A gentle reminder
Posted by Heading Out on October 19, 2005 - 11:40pm
At the time the beginnings of demand destruction were beginning to appear with the reduction in subsidies and other government programs in some of the poorer nations around the world. Ianqui has just reminded us of the problems that India is going to increasingly have to face. The impact of the hurricanes Katrina and Rita brought the debate closer to home. Current EIA predictions are that it will take until the end of this year to bring back the lost production that we have seen in the Gulf. And yet, as I was quizzed again this morning, gas prices continue to remain lower than they should be. The answer, in part, lies at the EIA gasoline page
The other thing that is bothering, however, is that everyone seems to be assuming that if we can only get through the next month or so, that things will return to an even keel. But they weren't on an even keel before, and if production from the Gulf is going to be perpetually (or at least for say the next five years) inhibited by seasonal shutdowns and regular rig losses, then existing models of production may have to be modified. After all, unlike many land sites, we cannot bring in a donkey engine to apply stripper well status in the Gulf, and a lot of the wells that were close to that level, but producing through a now defunct platform, will not be re-opened since the return in cash will not justify the investment in building or rebuilding a platform to go out there and get that oil. Further there may be a bit of a rethink on the design of the deep water platforms that got damaged this year.
And remember that the MMS is still reporting that close to 1 mbd of oil is shut-in, while, now that other disasters have moved the hurricanes and their effects off the front page, demand for gas is beginning to creep up again. I get the feeling of one shoe having fallen, while, as yet, the second hangs, poised in the air somewhere over our heads.
UPDATE: I meant to add this indication that my thinking is not unique, but had lost the ref. Matt Simmons is now predicting that oil might get as high as $190 this winter. I am not sure I would go that high, but I believe an increase is inevitable.
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" the u.s. normally imports about 3% of it's gas supply on tankers. but in the past few months, several large new plants in egypt, qatar, and austrailia that liquify natural gas have experienced problems. this has cut supplies and dried up the spot market. LNG imports to the u.s. tumbled 27% in august verses a year earlier, according to the dept. of energy. "we're on our own," says craig pirrong, a university of houston energy expert.."
has anyone out there seen this info before?..it was a surprise to me. in view of reduced production in the gulf, will this lost import capability place us in worse shape than we think??
While gasoline stocks seem to be leveling off, the charts at This Week in Petroleum show distillate (diesel) stocks continuing to drop. Seems as if we are working hard to keep the average consumer placated with stable gasoline at the expense of other petroleum products. The curves for distillates (diesel) show a plunge in US production this fall (25% in 2005 versus 8% in 2004) and US stocks, but with a 10% drop in distillate imports compared to this time last year which contrasts with the nearly 100% increase in US imports of gasoline.
What is going to be the impact of this? If US stocks, imports, and production of distillates continue to drop, will it be a cold winter for heating oil? How about tractor-trailer freight costs? As I recall, the switch to low-sulfur diesel is a year away.
-Jon
The Europeans can lend us gasoline much easier than diesel because they have more slack in that market. Also, the new diesel regulations go into effect next June and require refiners to reduce the sulfur content from 500 ppm to 15 ppm. The pipeline companies, however, are going to limit the diesel they ship to 6 or 8 ppm because every time it moves from one tank or pipeline to another, it gains sulfur.
I don't know if this is a technical question; if the refineries have already made the costly production commitments they may prefer for the regs to go into effect.
You are probably right here - I have been seeing the spread between diesel and RUL growing in recent days. Right now diesel is $3.19 - RUL is $2.79.
I hear rumors that the introduction of ULSD will be delayed, but nobody can find out anything concrete. I have a friend who is a reporter for a trade rag for truckers, and she was getting quite frustrated with the EPA because she couldn't get a straight answer about this from them.
SO to bail on the ULSD requirement would also require bailing on truck emissions (after 5 years of R&D and the start of a changeover in production). Even if the new requirements go forward mixed availability of ULSD would be another reason for fleets to hold off on the new technology (already there is a massive pre buy going on with fleets loading up on new trucks this year so they do not have to buy new trucks until the tech is proven for a year or two)
Retail, and Wholesale almost always get their "stuff" from a trucker. You and I might be able to smile as we fill up the family Automobile as the prices go down a nickel or dime, but we see the costs when we go to buy the food we eat and the clothes we wear. I have seen prices go up a penny here or there and up for businesses that I have contact with, so that cost of that gallon of diesel is not just going poof. We are still paying for it.
If the price of diesel stays up, up will go inflation, even if they try to hide the numbers.
the import surge in gasoline is similar to what happened in the 73 embargo with oil. when the ambargo was announced so many ships at sea diverted to US and Dutch ports that there was a brief period when oil prices actually went down in the target countries. Entirely a transient effect.