A few items of note
Posted by Heading Out on May 28, 2006 - 5:21pm
First the BBC notes that the first oil is now, a year late, being loaded onto a tanker from the Baku to Ceyhan oil pipeline. Although this is a marker in the step to a current 300 kbd supply, the first tanker is not getting all its oil from the pipeline
BP, which has a 30.1% stake in the project, said that while all the crude had come from the Caspian Sea, some had been held in its storage tankers.So although this is the opening of a passage that circumvents Russian oil lines, I would not run around shouting Yipee, yet a while.
Secondly Chris at TOD:UK has posted a great piece on analyzing the Joint Energy Security of Supply document just put out in the UK. He shows that the initially optimistic view at the front of the document is not sustained if one drills down into it, and that my being encouraged by wind turbines and rape seed-laden fields is still not going to get the UK to the 10% sustainable level that is the current target.
In summary I think this report has failed in its objective to provide the market with future supply, demand and price information. The quantitative data presented is so optimistic to be virtually worthless with qualitative caveats that don't adequately describe the risk.However, as he notes, although, as with most studies of future supplies, international competition for LNG and other supplies, usually ignored, will be a subject of next year's report.
Thirdly it seems that the BBC is joining FOX and CNN in running a movie on the problems of world oil. Unfortunately it is going to be on at 11:20 pm on Tuesday night, when even us jet-lagged travelers may find a little late, but if I can stay awake, I'll give you the idea.
And finally, as was noted in the comments just below by totoneila Aletta is the first tropical storm in our parts this season, although it is in the Eastern Pacific and at the lower end of Mexico.
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Now the pipeline proper is tested, full of oil, dewatered and flowing, and there will soon be enough oil in storage at Ceyhan for an export cargo. This cargo will inevitably include some of the initial charge of oil that was used to commission the terminal facilities.
This was done to shave a few days or weeks off the commissioning schedule - otherwise they would just be starting in on commissioning Ceyhan round about now. Perfectly standard good engineering practice, not a deep dark dirty secret (in fact I think there was a press release at the time), nothing to see here, move along.
In reply to OilManBob - why build refineries in Central Asia when the local product market is already well supplied? The economic growth, and demand growth, is in the EU and Turkey. The Azeri Light stream will mostly be sold into refineries in the Mediterranean basin. It's similar in quality to Brent, and it will command a slight effective premium because it doesn't have to be shipped all the way from Sullom Voe. I guess it will also displace some of what is coming north through Suez.
The Israelis see Ceyhan as a great way to diversify their energy supply from a country they enjoy good relations with. There's even talk of a spur pipeline, though personally I don't see how that could be economic - they can just use tankers like everyone else.
Sure, BTC was expensive, but it's finished now. The partner companies committed to it when oil was about $30 a barrel. I doubt if they're complaining :)
I am getting sick and tired of this kind of statement. There are so many misconceptions in this that I don't know where to begin, but I'll just say a few things.
I find these statements--which I see everywhere--that "Chindia" is the source of all our supply problems duplicitous, hypocritical and just plain wrong. This is like politicians talking about E85 or windfall profits or .... I could go on, there's no dearth of nonsense about this subject.
Maybe I should of used the <rant> tag above but I'll tell you, this level of hypocrisy makes me crazy, blaming demand in China and India for the lack of global excess capacity when the US is not embarked in any kind of serious efforts to curb consumption and powerdown. E85? As Robert said the other day, give me a break.
The only real answer is for all of us to start acting responsibly, but this is unlikely to happen quickly. But, take heart. Human Sacrifice was pretty common only a couple of thousand years ago, and slavery was legal in all the world just a couple of hundred years ago. The sum total of human good exists because people decided to act altruisticially and it all adds up.
We need to face the fact that no matter what we do, the world will consume every barrel of oil it can get. If America stopped importing oil tomorrow, the rest of the world would be happy to use it all. TODers need to realize this. All the oil on the planet will be consumed, no matter what. The world course is on full automatic and we don't know where it is going.
My European point of view is that our high gasoline taxes have reduced our imports thereby allowing the USA to 'use it all'. Maybe it's your turn to reduce consumption?
The only ones who can claim to have a moral need for using more oil are the poor and developing countries. They need this compact and easy to handle energy source since their ability to handle more advanced technology is limited.
If you are interested in the rest of the slides, they come from a presentation AEREN (the organization behind the Spanish website Crisis Energética) gave in the Seminar of the Hydrocarbon Age organized by ASPO Portugal early this May: Energy in Spain: Renewables, opportunities and threats (pdf file, 1,6MB).
About half of Chinese GDP goes to capital investment, and an even higher % of energy use I suspect (concrete production, steel making, moving construction materials around).
When (not if) Chinese growth slows down and capital investment drops, I wonder if their energy use will decline as well ?
Some of their investments are renewable or will reduce energy demand in the future, several large hydro projects, 17 subway lines in Shanghai, better railroads. etc.
Japan also exports a lot of fabricated products, not least cars. They too are probably exporting a substantial amount of energy.
The us, otoh, is consuming substantially more of the world's energy supply than it appears.
