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DrumBeat: February 8, 2007
Posted by Leanan on February 8, 2007 - 9:25am
Topic: Miscellaneous
Couple of stories about Norway:
Norway Falls from Third to Fifth Place Among World Oil Exporters
Norway dropped to fifth place among the world's crude oil exporters last year as the nation's North Sea production declined, the Norwegian energy ministry said.
Norway January Oil Output Falls to 2.419 Million Barrels a Day
Norway pumped about 2.419 million barrels of crude oil a day in January, falling 1.2 percent from the month before, according to preliminary figures from the Norwegian Petroleum Directorate.
Dale Allen Pfeiffer: The Dirty Truth About Biofuels
In a survey of a large sampling of ethanol studies, the authors found that the average of all these studies taken together showed a net energy loss of 8%. Throwing out the three highest and three lowest outliers cut this loss to 2%.
Scientists develop portable generator that turns trash into electricity
A group of scientists have created a portable refinery that efficiently converts food, paper and plastic trash into electricity. The machine, designed for the U.S. military, would allow soldiers in the field to convert waste into power and could have widespread civilian applications in the future.
Pemex: Mexico's top oil field declining fast
Chief Executive Jesus Reyes Heroles said the company's official production estimate for Cantarell was for an average of 1.526 million barrels per day during 2007, down 15 percent from an average 1.788 million bpd last year.The figure is in line with recent industry talk but bleaker than Pemex's outlook six months ago when it forecast Cantarell's output at 1.683 million bpd for 2007 and 1.430 million for 2008.
Reyes Heroles said that with an exploration and production budget of $15 billion a year, Pemex could keep total crude oil production steady between 3.0 million and 3.1 million bpd -- also a much less rosy forecast than Pemex was making last year.
The Peak Oil Crisis: Connecting the Dots
In the months after 9/11 there was much discussion about the American government's failure to "connect the dots." Hints and clues that Al Qaida was about to launch airborne suicide attacks inside the US abounded but nobody put the bits and pieces together into a convincing warning.Such it may be with peak oil. There are trend lines and clues from across the earth pointing to serious troubles just ahead, but once again they are not generally perceived as making a "convincing case," especially when nobody really wants to contemplate the conclusion.
Venezuela '06 Foreign Oil Investment Plunges; Exploration Up
Foreign oil investment in Venezuela fell 55% in 2006 compared with the year-ago period, indicating that firms halted spending amid contract uncertainty....While foreigners trimmed their budgets last year, state-run PdVSA appeared to be busy with exploration work. The 318-page message to Congress showed a 24% rise in exploration spending to 548 billion bolivars ($255 million) last year from 415 billion ($193 million) in 2005.
Venezuela completed 15 exploration wells last year, up from 10 in 2005. The number of oil production wells completed last year shot up to 450 from 182 in 2005.
Oil sands pumping problems: report
According to Simon Dyer, researcher for the University of Alberta’s Pembina Institute and co-author of the report, Death by a Thousand Cuts, Alberta is facing a serious environmental crisis due to oil sands development in the northern part of the province.
Devon: To Drill Additional Jack Well in 2nd-Half '07
A second delineation well will be drilled at the Chevron Corp.-led Jack project in the second half of 2007, Hadden said. Jack serves as the bellwether for the exploitation potential of the lower Tertiary trend, a rich hydrocarbons layer buried deep beneath the Gulf's subsoil.
Exporters should not fear energy-cost labelling
Major British retailer Tesco has announced that it will soon label all produce that has been airfreighted to Britain with a sticker. Environmentally conscious customers would this way be warned of the energy costs of getting this product to market.
Russia pins energy hopes on new nuclear monopoly
This is a revolutionary event - the state has established control over the entire civilian branch of the nuclear industry. It has revived the old but highly effective Soviet style of management: government control.
El Paso settles oil-for-food allegations
The nation’s largest natural gas pipeline company agreed to pay the federal government $7.7 million to settle corruption allegations related to the U.N. oil-for-food scandal over aid to Iraq, according to a settlement announced Wednesday.
Filipino woman kidnapped in Nigeria - the first female captive. A French engineer has also been seized.
