Daily Archives: September 8, 2009

Kate Mackenzie

Cambridge Energy Research Associates believe oil demand, which has fallen away with the financial crisis, will return to 2007 levels by 2012. Significantly, they point out, this is a much faster turnaround than the last time oil demand fell, in the 1980s.

Oil demand began to decline at the end of the 1970s, from 64.1m b/d in 1979 to 61.6m b/d in 1980, according to the BP statistical review. It wasn’t until 1988 that it recovered to 1979 levels.

Now, IHS CERA says, it will recover by 2012 – and unsurprisingly, much of that is down to China and other non-OECD countries. From the CERA press release:

Overall, emerging markets will drive the recovery of oil demand. IHS CERA expects oil demand to increase from 83.8 mbd in 2009 to 89.1 mbd in 2014. 83 percent (4.4 mbd) will come from non-OECD countries. China alone is expected to account for 1.6 mbd of cumulative growth. Just 900,000 bpd of growth is expected to come from OECD countries.

The not so great news, from an environmental point of view, is that they say the recovery in oil demand will be faster this time because there are fewer options for substituting. In the 1980s, according to the report, power generation accounted for the largest part of the fall; and substitution with coal, gas and nuclear was what kept oil demand suppressed.  This time, new demand will come largely from transport – all those new cars in Asia. And that means substituting – whether with other polluting fuels such as coal, or with renewable energy – looks more tricky, at least within the next few years.

However IHS CERA global oil managing director, Jim Burkhard, was not ruling out transformative changes:

“While our base case suggests that 2012 will be the year that global oil demand recovers to 2007 levels, we continue to research the alternative scenarios that could alter the balance in the oil market,” said Burkhard.

Related links:

China demand doubts (FT Energy Source, 17/08/09)
Demand rebound: Everyone, calm down (FT Energy Source, 14/07/09)

Carola Hoyos

Much has been said about Saudi Arabia’s influence as the world’s top supplier of oil. (Really dedicated followers of crude, will surely now point out that Russia produces almost 2m b/d more oil than Saudi Arabia. But that is only because Saudi is keeping a lot of its output shut voluntarily to prop up prices – thus Riyadh and its vast production capacity is still very much number one).

But the kingdom not only influences the fate of the world’s oil consumers; it also holds power over the world’s other oil producers.

That is more than evident at this week’s Opec meeting, where several heavyweight oil ministers are missing and others have diminished their credibility by failing to adhere to their Opec quotas. Angola, which currently holds the group’s current presidency, is also its biggest cheater, having adhered to precisely 0 per cent of it agreed output cuts – not a great platform from which to lead.

Meanwhile Kuwait, which has almost fully adhered to its cuts, has a relatively new minister, as does Iran, Opec’s second largest member, which has enacted a paltry 5 per cent of its cuts. Meanwhile, Libya’s popular and long-time oil minister, Shokri Ghanem, is skipping the meeting and is expected to retire shortly.

This leaves few heavyweights around a  table at which Ali Naimi, Saudi Arabia’s long-serving minister, already wields super-power status.

Kate Mackenzie

There are a few snippets of good news around this week for the much-maligned first generation biofuels.

The Journal of Industrial Ecology has published four papers shedding a more positive light on corn ethanol, perhaps the most reviled of biofuels, after some studies showed its production involved similar levels of greenhouse gas emissions to gasoline.

One of the new studies, from the University of Nebraska, looked at the life cycle of corn ethanol production found that efficiently-produced corn ethanol could involve emissions 48 to 59 per cent lower than that of gasoline.

Kate Mackenzie

On FT Energy Source:

A less exciting Opec meeting

The world’s most successful, but worst paid, oil manager?

