Daily Archives: October 27, 2009

Kate Mackenzie

Wondering if these recent cool summers mean something? Confused by the Freakonomics guys going all climate change-contrarian? Thinking that, perhaps, that you were too concerned about climate change 18 months ago?

If so, you may enjoy this sharp (and fairly short) piece from AP science writer Seth Borenstein (our emphasis):

Since 1998, temperatures have dipped, soared, fallen again and are now rising once more. Records kept by the British meteorological office and satellite data used by climate skeptics still show 1998 as the hottest year. However, data from the National Oceanic and Atmospheric Administration and NASA show 2005 has topped 1998. Published peer-reviewed scientific research generally cites temperatures measured by ground sensors, which are from NOAA, NASA and the British, more than the satellite data.

So Borenstein carried out a neat experiment: sending climate data to statisticians, without telling them what the data showed, and asked them to identify the trends:

The AP sent expert statisticians NOAA’s year-to-year ground temperature changes over 130 years and the 30 years of satellite-measured temperatures preferred by skeptics and gathered by scientists at the University of Alabama in Huntsville.

Statisticians who analyzed the data found a distinct decades-long upward trend in the numbers, but could not find a significant drop in the past 10 years in either data set. The ups and downs during the last decade repeat random variability in data as far back as 1880.

The sceptics get a say in the story, too. But their tendency to highlight a few years that deviate from the longer-term trend does not come across as very convincing.

Sheila McNulty

President Barack Obama has announced a $3.4bn investment into modernising the nation’s electricity grid in the largest single grid modernisation investment in US history. It has been a long time in coming. As Carol Browner, assistant to the president for energy and climate change, put it, the US has an “antiquated” system. The funding, which must be matched at least dollar-for-dollar by recipients, means a total of $8.1bn is to be spent.

The US government says modernising the grid and installing smart meters,  thermostats, will create tens of thousands of jobs, save money for consumers and businesses, and allow for the transportation of renewable energy across the nation. Jared Bernstein, chief economist and economic policy adviser to the vice president, said the US government is helping to unleash the vast potential of the economy.

The payout today is all part of the administration’s $787bn stimulus spending plan. Of that, $20bn is in energy tax incentives, and there also is a separate allotment of $43bn in Department of Energy grants for energy efficiencies, carbon capture or smart grid projects, according to Andrew Miller, Ernst & Young’s America’s Tax Leader for Power & Utilities. It has taken this long to begin awarding the money because of the complexities involved: the administration had to announce what companies could apply for, set out application guidelines, review applications and award funding. Mr Miller notes that nobody has done anything like this before.

Inflationary fears

There is no doubt the stimulus money has started to flow, and is helping to generate jobs and improve the energy infrastructure of the country. But some worry the majority of it will be too late to aid in economic recovery – its original intent. John Diamond, an economist at the James A Baker III Institute for Public Policy, said just $164bn of the $787bn established in the stimulus package has been spent.

The Obama Administration made clear from the start that most of the money would be spent in 2010 and even 2011. Yet Diamond notes that the US economy is getting to the point where that money will not accomplish its desired goal of stimulating the economy but rather create inflationary pressures if the economy already is turning around. Indeed, there are expectations that US GDP data this week will show an improvement. Diamond suspects a lot of the spending after mid-2010 is likely to be counterproductive.

Kate Mackenzie

On FT Energy Source:

More gloom about oil prices and the recovery

When offshore oil goes horribly wrong

BP’s production rise, brought to you by the weather

Unrepeatable BP results?

Commodity tracker fund investors, beware the roll

US climate bills would hit refiners – shouldn’t the pain be shared?

Someone’s betting against solar stocks

What is it with the US Chamber of Commerce?

Sinopec gas find and biomass ports in Spot news

Further reading:

Mixed reviews of bumper shale gas yields (Platts/The Barrel)

What to expect from the next three days of Senate hearings (National Journal, WSJ)

Peak oil ‘will hit before global warming‘ (The Ecologist)

Canada’s oil sands may just be too dirty (New Scientist)

Google’s warm reception for Chu (CNet)

Detroit ignored fuel economy demands, says ex-GM economist (Edmonds)

Reduce emissions 84 per cent while saving $1.6tn… (Environmental, Health and Safety News blog)

Hummer-driving vegans vs Prius-driving meat eaters: Who’s really worse? (Reuters)

Smart meter benefits mostly going to utilities so far (Knowledge Problem)

Kate Mackenzie

Francisco Blanch of Merrill Lynch-Banc of America has again been warning that high oil prices could dampen an economic recovery. In the FT he writes:

“A spike in oil prices above the $100-a-barrel level could create significant headwinds for the global economy,” he adds, warning that a sharp increase could also lead to a repetition of last year’s price collapse.

Despite this, he says, the lack of fundamental strength means a spike is not imminent – but $100 a barrel could be exceeded late next year.

Blanch and his team earlier this year figured that $80 a barrel would be difficult for OECD countries, and $90 for the emerging markets.

Meanwhile Nouriel Roubini has also been talking explicitly about oil prices fears. This from Index Universe/SeekingAlpha on Friday:

Index Universe (IU.com): You’ve said that you’re worried we’re already sowing the seeds of the next crisis. Where do you see that most directly?

Dr. Nouriel Roubini (Roubini): Well in commodities, I look at oil prices. They fell from $145 last summer, came down to $30 earlier this year and now they’re back close to $80. But if I look at the fundamentals of demand and supply, demand is down to 2005 levels, supply and inventories are at all-time highs. In my view, the movement in oil prices is not fully justified by the fundamentals.

