits of putting a market mechanism on emissions, and Robert Stavins at Harvard explained why the allocation giveaways are not necessarily a serious impediment to a cap-and-trade scheme.

But the most compelling of the anti-ACES arguments centre around carbon offsetting and the problem of ‘additionality’.

Kate Mackenzie

A couple more good reports for the renewable sector were published today, both suggesting that credit conditions are beginning to improve.

Barcap, in its global demand forecast for European renewables, is raising its view of the solar sector to positive, and maintained a positive on the wind sector. Energy efficiency, however – which includes fuel cells, tidal power and sustainable buildings – remains at neutral.

Barcap says credit conditions are improving, and:

As the expectation for the availability of credit has begun to return, companies in the renewables segment appear to be some of the first to benefit.

Sheila McNulty

Despite the sharp drop in demand for natural gas, the world’s biggest international oil companies are continuing to make massive investments in liquefied natural gas (LNG) projects.

For they must invest now if they are want to meet rising demand projected in coming years and grow a niche business for themselves.

These massive LNG production projects are, by their very nature, long-term investments that require at least five years and billions of dollars and superior project management skills to develop.

The majors tend to be well-equipped to carry them out, given decades of project management experience, the technical know-how, and deep pockets backed by strong financing capabilities.  And they want to keep this market to themselves.

Kate Mackenzie

On Energy Source:

Tanaka on demand destruction and long-term supply

The mysteries of Ghawar

Markets: Oil challenges $70

Climate change sceptic Freeman Dyson interviewed

Valero loss highlights sector difficulties

New law eases move to electric vehicles in Houston

Renewables manufacturing, and jobs, shift to developing countries

Elsewhere:

Can a carbon market save the orangutan? (Scientific American)

Green sector workers feel safe in jobs (Reuters)

Everything you wanted to know about the Waxman-Markey energy-climate bill – in bullet points (Grist)

Jevons and the six-day car crash (Gregor)

House hearing on hydrofracturing (Bit Tooth Energy)

Learning to live with climate change will not be enough (Yale 360)

Fortis chief wants more government mandates (Platts)

Kate Mackenzie

Nobuo Tanaka, the executive director of the IEA, spoke on Wednesday about demand destruction:

Overall, he said some demand had been permanently destroyed by the economic crisis and last year’s record oil price, which peaked at $147.27 a barrel in July.

He cited the closures of major car manufacturers and a shift toward more efficient vehicles.

“These are certainly irreversible trends … especially in OECD countries,” he said. “We think that the very high prices of last year certainly destroyed some part of demand because there are many businesses changing their behavior.”

Even more interesting is what he said today. From Dow Jones:

The price of crude oil is bound to rise “higher and higher” in the long term, as supply tightens and demand grows, Nobuo Tanaka, executive director of the International Energy Agency, said Friday.

Tanaka said he hasn’t yet seen a recovery in the fundamental demand for oil,
and that demand may not rise as such even when the global economic recovery
begins.

‘Demand is in the toilet’ (FT Alphaville, 03/06/09)
Clouseau-esque market-moving demand commentary, IEA edition (FT Alphaville, 14/05/09)

Kate Mackenzie

The world’s biggest known conventional oil field and the jewel in Saudi Arabia’s reserves, the Ghawar field, is shrouded in mystery as Saudi Aramco keeps information on the field closely guarded.

A contributor to The Oil Drum, ‘JoulesBurn’, parses a great deal of available data about five early exploration wells in Ghawar, and what they imply for the entire field’s production.

The story riffs information recently released by Saudi Aramco, including an article for its corporate magazine published late last year, that focuses on these wells.

The author uses Google Maps, early reports on the field, an academic study and satellite images. They suggest four of these five wells are positioned near the centre of their respective areas, giving them an optimal chance at longevity, and that some wells are being re-drilled.

Crude oil prices maintained their assault on the $70 a barrel mark on Friday while base metals rose and gold consolidated around the $980 an ounce level as commodity markets stayed on course for a strong finish to the week.

Nymex July West Texas Intermediate rose 39 cents to $69.20 a barrel while ICE July Brent added 43 cents at $69.14 a barrel.

Traders cited upbeat forecasts from Goldman Sachs as a factor supporting prices. On Thursday, the investment bank revised up its year-end forecast for oil prices from $65 a barrel to $85 a barrel and also dropped its previous projection for a pullback in the next three months.

Jeffrey Currie, Goldman’s head of commodities research, said: “In all, we expect the rally we have just observed to be followed by three more stages, creating a four-stage rally in oil prices in 2009 and 2010.”

Goldman expects WTI to reach $95 a barrel by the end of next year.

“Unabated investment growth in commodities like crude oil will be fuelled further by such predictions,” said Tom Pawlicki, of MF Global.

“Oil prices have risen in the last few months largely as a consequence of a decline in investor risk aversion,” said Gareth Lewis-Davies of Commerzbank. “However, the upward move in prices is totally disproportionate to the reductions in inventories seen so far. Only US gasoline inventory levels offer true price support as crude oil and other product inventories are currently at high levels.”

Read the full commodities report on FT.com

Kate Mackenzie

Yale 360 has an interview with Freeman Dyson, a Princeton physicist and ‘reluctant climate change sceptic’. A profile of Dyson in the New York Times in March caused outrage, much of it for giving such coverage to a sceptic.

Dyson does not style himself as an expert on current climate change studies, or even as particularly interested in mounting a campaign: “First of all, I am 85 years old. Obviously, I’m an old fuddy-duddy. So, I have no credibility. And, secondly, I am not an expert, and that’s not going to change. I am not going to make myself an expert.” Dyson believes in some of the most common climate change sceptic arguments, including that recent global warming is part of a trajectory going back several hundreds years.

However his criticism of current climate change theory is largely a disgreement with the whole academic approach to the subject. He says the science around prevailing climate change view relies too much on models and not enough on other disciplines such as biology.

Sheila McNulty

Valero Energy’s warning that it will post a loss in the second quarter underlines the difficulties facing the refining sector. But analysts remain bullish on the company itself.

Valero is the US’ biggest refiner. As Bernstein Research points out in a recent note, Valero is clearly ahead of peers in terms of financial and operational performance.

The company’s robust balance sheet has allowed it to undertake strategic acquisitions while other US and European refiners are trimming capex to deal with the economic downturn.

Yet, as the second quarter warning indicates, the company is not immune to the economic downturn.

Energy Source is no longer updated but it remains open as an archive.

Insight into the financial, economic and policy aspects of energy and the environment.

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