Benefit From the Latest Energy Trends and Investment Opportunities before the mainstream media and investing public are aware they even exist. The Free Oilprice.com Energy Intelligence Report gives you this and much more. Click here to find out more.
The boycott of Iran has been more successful than I had anticipated, with Iranian oil production and exports down significantly from a year ago.
Monday, October 15, 2012
BP Falls Out with Azerbaijan as Baku Gambles on Future
Benefit From the Latest Energy Trends and Investment Opportunities before the mainstream media and investing public are aware they even exist. The Free Oilprice.com Energy Intelligence Report gives you this and much more. Click here to find out more.
That Azeri President Ilham Aliyev is so ferociously lashing out at British Petroleum (BP) for declining output in Azerbaijan’s largest oilfield has very little to do with BP and everything to do with Baku’s ambitions to raise the stakes as it seeks the top spot on the Caspian oil and gas chain.
Aliyev is simply setting the stage for changes in the regulations governing Azerbaijan’s oil and gas resources. From where I’m sitting, BP can’t afford to play this game and may be pushed out to make room for other oil majors.
Earlier this week, Aliyev took his show on the road personally—which is significant in itself. Speaking on public TV, the Azeri president has attacked the BP-led consortium for failing to meet its projected production targets in the Azeri-Chirag-Guneshli (ACG) field, referring to the situation as “totally unacceptable”.
The simple math is this: In 2010, ACG reached production of 823,000 bpd. Production at ACG declined 12% in the first half of 2012, to 684,000 bpd. BP, which operates the field and holds a 35.8% stake in the consortium, had promised that ACG would produce more than 1 million bpd after its third phase was completed in 2008.
Related Article: Smash the Rally in Oil
According to Aliyev’s math, this BP failure has cost Baku $8.1 billion in revenues.
When BP initially made its 1 million bpd promise, it was to great fanfare and much uncorking of the champagne in Western diplomatic circles whose eyes glossed over at the prospect of access to so much non-OPEC crude oil.
But no sooner had the fizz gone out of the champagne that everyone realized that these predictions were a bit on the over-optimistic side. Azerbaijan’s reserves are limited, and from the start it was clear that production would experience a sharp increase and then a sharp decline. In fact, for 2012, Azerbaijan’s whole oil sector combined was only projected to produce just under 1 million bpd by the end of this year.
Aliyev knew this. His very public attack on BP is intended to send a message that requires some reading between the lines.
"It is absolutely unacceptable … investors who cannot stick to their obligations and contract terms must learn lessons. Serious measures must and will be taken," Aliyev said.
Related Article: Yet Another Attack on Turkish Pipelines
The message is that contracts are about to re-negotiated and BP is being used as a guinea pig for a re-mapping of Azerbaijan’s energy players. We are not just talking about oil here, but gas, and BP is also knee-deep in Azeri gas via the Shah Dengiz II field. Baku isn’t convinced that BP is the best choice for reaching the full potential of Shah Dengiz II. So look for a “reorganization” of this as well.
Can BP pull itself up out of the Azerbaijani mire? Right now, it’s looking very promising. The company is already spending some $2 billion just to maintain its currently unacceptable production levels, and if it has any chances of ramping up production to appease Baku and make good on an impossible promise, it will have to invest billions more. Unfortunately, investment on this level will not pay out, especially since BP only has a contract until 2024.
At the same time, Baku is making it clear that the contract will not be extended beyond 2024. And BP will be lucky if it isn’t pushed out before then.
Certainly, it’s a bad time for BP, which is battling on multiple front lines. Company shares have dropped around 5% this year, even after plunging about 25% over the Macondo disaster of 2010.
By. Jen Alic of Oilprice.com
Albanian Tycoon Shakes Up the Country's Booming Oil Market
Benefit From the Latest Energy Trends and Investment Opportunities before the mainstream media and investing public are aware they even exist. The Free Oilprice.com Energy Intelligence Report gives you this and much more. Click here to find out more.
It was just 8 years ago that Canada's Bankers Petroleum (BNK-TSX) began developing one of Europe's biggest oil fields – in Albania.
The main reason for that – Albpetrol, Albania's national oil company, lacked the resources necessary to develop the country's huge oil resource.
And in those 8 years, Bankers' stock has enjoyed two big runs.
So what will happen now that Albpetrol has been sold to the highest bidder—an Albanian tycoon with deep ties to the government and the regional energy elite???
The answer is a cocktail of optimism and uncertainty, with a heavy dose of geopolitics. The sale of Albpetrol has three clear winners:
1. The Albanian economy
2. Western gas pipeline ambitions
3. A controversial Albanian tycoon??
But the outcome is less clear for Canadian energy companies that have been the backbone of Albanian oil. Other Canadian juniors operating in Albania include Stream Oil and Gas (SKO-TSXv) and Petromanas (PMI-TSXv).??
On October 3, Albanian Prime Minister Sali Berisha announced that a private, US-based consortium Vetro Energy had won the tender for Albpetrol.??
The price: €850 million—but the actual assets were only valued at one-third of that price shortly before the tender process opened on 7 September.??
What will Vetro Energy actually get for nearly $1.2 billion? Quite a lot, under the surface.??
While Albpetrol maintains only 5% of the country’s oil field shares and operates only one oilfield, Amonica, the government took steps right before the tender was opened to sweeten the deal.??
Legislation governing Albpetrol was amended, granting the new owner licenses to build a refinery and to transport and distribute natural gas. This addition to the Albpetrol dossier is worth an estimated €20 million in revenues annually.??
In total, Albpetrol’s above-ground assets, including oil and gas fields, are worth about €322 million, and Vetro Energy has won the right to explore and exploit these assets for 25 years.??
Calgary-based Bankers Petroleum was one of the six bidders for Albpetrol, but its €304 million offer was turned down. Stream Oil and Gas did not participate in the tender.??
Was Bankers Petroleum disappointed? Yes, but there is a silver lining. According to Mark Hodgson, Vice-President of Business Development for Bankers, the high price tag placed on Albpetrol raises the estimated value of Bankers’ own assets.??
"If you look at the assets of Albpetrol, a good portion of that value is future royalty payments [from Bankers Petroleum]," Hodgson told OilandGas-Investments.com in an October 9th interview, suggesting that the value attributed to Albpetrol's assets with the nearly $1.2 billion bid immediately raises the estimated value of Bankers' own assets.??
Albpetrol was on a downward spiral during the post-independence transition period of the 1990s and was in dire straits by the time Bankers Petroleum entered the market in 2004, acquiring the lion’s share of Albpetrol’s key oilfield holdings.??
Since then, Bankers Petroleum has been responsible for a massive increase in Albanian oil production—from 600bpd in 2004 to 13,000bpd in 2011. Average third-quarter 2012 production from the Patos-Marinza oilfield was 15,616 bpd.??
The company’s $450 million in investment in the Patos-Marinza field alone between 2007 and 2011 has increased proven and probable reserves, making it one of the biggest onshore fields in Europe. Probable (2P) reserves are now estimated at 227 billion barrels, compared with 100 million in 2006.??
In 2011, Bankers Petroleum acquired Albpetrol’s remaining shares in the Patos-Marinza field. That same year, it began re-development in the Kucova field, with production targets of 2,250 bpd for 2015. Exploration in Block F, next to Patos-Marinza, represents an additional $215 million investment and is scheduled to begin in the first quarter of 2013.??
Acquiring Albpetrol would have been ideal, giving Bankers control over the extraction, processing and distribution of oil and gas. It was, however, up against the formidable force of Albanian oil tycoon Rezart Taci and his US partners.??
The Chicago-based Vetro Energy consortium consists of Singapore-registered YPO Holdings, owned by Taci, and Vetro Silk Road Equity. The deal saw YPO gain a 51% share in Albpetrol, with a 49% share for Silk Road. On October 5, two days after it was announced that Vetro Energy won the bid, the consortium stepped out publicly with Taci, introducing him as the man behind the deal.??
Taci, whose main business empire hinges on the Taci Group and Taci Oil, also owns the country’s only refineries, the largest chain of gas stations and a key TV station which boasts more than 10 million viewers. He is a personal friend of Silvio Berlusconi and a member of Berisha’s inner circle.??
In 2009, Taci managed to acquire Albania’s state-owned refineries (ARMO) for €128.7 million by having a previously unknown Swiss company close the deal. Shortly afterwards, he re-registered ARMO under the Taci Group.??
So where does all of this leave companies like Bankers Petroleum and Stream Oil and Gas, who have developed Albania’s oil production capacity???
