Daily Archives: October 28, 2009

Kate Mackenzie

A fascinating paper from the World Bank looks at the question of how people understand climate change and change their behaviour accordingly – or more often, don’t.

Climate change, the paper argues, is an anthropogenic problem, so the solutions need to be anthropogenic too. Instead, current talk of solutions focuses almost exclusively on economics and on technical solutions – but rarely on individual behaviour. And individual decisions, such as travel, heating, and food purchases, result in about 40 per cent of OECD greenhouse gas emissions.

Of course we are bombarded with exhortations to change our behaviour, but the net effect has been slight. Awareness of, and concern about, climate change is growing, but so are driving, flying, and so on.

By Izabella Kaminska

Remember those problems WTI crude had earlier this year with Cushing delivery? Remember how they cast a doubt on the grade’s position as a global oil benchmark?

Well it seems Saudi Aramco, the state oil company of  the world’s top oil exporting nation, may have been more worried about the issue at the time than it originally made out.

In any case, on Wednesday, the state producer made abundantly clear what it thought of the benchmark. Here’s the press release from energy OTC pricing agency Argus (our emphasis):

28 October 2009 (Argus) — Saudi Aramco announced today that it will begin using the Argus Sour Crude Index (ASCI) published by Argus Media as the benchmark price for all grades of crude oil sold to US customers.    Saudi Aramco has used WTI crude prices published by McGraw Hill’s Platts as the benchmark for crude sales to the US since 1994. The new policy will be in effect for January sales to the US.

That’s right, the world’s biggest physical oil trader is planning  from January onwards to price all its  crude off a basket of sour American crude grades -  not WTI.

By Izabella Kaminska

Barclays Capital does a nice job of assessing the latest back-dated release from the CFTC on commodity index trader positions in the CBOT corn market.

The CFTC statistics, released on October 20, present disaggregated positions of swap dealers and managed money going back to 2006. They were released in an attempt to provide further transparency to 2007 figures, which originally hoped to address the issue of speculator influence on commodity prices  As Barcap explain:

The CFTC sought to address this in January 2007 by releasing back-dated data to August 2006 showing Commodity Index Trader positions in agricultural markets. While this clarified the index positions, there were still areas of overlap as it did not differentiate between swap dealers and managed money ,which blurred the distinction between passive long-term investment and active money. In an attempt to provide further transparency, last month the CFTC released disaggregated data and last week pulled that data back to August 2006 with the newly-introduced data drawing that distinction between swap dealers and managed money.

Luckily for Barcap, the new figures seem to confirm what the banks’ analysts have been saying all along: that there is no discernible connection between speculative money flows and price direction in commodities.

Kate Mackenzie

Fears over timing of US stimulus spending

More trouble ahead for refining

Those evil smart meters

Not quite a smart grid plan

Oil slides ahead of inventory data

Vitol’s energy asset grab

Natural gas may have to wait a little longer

BG, Steven Chu and Mongolia in Spot news

Climate change scepticism, the debunking of

Further reading:

Senate climate fence-sitters are mostly interested in the cost (Washington Post)

Energy R&D is becoming ever-more complex (Oil & Gas Journal)

Weighing up ARPA-E (Technology Review)

Have we reached peak oil? (SeekingAlpha)

London’s rubbish could power 2m homes (Guardian)

Why the Copenhagen naysayers are wrong (Scientific American)

Will Australians have to move away from the beach? (Cop 15)

The rise and fall of oil production (Telegraph)

Kate Mackenzie

Back to the smart grid grants. The $3.4bn, which adds up to $8.1bn when industry commitments are factored in, is a huge amount of money. However most of which is going on smart meters and other end user measures, is only the start of what is needed to overhaul US electricity infrastructure adequately to say, allocate wind power as well as (or better) than Europe’s grid network, or support a huge shift to electric vehicles.

Charles K. Ebinger of the Brookings Institution’s energy security initiative describes the stimulus measures as a “catalyst” towards the true smart grid, which the federal energy regulatory commission says will take 10 years and some $100bn.

Kate Mackenzie

The US government’s allocation of $3.4bn in stimulus money toward upgrading the electricity system for the most part went down a treat, niggles about timingexcepted. Smart grids and smart meters, after all, are good for integrating renewables and improving efficiency.

