Daily Archives: July 17, 2009

Sheila McNulty

Do not mistake ExxonMobil’s announcement of a $600m partnership with Craig Venter, the pioneer of human genome research, to study making biofuels from algae as any indication that it has succumbed to pressure that it follow the pack into alternative fuels.

First of all, it is a research partnership, and Exxon has a number of those as its 14,000 scientists and engineers pursue breakthrough technologies in a variety of areas.

Second of all, the amount invested, while not insignificant, is small fries when one considers Exxon brought in $442.9bn in revenue last year.

Exxon is still devoted to fossil fuels, and there is no doubt that will be its core business for the foreseeable future.

But what the foray into algae shows is that Exxon is willing to invest in something if it believes it has potential. Indeed, its competitors, BP and Shell, rushed into headline-grabbing wind and solar projects over recent years only to begin scaling back this year.

Exxon may have missed out on the intial round of investments in alternatives – and been heartily criticized for it. But, as in the old story of the tortoise and the hare, sometimes being fast does not make you a winner. Indeed, if you rush off in the wrong direction, it only makes you a loser.

Exxon may be slow to invest in alternative energy, but its foray into algae may be a winner. It will be interesting to see if Shell and BP follow Exxon into the pursuit of algae as a biofuel.

Kate Mackenzie

On Energy Source this week:

- Why Exxon’s $600m plan for biofuels research is not so shocking

- Do you have a green job? If you’re reading this, you might do

- The next challenge for that €400bn solar desert project

- A Brent with no North Sea crude?

- Who’s not happy about extra commodity regulation?

- Opec runs into a compliance dilemma

- UK’s low-carbon strategy: It’s about keeping down costs

- Not a fun place to be a commodities executive right now

- Where the media coverage of China-US climate talks really matters

Kate Mackenzie

Number of the week:


Where Philip Verlerger sees oil prices in the near future (analyst survey averages are around the low $60s).

Quote of the week

“Oil use won’t peak until 2050… It will decline thereafter but even by 2100 oil supplies will be 20 percent higher than they were in 2000.”

A cheery Peter Odell, professor of international energy studies at Erasmus University, Rotterdam

Image of the week:

Gas flares in Nigeria – Gregor

Kate Mackenzie

Big oil’s dividend conundrum

BP’s jatropha venture: In case you were wondering

A Brent with no North Sea oil?

Goldman maintains bullishness

How Exxon’s alternative energy investments stack up

CCS for the confused

Further reading:

Where is your optimism on a climate deal now, Steven Hu? (China Environmental Law)

China and the US to study building efficiency (NY Times)

How Craig Venter plans to make biofuels from algae work in the Exxon-funded project (Economist)

The CPI and oil (SeekingAlpha)

‘Oil supplies in 2100 will be 20 per cent higher than in 2000′ (Reuters)

The big smart grid challenges (Technology Review)

Kate Mackenzie

BP has formally pulled out of its jatropha-planting joint venture with UK-based D1 Oils:

D1 Oils plc (“D1″ or “the Company”) announces that it has reached a conditional agreement with BP International (“BP”) to acquire BP’s 50 per cent interest in D1-BP Fuel Crops Limited (“D1-BP Fuel Crops” or “the Joint Venture”), its joint venture with BP for the planting of Jatropha curcas, and thereby to take back into D1′s sole ownership the global planting assets and interests of the Joint Venture.

D1 signalled in late June that BP was considering leaving the joint venture, but that it planned to maintain some stake in future revenues. This is actually going to take the form of deferred per-tonne payments to BP for the stake in the joint venture (on its current position, D1 is only cash-positive until the end of 2010) in addition to an immediate £500,000 cash payment to BP:

D1 has also agreed to pay BP, by way of deferred consideration, £30 for every tonne of the first 20,000 tonnes of CJO, up to maximum of £600,000, produced by the D1 group and sold to third parties. To the extent not already paid, the £600,000 deferred consideration is payable by D1 at the latest by 31 December 2014.

D1′s chief executive Ben Good said last month that BP’s exit would allow D1 to bring its planting business (D1-BP) together with its plant sciences business. The company also plans to sell more animal meal, which is says it profitable.

And BP? It is focusing its biofuel efforts on ethanol in Brazil and the US, and developing biobutanol. Jatropha, which is mostly used for biodiesel, has some advantages over corn and sugar crops ethanol in that it does not compete with food crops, but has recently fallen from favour because of its water use.

Related links:

Back to petroleum (FT, 07/07/09)
BP’s jatropha interest continues to wane
(FT Energy Source, 23/06/09)

Kate Mackenzie

Goldman Sachs last month made waves with its renewed bullishness on the outlook for oil, and it’s retaining this view despite the fall in crude prices since then from around $70 to hovering around $60. In a new note, Goldman’s commodities analysts say this recent sell-off “provides a compelling entry point” and have maintained the forecast for $85 for 2009 and $95 for 2010.

From the note:

For the most part, we view the oil sell-off as simply a correction in a rally that we believe
had run ahead of itself, raising the risk of a liquidation of speculative positions that has
materialized as expected. Thus, the recent declines have generally pushed prices back in
line with fundamentals that have been only modestly weaker than expected, leading to
moderate downward revisions to our near-term oil price views.

In contrast to the IEA, which last week said the destocking effect on consumption was not as big as previously thought and largely over, Goldman believes it still has some way to go:

Although we share the market’s concerns over recent weak distillate demand, we believe that much of this demand weakness can be attributed to the continuation of massive destocking in the US manufacturing base that is weighing on US demand today but is expected to slow and
eventually reverse as manufacturers deplete inventories.

Long Room members can read more there.

Related links:

Goldman Sachs and the unrecognised energy crisis (FT Energy Source 04/06/09)

Kate Mackenzie

From Lex:

BP, the third largest US wind generator, will still invest $5bn over seven years into alternatives, with more focus on advanced biofuels. Shell spent $1.7bn over five years to reduce its carbon footprint. Chevron invested $3.2bn into renewables since 2002 and is the world’s largest geothermal energy provider. By contrast, Exxon’s $1.5bn in spending over the last two years was focused on energy saving. That provided few photo-ops for its annual report.

Related links:

Exxon to make biofuels from algae: not as bizarre as it might seem (FT Energy Source)

James Fontanella-Khan

Wind farm group seeks £1bn loan from EIB
Loan to cover almost half the costs of the project’s first phase (FT)

EU proposes rules to help prevent gas-supply crisis
Move to to ensure the EU is better prepared to face shortages

Lex: Green Exxon
Algae could pay big dividends down the road (FT)

Natural gas rises 12% but is off 35% for 2009
Government data showed a modest build in US gas inventories (WSJ)

Ecuador seizes Perenco oil fields
Move follows a long-running tax dispute (FT)

View of the Day: Time for a commodity rebound
Recent sell-off provides a compelling entry point for investors (FT)

Shell weighs staff cuts at Gulf refineries
Oil group considers cuts to reduce costs in the current recession (Reuters)

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