CNN ran a special report on Nigeria last night. Big guns, big oil collide in Nigeria
ExxonMobil signs deal with Libya for offshore oil
US oil giant ExxonMobil announced it had signed an agreement with Libya's National Oil Corporation to start exploration activity in the Sirte Basin off the Libyan coast.
Gore: Nations must take lead in warming
Emerging economies such as China are justified in holding back on fighting greenhouse gas emissions until richer polluters like the United States do more to solve the problem, former Vice President Al Gore said Wednesday.
Is President Bush Changing His Views on Global Warming?
White House issues rare letter defending record on warming, claims climate change has been a top priority since Bush's first year in office. Also, the White House says the U.S. is doing more than Europe to combat global warming.
Don't be fooled. The dirty secret about global warming is this: We have no solution. About 80 percent of the world's energy comes from fossil fuels (coal, oil, natural gas), the main sources of man-made greenhouse gases. Energy use sustains economic growth, which -- in all modern societies -- buttresses political and social stability. Until we can replace fossil fuels or find practical ways to capture their emissions, governments will not sanction the deep energy cuts that would truly affect global warming.
Jeremy Leggett: Let the train take the strain
The theory is this. The world is full of wonderful books, and terrible airports. Drop the airports. Read the books. Take the train.
The US Dollar will Crash during 2007 due to $8.6 trillion debt
As long as foreign lenders are willing to take our paper, Bush will keep expanding our debt. As Chalmers Johnson opined, “We are dependent on ‘the kindness of strangers’”. (The Blanche Dubois economy)Of course, if the central banks grow tired of this pyramid-scheme and dump the dollar; the world can get on with the business of addressing global warming, poverty, AIDs, Peak Oil, nuclear proliferation etc. That won’t happen as long as the dollar reigns supreme and a small cadre of unelected racketeers at the Fed continue Gerry-rig the system.
Gold Prices Rise as Gold Mining Output Drops
But what about "Peak Gold", we wonder. What might it do for investors looking to offset a little of the turbulence caused by Peak Oil...?
Texas-Sized Energy Crisis Looms
The worst of these proposals would limit the natural gas burned in Southern California to a “Wobbe” index of 1360. Current sources of natural gas have a Wobbe rating of 1400 or so, and the State Public Utilities Commission last year set a requirement of getting a Wobbe rating of 1385.What does all of that mean? Practically speaking, it means that natural gas from California, the Rocky Mountains and liquefied natural gas would be verboten across Southern California—and any territory served by Sempra Energy’s So Cal Gas Company. And of course, what is a primary source of electric generation for Southern California—you guessed it…natural gas!
Majority Leader: House Dems 'Not Going to be Locked into One Giant Bill'
House Democrats plan to bring several smaller energy bills to the floor by early summer instead of a single, comprehensive measure, Majority Leader Steny Hoyer (D-Md.) said yesterday.
The budget only has a 1 percent real increase — real means adjusted for inflation — in R&D in energy, atomic energy, natural resources and environment and transportation.
Strickland: Ohio must pursue alternative fuels
When the United States experienced an energy crisis in the 1970s, attention suddenly focused on alternative fuels. However, when the price of gas went down again, much of that attention on alternative energy drifted.
Re-enactor ‘Perfect Storm’ Strikes Shell Station
A group protesting the United States’ dependence on foreign oil had dressed in leisure suits and were lining up outside the station in 1970s-era cars to simulate the gas lines of the first energy crisis in 1973.
Nabors: Canada Drilling, Dayrates Down 20% in '07
Nabors Industries Ltd. (NBR) drilling operations in the U.S. and Canada will decline in 2007, as low natural gas prices and high service costs turn off producers, chief executive Gene Isenberg said Wednesday.
Bush Requests $16.2M Budget Increase for MMS
"This is a critical year for the nation and our growing energy needs," said Johnnie Burton, MMS director."With this budget request, MMS can continue moving forward to ensure safe and clean development of needed ocean energy, as well as an efficient and accurate mineral revenue collection process," Burton said.
China has a rapacious hunger for nearly everything under the sun. Now the Waking Dragon is turning its head-and its wallet-towards Africa.
