Daily Archives: January 25, 2010

Sheila McNulty

It is not surprising that the US government is moving slowly to enact climate change legislation. Politicians are known for catering to special interests, not speedy decision making. And there are many special interest groups who have something to lose from tough action on carbon emissions. While many in US business are among them, a rising number of executives are savvy enough to know the imperative of moving sooner rather than later.

A group of chief executives – 83 to be exact – from across US business, have sent a letter to President Barack Obama that they hope will jar him into addressing their concerns in this week’s State of the Union address. The letter, signed by companies ranging from Exelon to Virgin America to eBay to Nike, want the US to move quickly to enact comprehensive climate and energy legislation that will create jobs and enhance US competitiveness.

By Izabella Kaminska

Back in December, when the Copenhagen Summit failed to produce a binding global agreement on tackling climate change, the European carbon market slumped.

On Monday, analysts at Bank of America Merrill Lynch point out that Phase II of the European Trading scheme may be facing greater challenges still.

Namely, it looks like the recession could see the scheme end up with more permits available than actual emissions — the situation which afflicted Phase I, and led it to expiring a failure in 2007.

Kate Mackenzie

On FT Energy Source:

- China, setting the world’s oil prices

- Bye bye, US coal

- Was Massachusetts at all about climate?

- Key points from the BASIC countries’ climate meeting

- Shell pulls back on oil sands and Venezuela’s doubling reserves in Energy headlines

Further reading:

- Top 10 oil and gas discoveries of 2009

- Another private Barnett shale test shows air pollution

- Three bright new ideas in biofuels, solar and wind power

- ‘A year of transition‘ for oil

- Why is a utility paying its customers? (Answer: Demand management)

- Biofuels data: Corn ethanol production

- Disorder in the houses of Opec

- The renewable power rebellion

- Energy lessons from Brazil

- An unfortunate juxtaposition

Kate Mackenzie

A lot of the energy commentary on Scott Brown’s election in Massachusetts assumes that it was some kind of verdict on climate change legislation.

The Bernstein coal note we wrote about earlier called it a death knell for the cap-and-trade efforts, while an editorial in Oil & Gas Journal links it to everything from healthcare to big government to the oil and gas industry.

Many Democrats also seem to have interpreted it this way, with signs of fear about proposed legislation abounding.

Maybe they’re wrong, though. As many political pundits have pointed out, the Democrats made the rather arrogant – but not altogether uncommon in politics – mistake of fielding a not-particularly-popular candidate, Martha Coakley, in a seemingly safe seat with a lacklustre campaign. That voters picked the other guy doesn’t necessarily mean they did so with a particular issue in mind.

Kate Mackenzie

Like many others, Bernstein Research analyst Hugh Wynne thinks the election of Scott Brown to a Massachusetts Senate seat last week is a death knell for cap-and-trade legislation, at least under this administration (we don’t necessarily agree with this assessment, but more about that later). And like others, he points to new EPA regulations as being an alternative source of curbing greenhouse gas emissions.

Only instead of the EPA’s CO2 endangerment finding, it’s the proposed tightening of sulphur dioxide emissions rules that Wynne says could affect US coal-fired power plants so much that US demand for coal goes into ‘secular decline’.

Kate Mackenzie

Well, Goldman Sachs’ analysts think so. In their latest weekly commodities report, they point out that China’s 1.6m b/d rise in crude imports almost perfectly offsets a 1.5m b/d decline in the same, from the US:

They add (emphasis ours):

Furthermore, recent data on crude loadings suggest that close to 14 mn barrels of West African crude is being redirected from the West to the East. The surging Chinese demand for oil suggests that the drivers of not only consumption growth, but also world oil demand and prices, are shifting from the West to the East.

The IEA hinted at a similar dynamic in its latest monthly oil market report, pointing out that some Saudi Aramco grades were no longer available to European customers at all, in favour of Asian markets and domestic power consumption.

Now, Goldman actually forecast China’s crude oil demand growth rate will slow, but warn of a significant risk that this might not be the case.

The reason they give is that, while there is a perception of financial policy tightening in China due to recent measures – such as higher capital ratio requirements, policy is in fact looser than the second half of 2009. They view the country’s economic policymakers as essentially conservative on export demand growth, and therefore more at risk of not tightening policy adequately than of going too far. This scenario would see crude demand continue to rise rapidly.

Finally, they point out that fears of a medium-term supply squeeze, brought on in part by growing emerging market demand, seems to be creating volatility in long-dated WTI contracts. While volatility levels for short-dated contracts have settled towards historical norms, long-dated contract price volatility has remained high for two years. They state that the same thing happened in 2005 when, in a classic demonstration of price elasticity, Goldman believe it pushed crude demand almost half a million barrels per day lower than GDP growth implied, while also pushing inventories to their highest level since 2001.

Given China’s apparent nervousness about its increasing reliance on imported fuel, we wonder if a big part of that reverse-rebound in demand could come from China itself.

Related links:

No more Arab Medium or Heavy for you (FT Energy Source, 15/01/10)
China’s fears about imported oil (FT Energy Source, 21/01/10)

Kate Mackenzie

The world’s most powerful developing countries on Sunday said they would meet the UN’s January 31 deadline on the Copenhagen Accord. Or, specifically, that they intended to “communicate information on their voluntary mitigation actions” by the deadline.

Representatives from the four ‘BASIC’ countries (Brazil, South Africa, India, China) met yesterday in New Delhi to discuss their stance on the Accord, the non-binding agreement that they themselves played a key role in formulating last month in Copenhagen.

It was a mostly positive declaration in terms of progress on climate talks, as the UN was concerned that few countries (four, in fact) have so far signed up to the Accord.

Kate Mackenzie

The statement from the January 24 meeting among representatives from Brazil, South Africa, China and India (via The Hindu):

The second meeting of Ministers of the four BASIC Group countries took place in New Delhi on January 24 2010. Earlier, the Indian Prime Minister, Dr. Manmohan Singh met with the four Ministers on the evening of January 23. The Ministers who participated in the meeting were H.E. Xie Zhenhua, Vice Chairman of the National Development and Reforms Commission from China, H.E. Carlos Minc, Minister for Environment from Brazil, H.E. Buyelwa Sonjica, Minister of Water and Environmental Affairs from South Africa and H.E. Jairam Ramesh, Minister of State (Independent Charge), Environment and Forests from India. The current G-77 Chair – Yemen – had also been invited but could not attend because of other commitments.

Kate Mackenzie

Shell to look beyond tar sands (FT)

High hopes for Chevron turnround (FT)

China admits ‘open’ attitude over warming (FT)

States back EPA against industry on GHG finding (Argus)

ExxonMobil sees Alaska as major natural gas supplier (Rigzone)

Better Place set to receive $350m in vote of confidence for electric cars (NY Times)

UK cities face wrecking ball to meet climate targets (The Times)

Exxon says Papua New Guinea violence is not related to LNG project (Bloomberg)

Oil estimates in Venezuela doubled (NY Times)

South Korea may spend $24bn on smart grids by 2030 (Bloomberg)

Banks pull out of offsets after Copenhagen meeting (Guardian)

Russian investors to step back from TNK-BP role (FT)

Petrobras prepares site for 600,000 b/d refinery (Argus)

Eni consortium to redevelop Zubair field in Iraq (Rigzone)

Cold snap leaves utilities with warm feeling (The Times)

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