But just to prove that nothing in energy is ever easy, there’s a tiny hint of rancour around about the smart grid, too – or smart meters in particular. Allowing customers to save money is only part of the rationale for smart meters, and some electricity users could resent the sense that they’re being pushed to change their consumption patterns, not to mention being monitored. This is presumably the sort of thing that GE’s marketing blitz on the smart grid earlier this year was designed to head off.

It hasn’t worked everywhere.

Oil prices fell on Wednesday ahead of the latest US weekly inventories data, while gold remained range-bound and base metals prices retreated as commodity markets continued to look for impetus from the US dollar and equities.

Olivier Jakob, head of Swiss-based oil consultancy Petromatrix, said extremely high levels of inter-asset correlation meant that no market was trading entirely on its own fundamentals.

“The problem remains that when asset classes that are supposed to act somewhat independently trade [with] such a strong correlation, we come to a situation where no single market knows exactly what it is pricing,” said Mr Jakob.

By Izabella Kaminska

The problems facing independent refiners refuse to go away, so it shouldn’t be a surprise that  Europe’s largest independent refiner Petroplus last week agreed to sell its Antwerp refinery’s processing facilities in a bid to raise much needed cash.

This, of course, shows to what extent refiners are still being crushed by unfavourable product margins despite the recent rise in crude prices.

But the curious thing is not that Petroplus is keen to offload the Antwerp refinery processing facilties, but who the Swiss firm managed to convince to buy it –  independent oil trader Vitol.

Kate Mackenzie

The news about natural gas in the US has been a little more positive of late.

In September traders began to feel confident that natural gas would not overflow the storage capacity, boosted by  news that there was still a few hundred billion cubic feet available, helping prices out of the $3-$4 range. In mid-October supplies still stood more than 150bn cubic feet short of estimated capacity.

This is all welcome news for the gas industry, much of which has been furiously drilling for shale gas despite the downturn in prices. Gas, many now believe, is the power source of the future: cleaner than coal and apparently far more abundant than was once thought.

But Barclays Capital analysts remain sceptical that we are heading for a natural gas power revolution, at least before 2012:

To a significant degree, as goes the power industry so goes the demand trajectory for gas. Just when the gas industry has unveiled significant supply growth potential, the power sector looks like it wants to cut gas from its diet by adding a significant amount of non-gas power plant capacity that follows the hit already taken from a power demand pullback.

The BarCap analysts in August pointed out that natural gas demand growth was closely linked to power demand, which is not doing so well this year. They forecast half of the non-weather related demand decline to recover in 2010, and the other half in 2011.

This yields power demand growth of 3% in 2010, and growth of 1.7% in 2011 (as shown in Figure 3). A higher or lower economic growth rate would automatically translate to a higher or lower power demand growth rate. Add to the mix a raft of efficiency programs that are likely to dampen the growth trajectory.

So, how about gas in particular? Growth, they say, is likely to be supplanted by both coal and renewables.

Sheila McNulty

Valero, the biggest US refiner, reported a net loss of $219m, or 39 cents per share, for the third quarter of 2009. This swung from net income of $1bn, or $1.91 per share, for the year-earlier quarter. The results were not surprising, given lower margins on diesel and jet fuel and smaller discounts on sour crude oil and other feedstocks. Bill Klesse, Valero’s chief executive, had this to say:

Given the difficult refining conditions, we took further action in the third quarter to improve our profitability. First we extended the plantwide shutdown of the Aruba refinery. At the Delaware City refinery, we streamlined operations by closing the gasifier complex and idling the coker. In October, we began a focused effort to reduce costs at our Paulsboro refinery. Across our refining system, we have been taking advantage of our operating flexibility by shifting feedstocks and operating rates to optimize throughput margins.

There is no doubt Valero has done what it can to withstand the storm. And analysts and investors were not surprised by the results. Indeed, Kleese put on a brave face, saying the company would continue to focus on improving profitability by lowering costs and becoming more competitive, on expectations that the improving world economy will drive demand growth for its products and support a recovery in refining margins and sour crude discounts.

The problem is that even if demand returns, everyone knows climate legislation is coming. And refiners are among those expected to be the hardest hit. A new report by Accenture Strategy Energy Practice underlines that fact in a report on the sector that notes, on top of low industry margins and a weak gasoline market, new regulations could trigger the perfect storm.

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