Bankers Petroleum is “not overly concerned,” said Hodgson, noting that “as a state-run entity, Albpetrol was often bureaucratic and slow, and its decisions were often politically rather than financially motivated.”??
"We're excited to be working with a new party with similar motivations, to expand Albanian oil production and increase revenues," he said.??
On the subject of Taci, there was more reservation. Hodgson said that Bankers Petroleum had a “long history” with the Albanian tycoon, and that history was not without its problems, particularly concerning the timing of payments for crude deliveries.??
ARMO has had difficulties keeping current on their payments to Bankers, according to Hodgson. “We’ve had payment delays in the past and we’ve worked hard to resolve them with [Taci].”??
Albpetrol’s newfound power, however, should not be underestimated. After all, Taci is part of the prime minister’s inner circle and he has worked to secure his hold on Albania’s energy industry at an even pace.??
The acquisition of ARMO, to complement his chain of gas stations was a logical step. Another logical step would be to win back some of Albpetrol’s lost oilfields, particularly since they have now been successfully developed. While this latter ambition would be legally out of Taci’s reach as Vetro Energy will be bound to honor Albpetrol’s previous agreements, the Albanian tycoon could make things very difficult for his foreign competitors if he chose.??
Essentially, he will have the power of Albpetrol, Berisha and a key link in the future of the Trans-Adriatic pipeline behind him. And when Taci makes an acquisition, no one sees it coming. This is his modus operandi. His involvement is only revealed after the deal is done.??
What if relations with Taci went sour???
One concern for both Bankers Petroleum and Stream Oil and Gas could be how a mounting battle over non-payment of corporate income taxes plays out. Presently, the opposition Socialists are attacking the two Canadian companies for allegedly taking unfair advantage of a 1994 law that exempts them from paying corporate income tax as long as investments outpace profits.??
Bankers insists that it continues to reinvest revenues in development. Certainly that has been the case, most recently in the Kucova fields. Despite Socialist claims, audits are conducted frequently to this end. And Taci is not going to help the Socialists.??
Regardless, it remains an issue of contention that could be easily manipulated through the media.??Bankers is also dogged by recent allegations that its drilling caused a series of earthquakes in June which resulted in structural damage to (illegally built) homes in the rural area of Zharres, followed by protests and an attack on Bankers facilities. This issue could also gain momentum, particularly through the media, in which Taci owns significant stakes.??
For now, these are hypothetical situations and Bankers Petroleum does not view Taci as a threat to their future operations. As Hodgson reminds us, “[Taci’s] business is very much dependent on our own business.”??
And indeed, business is good. Bankers’ third-quarter output has risen 18% and sales agreements have been signed for most of its 2013 production. Shares were up 3% at C$3.18 on October 4 on the Toronto Stock Exchange, boosted, rather than shaken, by reports of the sale of Albpetrol.?
From a geo-political perspective, the acquisition of Albpetrol by Vetro Energy resounds all the way from Albania and Azerbaijan, to Western power corridors, eyeing an opportunity to further the plans of the Trans-Adriatic Pipeline (TAP).??
TAP will carry Azerbaijani gas across Greece and Albania to Italy. It is a key strategic element of Europe’s plans to reduce its dependence on Russian gas and the stranglehold Gazprom has on Europe’s supplies and distribution network.??
Vetro Energy will guarantee the West additional gas supplies for the TAP along with a convenient place to store those supplies to boost European energy security.??
From the perspective of the TAP, Albpetrol’s value far exceeds the estimated value of its tangible assets. There is another deal sweetener, too: The new owner of Albpetrol will also be granted the use of the country’s vast salt mines for natural gas storage. The largest of these salt domes, at Drumea, can hold up 2 billion cubic meters of natural gas, or 70.6 billion cubic feet (bcf).??
Essentially, the privatization of Albpetrol will render Albania a warehouse for TAP gas supplies, strengthen ties between Albania and the US, and help Albania—and the Balkans—keep a safer distance from Russian dependence.?
Gazprom did bid on Albpetrol, but it has fallen on hard times in the face of the US shale gas boom, and offered up a paltry $52 million.?
Even before the tender results were announced, on September 27 officials from Albania, Azerbaijan, Greece and Italy signed an intergovernmental MOU in New York on the TAP pipeline.?
By Jen Alic for the Oil & Gas Investments Bulletin
Monday, October 8, 2012
Sydney now beyond point of no return
Only days after the ABC TV broadcasted an interview with IEA chief economist Fatih Birol who warned that peak oil happened in 2006 and that the world should have prepared for peak oil already 10 years ago, the freshly elected NSW government has appointed the former NSW Premier Nick Greiner (1988-1992) as chairman of Infrastructure NSW. He proudly wants to be known as “Father of Sydney’s tollways”.
This decision of Premier O’Farrell will guarantee that
(1) Sydney’s vulnerability to oil shocks is increased
(2) The government will never ever prepare for declining oil production until physical fuel shortages arrive at filling stations
(3) Millions of tax-payer funded planning dollars will be lost on preparing expensive documentation for oil dependent transport infrastructure
(4) Super Annuation funds will waste billions of dollars for unnecessary toll-ways until more of the toll-way operators go into receivership and it is realized that the root cause was peak oil
(5) The public is not being told that our car culture cannot continue forever, supported by a continuing stream of media reports about green cars, electric cars and yellow cars
(6) All this will go on until the system crashes and those responsible for the resulting financial losses will be held to account
Sydney has now definitely passed the point of no return, the last moment in planning and implementation to put in place emergency projects to save the functionality of the city (long distance commuting) by replacing car traffic with public transport. A symbol of this critical juncture is this work on the M2:
Foundation work for the Beecroft Rd bridge (7/5/2011) now permanently blocks any future public transport solution which connects to the rail hub in Epping (to the right in the picture at the end of the bus ramp which will be pulled down, a scandal of the 1st order). The new Liberal Government failed to re-negotiate the Transurban contract to use the 3rd lane for public transport.
8/5/2011 Professor Hensher [ITLS] wants a network of dedicated bus lanes, known as bus rapid transit (BRT). ”I recently calculated that if we were not to build the north-west and south-west railways, we could purchase 28,500 new buses, increasing bus service capacity 7.5 times.”
http://www.smh.com.au/nsw/the-transport-mess-to-be-unscrambled-20110507-1ed6z.html
In that case the ITLS should immediately contact the Premier and Transurban to recommend a stop work order for the above works.
At a recent public information evening in Epping Heights Public School on the progress of construction work Leighton engineers and Transurban staff had never heard of peak oil, not to mention they did not know we are already in year #7 of peak oil.
On the same day the above M2 picture was taken fuel tanks in Misurata, attacked by Gaddafi forces, went up in flames, part of the fight over oil.
So these two pictures are symbols of two seemingly different worlds, connected by a fragile line of just-in-time oil tankers.
No one in government seems to have noticed that the war in Libya signals the beginning of the next phase of peak oil in which armed conflicts about the 2nd half of oil will dominate oil markets and limit oil supplies. These wars converge in complicated, not easily recognisable ways with the Arab uprising.
This website will deliberately contrast M2 widening work with peak oil related events in MENA countries to demonstrate that our decision makers are unable or unwilling to connect the dots.
Greiner himself was of course the initiator of the M2 in the late 80s. Although peak oil was not publicly known at the time the M2 created uncontrollable urban sprawl in the North West of Sydney in the last 15 years and a city structure wholly dependent on long distance commuting by car. This will have far-reaching consequences and costs for decades to come. In addition to these problems many environmental sins were committed including destruction of bushland for the M2 and a dramatic increase of air pollution and smog over the Sydney basin. All these impacts are perpetuated with the M2 widening. It seems only peak oil can stop this.
Let’s put events into a table:
It was the duty of care of governments to have checked these warnings, as late as June 2010.