From Afghanistan to Iraq: Connecting the Dots with Oil
In the Caspian Basin and beneath the deserts of Iraq, as many as 783 billion barrels of oil are waiting to be pumped. Anyone controlling that much oil stands a good chance of breaking OPEC's stranglehold overnight, and any nation seeking to dominate the world would have to go after it.
Iran Nuclear: Weapons or Energy
...the Ford administration strongly supported the Shah of Iran’s plan to develop nuclear energy, according to The Washington Post. President Ford even endorsed a multibillion-dollar deal that would have provided Tehran with substantial quantities of plutonium and enriched uranium, either of which could be used to build nuclear bombs. “The introduction of nuclear power will both provide for the growing needs of Iran's economy and free remaining oil reserves for export or conversion to petrochemicals,” said the Ford strategy paper.
Livestock destroy the environment, so fill your bowl with veggies instead of veal.
Fuel from forests is new clean energy goal
By 2010, China plans to plant an area the size of England, or 13 million hectares, with trees from which biofuel can be extracted as a source of clean energy, according to the State Forestry Administration (SFA).
European blowback for Asian biofuels
New European concerns about the adverse environmental impact associated with Southeast Asian-produced biofuels threatens to scupper the rapidly growing multibillion-dollar industry, just as big new production facilities and cultivation areas come onstream.
U.S. Seeks Partnership With Brazil on Ethanol: Countering Oil-Rich Venezuela Is Part of Aim
Idea to use biofuel to reach rural India
Idea Cellular, which will launch its Initial Public Offering (IPO) on Feb. 12, Ericsson and the GSM Association’s (GSMA) Development Fund have teamed up to develop biofuels as a source of power for wireless networks in rural India. In a pilot project in Pune, the three organizations will begin using biofuels to power mobile base stations located beyond the reach of the electricity grid.
Scholars to consider the shrinking of cities
Scholars gather at UC Berkeley this week to ponder a trend much-studied in Europe but little-discussed in the United States: the shrinking city.The phenomenon touches places as varied as Paris; Youngstown, Ohio; Leipzig, Germany; the Taeback Mountain region of South Korea; and parts of the San Francisco and San Jose metropolitan areas, scholars say.
Jaimini Bhagwati: Strategic oil reserves and other options
Obviously, each country has to work out for itself the tradeoff between costs and benefits of holding strategic oil reserves. The current cost of importing 5 million tonnes of oil is about $2 billion. Assuming a 5 per cent risk-less rate of return, the financial cost of holding 5 million tonnes of oil would be about $100 million per annum. In addition, there would be storage and personnel costs. It appears that no significant hedging benefit would be realised by holding such a low volume of strategic oil reserves.
No link yet, but DowJones is reporting that OPEC production is down 2.1 million bpd from October to January.
http://futures.fxstreet.com/Futures/news/afx/singleNew.asp?menu=economic...
I am very pleased to see this 2-mbd INCREASE in OPEC Exports! The $64k question is whether it is solely Angola or have others joined in?
Angola's recent record Supply is 1.8-mbd. With Feb 1st quota cuts, OPEC should have dropped to 21 or so. The 24.6 number tells me they are reacting to the record 86.2-mbd Call on Demand i've been watching or else Angola just set a new record of 3.6-mbd ... highly impossible.
January very likely was a new Supply Record with my December OECD Inventory bottoming now validated by EIA.
OPEC could not produce in the Autumn cuz the Inventories were at record highs. Fed by the 1.75-mbd surplus production. Near record Demand in December was fed from Inventories. But the price firmed up the moment Inventories hit recent memory lows.
The world is unfolding as it should...
Prices will slump nicely thru April and May below $50 contract.
QUOTES as of 1043EST
June 2007 5987
December 2007 6232
December 2008 6304
December 2009 6305
December 2010 6272
December 2011 6237
December 2012 6227
http://www.cattlenetwork.com/content.asp?contentid=104343
ENERGY MATTERS: OPEC Cuts Make Big Dent In Global Oil Stocks
This statement lines up with a recent statement by an IEA spokesperson that stated that OECD inventories would drop 200 million in the fourth quarter of 2006 and the first quarter of 2007.