There are improving fundamentals. There is a global recovery. But that justifies oil going from $30 to maybe $50. I think the other $30 is all speculative demand feeding on it—speculators and herding behavior. Last year, when oil was at $145, that killed the global economy. I worry that oil is going to go up above $100 for reasons that have nothing to do with the fundamentals of supply and demand. Oil at $100 would have the same negative effects on the global economy as oil did at $145 last year.

Related links:

Are oil prices threatening the world economy already? (FT Energy Source, 01/06/09)

Kate Mackenzie

WWF Australia

Source: WWF Australia

The Montara oil well, between Western Australia and Indonesia, has been spewing crude oil into the sea for more than two months, and a fourth attempt by the well’s owner PTT Exploration and Production to plug has been postponed.

From Bloomberg:

Bangkok-based PTTEP said today a bid to intercept a 25 centimeter diameter steel well casing 2,600 meters (1.6 miles) below the seabed was now likely later in the week, after drilling equipment became stuck on Oct. 24 and caused a delay. On Oct. 25, PTTEP said the attempt was likely to be made today.

The Thai company has already spent $155m trying to plug the leak and will pay another $A5.3m to the Australian Maritime Safety Authority, which has been monitoring and cleaning the spill by spraying dispersants, skimming and containing the oil.

This comes as concern about the environmental impact of the leak is growing – WWF last week published the results of three-day survey of the area which documented numerous dolphins, birds, seasnakes and a few turtles “interacting with the oil sheen”. The image on the right, from the report, shows two dolphins swimming in oily waters.

Meanwhile the Australian Greens party says the well could be releasing much more than the 300 – 400 barrels that government ministers have given:

Yesterday (Wed 21/10/09), under questioning by Greens’ Marine Issues Spokesperson Senator Rachel Siewert, Federal Department of Resources, Energy and Tourism officials said that PTTEP had given them no basis for their 400-barrels-day figure, and their own calculations based on Geoscience Australia data suggested a rate of around 2,000 barrels-a-day, plus condensate.

Related links:

Photo gallery: Timor Sea oil spill (Crikey)

Kate Mackenzie

BP has clearly impressed the markets with 3Q results showing bigger than expected savings from its cost-cutting programme, and a better underlying profit than consensus forecasts.

Revenue and profits were of course lower, year-on-year, due to lower oil and gas prices. But markets appear to have been impressed by upstream production, the lifeblood of a big hydrocarbon company, which was almost 7 per cent higher at 3.917m barrels of oil equivalent per day.

In this, BP’s year-on-year performance has been benefited from more clement weather. As Standard & Poors notes:

The Q3 09 results were in line with our expectations and just above Bloomberg consensus. In our view, there were no surprises; however the shares rose 4.5% after the release, in what we view as an overreaction. The market probably picked up on a 7% rise in hydrocarbon production y-o-y (2.2% lower q-o-q), but we note annual production figures are not comparable given Q3 08 was marred by hurricanes and production shut-downs.

As quick look at the US Hurricane Center reports for July, August and September this year shows all three were considerably quieter than usual for the North Atlantic. This compares to last year, when Hurricane Ike caused a shut-in of BP’s massive Texas City refinery.

By Izabella Kaminska

BP shares soared as much as 5 per cent higher on Tuesday, hitting a 16-month high after the oil major significantly beat expectations on its third quarter results on sharper than expected cost-cutting measures in the period and rising oil prices.

Replacement cost net profit, which strips out unrealised gains or losses related to changes in the value of fuel inventories, fell 50 per cent to $4.98 bn, versus a consensus expectation of $3.16 bn by market analysts.

BP shares - FT

Citi’s analysts were quick to point out, however, the results also benefited from a clean tax rate of 29 per cent, which was well below its previous 36 per cent lower-end of guidance.  As they noted:

As a result, FY09 tax guidance falls to 32-33%. We look for clarity on implications for FY10 with this afternoon’s call. The positive tax effect should not however detract from the strength of the operating performance. Clean RCOP of $6,941m was 29% above consensus, 19% above Citi, with beats in both E&P and R&M.

But despite being impressed they cautioned (our emphasis):

… looking beyond 3Q, we observe that the operational turn-around, which commenced in late-2007 has been largely delivered. The pace of Y/Y production growth is now expected to slow, refining availability is back to pre Texas City levels, and much of plan to reduce organisational complexity is fulfilled. As momentum slows and with valuation full compared to peers — BP trades at an 8% premium to the sector on 2011e EV/DACF — the relative case may become more challenging.

Kate Mackenzie

Regular commodities watchers might know it, but not everyone does: passive investing is a tricky business. In crude oil, for example, there’s the roll – when one month’s contract expires, the shift to the next month (which in the current, contango market structure is more expensive) means it costs more money to maintain the same holding.

This chart from Reuters shows that since January, the investor in a fund tracking Goldman Sachs’ Commodities Index would have made 12 per cent while the spot returns were almost 45 per cent:

H/T&nbps;Wall&nbps;Street&nbps;Manna

Related links:
Why buy-and-hold can be a disaster in commodities
(FT Alphaville, 07/10/09)

Kate Mackenzie

Obama to announce big smart grid investment (Reuters)
Largest clean energy investment from stimulus funds

Oil could exceed $100 next year (FT)
Could create problems for economy, says Merril Lynch-Banc of America’s Blanch

Sinopec spokesman not aware of talks on Ghana bid (Bloomberg)
Chinese company quiet on WSJ report

PTTEP delays fourth attempt to plug Timor Sea oil well leak (Bloomberg)
‘Environmental disaster’ unfolding since August

China’s Sinopec finds huge natural gas field – paper (Reuters)
Reports of 120bn cubis feet find

UK port increases capacity to handle biomass products (Argus)
ABP plans new dedicated facility

Fisker to make hybrids at former GM factory (NY TImes)
Californian luxury automaker to reveal plans today

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