Who is borrowing what from whom?
Posted by Heading Out on September 5, 2005 - 2:51pm
Up until Friday's approval by the IEA, the Department of Energy had approved loans totaling 9.1 million barrels to refiners ExxonMobil, Placid Refining, Valero Energy and Total S.A.Meanwhile the source of the IEA offer is also becoming clear. Bloomberg has the story on which countries are contributing the gasoline - it is not, necessarily, from where you would have thought.Late Friday afternoon, the Department of Energy had approved two additional loans from the SPR -- 2 million barrels to British Petroleum (BP) and 1.5 million barrels to Marathon Oil.
As part of the agreement, oil companies are expected to return the oil to the emergency stockpile once supply conditions have returned to normal.
Half the oil in the IEA release will come from the U.S. strategic reserve as crude. The other half will be ``mainly'' oil products, including gasoline, Mandil said. About 20 percent will come from Japan and other Asian countries, 10 percent from Germany, 7 percent from France and 5 percent from Spain, he said.UPDATE And thanks to ClintB, for the lead to Business Week which gives more detail, including the interest rates
the government demanded a volume premium of 1.8% to 5.6% on 5.4 million barrels of sweet-crude loans to five refiners, to be repaid in three to six months.. Incidentally the reason no more is coming from Europe is apparently a lack of available tankers.
Now while I understand the reasons for this, and Econbrowser's points about putting it away against future value, what worries me more than a little is that this is bound to bring additional pressure against the available supply, with an obvious increase in cost. Surely that was not the intent when the decision was made to increase the US SPR ?
And further to comments we have made about the difficulty in getting to Port Fourchon and the supply depots at Venice. The NYT has a story about the conditions in that area. When the movie "The Oil Storm" described the fictional aftermath it got this bit sadly correct
Few if any houses survived; those not still under water were flattened in place or thrown acres away. Hundreds of pleasure boats, fishing vessels and small ships were indiscriminately dry-docked, tossed onto embankments, into swamps, even onto the state highway. Oil refinery tanks crumpled into balls; bits and pieces of homes scattered like confetti; downed telephone wires snaked off into uselessness; and virtually no living thing was around, save for stranded livestock, crying seagulls and a few dogs looking for masters. There is no visible National Guard presence, no smaller version of the hectic recovery taking place farther north. This is partly because the hurricane essentially severed the area from the rest of Louisiana; the view by helicopter, the only way to get here other than by boat, shows impassable Route 23 submerged then dry, submerged then dry. . . . . He started walking north on a deserted stretch of Route 23 called the Empire Bridge, accompanied by his oil rigger of a son, Ryan, and Lt. Steve Zegura. They pointed out how the hurricane had twisted the bridge, bending it west toward the bay.Technorati Tags: peak oil, oil, Katrina, Hurricane Katrina, gas prices
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http://www.businessweek.com/bwdaily/dnflash/sep2005/nf2005096_7400.htm
The article says that when reduced runs are included at a number of midwest refineries due to crude shortages, we are short 15% of refining.
I am amazed at how little the MSM is discussing future gas shortages. It seems to demonstrate a high level of administration control to stave off hoarding, which I guess might buy some time. I am supposed to fly from AZ to Washington DC next week on business, a trip I make every six weeks or so. The trip will either get cancelled or be more interesting than usual...
http://www.mms.gov/ooc/press/2005/press0905.htm
These evacuations are equivalent to 27.83% of 819 manned platforms and 27.61% of 134 rigs currently operating in the Gulf of Mexico (GOM). The number of manned platforms that are evacuated declined 25 percent from yesterday.
Today's shut-in oil production is 1,043,681 BOPD. This shut-in oil production is equivalent to 69.57% of the daily oil production in the GOM, which is currently approximately 1.5 million BOPD. This represents a 5 percent improvement from yesterday's figures.
Today's shut-in gas production is 5.225 BCFPD. This shut-in gas production is equivalent to 54.13% of the daily gas production in the GOM, which is currently approximately 10 BCFPD. This represents a 2 percent improvement from Sunday's figures.
The cumulative shut-in oil production for the period 8/26/05-9/3/05 is 11,985,960 bbls, which is equivalent to 2.189% of the yearly production of oil in the GOM (approximately 547.5 million barrels).
The cumulative shut-in gas production 8/26/05-9/5/05 is 64.087 BCF, which is equivalent to 1.756% of the yearly production of gas in the GOM (approximately 3.65 TCF).
"Kinder Morgan Energy Partners' Plantation Pipe Line Co., which transports fuel from refineries to Eastern markets, has been capable of full capacity operations once it receives fuel from downed refineries."
I guess the tank farms next to the refineries must be emptying now. At the end of last week, the news that pipelines were coming back on-line was enough to send wholesale gas lower and support the media's case for the unlikeliness of shortages. Preferred media policy: good news encouraged, no factual news and resulting hoarding, please...
http://www.msnbc.msn.com/id/9226413/
Also, with the war in Iraq and tax cuts, not to mention the peak oil in the not-so-distant future, where will the government get all the money to handle the situation?
http://www.washingtonpost.com/wp-dyn/content/article/2005/08/31/AR2005083102758_pf.html
Perhaps we are still too close to the event to grasp these affects. But at least in terms of the short term gasoline supply / price, I wonder how much stress the US economy can take without suffering significantly in the long term?
