Shell’s outlook for oil production and prices: why $70 per barrel matters
Malcolm Brinded, one of the top executives at Royal Dutch Shell who is hanging on to his job in the shake-up ordered by new chief executive Peter Voser, gave an interesting presentation last week setting out the company’s view of the outlook for the coming decade.
His message: Shell can grow its production out to 2020, but the oil price will need to stay above about $70 to make all of its investments profitable.
Number, image and quote of the week
Number of the week:
The amount by which Japan aims to cut carbon emissions. This drew criticism from China and environmental groups, among others, partly because the use of a 2005 baseline means Japan’s reduction will be only be 8 per cent of 1990 levels; compared to 20 per cent the EU is committing to. (More on emissions baselines).
Image of the week: Shell’s break-even point for investments
Quote of the week:
Tony Hayward, BP chief executive, discusses the oil price at the launch of the company’s latest statistical review. The price could in practice move well away from that rational level, he added.
Cap-and-trade versus everything else
How should countries reduce greenhouse gas emissions? The Economist supports the view that carbon taxes are a fairer and more transparent approach to limiting greenhouse gas emissions than cap-and-trade systems.
It is not alone. The criticisms of cap-and-trade and its associated give aways can go on forever: Give away too many allowances to industry and you’re providing corporate welfare. Ensure those corporations pass on their free allowances to customers, and you’re removing incentives for consumers to use less. Don’t give away any allowances, and you’ll never hear the end of how it is killing industry, or adding a huge cost to families.
By Izabella Kaminska
Having introduced the concept of compartflation here, we bring you the following ‘no-win’ situation for oil prices and the economy, as observed by Monument Securities’ Stephen Lewis on Friday:
…the interaction between oil prices and global demand is more complex than it was thirty years ago. Lower oil prices this year have helped to support households’ real incomes in the consuming countries and have contributed to the resilience of these households’ spending.
The Source: Speculation; fracking defended; wind power affected by climate change
On Energy Source:
Opec opts out of the rising demand party
Brazil’s elusive pre-salt riches
Markets: Oil slips back below $72
US natural gas producers defend fracking
Speculation, and how high is too high for the economy?
What is happening to the Saudi oil production as Khurais comes on stream?
Elsewhere:
Towards a low-emission energy standard
Small nuclear reactors and the Renewable Energy Standard (Energy Outlook)
Farm state wish list could hold key to Waxman-Markey bill
They oppose regulation by the EPA (Environmental Capital/WSJ)
Bernie Sanders needs a lesson about the curve
The proposed legislation for floating storage disclosure misconstrues the forward curve (The Barrel/Platts)
BP chief on peak demand
Energy efficiency means OECD demand will keep declining, says Hayward (Times Online)
Wind farm energy up in the air over climate change
Climate change may be affecting wind force (Guardian)
Behind oil’s surprising surge (BusinessWeek)
Dollar, inflation hedging and Opec
Virtual power plants could tame coming grid chaos
How to cope with variable output (New Scientist)
Opec opts out of the rising demand party
Yesterday the IEA revised its 2009 oil demand forecast up slightly, and a couple of days earlier the US Department of Energy also raised its forecast by a much tinier amount. But as both of these increases followed many months of consecutive downward revisions, they played well in an already excited oil market.
Today, just as oil prices began to subside a little, Opec came out with its monthly report where it puts its demand forecast at 83.8m barrels per day, compared with 84.03m in its May report.
Brazil’s elusive pre-salt riches
Brazil surprised the industry earlier this week by saying new regulations are being introduced quickly, and auctions for concessions in the country’s massive offshore pre-salt oil fields would happen next year.
The legislation now being prepared contains a measure that international oil companies hoping to get some of the pre-salt action have been dreading: it will create a 100 per cent state-owned company that will then lease the fields to Petrobras and others.
Petrobras, although state-controlled, is 60 per cent owned by mostly foreign shareholders, and the country’s left-wing government is unenthusiastic about sharing the huge gains from the pre-salt fields with others – hence the creation of the new company. The plan is that the new state-owned company will be able to grant concessions without going to tender, which industry observers believe will favour Petrobras. For international oil companies, however, the outlook is less certain.
Oil fell back below $72 a barrel on Friday as a stronger US dollar encouraged investors to take profits gained over the past week.
After a three-day advance crude hit $72.68 on Thursday, the highest level since October 20, leading many commentators to argue to market was now over bought.
“We retain our view for a strong correction in the price of oil from current levels, albeit we push back the bulk of this correction to July on the assumption of a slow release of oil tied up in floating storage,” said Harry Tchilinguirian of BNP Paribas.
“On the fundamental side, a high level demand cover by inventories in OECD countries, OPEC slippage in compliance with stated targets reductions in supply and still weak economic activity combine to put downward pressure on the oil price.”
As crude oil is denominated in dollars, its price is often negatively correlated to the US currency, with the greenback broadly lower on Friday.
US natural gas producers defend ‘fracking’
For US natural gas producers, hydraulic fracturing has been among the most important inventions to grow production in recent years. It has enabled producers to use water to break rocks and tightly packed sand formations to create channels to enable natural gas to flow through and up to the surface to bring to market.
Yet the process is now under threat, given environmentalist concerns that it contaminates drinking water. And, as water becomes an increasingly precious resource, more and more people want to ensure it is saved for critical uses and the quality retained.
The House Subcommittee on Energy and Mineral Resources held a hearing this week on this increasingly controversial process – at which both sides were heard.
But for the energy industry, this was just one more example of how US lawmakers are threatening domestic energy supplies in the rush to preserve the environment.
- Oil surges on raised forecast of demand
Market witnessing better ‘fundamentals’ (FT)
- Chinalco’s chief defends Rio bid
Deal collapse was ‘out of our control’ (FT)
- Analysis: Rio-Chinalco deal: China licks its wounds
Rejection will deter Beijing from making big offers abroad (FT)
- Gazprom in talks with Iran and Pakistan on pipeline
Russian company’s involvement could kick-start project (FT)
- Natural gas gains more than 6% as supply rise misses estimates
Increase is biggest since June 1 (Bloomberg)
- Climate spending poised to propel AEA Technology
Energy consultancy digesting recent PPC acquisition (FT)
- TransCanada to keep majority stake in $26bn Alaska pipeline
Company agrees with ExxonMobil to raise development spending (FT)
- Lex: Gazprom, Oil Price Rally, and What Chinalco Does Next (FT)
- Editorial comment: Climate change for richer and poorer (FT)
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.