WEO 2008 “Current trends in energy supply and consumption are patently unsustainable – environmentally, economically and socially – they can and must be altered” http://www.iea.org/weo/2008.asp
WEO 2009 “The time has come to make the hard choices needed to combat climate change and enhance global energy security”
http://www.iea.org/press/pressdetail.asp?PRESS_REL_ID=294
WEO 2010 “We need to use energy more efficiently and we need to wean ourselves off fossil fuels by adopting technologies that leave a much smaller carbon footprint” http://www.iea.org/weo/docs/weo2010/press_release.pdf
List of failures of duty of care
Apparently the RTA bureaucracy and the new government
(1) Do not realize that for the current car fleet using petrol and diesel the only determining factor during the life span of that fleet is oil supplies
(2) Cannot or do not want to study oil statistics, including assessing the root causes of the 2008 oil shock and the underlying accumulated debt crisis
(3) Do not watch TV and see that Arab unrest permanently impacts on oil supplies from MENA countries
(4) Fail to understand that we have entered a period of armed conflicts about what ever oil remains in the Middle East
(5) Do not care that Sydney’s oil vulnerability is increased
(6) Do not read IMF reports warning that steep rises of oil prices are ahead which are needed to bring rising world demand for oil down to stagnating or even declining oil supplies
(7) Ignore advice from Saudi Arabia that their oil exports will decline over the coming decade
(8) Cannot make primary energy calculations which would reveal that there is nothing which can replace oil in a carbon constrained future in quantities allowing business-as-usual
(9) Live on the untested assumption that the car fleet can be transitioned to electric cars (or any other “green” cars) at the speed required to offset oil decline resulting from oil-geology and above ground factors
(10) Allow their own love affair with the car to stop them from critically reviewing the above
(11) Cannot develop bar charts which would relate oil decline to the lead times for oil-proofing Sydney (electric public transport)
Ultimately all decision makers will have to go through the painful process to correct their own failings. Circumstances will dictate whether this will be fast (quick deterioration of events in Middle East) or agonisingly slow.
The new world of Public Greiner Partnerships
We read:
2/5/2011 Greiner outlines vision for NSW
Mr Greiner declined to nominate the first projects Infrastructure NSW will back but said it’s clear the government will have to get more private sector money, and go further into debt to fund projects like the M4 East and M5 duplication.
http://news.smh.com.au/breaking-news-national/greiner-outlines-vision-for-nsw-20110502-1e3ku.html
“In NSW, under the previous government, we went to a spectrum where the private sector took 100 per cent of the risk (for projects such as the Cross City Tunnel).
“The availability model is probably at the other end. “I think there are various places in between, and it might vary from project to project.”
http://au.news.yahoo.com/latest/a/-/latest/9291867/greiner-outlines-his-infrastructure-vision/
So this means that the taxpayer is supposed to provide the risk money for tollways.
Welcome to the new world of PGPs = Public Greiner Partnerships.
Conclusion: Even before Greiner’s appointment car-pooling was pre-programmed. Much more so now. Sydney has to wait for physical oil shortages and/or very high pump prices which would prompt the public to demand a fundamental change in policy towards public transport.
Previous posts:
19/6/2010 M2 widening: Primary Energy Dilemma for cars
http://www.crudeoilpeak.com/?p=1631
4/4/2011 Sydney’s RTA builds M2 exit lanes for $200 oil
http://www.crudeoilpeak.com/?p=2872
11/2/2011 Money in Transurban’s cash box not enough to complete M2 widening
http://www.crudeoilpeak.com/?p=2578
.
What the Future Holds for U.S. Energy Policy
Benefit From the Latest Energy Trends and Investment Opportunities before the mainstream media and investing public are aware they even exist. The Free Oilprice.com Energy Intelligence Report gives you this and much more. Click here to find out more.
Domestic energy policy in the United States played a central theme during the first debate among presidential contenders. Both incumbent President Barack Obama and Republican challenger Mitt Romney said they favored a policy that focused on domestic energy resources. While most of the energy debate featured recycled rhetoric from much of the campaign so far, the candidates offered differing opinions on the shape an energy-independent United States will take.
Romney was able to gain some traction in the U.S. presidential contest in what has been an otherwise lackluster campaign. The former Massachusetts governor seemed to wander comfortably into centrist territory against an incumbent seemingly uncomfortable with sharing the stage. On energy, both leaders said they favored a United States that was more dependent on its own resources than on oil imports from overseas, though they differed on substance.
Obama during the initial salvo highlighted his administration's track-record on domestic oil and gas production. The Energy Department had said drilling offshore during the first six months of the year increased 50 percent when compared to the same period in 2011. Higher domestic crude oil production, meanwhile, meant the United States should rely on foreign suppliers to meet less than 40 percent of its energy needs in 2013 for the first time since 1991.
Romney, however, took issue with Obama's rhetoric on domestic production, saying the president has cut the number of permits for federal land in half. The Republican challenger added that offshore Alaska presented a lucrative opportunity for U.S. energy independence, though he ignored the fact that Shell was already working there and more leases were included in Obama's five-year lease plan.
Obama, meanwhile, referenced his "all-of-the-above" energy policy by saying "we've got to look at the energy source of the future, like wind and solar and biofuels." In his retort, Romney said the "$90 billion" in breaks given to green energy projects in one year represents "about 50 years' worth of what oil and gas receives." Federally-supported energy companies like solar panel company Solyndra have failed in the U.S. market while oil majors continue to make substantial profits despite what Romney says is a lack of federal support.
Regardless of the numbers, candidate Romney suggested some of the federal funds spent on green energy could have been spent more wisely. "I'm all in favor of green energy," he said. But most of those investments, he argued, have funded ventures that have failed, as did Solyndra.
Instead, Romney said he'd "bring that pipeline in from Canada," referencing the much-lauded Keystone XL pipeline. The project, however, has come to represent among environmental activists all that's wrong with a petroleum economy. Keystone XL is designated for so-called tar sands oil from Canada. Rival company Enbridge this week was ordered by the EPA, an agency Gov. Romney opposes, to do more work in Michigan to clean up a tar sands spill that happened more than two years ago. That spill was the costliest onshore incident in U.S. history and still needs a more thorough response. "And by the way," said Romney, "I like coal."
Both candidates touched on the same themes but from different perspectives.
"On energy, Gov. Romney and I, we both agree that we've got to boost American energy production," said Obama.
"Energy is critical, and the president pointed out correctly that production of oil and gas in the U.S. is up," said Romney.
Something left out of the debate, however, was the consequences of their decisions. Does the future of U.S. energy independence lie in a pipeline from Canada that carries a type of crude oil that raises concerns even among Canadians? Or does it lie in a green energy sector that can barely stay afloat even with the support of taxpayer dollars.
The future of U.S. energy policy, for better or worse, lies in the hands of the American voters.
By. Daniel J. Graeber of Oilprice.com
Thursday, October 4, 2012
SPDC completes sale of the seventh Nigerian Oil Mining Lease
The Shell Petroleum Development Company of Nigeria Limited (SPDC), a subsidiary of Royal Dutch Shell plc (Shell), has completed the assignment of its 30% interest in Oil Mining Lease 34 (OML-34) in the Niger Delta to ND Western Limited. Total cash proceeds for Shell amount to some US$400 million.
This divestment is part of Shell’s strategy of refocusing its onshore interests in Nigeria and is in line with the Federal Government of Nigeria’s aim of developing Nigerian companies in the country’s upstream oil and gas business. This is the seventh onshore lease assignment that SPDC has completed in Nigeria since 2010.
Shell has been in Nigeria for more than 50 years and remains committed to keeping a long-term presence there – both onshore and offshore. Through SPDC and its other Nigerian companies, Shell responsibly produces the oil and gas needed to fuel the economic and industrial growth that generates wealth for the nation and jobs for Nigerians.
OML 34 covers an area of some 950 square kilometres and includes the Utorogu, Ughelli and Warri River fields and related facilities. The combined fields currently produce just under 300 million standard cubic feet per day of gas and 15,000 barrels per day of oil and condensate (100%).
Total E&P Nigeria Limited (10%) and Nigerian Agip Oil Company Limited (5%) have also assigned their interests in the lease, ultimately giving ND Western Limited a 45% interest.
All approvals have been received from the relevant authorities of the Federal Government of Nigeria.
SPDC is the operator of a joint venture between the Nigerian National Petroleum Corporation (55%), Shell (30%), Total E&P Nigeria Limited (10%) and Nigerian Agip Oil Company Limited (5%).
Shell Media Relations
International, UK, European Press: +44 207 934 5550
Shell Investor Relations
Europe - Tjerk Huysinga: + 31 70 377 3996
United States - Ken Lawrence: +1 713 241 2069
Cautionary note
The companies in which Royal Dutch Shell plc directly and indirectly owns investments are separate entities. In this release “Shell”, “Shell group” and “Royal Dutch Shell” are sometimes used for convenience where references are made to Royal Dutch Shell plc and its subsidiaries in general. Likewise, the words “we”, “us” and “our” are also used to refer to subsidiaries in general or to those who work for them. These expressions are also used where no useful purpose is served by identifying the particular company or companies. ‘‘Subsidiaries’’, “Shell subsidiaries” and “Shell companies” as used in this release refer to companies in which Royal Dutch Shell either directly or indirectly has control, by having either a majority of the voting rights or the right to exercise a controlling influence. The companies in which Shell has significant influence but not control are referred to as “associated companies” or “associates” and companies in which Shell has joint control are referred to as “jointly controlled entities”. In this release, associates and jointly controlled entities are also referred to as “equity-accounted investments”. The term “Shell interest” is used for convenience to indicate the direct and/or indirect (for example, through our 23% shareholding in Woodside Petroleum Ltd.) ownership interest held by Shell in a venture, partnership or company, after exclusion of all third-party interest.
