What motivates companies to reduce greenhouse gas emissions and other environmentally damaging activities, when it sometimes incurs an extra cost? Environmental groups often accuse companies of cynical ‘greenwashing’ in their environmental campaigns, and it’s true that large companies will go to some lengths to reduce accusations that they contribute to environmental damage, even if their responses don’t go much further than new marketing campaigns. However it’s increasingly also motivated by keeping shareholders happy, as well as the public.
‘Socially responsible investing’ has been around for years now, but shareholders seeking information about a company’s assessments of its impact on the environment are not always solely motivated by altruism: concerns about the bottom line impact are also growing.
Reports that ExxonMobil is close to signing deals with three more customers for its PNG LNG project in Papua New Guinea mean that the project is now very likely to be approved in a final investment decision before the end of the year.
The deals, with two Japanese and one Taiwanese customers, if signed along with another planned contract with China, would account for the whole planned output of 6.3m tonnes per year from the project’s first two trains, as the liquefaction production lines are known. There is already talk of a third train.
PNG LNG is due on stream late 2013 to early 2014. By then, it could be joined by a second or third train at Woodside’s Pluto project on Australia’s north-west shelf. The first phase of Pluto is already well under way, and due on stream by the end of 2010.
James Hamilton, economist/blogger and author of probably the most comprehensive study on how energy prices can precipitate economic downturns, posts this chart of consumer sentiment (solid line) against how many miles can be driven per dollar spent – ie, a rough approximation of the gasoline price (dotted line):
So what does the divergence mean, given the dramatic gyrations of the oil price? Is it demand destruction setting in? As Hamilton notes, the gasoline price has recently jostled with some other pretty big factors determining how much people drive:
Credit and employment challenges have weighed far more heavily than gas prices over the last 9 months, and are presumably far more important than gas prices for determining what happens over the next few months as well.
If the oil shock caused the recession, lower oil prices should… (FT Energy Source, 24/04/09)
Was the US recession caused by the oil shock of 2007-08? (FT Energy Source, 03/04/09)
Count NYU economist Nouriel Roubini among those warning that oil could ruin chances of an economic recovery. Roubini, aka Dr Doom, said at a conference in Paris today:
“You see the worry of a double whammy, that by next year oil is towards a hundred (U.S. dollars per barrel), the budget deficits are not controlled … that could tip the global economy into another kind of relapse.”
On CNBC he repeated his views about the possibility of $100 oil, adding that equity markets, commodity markets and credit markets will see a decline. Roubini believes positive signs about a recovery should come in the form of improved unemployment figures, housing, industrial production, sales and consumption data – and he characterises any positive signs seen so far among those data as ‘yellow weeds’ rather than green shoots.
Oil slipped back below $70 a barrel as a firmer dollar lessened crude’s lustre for investors using other currencies.
A new wave of attacks on oil installations in Nigeria, Africa’s largest exporter, and continued political unrest in Iran failed to anchor prices.
Nymex July West Texas Intermediate, the current US front month contract which expires later today, shed $1.20 to $68.35. Taking its place, and with a far larger current open interest, the Nymex contract for August delivery lost $1.24 to $68.78. ICE August Brent crude fell 92 cents to $68.27 a barrel.
Gold fell back 0.8 per cent to $925.55 a troy ounce, with dollar strength also contributing to downward pressure on the spot market price.
Read the full commodities report
The US airline industry has written to Barack Obama arguing that the oil prices should be more heavily regulated:
“A repeat of last summer’s astronomical crude-oil prices will bring the nation’s economic recovery to a painful halt,” said Glenn Tilton, chairman of the Air Transport Association (ATA), in a June 11 letter to President Barack Obama. Tilton is also chief executive of United Airlines parent UAL Corp.
“Businesses that spend billions of dollars on fuel each year, already dealing with the impacts of decreased consumer spending, are especially vulnerable,” Tilton said in the letter.
Airlines have long complained that speculators are pushing up the price of oil. But they are not averse to playing the market themselves. The Reuters story points out that while airlines welcomed oil’s fall from its steep heights last year, many (Cathay Pacific, Air France-KLM, EasyJet and Thai Airways to name just a few) also missed out on the benefits of that price fall because they had hedged while prices are higher. In the US, Southwest last year benefited from pinning 80 per cent of its fuel price at $61 while the market prices moved towards $147; but this year its results have been hit by marking-to-market its extensive hedges.
Despite this, hedging is on the increase across all industries as commodity prices have risen again in the past few months. Greenwich Associates said this month it had seen hedging increase from 45 to 55 per cent of companies since 2007, while Citigroup had seen hedging rise by 200 to 300 per cent in this quarter, compared to the previous quarter.
Airlines renew call for rules on oil speculators (Reuters, 19/06/09)
Companies in scramble to hedge commodity exposure (FT, 02/06/09)
UK Prime Minister Gordon Brown has little to be happy about these days and rising oil prices, it seems, are also weighing hard. The Observer reported on Sunday that Brown asked top ministers at the Treasury and the Department of Business to draw up plans responding to both a high oil price and restrained bank lending.
It also has the UK government considering proposing a new role for the IMF in monitoring oil prices.
- Xstrata in talks with Anglo American
Move could trigger another wave of mining consolidation (FT)
- Barroso races to avert energy supply crisis
Will aim to prevent Russian-Ukrainian gas dispute (FT)
- ExxonMobil says near deal on potential LNG sales in Asia
Papua New Guinea project on track for final investment decision (Reuters)
- Centrica prepared to go hostile if Venture rejects bid
British Gas owner given until July 13 to make full bid (The Independent)
- Lukoil dashes Valero’s efforts to gain European foothold
Acquires 45% in Total’s Dutch refining venture (Bloomberg)
- CNOOC considers Kosmos stake bid
Chinese company hires Goldman to advise on bid (FT)
- India warns Ambani pair over gas find
Minister won’t allow dispute to affect gas supply (FT)
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