Based on the steep drop in OPEC prodcution in January (including Iraq which was down 400,000 bpd per the Oil Daily), I think that the total two quarter drop may exceed 200,000,000 barrels.
So, currently demand is being met by a combination of (declining) production and inventory drawdowns.
As I noted yesterday, the average monthly spot Brent oil price was about two-thirds higher in the 20 months after 5/05 than in the 20 months prior to 5/05, while the world has produced about 325 million barrels less oil, than if we had just maintained the 5/05 crude + condensate production rate.
..and yet price of crude is still below $60.
How is this counter-intuitive event occurring?
Robert, Robert...where are you? I need an explanation.
We are currently 50% more than the average spot price in the 20 months prior to 5/05.
Could it be that the OPEC production cuts are re-establishing some degree of excess capacity, which is serving to put a ceiling over oil prices (as well as the reduced quantity supplied putting a floor under them)? In other words, excess capacity reduces price volatility and keeps prices in a narrower range.
Of course, if westexas is correct, then the cuts are involuntary, there is no excess capacity and this explanation is not valid.
Excess capacity does not put a ceiling on oil prices or decrease volatility unless that excess capacity is used to do so. That is, unless OPEC dumps more oil on the market if prices hit a certain point, and pull them back off again when oil drops to a certain point, then excess capacity has no effect whatsoever.
At any rate, excess capacity would likely have little to no effect on volatility because the response would be far too slow. By the time OPEC meets, decides what to do, set a date to do it and then the tankers get to their destination, we are looking at two to three months at least. Far too long a time to reduce volatility very much, if at all.
Ron Patterson
Ron, I disagree on this point.
If we believe that all producers are producing at maximum capacity and that maximum rate of production remains unable to meet market demand then we can make the case that this excess of demand over supply will result in an increased future price for the commodity. Since future prices are anticipated to be greater then current prices it makes sense to buy now, i.e. to hoard.
On the other hand, if we observe that market demand is being met by existing rate of production and we also observe that there exists a surplus prodcution capacity that may be brought on stream to meet future demand, then we cannot justify the case for future price rises or for future shortages and it is therefore much harder to make the case for hoarding. In fact, under this scenario, there would be a strong argument to liquidate inventory to reduce the costs of carry.
Your views?
New Account, two things, you edited my post in mid sentence. That is what is called changing the context. Or "quoting out of context". In debating circles that is a real no-no. What I said was:
First, oil traders must believe that the holders of such spare capacity will indeed use that spare capacity if the price reaches a certain trigger point. But even that belief will not affect supply and demand today, or more correctly the price swings that over demand or under supply causes.
The farther out futures contracts follow the front month contracts. True, they reflect the expectations of what prices will be down the road and excess capacity can influence the distant futures contracts and therefore trade either at a premium or discount to the near term contract. But spot prices and the front month prices and most certainly volatility are affected by what can be delivered this month, not three to six months down the road. Observe the price volatility caused by a sudden cold spell if you doubt this.
Simply the knowledge, or more correctly the belief that spare capacity exist and can be brought to the market in a few months, does not affect the spot price of oil or the close in contract or the volatility of the price of oil to any large extent. Think about it, if it did, then there would be no need for OPEC nations to hold oil off the market. That is any increase in price due to tight supply would be driven right back down due to the increase in spare capacity. Spare capacity in the Middle East does not increase the inventory level of gasoline in the US.
Ron Patterson
It was quite clear what you said, and that he was responding to your full statement. While he may not have quoted the full context, he addressed it and did not appear to misrepresent your position in his argument. So it's no big deal.
Pitt, I thought my reply was courteous and resonable. I did not make a big deal of it. But when two parts of a sentence are connected by the conjunction unless, and when one quotes you they leave out that unless along with the entire second half of the sentence, then that is most definitely changing the context. The unless was not dealt with in his reply at all.
And that was the entire point. If a country says that they will, if the price reaches a certain point, dump mass quanities of oil on the market, then that will definitely affect the price of oil and even the volatility. But they have given absolutely no indication that this will happen. And unless they do........well, you get the idea.
