Daily Archives: August 5, 2009

Kate Mackenzie

On FT Energy Source:

Is the market right for energy security?

Knocking peak oil

Speculation crackdown: Is regulatory arbitrage a threat?

Carbon offsets: Money-saving but difficult
Further reading:

More signs that ‘clunkers’ money not going on gas guzzlers (Christian Monitor)

The corn ethanol emissions debate rumbles on as EPA review continues (Environmental Capital/WSJ)

Fears Waxman-Markey climate change bill will fall by the wayside in the wake of healthcare (Politico)

EIA puts Waxman-Markey household cost at average of $122/year from 2012 – 2030 (Argus)

$100 oil (CNBC)

India wants rich countries to pay for its 20GW solar plan (Guardian)

Iraqi oil territory dispute threatens to spill over into fighting (OilVoice)

Kate Mackenzie

The last few decades have seen the ascendancy of deregulation and privatisation as key policy tenets in many western countries – with the UK in the Thatcher era being one of the most striking examples. The Labour government that followed didn’t exactly rush to return to a more interventionist approach either – the debate is considered mostly over, the odd financial crisis aside.

It’s quite well established now that policy measures are important, however, to tackle climate change. Putting a price on carbon to represent the externalities of climate change costs are an obvious one. And the ‘valley of death’ for renewable energy sources is well-known: the challenge of getting up to scale is too huge for most venture-capital levels of funding.

But a report by former UK energy minister Malcolm Wicks says leaving it up to the market is not enough, with regards to energy security, either. The government, Wicks argues, needs to be far more involved in ensuring the country’s energy future is stable, and planned interventions so far, including the carbon strategy released last month, do not go far enough, he says.

Kate Mackenzie

We’re not averse to peak oil around here – in fact many of our favourite energy writers are peak oilists.

For some, the phrase provokes an image of mad survivalists, but the peak oil debate is really much more nuanced than this: will there be a peak or a plateau? Will there simply be a gradual shift towards higher energy prices (which is arguably already under way), or will prices shoot up quickly enough to have catastrophic consequences for those who are ill-prepared?

And above all, it’s a debate about timing: when will it happen, irreversibly and definitively?

But something has always bothered us a little about it. It’s not the technology argument (oil extraction techniques are advancing all the time, therefore the peak/plateau keeps getting extended), and it’s not the economic argument (we will simply adjust to higher oil prices, because that’s what economies do).

No, it’s this: is declining oil the most important issue here? John Kemp says no. Peak oil, he reckons, is ‘the right answer to the wrong question‘.

Oil prices dipped on Wednesday ahead of the latest US weekly inventories data while sugar continued to trade strongly and aluminium broke above the $2,000 a tonne level, leading base metals higher.

In crude oil markets, ICE September Brent dipped 13 cents to $74.15 a barrel after hitting $74.89 in the previous session. a high for 2009.

Nymex September West Texas Intermediate lost 34 cents at $71.08 a barrel.

WTI was trading at a substantial discount of around $3 a barrel to Brent because of weak demand and high stock levels in the US, a theme for the latest inventories data due for release later in the session.

US crude stocks were forecast to have risen 800,000 barels last week, according to a poll of analysts by Reuters, as refineries were expected to have reduced demand.

Kate Mackenzie

Speculators irritate a lot of people in times of volatile markets. They certainly made Lenin and Lincoln mad:

‘‘For as long as we fail to treat speculators the way they deserve—with a bullet in the
head—we will not get anywhere at all.’’ – Vladimir Lenin

‘For my part, I wish every one of them [speculators] had his devilish head shot off.’’
Abraham Lincoln

As quoted in a paper by David S. Sacks on the role, and perception, of speculators in futures markets. And there’s more. Speculators have always been regarded with open suspicion “at best”, writes Sacks – but more generally, he says, with open hostility.

Today the chief investment officer for the big ETFs, United States Oil and United States Natural Gas, John Hyland is appearing at the CFTC’s hearings on commodities speculation, while in London, UK Financial Services Authority and Treasury officials are meeting representatives from oil companies and traders.

The CFTC’s chairman Gary Gensler has been fairly forthright in his views that tougher limits on speculators in energy commodities markets. So some new measures in the US seem likely (although John Kemp believes that will only represent minor changes). Those involved in the UK meetings seem to anticipate an even milder outcome.  But a fear of future tightening of limits can be enough to change minds. So will a change in the US commodities markets mean speculators move elsewhere?

James Fontanella-Khan

Call for more intervention on energy
UK report calls for government to do more for energy supplies (FT)

Retreat from oils and miners
Weakening commodity prices hurt stocks (FT)

Jakarta bond sales add to optimism
Indonesia’s state power utility priced $750m in 10-year bonds (FT)

Chevron, ConocoPhillips in Indonesia gas supply deal
Chevron needs the gas to support Duri field in Central Sumatra (Reuters)

Profits at Drax fall 77% amid flagging demand
UK electricity demand to remain weak into winter (FT)

Statoil squeezed by debt and taxes
Declining revenues by debt and taxes (FT)

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