Peak Oil Review - June 4, 2007
2. Colonial Pipeline
4. Energy Briefs
We seem to be falling into a pattern. A day or so before the EIA releases its stocks report the wire services poll oil analysts and then declare refinery utilization will increase, imports will surge, stockpiles will grow, and all will be well. Based on these optimistic expectations, gasoline futures immediately fall by 10 or more cents before the report is issued. Last week the head of the American Petroleum Institute weighed in with the expectation that refinery utilization rates would be shown to have increased and that gasoline imports would move back up to 1.3 – 1.5 million b/d.
When the report came out, gasoline stockpiles had indeed increased by 1.3 million barrels and imports had surged to a near record 1.6 million b/d during the week. Again, however, the devil was in the detail. Refinery utilization was flat and gasoline production was up by a trivial 60,000 b/d. To make matters worse, much of the week’s imports came into the isolated west coast so that stockpiles along the east coast actually dropped. While stocks along the Gulf and west coasts are about normal, those on the east coast and in the mid-west remain very low for this time of the year.
Analysts are currently split over the prospects for the coming summer. Some think the worst is over now that stockpiles have started to rise and that we will soon see falling gasoline prices. Others point to very low regional stockpiles, continued low refinery utilization, and the increasing US dependence on imported gasoline. Had US gasoline imports not surged to what may be an unsustainable high last week, there would have been a drawdown in stockpiles due to flat US gasoline production and increased consumption.
As current gasoline prices seem to be having only limited effect on America’s propensity to drive heavily this summer, we could see demand increase by another 200 – 300 thousand b/d during July and August. Some are questioning, with good reason, whether US refineries, stockpiles, and imports will be sufficient to meet this demand even if there are no major setbacks from storms or other mishaps. By Friday, this sentiment seemed to be taking hold as gasoline futures began to retrace the large drop earlier in the week.
2. Colonial pipeline
On Wednesday afternoon, Colonial Pipeline Company issued a press release saying that the company’s main gasoline distribution pipeline had been shut down since Tuesday morning while the company investigated reports of gasoline odors at an unspecified location along the line. Sunday evening the company announced that the pipeline had been restarted.
This pipeline normally moves about 1.3 million b/d of gasoline from the Gulf Coast to customers along the East Coast. It was in the news a week or so ago when the company announced that the pipeline was at capacity and that Colonial was putting customers on allocation.
The six-day outage suggests that up to 7 million barrels of gasoline did not arrive at east coast tank farms last week. Given that gasoline stockpiles along the East Coast were already among the lowest in the country, the pipeline outage means that there is an even greater possibility of higher gasoline prices and shortages ahead. Although gasoline could be moved by tanker from the Gulf to suitable East Coast ports, this will take some time to organize and is unlikely to be accomplished in the next few weeks.
The situation may have taken a turn for the better over the weekend when the main militant group, the MEND, announced a one-month cease-fire in response to the new Nigerian President’s offer to negotiate. To show their good faith the MEND released four foreign oil workers, including one American, they had been holding since early May as a peace offering.
In his inaugural speech newly elected President Umaru Yar'Adua called the conflict an urgent matter and asked for a permanent cease-fire to allow for mediation toward a long-term peace. A Niger Delta summit conference called for today has been postponed to give the participants time to formulate policies.
Unfortunately, the MEND is not the only group undertaking kidnappings and sabotaging infrastructure. Over the weekend, four more oil workers, employees of US-based Schlumberger, were hauled off into the swamps by kidnappers, and six Russian aluminum workers were also seized --- probably for ransom.
A new twist developed in recent weeks when large numbers of local villagers simply moved into a pumping station, forcing 150,000 b/d of production to be shutdown. Although the station is back in operation, approximately 850,000 b/d of Nigerian crude production is still shut-in. The social fabric of the country continues to unravel. There was no electricity in Port Harcourt over the weekend and gasoline is in very short supply due to a tanker driver strike. Nigerian labor unions are threatening other major strikes over a long list of grievances in the next few weeks.
4. Energy Briefs
- OPEC increased crude production in May as higher output from some members including Algeria and the United Arab Emirates countered a drop in Nigerian production. May supply from the OPEC-10 countries was 880,000 bpd less than in October, or about 52 percent of the total production cut pledged.
- Venezuela and Vietnam signed a series of agreements last week to produce heavy crude and build a refinery in Vietnam.
- Germany and the European Commission reacted angrily to President Bush’s apparent change of heart on climate change, setting the stage for a stormy G8 summit of rich industrialized countries this week. "The declaration by President Bush basically restates the US classic line on climate change -- no mandatory reductions, no carbon trading and vaguely expressed objectives," said EU Environment Commissioner Stavros Dimas.
- US oil and gas royalties are some of the lowest in the world, according to a US GAO report. Countries like Angola, Australia, and Egypt, and states like Wyoming, Alaska and California, all asked more for their resources than did the US federal government.