More specifically, how long can our economy withstand $3 + gasoline? In the US, much (if not all) of the surplus income that lower and middle class families have will be redirected toward (1) fuel costs, both for transportation and heating and / or (2) the increased cost of food and other basic necessities as a result of shock in refined fuels. This income will be unavailable for consumer spending in our credit / debit based economy and will possibly send the US economy into recession or worse.
I realize that many economists will present the "Pollyanna" picture so as to not disrupt the status quo, but what are the more realistic (or truthful?) economists saying?
And I guess maybe a more important question is this: will we as a society use the potential of this event to change our attitudes and actions toward energy, particularly oil before it's too late. Or is it already too late?
I think that the US economy better be able to withstand $3 gasoline, or learn how to do it in a hurry. My hunch is that gasoline prices will ease a bit over the next few weeks, but not substantially. The oil and gasoline swapping that's being publicly talked about is, I think, aimed more at calming the market in the short run than fixing any supply problems. But once we get into the annual Spring price run-up in 2006, things could get a lot more interesting.
Another thing we all have to keep in mind, which you alluded to, is that the US economy is frickin' HUGE, so things like energy cost increases take quite a while to work their way through the system. If gasoline, diesel, and jet fuel prices stay at about their current level, then we will indeed see price increases in virtually everything. Energy-intensive goods and services (overnight package delivery, airline tickets) will rise a lot more than some other types of product, and could trigger some really nasty economic effects (like bankrupting a couple of airlines and putting thousands of people out of work).
Will we learn from this event? Who the hell knows. That really is the most important single question (aside from anything related to the humanitarian effort on the Gulf Coast, of course), but it's so tightly interwoven with market psychology, politics, economics, and who knows what else that even a prediction-loving economist like me won't take a guess.
- higher gasoline
- higher heating oil (almost a given this winter)
- higher natural gas (on track to make a record this winter)
Suddenly you've got "average" folks paying 200 - 400 - 1000 more for transport fuel and 30 - 70 - 100% more for heating costs.Each winter month.
I know most people around here don't care for economics, but it is interesting to know that economically, expensive energy is neither inflationary nor deflationary. Instead, it causes rather complicated changes in the price of items. Generally, everything in the economy has a certain percentage of its costs associated with energy. Some things have a relatively low percentage of their cost being due to energy, like, say, hand-made quilts. Other things have a high percentage due to energy costs, like airline tickets. What will happen when energy increases in price, if the money supply stays roughly constant, is that high-energy-percentage items will get more expensive, while low-energy-percentage items get less expensive. Items that use exactly the average amount of energy as a percentage of costs will not change in price.
It's not always obvious to the non-expert which items use more or less energy than average to make. But this is what will determine whether the prices for those items rise or fall.
This is why we see these contrasting analyses, some predicting inflation and some predicting deflation. It depends on which kinds of goods and services the analyst is focusing on.
Back in the 1900s, someone told me that hard times were good for restaurants, because folks would go out more to cheer themselves up. I'm working now and I can't afford to eat out.
Can you elaboprate on the "200 - 400 - 1000" comment? Are you really talking additional dollars per month just for transportation? If so, please explain where those numbers come from, as that kind of money buys a lot of miles in absolute terms, let alone as an additional cost.
On same NPR spot they talked about increased costs of lumber, steel and concrete on the mercantile exchanges. This will add to the cost of reconstruction and hurt the existing housing market.
Anybody else hear this spot and can get the link?
All of this points to a rocky economy this winter if true.
Is actual black gold (oil) moving from the SPR?
From the SPR website I found that oil will be delivered "according to the terms of the sale" and "no more than 30 days after the President signs the order".
Wikipedia for the SPR said oil would begin moving "13 days" after the President signs the order.
So they've agreed to the sale, but have they actually delivered any crude? Does anybody know? I tried google but only found non-specific news articles about the sales.
Thanks.
Does anyone know where Europe's strategic reserves are located. Apparently it's both crude oil and fuels. What country(ies)?
I have to admit I even didn't know that Europe had something similar to SPR until IEA's announcement last week.
The four U.S. SPR locations in Texas and Louisiana take advantage of the region's geology (salt domes) for storage. I do not think such formations exist in Europe -- so it must be high capacity tankage. Anyone have any details?
Note these reserves are not like those of the US. US reserves are of crude oil. European reserves are refined, ready-to-use products, like gasoline, Diesel distillate, heating oil and jet fuel.
I was surprised to learn that over 50% of Europe's 346 million barrel reserve is in the form of refined products.
http://www.simmonsco-intl.com/files/020603.pdf
In early August, prices for unleaded 95 Octane were about 1.24€ per litre in Italy and 1.28€/l in France. 1.28€/l is about $6.05/gal.
Yesterday, the French MSM reported prices of 1.58€/l. That works out to $7.47/gal at today's exchange rate.
Somehow, I don't think the Europeans are going to find the joke about exporting gasoline to the USA very funny for very long.