Energy news from the FT:
- Gazprom to cut costs and production
Russian group plans to reduce foreign borrowing
- Court of Appeal attacks British Gas
Utility companies could face a deluge of lawsuits
- Eon to cut costs after charges of €3.3bn
Utilities are being hit by the economic crisis
- Power generators suffer shock to the system
Industrial companies cut back on electricity consumption
- De Beers cuts production as it loses its sparkle
Diamond demand hits rough spot
In London yesterday the Opec secretary general re-iterated comments made at Davos that oil prices are too low, that $60 to $80 a barrel rather than the current c.$40 prices are needed. Today’s low prices are discouraging investment which would store up problems for the future when demand picked up, he said.
The Gulf Times reported Mr El-Badri also said 35 of 150 drilling projects had been delayed because of falling prices.
El-Badri said it wasn’t clear exactly how much production capacity the 35 projects had been expected to add, but he said the distribution of the postponements was across Opec member countries.
The delayed projects are from among a total of 150 that Opec states have planned to deliver over the next decade.
As a result of the project delays, Opec will not increase production capacity by all of the 5mn barrels a day by 2012 that was previously expected, said el-Badri, without elaborating.
Meanwhile Chakib Khelil, the Algerian oil minister and former Opec president, said the group would cut production again if prices remained below $40. However he said also said he believed that “the drop in demand was likely to end soon”, Bloomberg reports.
Platts reported Mr el-Badri said Opec should reach full compliance before looking at cutting. He said the current compliance level was about 80%, which he described as ‘not bad’.
CERAWeek: Terry Hallmark of IHS forecasts $43 a barrel for 2009 (Houston Chronicle)
High winds slash Spain’s energy costs as wild weather hits southern Europe (Guardian)
Does pricey gas make cars safer?
Does a big economy need big power plants? Amory Lovins on networked energy (Freakonomics)
Why China should not have to cap its carbon emissions before 2015, and the conditions necessary to achieve it (China Environmental Law)
How much renewable energy do we use? (EIA)
Introducing… the Philippe Starck home wind turbine (Luxist)
Is there anything they aren’t doing? The Google PowerMeter (Google)
- Crude rises as US stimulus package may lead to lower dollar (Bloomberg)
- El-badri says Opec should wait for 100% compliance before considering new measures (Platts)
- UTS rejects Total offer (Reuters)
- Italy’s Eni signs 3 deals with Angola’s Sonangol (Reuters)
- OPEC to cut output at price below $40, Khelil says (Bloomberg)
- Nymex’s Brent share doubles as traders shun banks (Bloomberg)
- Gazprom set to cut output in downturn (WSJ)
- Gazprom gets license for four blocks offshore Vietnam (Platts)
- US urged to save forests to curb climate change (Reuters)
- Iraq considers $200m plan to reverse oil-output decline (Platts)
- Scientists plan emergency summit on climate change (Guardian)
Energy news from the FT:
- BG’s bid turns up heat with rival Shell
Group makes A$796m offer for Pure Energy
- Opec steps up threat of output reduction
Cartel member tells FT that ‘further action’ is possible
- Rio Tinto chief leans towards Chinalco deal
Boardroom split at the indebted mining group
- Trading in Chinalco shares suspended
Move follows senior management reshuffle
- Lex: Rio Tinto
Mining group wedged itself into a hole
- Donors press Congo over $9bn China deal
China’s biggest investment in Africa under pressure
- KIA rethink on Dow Chemical deal
Kuwaitis to back Rohm & Haas move
- Bullion sales hit record in rush to safety
Investors are buying record amounts of gold
- Randgold upbeat on cost outlook
Mining costs are likely to fall
- Anglo Platinum scraps final dividend
Group plans 10,000 job cuts
- Markey pushes climate change legislation
Pressure to rise ahead of Copenhagen summit
- The super-cycle isn’t over yet
Francisco Blanch, head of commodities at BoA, on the credit crisis
The oil contango has been exercising energy market watchers for months now. There is a good explanation of contango and its associated debates here but, in short, prices are higher for future oil contracts than for front-month, or nearest, oil futures contracts. This is in contrast to most of the recent past, when oil contract priced fell as they moved further into the future.