This release contains forward-looking statements concerning the financial condition, results of operations and businesses of Royal Dutch Shell. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that are based on management’s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Forward-looking statements include, among other things, statements concerning the potential exposure of Royal Dutch Shell to market risks and statements expressing management’s expectations, beliefs, estimates, forecasts, projections and assumptions. These forward-looking statements are identified by their use of terms and phrases such as ‘‘anticipate’’, ‘‘believe’’, ‘‘could’’, ‘‘estimate’’, ‘‘expect’’, ‘‘intend’’, ‘‘may’’, ‘‘plan’’, ‘‘objectives’’, ‘‘outlook’’, ‘‘probably’’, ‘‘project’’, ‘‘will’’, ‘‘seek’’, ‘‘target’’, ‘‘risks’’, ‘‘goals’’, ‘‘should’’ and similar terms and phrases. There are a number of factors that could affect the future operations of Royal Dutch Shell and could cause those results to differ materially from those expressed in the forward-looking statements included in this release, including (without limitation): (a) price fluctuations in crude oil and natural gas; (b) changes in demand for the Shell’s products; (c) currency fluctuations; (d) drilling and production results; (e) reserve estimates; (f) loss of market share and industry competition; (g) environmental and physical risks; (h) risks associated with the identification of suitable potential acquisition properties and targets, and successful negotiation and completion of such transactions; (i) the risk of doing business in developing countries and countries subject to international sanctions; (j) legislative, fiscal and regulatory developments including potential litigation and regulatory measures as a result of climate changes; (k) economic and financial market conditions in various countries and regions; (l) political risks, including the risks of expropriation and renegotiation of the terms of contracts with governmental entities, delays or advancements in the approval of projects and delays in the reimbursement for shared costs; and (m) changes in trading conditions. All forward-looking statements contained in this release are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Readers should not place undue reliance on forward-looking statements. Additional factors that may affect future results are contained in Royal Dutch Shell’s 20-F for the year ended 31 December, 2011 (available at www.shell.com/investor and www.sec.gov). These factors also should be considered by the reader. Each forward-looking statement speaks only as of the date of this release, September 5, 2012. Neither Royal Dutch Shell nor any of its subsidiaries undertake any obligation to publicly update or revise any forward-looking statement as a result of new information, future events or other information. In light of these risks, results could differ materially from those stated, implied or inferred from the forward-looking statements contained in this release. There can be no assurance that dividend payments will match or exceed those set out in this release in the future, or that they will be made at all.
The United States Securities and Exchange Commission (SEC) permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. We use certain terms in this release, such as resources and oil in place, that SEC's guidelines strictly prohibit us from including in filings with the SEC. U.S. Investors are urged to consider closely the disclosure in our Form 20-F, File No 1-32575, available on the SEC website www.sec.gov. You can also obtain these forms from the SEC by calling 1-800-SEC-0330.
Will Ending Tax Breaks for Big Oil Make a Difference?
Facing public resentment, Big Oil tax breaks may soon end.The controversial bill proposed by the Democrats to end the substantial tax breaks extended to the major oil companies known as 'Big Oil' did not make it. Big Oil commonly refers to the five industry giants - Exxon, Shell, BP America, Chevron, and ConocoPhilips. It is estimated that these companies have garnered profits of about $900 billion in the past decade alone! The rise in prices of gas and crude oil has fetched them over $30 billion in the first quarter of this year. Despite this, over the years, the federal government has been providing them with various types of subsidies through tax codes.
Since direct grants would put the focus on the government's preferential treatment of Big Oil, they extend benefits in the form of deductions, credits or exemptions; in short, tax breaks. Now, the Democrats have come up with a proposal which suggests doing away with some of these tax loopholes for the oil companies. Known as the 'Close Big Oil Tax Loopholes Act', Democrats claim that this will help rake in up to $21 billion over a period of ten years and thus, help bring down the budget deficit.
There are suggestions that the savings will be better utilized if diverted to promotion of clean energy programs. Solar and wind are the energy options of the future and developing these is likely to be high on the priority list of the federal government for quite some time to come. Though stopping these tax benefits has been on President Obama's agenda for long, it has taken him three years to propose any action on the matter. His detractors see this as a ploy to curry favor ahead of an election year.
With gas prices touching $4 per gallon this summer, the move to eliminate tax breaks is being seen more as political rhetoric than anything else by analysts. In reality this move will not impact much on the federal deficit or even the prices at the pump. At best this move may somehwat appease consumers (as well as earn votes) and only serve as a kind of vengeful retribution and will not actually translate into any benefits for the government or public. It will also have a negligible adverse impact on profits for the oil companies.
The public views Big Oil with resentment mainly because of the clout they wield and the money that they rake in. The common man sees the price of gasoline at the pump and an increase of even 10 cents produces outrage against these oil conglomerates. Hence, any kind of action that hints at reduction of benefits to Big Oil is welcomed and appeals to the emotions of the layman.
Though the figures and analysts say otherwise, the honchos of Big Oil did not hesitate to term the proposal detrimental to the American economy, when they appeared at the Senate hearing. They claimed that doing away with the tax breaks will lead to job cuts and investors' exit from oil. This is in contradiction to earlier claims by Big Oil saying that they do not need incentives or subsidiaries from the government for oil exploration purposes. Also, Big Oil executives claimed that it was unfair to target them alone while many other industries are also sharing these tax breaks. They also urged the administration to encourage drilling if it really wanted to keep gas prices in the country down.
The PR departments of Big Oil have also been successful in propagating the myth that ending subsidies for them will lead to significant increase in taxes for the rest of the population.
Republicans are protesting against the move and claim that the measures will have no impact on existing gas prices. The matter will be voted on later this week and it seems highly unlikely that the Democrats will win the vote in the Senate and the House of Representatives.
At least two earlier attempts to scale down on tax breaks for oil companies have failed in the Senate. Even if they don't win, Republicans sure will have gained sufficient political mileage from it which will stand them in good stead in the elections next year. In an attempt to garner support for their proposal, the Democrats have embarked on an online campaign. They are planning to use grassroots-level activists to target Republican senators on their support for Big Oil.
The Republicans have also come up with a bill 'Offshore Production and Safety Act of 2011' which favors American exploration and offshore drilling ventures. This addresses matters such as lease sales in the Gulf of Mexico and in Virginia as well as setting of a timeline for reviewing pending offshore applications.
Big Oil executives have been found to be using the profits to boost their personal wealth and enriching their shareholders. Reports say that the profits have been used by executives to increase their stock holdings and to pay out generous dividends over the past five years.
Opponents of Big Oil and supporters of energy independence claim that even if the tax breaks are stopped, this will not resolve the bigger issue of price manipulation. They suggest that Wall Street oil speculators be controlled and prevented from raising the prices of oil artificially. It has also been recommended that OPEC members be stopped from manipulating prices, and tax incentives for foreign oil be stopped.
Wednesday, October 3, 2012
Will a Melting Arctic Help Postpone Peak Oil?
Benefit From the Latest Energy Trends and Investment Opportunities before the mainstream media and investing public are aware they even exist. The Free Oilprice.com Energy Intelligence Report gives you this and much more. Click here to find out more.
Last week brought the news that this summer the Arctic icecap shrank to an all-time low of roughly half the size it was in 1980. While this is the lowest ever seen since satellite monitoring began 33 years ago, some experts are saying that the summer of 2012 was probably the smallest the icecap has been in the last million years. The announcement triggered a spate of newspaper and magazine stories pondering the meaning of this development.
It now appears that the arctic is melting much faster than the models have been predicting: that the ice cap would stay intact during the summer for another 40 years. Some of the stories have been downright scary such as the one in the Guardian in which Professor Wadhams, Cambridge University's arctic expert, predicts the final collapse of the Arctic sea ice during the summer will come within four years. The professor terms this event as a "disaster' for the Arctic as it will result in much faster warming of the Arctic Ocean, the seabed, and the permafrost along the Arctic shoreline.
