Daily Archives: August 14, 2009

Kate Mackenzie

On Energy Source this week:

- Energy prices are already making the world a little smaller

- The cost-benefit ratios of climate chaos, explained

- Tar sands: A test of Obama’s carbon commitments

- Climate culture wars are back

- A week in which the UK thought about food security and peak oil

- Duke Energy makes nice with China – on technology sharing!

- Bjorn Lomborg answers questions on geo-engineering and the cost of mitigating climate change

- US driving demand, destroyed

- Nat gas and efficiency get some love at the Clean Energy Summit

- London oil traders are not so bad, after all

Kate Mackenzie

Image of the week:

Crude oil demand around the world - Source: IEA Oil Market Report


Number of the week:

$4

The levels to which oil prices could sink in the next decade, according to Robert Prechter.

Quote of the week:

With mild  weather patterns continuing across much of the system and  limited storage flexibility, Tennessee does not have the ability  to absorb imbalances caused by over-deliveries by receipt point  operators into the system and under-takes from the system by  delivery point operators.

- Too much gas and not enough space to store it begins to become an issue for Tennessee Gas Pipeline Company

Kate Mackenzie

UNG is confirming it will continue expanding its holdings via the over-the-counter market and even energy markets other than gas to expand its holdings after running out of shares by hitting the CFTC-imposed limit in June:

U.S. Natural Gas is most likely to increase its use of over-the-counter products, Mr. Hyland said. The fund already has about 5% of its assets in swaps, in which the fund enters an agreement with a counterparty that yields a return in line with natural gas prices.

The fund also may buy crude oil, heating oil or gasoline, he said.

Nat gas ETF weighs options (Wall Street Journal)

Kate Mackenzie

Ed Morse, managing director of LCM Commodities, is one of the few oil market pundits saying oil prices will not shoot up at any sign of demand.

Writing in the upcoming September/October issue of Foreign Affairs, he cites several reasons, according to Reuters:

One is demand suppression, as a result of those high prices last year:

“One extraordinary lesson of the last 60 years is that after every spike in oil prices, demand growth flattens considerably.”

And demand recovery will be slow:

As consumers scale back consumption, global oil demand will probably grow 1 to 1.3 percent a year, versus a growth rate of 1.5 to 1.8 percent last decade, wrote Morse, a former U.S. State Department energy official.

Kate Mackenzie

Climate change costs: Too much is not enough

Soot, methane and forestry: The cheapest ways of addressing climate change?

Markets: Looking towards the next Opec decision

Innocent! London oil traders not so bad after all

Comment: Why a single energy market is critical to Europe’s renewable goals

Further reading:

How does the GM Volt get to 230mpg? (The Oil Drum)

Non-food biofuel crops risk becoming runaway weeds (Yale 360)

Beat this: oil will fall to $10 a barrel, says man who predicted 1987 stock market crash (Bloomberg)

Peak oil and other mispriced risks (Getrealist)

New UK government green watchdog chief criticises clean coal (Guardian)

Kate Mackenzie

From China Daily (H/T Rigzone):

Currently, the company is in talks with foreign partners for several deals, said a company executive yesterday, who asked not to be named.

“The relatively low prices of overseas assets this year have offered us unprecedented opportunities,” he said, without elaborating.

Meanwhile Bloomberg is reporting that China will ‘will boost spending on oil and mining acquisitions by at least half this year, although this is contingent on it purchasing  Repsol YPF’s Argentine unit — on which subject CNPC (and the source in China Daily) are staying quiet.

Related links:

The mystery of China’s disappearing oil link (FTAlphaville, 11/08/09)

Oil prices rose on Friday but base metals were mixed and sugar prices staged a modest correction as commodity markets paused for breath after strong gains in the previous session.

In energy markets, Nymex September West Texas Intermediate rose 28 cents to $70.80 a barrel while ICE September Brent gained 47 cents at $73.95 a barrel.

“We expect oil prices to remain range-bound in the third quarter before moving higher on evidence of improving demand in the fourth quarter, underpinned by a weakening US dollar and improving risk appetite,” said Helen Henton, head of commodities reseach at Standard Chartered bank.

Ms Henton said she did not expect Opec to change its output policy at its next meeting on 9 September, but compliance among the cartel members with agreed production quotas had weakened a little as oil prices have increased.