What the new CFTC categories tell us about commodities speculators

Japan’s newfound emissions reduction enthusiasm

Developed countries are not immune to climate change

Further reading:

A more sceptical take on the US natural gas boom (Bit Tooth Energy)

A defence of China’s long-term resources planning: the fear and resentment is unwarranted (GetReallist)

The Wall Street Journal on a new generation of nuclear plants, and Atomic Insight‘s take

How to improve Australia’s cap-and-trade legislation (John Quiggan)

Wind is too unreliable; solar is better, says Nobel prize winner (Cop15)

BBC criticised for dropping its Energy Saving Day plans (The Times)

Can microbes clean up oil extraction? (Scientific American)

Roads made of solar panels… (The Telegraph)

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Kate Mackenzie

After an exciting year or so, are we about to see a more boring Opec meeting tomorrow night? The consensus is the oil body will maintain the net 4.2m reduction in production agreed last year.

Bloomberg’s poll of 26 analysts and Reuters’ poll of 10 analysts were both unanimous: Opec will keep quotas steady.  Meanwhile, at least nine Opec member countries’ oil ministers, in various pre-Opec interviews in August, mostly said they either expected, or would be satisfied with, keeping the current quota (although Iran and Nigerian ministers mentioned concern about large global oil inventories, which dampen the cartel’s ability to influence prices).

Kate Mackenzie

This apparently, is a quip in oil trading circles about Mexico’s finance minister, Agustín Carstens, on news that Mexico is set to reap $8bn from setting up hedges against falling oil prices last summer.  Carstens (right) hedged Mexico’s entire 2009 oil exports with Goldman Sachs and Barclays capital at a cost of $1.5bn, correctly predicting that the financial crisis would see oil prices plummet from their high of $147  in July last year.

It will be some comfort, especially Mexico’s own oil output has fallen faster than expected this year, prompting the replacement of Pemex chief Jesus Reyes Heroles.

No-one, however, is anticipating a repeat performance this year, with analyst Ed Morse of LCM Commodities pointing out it was “idiosyncratic to last year’s oil market”, when the high prices of summer allowed for relatively cheap hedging against a price drop.

Related links:

Adios, Cantarell (FT Energy Source, 20/02/09)
Clarion call from Cantarell (Gregor.us, 23/08/09)

Kate Mackenzie

The CFTC last Friday published its first ‘disaggregated‘ version of its weekly commitments of traders report, which aims to provide more detail about commodity market participants, and especially, the role of speculators in determining prices.

But how much use is it for those hunting for evidence of speculator evil-doing – or of speculator exoneration?

James Fontanella-Khan

Japan sticks to greenhouse gas target
Incoming PM promises 25% cut by 2020

China backs efforts to break oil contracts
Move delivers a blow to some of the world’s biggest investment banks (FT)

Warning for chances of deal on emissions
Forcing emerging economies cut C02 output could backfire, says World Bank (FT)

Chevron says gives Ecuador evidence in bribery case
E-mail and video evidence linked to a $27bn lawsuit against the US oil group (Reuters)

Shake-up for watchdog as energy policy shifts
More focus on climate change issues (FT)

Delta flies empty planes across Atlantic
Environmental campaigners attack airline over ‘ghost’ flights (Guardian)

Mexico to enjoy $8bn windfall from oil bet
Astute risk management will make it the envy of Opec (FT)

Mexico’s big gamble pays off
Mexico’s hedge is noteworthy not only for its success but also for its rarity (FT)

BP conducts seismic survey off the coast of Libya
It prepares to drill its first well amid the Lockerbie controversy (Bloomberg)

Competition watchdog warns on intervention
Food supply shortages and energy insecurity to persist (FT)

Commodity regulators push transparency
Moves follows criticism that speculators pushed oil prices to record levels (FT)

Critics warn Brazil oil plan will deter investors
Plans to switch from concessions system to production sharing agreements (FT)

France aims to head off storm on carbon levy
Tax will be set at E14 to E16 per tonne of CO2 (FT)

Energy report: The next generation of nuclear reactors is on its way
Supporters say they will be safer, cheaper and more efficient (WSJ)

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