Most of the hundreds of articles commenting on the event reached the unsurprising conclusion that our global weather was going to get worse – perhaps much worse. At the extreme, some argued the case that so much methane will be released into the atmosphere as the permafrost melts that life on earth will be extinct by the end of the century. Others speak of the tipping points, that once past will set off such an avalanche of disasters that the world will take centuries or millenniums to recover.
Our interest here, however, is about what the end of the Arctic's summer ice cap will mean for oil production – in the Arctic and elsewhere. This question would seem to have two sides. The obvious one is if and how quickly oil companies can move to exploit the 90 billion barrels of oil (about three years of global consumption) and 44 billion of natural gas liquids that the U.S. Geological Survey believes is somewhere under Arctic waters. Indeed, the rush to exploit has already started with Shell receiving a permit to drill off the coast of Alaska. Although drilling did not get started this year due to a series of delays related to safety, preliminary work is being done so that Shell's drilling program should be ready to start up in 2013. ExxonMobil, ENI of Italy and Norway's Statoil are preparing to drill in Russia's Arctic waters. However, Russia's Gazprom recently announced that it was shelving it massive arctic Shtokman natural gas project due to excessive costs.
With a minimal permanent ice cap, much of the Arctic ocean may be open to shipping, and drill rigs may be free to operate during the summer months. Drilling in the Arctic, however, is not in the same league with drilling in the Gulf of Mexico where only the occasional hurricane can cause disruptions. Gulf support bases, helicopters, and numerous support ships are only hours away from the drill rigs. In the Arctic a drillship is largely on its own, for until very expensive support bases are established there is little help offshore.
Even if much of the permanent ice cap melts away in the next 5-10 years, strong winds can still blow large ice blocks around, threatening drilling operations. This August, a large storm settled in the Arctic for many days and was partly responsible for the breaking up much of the permanent ice cap. Storms over water can be far more fierce than over ice caps making the risk of drilling even higher. The CEO of French oil giant, Total, recently stated the belief that it is too dangerous to drill in the Arctic and that the risk of oil spills is not worth the reward.
Then of course we have the issue of just who owns the Arctic's seabed. The U.S., Russia, Canada, Norway and Denmark are all seeking to claim part of the continental shelf. As the US still has not signed the Law of the Sea convention and recently 34 Republican senators indicated that they are opposed, the US's position of exploiting resources beyond the 12 mile limit is in limbo. Russia, however, has moved stake claims deep into the Arctic in regions it says are extensions of its continental shelf.
Even with relatively ice free waters, the big problem may turn out to be the availability of drilling rigs and ships that are robust enough to withstand encounters with Arctic ice. The upshot of all this is that there are so many factors inhibiting the widespread drilling for oil in the deep arctic, it is doubtful that much of this will take place in the next five to ten years. During this time frame, the odds are high that global oil production will begin to start down due to depletion of the best fields, and it seems unlikely that Arctic resources can be brought into production quickly enough to offset most of this decline.
The other side of this issue is just how much climate change will a near term disappearance of the permanent Arctic ice cap cause. Here there are no shortages of informed opinions. All agree that without polar ice to reflect incoming sunlight, the average temperature of the Arctic Ocean and surrounding land masses will rise sharply. In the Arctic, snowfall will likely increase thereby forming a protective blanket on whatever ice forms, preventing it from becoming thicker. There will be more storms in the region that will tear up coastlines.
Again the bottom line is that there will likely be an increase in droughts, storms and floods that will cause great damage across the world. How this will affect economic activity or the demand for increasing amounts of oil is hard to say. For now it looks as if while it may be easier to get at Arctic oil in coming decades, the costs of doing so and the demand for the product may not be worth the price.
By. Tom Whippl
Will Oil Prices Decide the US Elections?
Oil prices are linked closely to presidential disapproval and so will decide the presidential elections' outcomeBefore jumping into the question, a recap:
In a previous article titled "Is Oil Fueling the Rise in Political Partisanship", Oil-price.net went on a search to see if rising oil prices had any influence on the behavior of American voters in the period between December 1999 and July 2010. We asked: could discontent sparked by an uptick in volatility in oil prices be one reason why American politics of late seems to have gotten so much nastier? We delved into three polls: Presidential approval ratings, the Congressional approval ratings and direct questions to the voters on whether the country was in the "right track" or the "wrong track". What we found, to state the obvious, wasn't very surprising. What was surprising, in fact, was the degree of shifts in the approval rating of the President vis-a-vis oil prices-inversely proportional. As for the question of "Congressional approval" and "Direction of the country", they showed even more impact to the volatile oil prices.
Thus, between 1999 and 2010, oil and politics moved from being indifferent partners to having a burly relationship. Oh, yes, Obama was elected on the back of all-time high oil price volatility from the late Bush era (oil went up to $160 then back down). Even otherwise, you don't need loads of grey cells to make a correlation between high oil prices and slide in the approval ratings of the decision maker. Oil and politics-think of the wars and bloodshed-is welded marriage.
So back to the present scenario. How exactly are we faring? After all, we are bang in the middle of the Presidential campaign. There is no denying the fact that oil prices are higher. As a result, it is nearly impossible to defend against it for a politician, and Republicans are milking it. As it turns out, they are already at it.
Take the captious Romney for instance. He has taken Obama to task for the increase in oil prices, calling for the resignation of, what he has drubbed as, 'gas hike trio'. The trio, Energy secretary Steven Chu, Interior secretary Ken Salazar and Environmental Protection agency Administrator Lisa Jackson are directly responsible for the increase in oil prices, he alleges. Mitt Romney has also accused the President of slowing the domestic energy production. Indeed, Romey wants more land allotted for drilling and less stringent regulation for hydraulic fracturing.
For his part, Newt Gingrich has promised gas for $2.5 a gallon. Both the candidates want more drilling in search of oil-even on pristine forest floors, while the President maintains that rising oil prices have more to do with global market indicators. And, Rick Santorum, rather unsurprisingly, has also blamed Obama for blocking energy production in the US. He also feels high oil prices led to the economic downturn in 2008.
Of course, all Americans, differing only in degrees, feel indignant about the spiralling gas prices. One only has to browse the online forums to see the palpable anger. From accusation of "Obama's wars" to 'Big oil' and 'Big money', Americans have different ideas on the root cause of the price increase. Yes, oil under Obama has had rough days: First the BP disaster which tarnished not just BP, remember? Then subsidies going to solar, away from big oil's pockets; controversy about fracking and water pollution; opposition to ANWR oil drilling. Questions have also been raised on the Keystone XL oil pipeline from Canada's tar sands. Promoted by TransCanada, the pipeline would carry oil from Canada's tar sands to the Gulf of Mexico. This pipeline needs Presidential approval as it passes the international border. Earlier this year, the President rejected the bill, though TransCanada is looking at alternate routes that do not require the state's approval. Romney has questioned promoting alternative energy- like giving a loan of $500 million to Solyndra, the solar panel manufacturer-calling the keystone decision 'bad policy'- Fact: The loan to the solar panel manufacturer was in 2009, while the key stone permit is of recent times. According to the Gallup's annual Environmental survey, 57% are in favour of the pipeline, as opposed to 29% who have other views, while the other 14% was undecided. So, there it goes.
Meanwhile the President says: "Do you think the President of the United States, going into re-election, wants higher gas prices?". Spruced by almost 17% increase in the price, so far, as reported by the AAA, gas prices are an easy way to target the incumbent President.
What's the ground situation, anyway? According to the Gallup's Annual Environmental survey, 56% of Americans believe that the President is doing a good job with regards the environment. However, only 42% had the same optimism about his handling the national energy policy. (In 2004, George W. Bush's were much lower- 41% believed that he was doing a good job of 'making America prosperous as well as protecting the environment', while for his energy policy he clocked a mere 34% support).
White House Press Secretary Jay Carney stated, "if increasing drilling were the answer in the United States to lowering prices at the pump, we would be seeing lower prices at the pump, because under President Obama we have increased significantly domestic oil and gas production. That is a fact."
Yes, there is speculation in commodity markets that nudge oil prices higher for no apparent reason. Speculations are so. But Wall Street sharks are only a small reason for the increase in the price of oil.
Increasing demand- according to the latest report from the International Energy Agency, global oil demand is forecast to climb to 89.9 mb/d in 2012, a gain of 0.8 mb/d (or 0.9%) on 2011. Demand is increasing in Asia, in particular in China. Volatile situation in oil producing countries could also lead to increased oil prices- Sudan, Iran, Libya, anyone? This February, global oil supply fell by 200,000 barrels a day, as reported by IEA. And, it's basic Economics, if supply doesn't match demand, even on the basis of imaginary fears, oil prices will move on. Blame the oil driven economy, as well.