- The number of rigs drilling for oil and natural gas in North America rose by 36, or 1.9%, to 1,910, according to a weekly update issued by Baker Hughes Inc. The U.S. rig count was 117 units higher than a year ago, while the Canadian tally was down by 157 from last year.
- A spokesman for Imperial Oil says work on the proposed Mackenzie Valley gas pipeline is ongoing, despite comments Wednesday from Exxon Mobil CEO Rex Tillerson suggesting the project will be shelved. Speaking at the company's annual general meeting, Tillerson said it may abandon the long-delayed pipeline project if the Canadian government does not foot part of the bill.
- Russia's Federal Agency for Natural Resources has postponed for two weeks a decision on whether or not to revoke the license for a huge Siberian gas field controlled by BP’s Russian unit
- A consortium of several South Korean firms said it has confirmed the existence of a large offshore oil deposit in Russia's West Kamchatka region. The field, 40% owned by the South Korean firms and 60% by Russia's Rosneft, has an estimated 10 billion bbl of crude oil in place. A spokesman for the state-run firm said the field could provide South Korea—which imported 880 million bbl in 2006—with oil for more than a decade.
- The year-on-year decline in oil and gas production in the UK’s sector of the North Sea is continuing its decline. Oil production was down 5 per cent on the month at 1,403,005 barrels per day (bpd) and down 14 per cent on the year, while natural gas output production decreased 3 per cent and 6 per cent respectively to 8,581 million standard cubic feet per day (mmcfd).
- Toyota posted record sales of hybrids in the US in May 2007, with 36,101 units sold, up 110% on an unadjusted basis from May 2006. The increase is based entirely on sales of the Prius and Camry hybrids.
- The Dubai Mercantile Exchange, the Gulf sheikhdom's venture with Nymex Holdings, started crude oil futures trading last week, competing with Intercontinental Exchange in setting prices for Asian importers and traders.
- Talks between Iran’s nuclear negotiator and a top envoy for the EU ended late Thursday with few signs they were closer to breaking their deadlock over Iran’s nuclear ambitions. Javier Solana, the European Union’s foreign policy chief, said talks with Ali Larijani, the Iranian negotiator would start again within weeks.
- A cold snap in Argentina led to electricity and natural gas shortages last week, idling factories and taxis and causing sporadic blackouts in the capital. The coldest May since 1962 strained Buenos Aires' electrical grid for three nights, forcing authorities to slash power supply nationwide and briefly cut domestic natural gas exports to Chile.
- US economic growth slowed to 0.6 per cent last quarter in the worst performance for the economy in four years, according to the latest government estimates. The anemic performance was worse than economists expected but is likely to be viewed by the Federal Reserve as a prelude to a broad-based recovery.
- Angola's oil production is expected to increase to 1.8 million b/d at the end of this year as against current 1.4 million b/d, according to the official news agency ANGOP.
- California Governor Schwarzenegger and Ontario Premier McGuinty signed a Memorandum of Understanding on climate change. Under the accord, Ontario and California will partner to fight global warming by coordinating policies on low-carbon fuel standards. Ontario will require producers to reduce carbon emissions from transportation fuels by 10% by 2020.
- The US auto industry started rolling out a comprehensive campaign to convince Americans to oppose proposed increases in the Corporate Average Fuel Economy (CAFE) standards, and to pressure their elected officials to vote down such proposals.
- Sales of electric bicycles have skyrocketed in China, now the global leader in this inexpensive form of motorized transportation. At least 1,000 companies have sprung up to meet the demand. Sales have almost doubled every year. Last year, Chinese bought 16 million to 18 million electric bicycles.
- AeroVironment announced that it performed a fast charge demonstration of a lithium chemistry electric vehicle battery pack. The 35kWh (kilowatt-hour) battery pack, designed to allow the truck to travel more than 100 miles on a single charge, showed the capability of being fully charged in less than ten minutes.
- According to Fortune Magazine, as gasoline prices hit an all time high of $3.227 Congress has taken the easy way out. Instead of doing anything substantive about the US' demand for gasoline, it has gone searching for phony villains - and found them in the personage of mysterious "price gougers."
- Japan's jet fuel exports have been rising as refiners focus more on exports amid weak domestic demand for oil products.
- With Texas, Washington and California leading the way, the U.S. is the fastest growing wind power market in the world, according to a report by the U.S. Energy Department.
- A new oil discovery in western China that may be a third of the size of PetroChina 's Jidong Nanpu is the country's biggest find in 50 years.
- China has discovered huge gas reserves in the southwestern province of Sichuan, and is hoping that the find will help ease growing concerns about energy security, state media reported Monday. A total of 3.8 trillion cubic meters (133 trillion cubic feet) of natural gas deposits have been found in the western part of the Sichuan Basin.
Stat of the Week: U.S. Gasoline Imports
The U.S. imports from the Virgin Islands and 36 different nations. Just over two-thirds of those imports come from Europe. The top three import sources—the UK, Virgin Islands and France—supply over half of those imports. Amounts imported from the 14 largest sources during the last six months are listed below:
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