“OPEC’s spare capacity is currently around 5.5m bd, so there is ample scope to expand production as demand tentatively recovers. This margin will be gradually eroded as demand growth returns. We do not expect this to happen until beyond 2010,” said Ms Henton.

Read the full commodities report

Kate Mackenzie

Is avoiding climate change just too expensive?

Answering this question depends very on how much you think climate change itself will cost, and how much you think avoiding climate change will cost -  along with difficult moral and philosophical matters such as concern for future humanity.

One of the best known attempts to quantify this is the Stern Review, which estimated that climate change could end up costing 5 – 20 per cent of global GDP  per year, but would only cost 1 per cent of GDP to avoid (Lord Stern later revised these numbers, saying 2 per cent of GDP is needed to avoid climate change, and without this, the effects could be even worse than he previously thought).

Enter Bjorn Lomborg. Best known as a climate change sceptic, he now says an agreement on climate change at Copenhagen in December is crucial. But he’s not entirely going with the mainstream just yet: he believes the dominant approaches to climate change are too expensive, so the latest project of his Copenhagen Consensus Center is to publish a series of papers on the best ways to spend $2,500bn over the next 10 years, and then ask five leading economists to choose the best option.

The latest of these papers is likely to be one of the most controversial. Richard Tol, an energy economist at Dublin’s Economic and Social Research Institute and a member of the Intergovernmental Panel on Climate Change, estimates that the costs of most climate-change mitigation programmes vastly outweigh the benefits the world would gain.

Tol came up with five scenarios for how to spend that money (some scenarios spent more or less):

Scenarios

Tol came up with five scenarios for spending $2,500bn over 10 years:

1. A $750/tonne carbon tax introduced only in the OECD, over 2010 – 2019. Cost per dollar of benefit: >$100. Carbon concentration: about 875ppm

2. A $250/tonne carbon tax inroduced worldwide, over 2010 – 2019. Cost per dollar: $100 Carbon concentration: about 750ppm

3. As for number 2, but continuing the carbon tax throughout the century (thereby spending far more than the $250bn). Cost per dollar: $50. CO2: 450ppm

4. A $12/tonne carbon tax, the proceeds of which are invested in a trust fund for 10 years, to finance a century-long programme of emission abatement. Cost per dollar: $4. CO2: 650ppm

5. A $2/tonne carbon tax, the proceeds of which are invested in a trust fund as above. This spends only $12.5bn.  Cost per dollar: 66c. CO2: 850ppm.

One important note about the scenarios: apart from scenario 1, they all assume a uniform, worldwide tax on carbon across all sectors. There’s really almost no chance of this happening any time in the foreseeable future, let alone from next year – for anything like this to play out in reality, those costs would have to be concentrated in some countries.

Kate Mackenzie

One of the main points Bjorn Lomborg makes in the current round of Copenhagen Consensus papers, particularly Richard Tol’s report, is that focusing on reducing carbon dioxide emissions (particularly in the developed world) is unnecessarily expensive.

They are far from alone in this argument, and three papers published alongside Tol’s are likely to find a more welcome response. The papers argue that climate change can be more cheaply avoided by pursuing forestry projects, tackling soot or “black carbon”, and reducing methane emissions.  None of these approaches on their own would be enough to avoid dangerous levels of climate change, but all three fare far better on the savings per-dollar-spent approach used in Tol’s paper, than simply reducing carbon dioxide emissions through efficiency and renewable energy.

Kate Mackenzie

US politicians first complained about the ‘London loophole’ in oil futures regulation last year, saying that because the London-based ICE Europe exchange was outside of the regulatory reach of US watchdogs it was potentially ripe for speculator abuse.

Now, data published by the CFTC suggests that positions held by “commercial” traders – who buy or sell oil for their own business purposes – are better represented amongst London-based ICE Europe Futures exchange than among New York-based Nymex.

From the FT:

The data show the share of speculators betting oil prices will rise as a percentage of the market was last week 18.3 per cent in New York, but 9.6 per cent in London. The percentage of traders taking “spread” positions – popular among hedge funds betting on relative price performance of two futures contracts – was also smaller in London, at 14.7 per cent, than in New York, at 22.7 per cent.

So much for the London loophole – back to the physical loophole.

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

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