And, to be honest here, the oil companies do make more profit than they ought to. Then again, they do need the money to invest in exploration. Wait. If not, one day, oil is going to dry up. And, whoever wants that to happen, please step forward? Further, let's not forget that these companies employ a whole lot of people with generous salaries.
To sum up, the next President will be decided on the basis of oil prices. During his term he will have to contend with increasing oil prices and worsening geopolitical volatility. His 4-year term will be too short to implement any long-term policy likely to affect either. He will also be blamed by the opposition for high oil prices like the current President and the one before him.
Monday, October 1, 2012
IMF warns of oil scarcity and a 60% oil price increase within a year
In a benchmark scenario of its latest World Economic Outlook (April 2011) the International Monetary Fund (IMF) analyses what it calls oil scarcity (after “energy security” another code word for peak oil?) and warns of a 60% increase in oil prices within a year and almost 90% within 5 years due to a reduced growth in global oil supplies (assumed to be + 0.8% pa, down from a long term 1.8%) and low oil price elasticities of oil demand between 0.02 (short-term) and 0.08 (long term). Even in the best case scenario in which oil price elasticities increase almost 5 fold (greater substitution away from oil), oil prices are simulated to go up by 60% in 5 years.
Summary table of scenario simulationOil supply growth down to 0.8% paImmediate spike of 60%,200% in 20 years
Oil price elasticity of demand 0.3Immediate increase of 50%, but “only” 100% in 20 yearsImmediate increase of 200%. In 20 years 800% increase but non-linear impact not covered by modelContribution of oil in output 25% instead of 5%Long-term reduction of oil price increase by 25%The IMF report can be found here:
http://www.imf.org/external/pubs/ft/weo/2011/01/pdf/text.pdf
All graphs in this article are from chapter 3 “Oil scarcity, growth and global imbalances”
(I) Oil supply context and outlook until 2015
Starting point for the IMF is the observed change in the 1.8 % oil supply growth trend from 1983 which ended in 2005.
The outlook for the next years has been taken from the Medium Term Oil Market Report of the IEA:
The graph shows negligible net additions in years 2011 to 2013. OPEC’s incremental barrels in 2013/14 are supposed to come from the Saudi oil field Manifa, heavy-sour crude for which a special refinery is under construction.
Aramco Manifa oil field will start in 2013, chief says
9/12/2010
Saudi Arabia’s Manifa oil field is on schedule to start pumping 500,000 barrels a day in 2013 and Saudi Aramco is planning chemical and refinery plants to process the kingdom’s crude, the company’s chief executive officer said.
“It’s planned ultimately for 900,000 barrels per day but the market doesn’t need 900,000 barrels now,” Khalid Al-Falih said today in Dubai. Manifa had been slated for completion next year before oil demand slumped amid the global recession.
No need for 900 Kb/d? That tells you everything about future OPEC capacities
(II) Oil demand price and income elasticities
With trend changes in oil supplies and oil prices in mind the IMF analyses the oil demand price and income elasticities of the past, both short term and long term (past 20 years):
(III) How to calculate oil price increases in a period of oil scarcity
On the basis of the above, the IMF assumes for the next 5 years (p 99,100)
(a) Because capacity increases are the main drivers of supply growth—the short-term price elasticity of supply is very low, with most estimates ranging between 0.01 and 0.1—supply increases will likely be equally modest, except for the buffer provided by OPEC spare capacity. The latter is currently estimated at some 6 million barrels a day. Assuming that between two-thirds and four-fifths of that spare capacity will eventually be tapped, cumulative oil supply growth during 2011–15 could amount to 6 to 8 percent, or 1¼ to 1½ percent annually on average, if the price of oil remains broadly constant in real terms.
(b) The current WEO forecast is for an annual average world GDP growth rate of about 4.6 percent over the period 2011–15.
and calculates as follows:
(1) GDP growth x income elasticity = 4.6 % x 0.68 (table 3.1) = 3 % oil demand growth
(2) Gap between oil demand growth and supply growth 3 % – 1.5% = 1.5 % pa gap
(3) Oil price increase = % gap / demand price elasticity = 1.5% / 0.02 (Table 3.1) = 75%
That of course is shocking. In order to come out of this catch 22 between GDP growth and limited oil supply growth the IMF then embarks on simulating 4 scenarios, whereby oil is used as a 3rd parameter (apart from capital and labour) in the economy’s production functions.
General assumptions in modelling:
Oil price elasticity of oil demand in both production and consumption: 0.08 (long term) and 0.02 (short term)Oil cost share in production: 2-5%Oil supply growth below historical trendsOil supply response with a low price elasticity of 0.03Initially, 40% of oil revenue to be used for intermediate goods inputs, later real extraction cost will increase at a constant 2%In oil exporting countries governments will not spend oil receipts immediately but accumulate them in US dollar and use them at 3% paShort term oil shocks (impact on financial markets, confidence effects) are NOT included(IV) Benchmark scenario
Assumption:
Average oil supply growth rate of 1.8% is reduced by 1% to 0.8 % pa
Result of benchmark simulation:
Immediate oil price spike of 60%200% oil price increase over 20 yearsReduction of GDP in oil importing countries, but surge in goods exports to oil exportersWealth transfer from oil importers to oil exporters, whose currencies appreciateReduction in real interest rates as the oil exporter’s additional oil revenue leads to higher savingsEmerging Asia benefits from lower world interest rates for their investmentsUS and Euro current accounts deteriorate(V) Scenario 1: greater substitution away from oil
Assumptions:
Higher, optimistic long term oil price elasticity of demand is 0.3
Result of scenario 1 simulation (dotted red line):
World oil prices increasing by only 100 % (instead of 200%) in 20 yearsFall in GDP reduced by 2/3The IMF concludes: “This simulation highlights the fact that fairly high demand elasticities would be required to negate the effects of lower oil availability” .(p 104)
(VI) Scenario 2: greater declines in oil production
The IMF may be very well aware that the assumed 6 mb/d OPEC spare capacity may not actually exist. This could be the reason why this oil decline scenario is done.
Assumptions:
The oil supply growth rate is reduced by 3.8% (instead if 1% in the benchmark), leading to a decline of -2% pa (=1.8 % trend – 3.8 = – 2%)
Results of simulation:
200% immediate increase in oil price and 800% over 20 yearsLong-term output and current account effects are 3-4 times as large as in the benchmarkChanges of this magnitude may have non-linear effects which the model does not handle(VII) Scenario 3: greater economic role of oil
This scenario considers research from economists indicating that certain technologies are possible and remain usable only when there is a ready supply of oil.
Assumptions:
The contribution of oil to output is increased from 5% to 25% in the tradables sector and from 2% to 20% in the nontradables sector
Results of simulation:
Deterioration of GDP by factor of 2(VIII) IMF’s summary and conclusion
“The alternative scenarios indicate that the extent to which oil scarcity will constrain global economic development depends critically on a small number of key factors. If, as in the benchmark scenario, the trend growth rate of oil output declined only modestly, world output would eventually suffer but the effect might not be dramatic. If higher oil prices brought about easier substitution away from oil, not just temporarily but over a prolonged period, the effects could be even less severe. But if the reductions in oil output were in line with the more pessimistic studies of peak oil proponents or if the contribution of oil to output proved much larger than its cost share, the effects could be dramatic, suggesting a need for urgent policy action. In the longer term, the worst effects would be experienced by regions whose production is highly oil intensive, such as emerging Asia, and/or with weak export links to oil exporters, such as the United States. (p 106/7)
This rather optimistic summary comes along with a number of conditions which must be met for the model to work:
In general the transition to a new equilibrium in the balance between oil supply and demand must be smoothFinancial markets absorb the huge flood of petro-dollarsBusiness responds flexibly to higher oil prices and re-allocates resources accordinglyLower real wages do not spark social unrestThe IMF is fully aware of the limitations of their model and that it could be too optimistic:
“Unlike in the model, real economies have many and highly interdependent industries. Several industries, including car manufacturing, airlines, trucking, long-distance trade, and tourism, would be affected by an oil shock much earlier and much more seriously than others. The adverse effects of large-scale bankruptcies in such industries could spread to the rest of the economy, either through corporate balance sheets (intercompany credit, interdependence of industries such as construction and tourism) or through bank balance sheets (lack of credit after loan losses).Finally, the simulations do not consider the possibility that some oil exporters might reserve an increasing share of their stagnating or decreasing oil output for domestic use, for example through fuel subsidies, in order to support energy-intensive industries (for example, petrochemicals) and also to forestall domestic unrest. If this were to happen, the amount of oil available to oil importers could shrink much faster than world oil output, with obvious negative consequences for growth in those regions” (p 109)Such benign effects on output [-0.25% in GDP], however, should not be taken for granted. Important downside risks to oil investment and capacity growth, both above and below the ground, imply that oil scarcity could be more severe. Moreover, unexpected increases in oil scarcity and resource scarcity more broadly might not materialize as small, gradual changes but as larger, discrete changes. In practice, it will be difficult to draw a sharp distinction between unexpected changes in oil scarcity and more traditional temporary oil supply shocks, especially in the short term when many of the effects on the global economy will be similar. In addition, it is uncertain whether the world economy can really adjust as smoothly as the model envisages. Finally, there are risks related to the scope for the substitution away from oil, on both the upside and the downside. The adverse effects could be larger, especially if the availability of oil affects economy-wide productivity, for example by making some current production technologies redundant. (p 110)Most of the above points have been discussed by peak oil aware analysts for years. It is a big step forward that the IMF has now brought this to the attention of the financial community who will hopefully be able to read between the lines and separate optimistic outlooks from reality.