Interesting note that came out last Wednesday........
OECD Secretary-General Donald Johnston said on Wednesday it was surprising that high oil prices had not hurt the world economy.
"It's quite remarkable that we can have prices so high without having really harmful consequences for the economy," he told RFI radio.
"Growth exists everywhere in the world today. It seems, obviously, that there's a certain impact on growth (from high oil prices) but it's difficult to measure because it's not like the 1980s, for there is less dependency on this product than before," he added.
The Organisation for Economic Cooperation and Development said on Tuesday it expected growth in the 30 mostly industrialised economies of the OECD to expand 3.1 percent overall this year.
To stop growth, the system need a trigering event or a sharp increase in price of gas. Price of gas has just increased on pace and steadily, giving the time for people, corporations and organizations to cope with the problem.
In many organisation I work with, it was only a matter of deciding to increase the rate of mileage pay for trips. It amounted to a very low percentage of current revenue or expenses.
The price increase of gas is shown in agricultural and heavy industries nevertheless. I suspect that in US the impact is of a lesser extend to corn farm because of current subsidizing. In Canada we have reports of some family (or buisiness) farms barely breaking even or down right closing. Main reason : Increase in fuel, pesticides, fertilizers and transport.
Forestry is also a big chunk of our economy. We see that many machine owners were waiting to the least second to sign deal that would not include a fuel surcharge mechanism. Large logging and sawmil companies usually negociate fuel prices for each quarter and provide forestry contractors with the needed fuel (a very large quantity indeed).
Big sawmill company are able to run large deficit and getting somewhat easy financing or selling chunk of assets. They have already closed some sawmills and paper mills. By contracting loans, they are able to sell at a loss and spending more, thus increasing growth.
Until fall, if something scary occurs in the finance world, I dont see growth stoping to shortly.
You also have to take into account the Russian Ruble and the june 8th opening of the oil bourse in Russia to see what the outcome will be. I think Russia will be going trough with this.
As you all know, problems dont arise alone and when something can go wrong, it will.
I would add to that the massive consolidation of American businesses everywhere across this nation, be it mergers and aAcquisitions or internal consolidations of people and resources. Anything to NOT RAISE PRICES...that is the mantra and it is wearing us thin.
Very slight since shipping costs are often a small percentage of a good price.
My work allows me to see that the proportion of invoices sent from suppliers to customers with a extra 'fuel/freight' surcharge as increase significantly. I guess those suppliers are tired to swallow those costs and try to pass this up the food chain.
STILL BUOYANT OVERALL, BUT VULNERABLE
http://www.oecd.org/dataoecd/1/29/20332758.pdf
Remember the OECD is talking about its own projection, which includes some fairly benign inflation. That would assume stable or declining oil prices.
So on its face, this report is contradicting itself in more than one dimension. Which is not unusual for a government report or statement - but the media usually accepts at face value what is spoon fed to it.
Also consider that GDP is a measure that includes, for the US, was military spending in Iraqisthan. Does the increase in GDP caused by bombs dropped on Iraq or paid to Iraqi 'contract workers' help the average American - or to put it more bluntly - are we paid based on national GDP - or are US salaries even keeping up with the real level of inflation (and not the inflation rate used to compute the GDP)?
Even the government's own data shows that the average worker wage is not even keeping up with the government's official rate of inflation over the last few years. Which means energy prices are having an aeffect - and will continue to do so. A fact that will become clear when the fog of ME war disappears.
First, oil exporters have an internal market capable of supporting the "growth," by which you mean consuption, I assume. Second, if the exporters internal markets cannot support such growth they will expend their new-found wealth by the consumption of imported goods.
Now, you may very well be right, but, because I am incredible stupid (just ask "oilrig medic"), I was hoping you might elaborate.
So laugh and the world laughs with you, cry and they just think you.'re another Whiney White Man.
Rising oil prices mean mostly income transfer between oil exporting and oil importing countries. And lot of that transferred income is flowing back to the oil importers.
In fact the Chinese energy input in the form of coal is now more important the Chinese oil imports. This means that China is a net exporter of energy in the form of manufactured goods. This shows as the huge positive trade balance of China and as the deficit of the US. So we see that, in fact, China is keeping energy prices down, not up.
China is also controlling its oil imports effectively. The most important reason for oil prices staying relatively stable in spite of declining growth of the world supply is China controlling its oil use and imports. This shows in the Chinese oil imports statistcs. The imports fluctuate heavily and these fluctuations counteract oil price fluctuations.
That implies a lot of rookie coal miners--I certainly hope the Chinese leadership has required large amounts of mandatory safety training, and much more safety equipment and policies. The Chinese coal miner injury & death rate is already terrible.
Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?
So, is there a mechanism I am missing that would allow for an oil bubble to happen?
Natural gas production peaked in 1973 and then reached a secondary but lower peak in 2001. Since 2001 natural gas production in the US has dropped by about seven percent and by over sixteen percent since 1973.
http://tonto.eia.doe.gov/dnav/ng/ng_prod_sum_dcu_NUS_m.htm
One cannot compare natural gas to oil because natural gas prices depend on local demand and local production while oil prices are determined by worldwide production and demand. When world oil production drops by sixteen percent I doubt that will not cause any bubble to burst. Well, unless of course that there is a worldwide depression, which is entirely possible. But a world at war is even more possible when oil production drops by that amount.