Ron Patterson
Ron,
While I totally agree with you in principal, traders make assumptions. They have too. If OPEC reduces exports by 2 million barrels per day to support the price, the thought on the Nymex floor is most likely that if there's a big supply disruption (Hurricane, terrorist) the Saudi's (or whomever) will jump in with additional supplies.
Just because they don't say they will doesn't mean they won't. Just like if they say they are going to increase production by X million barrels per day doesn't mean they really can.
At the end of the day there is a lot of subtlety, nuance, and even bald face lying that goes on in the Oil markets.
Garth
Egg, with all due respect I don't think we are talking about hurricanes here. At any rate there will still be tremendous volatility if a hurricane hits the gulf. It takes about six weeks to transit from Saudi to the US you know. At any rate we are really talking about what effect any excess capacity that exist right now is having on the price of oil and price volatility.
But let me put it a bit different. If there is excess capacity because the market is already flooded with oil, then prices will be low along with volatility. Then if the supply gets tight and any excess capacity disappears then both price and volatility goes up. Then prices get so high that demand destruction sets in and prices begin to fall. Now at this point OPEC decides to take oil off the market, creating some excess capacity, this will neither decrease the price of oil or the volatility. Imagine if it did. Then what would be the purpose of taking the oil off the market if it only resulted in the decrease of the price of oil. Then it would only be counterproductive.
Ron Patterson
I disagree.
When OPEC takes oil off the market due to falling prices, it does not decrease the price (in fact it supports it), but it certainly does have the effect of decreasing volatility. Instead of excess supply causing the price to crash, the decreased supply puts pressures on inventories causing the price to stabilize. How can you not see this as decreased volatility?
That excess capacity can then be used to reduce volatility when prices are surging higher.
Garth
Garth, as Simmons says, data trumps all theories. Check the the volitity since OPEC says they started the cuts on November 1st. There has been no decrease in volatility. The price swings have been just as great the last two months as they were the previous months. As this chart shows, the weekly price swings have been just as great as any time in the last two years. In fact they have been very volatile in the last five weeks. But of course this does not tell the whole story as it only shows weekly swings. The daily swings and interday swings have been just as great.
http://futures.tradingcharts.com/chart/CO/W
The daily price swings have been just as volatile. However I don't claim that this excess capacity, if they really have any, actually reduces volatility. I don't think it has any effect whatsoever. But other factors have certanily increased the volatility in the last two months.
Volatility is the severe swings in the price of the near term contract on the NYMEX. Traders on the floor, as well as hedge fund traders, do not consider how much excess capacity OPEC may or may not have when they trade. The life of a NYMEX crude oil contract is currently less than one day. Last summer it was almost two days. That tells me that volatility is definitely increasing. (The volume of trades on the near term contract is greater than the open interest. This means that there are more trades in one day than contracts open. today open interest was 277,556 while there were 335,594 trades made today on the near term contract.)
Check the volume on the weekly contract above. Weekly charts are composite charts reflecting the near term price of every month and do not reflect only the near term contract as the daily chart does. (Simply put, the volume shown on the weekly and monthly charts reflect all contracts while the daily charts reflect only the volume of the contract being plotted, usually the near term contract.) Therefore the volume you see is the total volume for that day. You will see that volume has dramatically increased since Christmas. It was down Christmas week and New Years week for obvious reasons. And there were only three trading days during New Years week. But you will notice the volume last summer was about half what it is now. Volume is increasing, contract life is shorter and price swings are greater. Volatility is also increasing, in my opinion anyway but any excess capacity in OPEC nations, does not in my opinion even enter the picture.
http://futures.tradingcharts.com/marketquotes/quickquote.php3?sel=Crude+...
Ron Patterson
Of course Garth is correct. Normally your reasoning would be right ron looking at the data as u have; but u have neglected to factor in the large Demand Call that i have been warning about for many weeks. Q1 is a record 86.2-mbd Call. The stabilization in volatilty that should have happened could not cuz surplus inventory was exhausted in January.
Q2 was scheduled to be a very light qtr. of 84-mbd Call. But there are reports that the lower prices in january created lotsa orders. We'll know better shortly.