(IX) Policy implications
The IMF advises, in very diplomatic language and on a macro-economic and structural level:
“Fundamentally, there are two broad areas for action. First, given the potential for unexpected increases in the scarcity of oil and other resources, policymakers should review whether current policy frameworks facilitate adjustment to unexpected changes in oil scarcity. Second, consideration should be given to policies aimed at lowering the risk of oil scarcity, including through the development of sustainable alternative sources of energy.” (p 110)
But this is more interesting:
“Regarding policies aimed at lowering the worstcase risks of oil scarcity, a widely debated issue is whether to preemptively reduce oil consumption— through taxes or support for the development and deployment of new, oil-saving technologies—and to foster alternative sources of energy. Proponents argue that such interventions, if well engineered, would smoothly reduce oil demand, rebalancing tensions between demand and supply, and thus would reduce the risk of worst-case scarcity itself.
(X) Comments:
- The 6 mb/d spare capacity assumed in the introductory calculation is not there, as shown in the case of Saudi Arabia in this post:
2/3/2011
WikiLeaks cable from Riyadh implied Saudis could pump only 9.8 mb/d in 2011
http://www.crudeoilpeak.com/?p=2669
- The model does not consider the impact of peaking and then declining oil production in major oil producing countries. For example, in the above graph of the world’s oil production history we see the oil crises in 1973 and 1979. The OPEC embargo after the Yom Kippur war was only successful AFTER the peaking of the US production in 1970. And that was the non-linear impact:
German highway patrol stopping motorists to check their driving permits (trips deemed “essential”)
during Sunday driving bans in November 1973 on an otherwise empty autobahn
http://www.abendblatt.de/multimedia/archive/00158/konjunktur4_HA_Wirt_158883b.jpg
And the Iranian revolution was preceded by the peaking of Iranian oil production BEFORE the fall of the Shah.
- Oil price movements will not follow straight lines but will zigzag around trend lines as we have already experienced in the last years
- The panels in Figs 3.9 – 3.12 do not show inflation and employment. Due to higher oil prices inflation is going to increase, especially in oil importing countries.
- It is not clear why oil supplies should increase again after 25 years – as mentioned in figure 3.9
- It is also not clear to which oil price level the increases relate to: is it $100 oil?
- The focus should be on the first 5 years in those scenarios which is a reasonable time during which many implied parameters in the models may still be valid. We really do not know how the world will look like in 10 years, not to mention 20 years.
- The above scenarios show that the lowest oil price increase and the smallest negative impact on GDP can be achieved by increasing the oil price elasticity of demand. This means:
(1) Any project which increases oil demand like toll-ways, new airports, new car dependent sub divisions and shopping centres will NOT be increasing this elasticity and thus contribute to a lower GDP than would otherwise be the case. These projects should be immediately abandoned.
(2) Given the short time during which oil prices are estimated to explode the only way to increase price elasticity for petrol is car pooling. This in turn means the financial end for toll-ways – unless tolls are charged per passenger and not by car. Past peak oil ignorance has trapped us now.
(3) There is no more time to transition the car fleet before big oil price increases make current long distance commuting by car unaffordable.
(4) All new infrastructure projects must be designed to lower the demand for oil, fast and at the lowest possible construction cost. That can only be achieved by electric trolley buses & light rail in urban areas, night trains between capital cities and rail freight
Conclusion: The IMF’s World Economic Outlook gives us a glimpse into the future of run-away oil prices and the short time frame during which these prices will reach unaffordable levels. While the IMF’s summary at the beginning of the oil scarcity chapter suggests that the oil supply outlook poses no “major constraint” on global growth, details in all scenarios presented demonstrate that dramatic changes are ahead of us
Oil and Refineries
Lack of US refining capacity is partly to blame when gasoline prices spike.The debate is raging in full swing: the dearth of new refineries in the US. Many are surprised to see the continued increase in oil prices despite the surge in domestic oil production. Could refineries be the missing element in the equation, they wonder. 'Why not just build new refineries and scale down the price of oil,' our readers continue to ask us. Yes, it's a fact- no new refinery has been built in the US in the past three decades. The last refinery constructed in the US at Garyville, Louisiana was way back in 1976. So, the question is reiterated as the point is so obvious: new refineries. But then, there aren't any easy three reasons, nor is the dimension only four.
First though, let's take a look at the prevailing price of oil. According to a AAA fuel gauge report, the national average for a gallon of gasoline is $3.62 - more than 13 cents from the previous week and 24 cents more than a month ago. After the fall in May and June, gasoline prices have increased gradually for the last seven weeks, adding pain to the already pained consumer. Is this because of dwindling oil reserves? Well, of late domestic oil production has increased by fourteen percent in the last 12 months. According to government sources, the oil production in the country hit the highest 'quarterly level' in almost a decade (for the first three months of this year). And, US produces 55 percent of the oil consumed in the country, mainly due to production spikes in Texas and North Dakota.
Clearly there is oil, so shouldn't the oil price decrease? After all, the more the commodity, often, lesser is the prices. Put it that way, the present oil prices do sound ominous. It's not as if higher demand has hiked the oil prices. On the contrary, demand for oil has been decreasing with fuel efficient cars and ethanol blended gasoline. This July, crude oil demand in the U.S. dipped to its lowest in four years on the back of average economic growth in the country, according to the American Petroleum Institute. The demand for gasoline fell 3.8 percent this July with consumption down 1.1 percent. After the peak in 2007, demand for gasoline has been sluggish. That is, despite increase in the price of crude, demand for gasoline is at record low. So, the speculation does gain force - are lack of refineries hampering the fall in the price of oil? North Dakota produces more than 600,000 barrel/month but has only one refinery in Mandan. An element of bafflement does linger to see the country producing substantial oil and yet importing refined products.
There is colossal gap in the realm of production and refining capacity in the country. The refineries are churning at full capacity which makes them profitable, but on the downside there is no room for mistake. They have to deal with variable demand on one hand and higher costs of inputs on the other. Recently, Sunoco Inc. announced closure of its largest refinery leading to fears of fuel shortage and higher oil prices in the US. Fortunately, a deal with the Carlyle Group saved the day for Sunoco Inc. and the oil industry. But, the problems in the refining sector are far from over. Two refineries owned by Sunoco Inc. did close in the last eight months, which means a loss of nearly half the gasoline and other refined products in the East coast.
True, new technologies have increased the domestic oil production. For once, though, the infrastructure in the US has failed to catch up with the surging domestic oil production. Barges, rails and trucks, believe it or not, still transport crude. Naturally, the oil barely reaches the refineries and this mode of transport also makes oil more expensive for the consumer. How about pipelines? We know that imported oil is expensive. Still, the Marcus Hook refinery continued to import oil at $114 a barrel in 2011, even when the West Texas Intermediate crude traded lower. Why? Lack of pipelines, again. And with this paucity in pipelines, crude produced in the country isn't reaching the refineries. Of course, the much hyped Keystone XL pipeline would connect Canada's oil with refineries in the Gulf of Mexico and Houston, but that may take years.
Staying with refineries, the need for pipelines is more pronounced in the Gulf coast. The refineries in the Gulf coast contribute about 45 percent of the refining capacity, and 30 percent total crude oil production in the US. Of late, the imports have declined in the Gulf coast, thanks to drilling in the Eagle Ford Shale in Texas and Bakken shale in ND. Unsurprisingly, import of the more expensive light sweet Nigerian crude stood at 150,000 b/d in January, the lowest since 1996. (For the corresponding period, there's decline in the import of Nigerian crude to the East coast too.) Yet, imagine the figure with more pipelines in the region. Yes, the crude from Eagle Ford from Texas has started to arrive in the Gulf coast. However, the crude is sweet light. Most of the refineries in the Gulf Coast are more sophisticated, designed to process heavy and more sour crude. As investment to refine the lighter sweet crude is expensive, the only option for the refineries is to blend the different crudes. The irony.