There will come a point where any further oil extraction will be written off and that reinjected gas will be tapped.
There must be a large amount of NG stored this way.
An interesting choice, oil or NG ?
Because once pressure drops the oil will slow dramatically.
20% of US production is a LOT of gas in storage, waitng for the oil trickle to decline till ... ?
But, you are correct, it is OT.
1. most of the oil production profits and much of the downstream profits goes to national governments.In Saudi the king gets 3/4ths of the money received from production, the north sea producers pay 50% as royalties to the Governments of the "owners" of the concessions (British Government, Norwegian, ect) plus huge import and excise taxes, the Chinese own all of the refining and distribution as well as their own substantial production, the Russians have just renationalized their oil producers and distributors, and even in the United States about $1.00 a gallon is paid in excise taxes, ad valorem and income taxes by the oil companies. So it is in the interest of all these soveriegn goverments to have high prices. A windfall profits tax will fall on the backs of consumers and independent producers and not serve to lower the price of oil but, instead will raise all of our tax burden. Anyone who believes in a tax to lower prices isbetter off praying to Santa or the Tooth Fairy.
2. The "right wing" is just generating more smoke and mirrors . Get real information from industry publications in order to understand the truth. Follow the money! Companies and producers sell their oil in advance to guarantee a set price (hence futures), and the international banks maintain the market so they can seperate the comodity speculators from their money. Guessing which way prices will go is rank speculation since when you don't understand or control the market. Why do you think oil producers sell futures ?
- a lot of new speculators are in the markets. Hedge funds have had 1000% growth in the last 5 years and they take high risks with your money in order to generate big profits. They produce no good or real service. The geopolitical risk in oil production and transportation has hugely increased costs through increased insurance and trnsportation risks (how much would you charge to insure a tanker going to Iran for?, Nigeria?).
- Peak oil is here and quite real. There is less light, sweet crude being produced all the time, and it costs more money all the time.
That doesn't mean I think the Majors aren't making a pile of money. They quite obviously are, and lots of people are feeling the price squeeze. But follow the money, the facts are enough to make anyone into an anarchist revolutionary.So my conclusion is that we are in a kind of anti-bubble for energy prices - where prices could explode to the upside with the smallest of problems. You may mark my post and even ridicule me at year end if a crisis comes and goes - but the price of oil never exceeds its recent high of $75.
As far as short term trading though - yes, the big guys usually win as the expense of the little guys on margin.
And it means that with a NYMEX subscription, which some of you have, you can spot this pattern on the last week of each month (i.e. 15th to the 21st) of a sell off of this month's contracts and a buy-in of the next. So if there is a speculative bubble, it is easy to detect.
Solar1 said "If America stopped importing oil tomorrow, the rest of the world would be happy to use it all" and BrianT said "Thanks for injecting reality into the discussion".
The usual Jevon's Paradox argument. However, if oil on the world market were priced realistically, various countries (yes, even China) would be forced to regard it as the precious, scarce resource is it. With oil prices well above $100/barrel, efficiency and conversation becomes necessary everywhere. Although I agree with the comment that eventually humankind will use all of it, every last extractible drop, it is a matter of the timeframe and price. At current prices, Jevon's Paradox looks like a strong argument but weakens with much higher energy costs.
Furthermore, the US should be out front on the issue of reducing consumption and wield whatever sway we've got left encouraging others to do the same. The same reasoning holds for climate change. As long as American profligacy continues, other nations will feel encouraged to follow similar policies. A truly effective global policy would label countries as wasteful consumers of fossil fuels or emitters of CO2. This is the idea behind putting a price on Carbon, CO2 credits, etc. Sanctions could be imposed. Generally speaking, this is one pathway toward powering down and encouraging alternative energy. There are many obstacles including the fact that energy prices, especially transportation liquid fuels, are subsidized in so many countries. Everywhere we find that the real price of food & energy, not to mention other commodities, contains hidden costs, which economists call externalities.
Again, we're talking about costs and a significant market failure, especially for light sweet crude. My proposed solution may overly idealistic but it's no more so than Jeffrey's (westexas) suggestion about energy taxes replacing the payroll tax. Radical problems require radical From the Wikipedia article as the paradox relates to Peak Oil.
So, it's not as straightforward as it might seem.PS -- Please spare me the lecture on the bias in some Wikipedia articles. I cite them when what they contain seems reasonably accurate to me.
Trips to the mall or even commuting to work do not generate GDP. I am not certain what this means other than that a very large percentange of U.S. energy comsumption is in this sence discretionary or at least non productive.
As long a Americans are willing to borrow and spend [and the rest of the world is willing to save and lend] the U.S.A. can probably "outbid" enough of the productive use of oil to get all our voracious appetites demand. If / when that willingness ends ... well it won't exactly be "when the SHTF," but for a lot of Americans it may smell that way.