Ron,
I assume you are aware that Deffeyes predicts increased price volatility as excess capacity is squeezed out of the production system? I believe I first read this in Beyond Oil, although I don't have my copy handy. Here's what he said about it in an interview I found that's about two years old:
http://www.energybulletin.net/4483.html
If diminishing excess capacity results in increased price volatility, then it seems reasonable to assume that increasing excess capacity results in reduced volatility.
Calorie, thanks for the post.
When OPEC first decided to cut production last fall, some of the talking heads on CNBC said this would cause the price of oil to drop because this would increase excess capacity. Is that logical? Not in my book but it appears a lot of people are buying into that argument.
But let me put it another way. When there was plenty of oil on the market excess capacity meant little because a surplus of capacity kept prices low. The term "excess capacity" is just another way of saying "the market is fully supplied". Or countries have more oil than they can sell and are holding some of it back. This depresses prices and keeps volatility low.
On the other hand when production drops below demand, prices rise. Very high prices causes demand destruction and therefore prices drop slightly until demand and supply are in balance. So far so good.
But then OPEC cuts back on production. This supposedly increases spare capacity. Yet prices rise and volatility remains about the same and in some cases actually increases. The price of oil jumped $2.00 today because of a fire in California. Does anyone actually believe that the perceived OPEC spare capacity actually diminished that price rise today or the volatility of prices today?
Now IF OPEC had said something like; “Not to worry, we will dump an extra 120,000 barrels per day on the market to compensate for the oil taken off the market by the California fire” then that might have reduced the price rise and volatility. But that’s absurd. We know OPEC will just sit on any spare capacity they might have.
My argument is, the OPEC spare capacity, if it really exists, is not presently reducing the price or the volatility of the market.
Ron Patterson
Pitt: I only agreed with half of the statement and only quoted the half to which I was objecting. Me thinks Ron is having a Hothgor moment.
Cheers!
New Account, I deeply resent that remark. My reply to you was very courtous, without any smart alec remarks whatsoever. I simply pointed out that you changed the context of my statement entirely. You could have stated, in your reply, that you disagreed only with the first half of my sentence. But your reply did not give that indication at all.
At any rate, I think that pointing out a change in context is entirely proper and should be done in all occasions when that happens. On the other hand, calling that a "Hothgor moment" was snide and sarcastic. That is how I would expect Hothgor to behave!
Ron Patterson
Didn't add this to the quoted extract as I agree with it. Excess capacity will not impact short term market volatility as the Elk Hills fire of today demonstrates.
Still disagree with you on the point quoted in the initial comment. Part of the reason for the under-investment in the oil industry in the decade of the 1990s was the fear of surplus capacity under the control of OPEC. OPEC does not have to utilize that surplus capacity, they simply have to convince other producers that they do in fact have such surplus capacity. This is the primary reason they have for not making full disclosure of their actual reserves. Everyone else is left guessing and this works to KSA advantage; nobody wants to bet against them.
The issue is one of market perception. That perception will eventually generate its own reality.
So, after reading this whole thread, Im mostly left in a fog with a nasty little headache. The sparkly gem Ill take away is: '..having a Hothgar moment'
Gonna make tshits ;-)
"Blanche Dubois" economy! Best laugh I've had in a while... :-)
Yup. I don't know if I buy the article's premise, but the author certainly has a way with words. How can you not love phrases like "the Blanche Dubois economy" and "Sleepwalking in the Weimar U.S.A."?
superb.
''Ah hiave alwuys relaad on thu kandness uv stranges''.
but it aint original to this author...
I don't understand the joke, can someone explain me?
"STELLA!!!!!"
Blanche Dubois is a character in the Tennessee Williams play, A Streetcar Named Desire. One of her lines is "I have always depended on the kindness of strangers."
Hence the "Blanche Dubois" economy - we are dependent on the kindness of strangers (China, etc., buying our debt).
Not to be confused with the Scarlet O'Hara peak oil strategy. ("I'll think about it tomorrow.")
That would be "I'll never be hungry again!"
Possibly the current US administration's policy?
OK! In fact, it is very funny!!
I do not live in an English speaking country, so I do not have the same references as the most people here!
I forgot: Thanks for your kindness..!