Meanwhile, woes of the refineries in the East coast continue. Two have already closed, and the rest of them are barely managing to scrap through. These refineries are dependent on imported crude as they don't have easier access to cheaper West Texas Intermediate crude. Hence, they continue to import the expensive Brent crude. There are plans to transport oil from North Dakota to the East coast by rail, but when?
Although a continuation of the import story, the scene is slightly different in the Midwest. The refineries here are enjoying higher profits, credit to generous supplies from Canada and domestic oil. Imports from Canada reached 1.76 million barrels a day in the first quarter of 2012, an increase of almost 22 percent from last year (Source: EIA). Unsurprisingly, Canada is the largest supplier of crude to the US followed by Saudi Arabia.
Recently the Port Arthur refinery underwent expansion to almost double its daily capacity. So, why do refineries expand rather than build new ones? It's easier because of the environmental regulations. The apparent lack of logic in not having refineries does get answered when you take the environment under consideration. Refineries gobble up water, not to mention vast tracts of land, and contribute loads of CO2 to the air, as well. So, environmental regulation tends to be hard for anyone interested in refineries. The EPA regulations are also strict on the sulfur content Light crude is easier to process, has lower sulfur content so it's easier to get the environmental nod. Heavy sour crude, on the other side, has more sulfur and is more difficult to process. Sunoco Inc. is said to have lost $ 1 billion in the last three years, attempting to upgrade in accordance with the stricter EPA regulation.
Will the picture change? Everyone wants refineries, just is someone else's backyard. The new EPA regulation for new refineries scheduled to be released this November has been deferred because of the Presidential elections. How is it going to pan out? Mitt Romney is all for more drilling. He wants to drill "virtually every part of U.S. lands and waters" but is silent on his take on refineries. For his part, Obama is for 'energy independence' but with his strict environmental laws, no refinery is going to come up anytime soon. The situation is precarious. The demand isn't expected to rise anytime soon. EIA has lowered the forecast of oil consumption in 2012 and 2013.
Any destruction due to accidents (like the recent fires), weather conditions, and maintenance would affect the supply with immediate effect. For instance, the recent fire in the Chevron refinery at Richmond, California disrupted almost 16% of the supply in the region. Abundant reserves, yet prone to import fluctuations- which country would want to continue in this position?
If the refineries aren't taken care of, the dream of cheaper crude would continue to be a dream. That would be sad with the present domestic resources.
View the original article here
Niger, Nigeria and the oil price rise
While gunfire errupted in Niger's capital, traders who mistook the country for oil-rich Nigeria sent oil prices soaring What's in a name? Niger or Nigeria will be in a better position to answer this question. If not anything the confusion in the name pushed oil prices to $80 a barrel last week. How? There was a coup in Niger and traders hustled to buy oil, mistaking Niger for oil rich Nigeria.
On February 18, a coup took place in the West African country, Niger. Armed soldiers stormed the presidential palace in Niamey, the capital of the country and kidnapped the President of the country Mamadou Tandja. The coup was orchestrated by a soldier named Colonel Adamou Haroun. He was aided by another Colonel Djibril Hamidou. This is the third coup in the country since the 90's.
In dramatic style, the soldiers declared on TV, the suspension of the constitution and all the institutes associated with it. Colonel Goukoye Abdul Karimou, read a statement on behalf of a group called Supreme Council for the Restoration of Democracy (CSRD). In the statement he appealed to everyone to have faith in the group's ideas which "could turn Niger into an example of democracy and of good governance".
The coup wasn't entirely unexpected. President Tandja came to power after the election in 1999. He was supposed to step down on Dec 22. However, he chose instead to change the country's constitution last year to stay on. The move enabled him to stand for a third time in office, and with more powers without election.
The fifteen nation West African regional bloc, ECOWAS (Economic Community of West African States) reacted by suspending Niger. The US terminated non-humanitarian aids and cut off trade benefits. The US state department spokesman Philip Crowley said "President Tandja has been trying to extend his mandate in office. And obviously, that may well have been, you know, an act on his behalf that precipitated this act today". African Union chief Jean Ping condemned the military coup in Niger and said he was following developments "with concern".
The reaction from Nigeria, coincidence or not, does take pains to differentiate between the countries. According to a statement by Senior Special Assistant to the Acting President on Media and Publicity, Mr Ima Niboro, the acting President of Nigeria Dr. Goodluck Ebele Jonathan has expressed deep concern over reports of shooting in Niger's capital.
Meanwhile, Colonel Djibrilla Hima one of the leaders of the coup said that their group would hold election too. The plan, he said, is to hold elections once the situation has stabilized.
Niger has in recent years attracted billions of dollars as investment in oil. Exploration in Niger began in the 1950s. Drilling was done in the 60's by Petropar in Tamesna-Talak and Djado blocks. But the two main blocks that emerged were Djado Basin and the Agadem BasinIn the year 1992, the Djado permit was given to Hunt oil. In 1997 the Tenere permit was given to TG World Energy Inc.In 2004 the Niger government approved the joint venture arrangement between CNPC International Tenere Limited (CNPCIT) and TG World Petroleum Limited (subsidiary of TG World).In 2005, Petronas Carigali Niger Exploration & Production Ltd. (PCNEPL), announced that it had found hydrocarbons in the Agadem BlockEsso and Petronas had sole rights to the Agadem block. But in 2008, the rights were transferred to CNPC for USD$5 Billion investment. The oil reserves in the block are estimated at 325 million barrels. The company is also building a 20,000-barrel-per-day refinery in Zinder.Other oil companies in the region are Shell, ExxonMobil and ChevronThus, though Niger isn't a major player in the oil business, the markets reached on hearing news of the coup. Tom Bentz, analyst at BNP Paribas Commodities said, "Markets took off at around the same time a Reuters story came out about gunfire erupting in the Niger capital in an apparent coup bid, mistaken by many as being Nigeria".
To be fair, other factors too contributed for the increase in oil prices-tension of Iran's nuclear program, weaker dollar and the report of EIA on heating oil supply falling by 1.4 million barrels. However, among the factors, the name confusion was the most important reason for the immediate oil price rise.
Yet, the fact remains that Niger is yet to produce oil for the world market.
Nigeria, Benin, Burkino Faso,Mali, Algeria, Libya and ChadFrench. The country
got independence from France in 1960more than 8 percent of world's Uranium.
Sell Bonny Light Crude Oil - Find Buyers of BLCO
If you are looking for buyers of mazut m100 (fuel oil), d2 (diesel oil), blco (bonny light crude oil) or bitumen (petroleum asphalt), then there is a genuine way to find them both online and offline. One of the genuine ways to find them online is through the use of business to business sites. Business to business sites contains buyers of crude. Most real buyers of oil do not like wasting time. They need sellers who can perform, that is a seller who has the product. They also want a seller that can show proof of product before they issue proof of fund. The equation is POP = POF. It should not be any form of POP but it should be one that can be verified and ascertained to be valid and authentic.
Another thing most buyers want is sellers that can work with their own procedure. This is very peculiar to bonny light crude oil and forcados buyers. Most times the first clause on their procedure is: vessel name and location. This is not always the case. BLCO buyers may also want verifiable product allocation certificate from NNPC or details of a loaded vessel so they can verify and proceed to sign a contract. As for mazut 100, jp54, bitumen and d2 buyers, they need sellers that can show POP in form SGS or refinery commitment to produce the crude.
If you are a seller and you are not able to meet the buyer's preferred criteria above, you do not have to worry. This is so because different buyers have their respective criteria. Some of the online sites where you can find buyers of mazut m100, jp54, bitumen, d2, blco and forcados to sell your product are tradekeys, eczplaza, spaintraders, fuzing and alibaba. This is a few of b2b sites where buyers can be found. You should note that you can hardly find end buyers at these sites. The types of buyers you can find are intermediary buyers. If you want to work with end buyers, then you need to write to refineries who are the end buyers of raw crude. As for refined crude oil, you should write to major oil dealers who buy and store at fuel depot from where it is supplied to filling stations to be sold to consumers. Selling raw and refined crude oil to major oil dealers requires the use of professional experience. You need to show something that certifies you as a serious and genuine businessman.
Subscribe to:
Posts (Atom)