Daily Archives: January 20, 2010

Sheila McNulty

Chevron’s high-profile defense against a lawsuit seeking $27bn for environmental damages in Ecuador has ranged from YouTube postings to secretly-taped videos of the judge discussing the case in what it claims is evidence of political interference and corruption in the country. The nature of Chevron’s defence, which has included keeping those who did the secret taping away from media and the authorities, certainly is uncharacteristic of an oil major.

Typically these companies settle cases or do whatever else they can to avoid drawing negative attention to themselves. But, then again, this is no ordinary lawsuit. The damages being sought are extremely high – roughly a quarter of Chevron’s market capitalisation of $140bn or a fifth of its $160bn in assets.

This is, indeed, the biggest environmental lawsuit in history, with the potential for almost seven times the damages awarded against ExxonMobil for the 1989 Exxon Valdez oil spill in Alaska. For this reason, Chevron is refusing to settle, insisting Texaco, which it bought in 2001 to inherit the lawsuit, spent $40m on cleanup when it was pressured to leave Ecuador in 1992.

Kate Mackenzie

The election last night of Republican Scott Brown to the late Edward Kennedy’s Massachusetts Senate seat is a blow for the Democrats, who will lose their fillibuster-proof majority in the upper house.

Most of the commentariat are so far focusing on what it means for the healthcare bill, but the election is not much better for the chances of climate change legislation, either. Support in the Senate for a House cap-and-trade was already rather dicey. A Senate bill, supported by Republican Lindsey Graham and independent Joe Lieberman, doesn’t necessarily look much more secure as criticism of cap-and-trade grows, and some have suggested a climate bill needn’t put a price on carbon at all, but could merely create more renewable energy (which would be quite a blow to emissions reductions efforts, as we pointed out at the previous link).

Kate Mackenzie

Is it possible that car drivers care less about fuel efficiency these days, despite the relatively high prices for gasoline/petroleum in these recession-blighted times? America’s Consumerreports.org suggests it is. On the results of their latest survey into car brand perceptions, they write:

The only significant change over last year is that people who listed “environmentally friendly/green” as one of their top three priorities is down eight percentage points. In a troubled economy, with gas prices relatively low, green in the wallet trumps environmental concerns for many.

But this just doesn’t sound like a true reflection of buying motivations – just look at the previous post about expenditure on fuel, and data on car sales as opposed to trucks and SUVs.

Kate Mackenzie

On FT Energy Source:

- The world’s top 280 energy projects

- Himalayan glaciers: Not quite another climategate

- Personal consumption data portend weak oil demand

- The CFTC’s position limits and the investment banks

- ConocoPhillips and Total go big on oil sands

- The questions over Eni, Tullow and Uganda

- More grim refining news, this time from Chevron

- Electricity from ethanol and Fisker’s $115m for electric cars in Energy headlines

Further reading:

- Total’s chief executive on oil scarcity

- Engineers rail against building eco-bling

- High emissions vehicles to be banned from Xiamen streets

- Slim expansion for US energy demand in 2010

- Oil, gas and electric power issues for 2010

- After Copenhagen, what comes next?

- Lessons in how not to go nuclear

- So, there was one mistake in a 3,000 page report

By Izabella Kaminska

Energy analyst Olivier Jakob from Petromatrix has crunched through the CFTC’s proposals on position limits released last week.

His findings are worth flagging up because they differ to the consensus view that the proposals, if enforced, would be a benign influence on energy markets.

First, he guesstimates the limits would certainly affect at least one large Wall Street investment bank offering a leading commodity index. And while the bank — which he does not name — could apply for an exemption to a maximum of 130,000 WTI contracts on a single month, they would then be prohibited from holding speculative positions. In other words, would it be worth it?

Kate Mackenzie

Total liquids product consumption fell by 4.1 per cent in the US in 2009, and the EIA’s forecasts for growth this year and next are fairly anaemic 1.1 per cent.

The big question is, how much of that demand lost in the recession will return, and how much is permanently destroyed? The IEA believes OECD oil demand won’t rise at all this year, and that longer term, less than a tenth of growth in demand will come from OECD countries.

Stephen Schork writes that oil market watchers should keep a close eye on the Q4 numbers for public consumption expenditure (PCE) , due to be published at the end of the month. The chart below shows the percentage of PCE on non-durable goods went on gasoline and other fuels:

Gasoline and energy expenditure fell dramatically from a peak of $461.4bn in Q3, 2008 to $271bn in Q1, 2009 – the lowest level, Schork writes, since Q3 2004.

As a percentage of broader consumption, the numbers are similarly impressive:

In relative terms, the average consumer went from spending 19.4% of their non durable goods expenditure on gasoline to 12.5%. With the recovery in prices, that expenditure has increased slightly, up to 14.5%, but the concern is how much demand destruction, if any, took place over the same period.

Consumption has since recovered somewhat; PCE on gasoline was $324.4bn in Q3 2009. This was a similar level to Q1 2007, although average prices are lower now ($2.55/gallon) than they were then ($2.66/gallon).

However Schork is not confident this growth will continue (emphasis ours):

Whether this rate of expenditure can be expected to continue is less certain. PCE on motor vehicles and parts remains anemic at $331.7 million, the same level as Q3 1998. Factor in inflation and that number becomes even weaker. On the other hand, PCE on transportation services held steady through the recession, never falling below 2006 levels. At $306.3 billion in Q3 2009, it is less than $4 billion away from its all time high in Q3 2008.

Schork says the decline can be partly explained by drivers switching to public transport:

This trend can be expected to continue if gasoline prices trend higher. Once drivers give up their gas guzzlers for a Prius they do not tend to revert, and the high unemployment rate amongst teenagers (27.1% in December) means new customers are not snapping up hummers like they were in 2006.

The bottom line is that we believe much of the recovery in PCE on gasoline and energy goods has already taken place. Thus the next BEA release should be approached with caution. However, this may not prevent the bulls from running prices beforehand.

If some of that US demand never returns, suggesting consumption patterns have permanently changed, what would this mean for oil markets, and for emissions?  The sentiment of the US car driver, for example, might have a big influence on other markets.

Related links:

The love affair with the road :Changing, not slowing down? (FT Energy Souce, 12/01/10)

James Fontanella-Khan

Chevron outlines refinery shake-up (FT)

Brazil opens world’s first ethanol-fired power plant (Reuters)

Indian scientist says he was misquoted on melting glaciers (Bloomberg)

Brent recovers as JAL hedges are unwound (FT)

India veers from usual compensation to oil firms (WSJ)

Fisker raises $115m to fuel electro-car plant (FT)

Chinese demand pumps up Aim newcomer (FT)

Areva and EDF spat shows nuclear tensions (FT)

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