Never mind cheap(er) oil being a form of economic stimulus: Australia is getting its own stimulus from natural gas, and China. A chunk of production from the huge Gorgon natural gas project, off the coast of Western Australia, will be bought by PetroChina, which is paying $A50bn to Exxon, a partner in the field, over 20 years in exchange for 2.25m tonnes of LNG a year.
Australia’s resources minister Martin Ferguson labelled Gorgon a ‘major stimulus package’ and said it would yield 6,000 jobs for Australians, $30bn of spending on goods and services, and predicted Australian LNG projects could attract a total of $100bn of investments over the next 12 – 18 months. Prime Minister Kevin Rudd earlier said it would earn the government $40bn over 30 years.
The project is yet to gain environmental approval at a federal level, but with the federal and state governments agreeing to take joint liability for storing emissions from the project, that seems unlikely to get in the way. Read more
Brazil is hoping to take more control of production of its huge oil resources – sparking fears that it will slow down the extraction of oil from what is considered the most significant oil discovery in recent years. But is the fear justified?
Today Brazil is the second biggest South American producer behind Venezuela, but discoveries of oil in “pre-salt” fields, thousands of feet under the sea, could be as big as 56bn barrels of oil. Little of this is expected to come into production until well into the next decade, but the massive deepwater reserves are widely considered the most important oil find in recent years – less politically risky than Iraq’s relatively easy oil, but cheaper than Canada’s oil sands. Read more
Ecuador features in the latest episode of the “China resources grab!(TM)”.
China is paying the Opec member $1bn up front for 69m barrels of oil over two years, and local newspapers report China is providing Ecuador with a loan of a further $1bn in oil at an interest rate of 7.25 per cent.
On the face of it, a price of $14 – $15 a barrel looks to be a good deal for China. The details of the loan, too, are not to be sneezed at from China’s point of view – but Ecuador is not in a position to be especially choosy. Read more
Commodity prices recovered some ground on Tuesday, after the previous session’s sell-off, led by rising crude oil and base metals prices, but sentiment remained cautious.
Edward Meir, of brokerage MF Global in New York, said that the commodities market had been discounting a V-shaped economic recovery since March and warned that recent economic indicators had been “quite erratic”. The fragility of the recovery was highlighted by the US natural gas market, where prices were near a 7-year low.
Analysts warned that some investors, sitting on top of large gains from commodities bets made earlier this year, could still sell in the near term to lock in some profits. The spot S&P GSCI, the commodities index, has surged 27.6 per cent since January. Read more
Francisco Blanch of Bank of America Securities-Merrill Lynch is one of the biggest advocates of the view that oil prices helped push the world into recession. In an FT column he expands on how we got here, and how there has been an underlying shift in the relationship between oil and the rest of the economy. And why, by extension, another rise in oil prices could be so much worse for developed economies.
The run-up in prices, he says, was mostly due to the relative disinterest in commodities investment during the boom years:
The largest rise yet in global commodity prices and the most pronounced credit collapse in history occurred in the same quarter, in that precise order, for a reason. During the previous decade, investment capital failed to go into commodities to facilitate productive capacity expansion and went instead into other sectors such as property.
Rising oil prices threaten to derail the global recovery
Divergence between oil and money never been so apparent (FT)
Clinton’s oily policy
US oil imports from west Africa expected to double in next decade (FT)
Brazil seeks more control over oil beneath its seas
Move could significantly slow development of oil fields (NYT)
Iran likely still importing Indian gasoline
Officials confident Iran able to secure gasoline in future (Argus)
Distress signals from specialist ship sector
Oil product tankers are latest victims of industry downturn (FT)
Deutsche says new energy trading rules may boost Opec’s power
Proposals to curb speculation may reduce liquidity (Bloomberg)
Healthy rebound for clean energy
Investment has shot up, but sector likely to remain highly volatile (FT) Read more