The latest newsletters from both PetroMatrix and Schork Report point out that long-only index funds, such as the USO, are taking such a large share of the open interest that the front month/next month spread is dramatically affected when they ‘roll’ to the next month’s contracts.
“2009 appears to be shaping up to be the year of the ETF” says the Schork Report, arguing the large weighting of EFTs is skewing WTI front month prices:
For example, whereas the Mar/Apr spread crashed by 421 bps last week, the
May/Jun (which is not being rolled) was virtually
unchanged. Last Monday this contango was $1.45 (-
3.04%), by Friday it was $1.54 (-3.06%). However, with
USO long 85,057 Aprils (not to mention the length sitting
on the books of other long-only index funds)… what do
think is going to happen to the Apr/May spread next
While PetroMatrix says:
The USO ETF now holds 77’889 WTI April contracts which are equivalent to 58% of the April Open Interest on the day prior the USO roll. After the Friday roll we estimate that the USO now owns 33% of the April WTI Open Interest. We find ludicrous for an ETF of that size to have a one-day only roll but we find even more alarming that the NYMEX has nothing to say against an institution that is forcing such a large shift of WTI Open Interest in a single day.
FT Alphaville has pointed out a couple of weeks ago that the roll itself – and the USO rolls its entire position on a single day – is significantly costly to the ETFs. Meanwhile Goldman has predicted that investors may be inclined to pull out of these passive-style long ETFs once they begins to realise those losses.
Brad Zigler of Hard Assets Investor tells SeekingAlpha that while the current contango may be bad news for investors in long-only commodity index products, short oil index investors have been loving it. And, he argues, it’s not so bad for consumers either.
“When will contango dissipate? Well, if you’re talking about oil, you shouldn’t hold your breath. Oil’s last excursion into contango lasted 32 months. The current contango developed in June ’08. We’re only seven months into this edition.”
Coal won’t be replaced anytime soon: “The idea that solar, wind and other sources can immediately replace coal is a fallacy; it would take years for us to replace coal plants with a mixture of nuclear, solar and wind power plants.” (SeekingAlpha)
Opec’s final humiliation: Production levels may even rise this year from Canada and Mexico. “Who ever expected that the Canadians would become the greatest threat to Hugo Chavez?” (247WallSt)
An energy boomtown goes bust: “It was like the difference between night and day,” in Parachute, Colorado
Koch Supply and Trading books a supertanker for six months to store 2bn barrels of crude off the coast of the Emirates (The National)
Maybe there are ways to create the perfect energy source: safe, low cost, abundant and usable by humans for the sake of humans. But we don’t know whether that is possible within the physical laws of our universe.” (The Oil Drum)
Cap and trade or tax? The World Resources Institute argues for the former in a Q&A
Speedbumps to generate power for streetlights (Guardian/Observer)
China begins work on 12th 5-year energy plan covering 2010 – 2015 (China Environmental Law)
Gas, more than oil, is the canary in US coal mine
Installed windpower by country – guess who is top?
After the strike threat, it’s back to the future for US refiners
New nano material the key to cutting solar cell prices
DARPA funding for algae-based jet fuel
Three conditions needed for a surge in Iraqi oil
A large array PV system paid for in today’s dollars could be quite the asset in 2020
Climate change and giant snakes
Goldman Sachs latest energy note adds to the already substantial pile of evidence that industrial energy demand is continuing to plummet. From Chinese diesel demand to Italian car registrations, the figures are unremittingly bleak.
They note that Opec compliance is 61%, compared to 40% the previous month. But that’s not enough:
In particular, we maintain that an additional 1.1 million b/d of production needs to be removed from the market from anuary’s levels to curb the current market surplus and prevent a continued stock build in the next 2 months. We expect that a further 500 kb/d production cut will likely come from OPEC producers, bringing their compliance rate to 75%, but 600 kb/d will likely have to come from non-OPEC producers (see Exhibit 11). As a consequence, we continue to expect that prices will have to remain under pressure in the near term to force marginal non-OPEC producers to cut supply and help rebalance the market. However, should OPEC implement an additional 1.1 million b/d cut, and/or weather related demand strength become more dominant, the need for non-OPEC production cuts and related downward price pressure would diminish.