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Peak Oil Review -- June 11, 2007

1. Crude and Gasoline
2. Nigeria
3. In Congress
4. Energy Briefs

1. Crude and gasoline 

A number of strange happenings beset the oil markets last week. A rather large cyclone came out of the Arabian Sea, glanced off Oman and made for the Straits of Hormouz; for a while, Turkey was reported to be invading Iraq; and the EIA’s weekly petroleum status report contained several surprises. By week’s end however, the markets decided that there was nothing really to worry about so prices fell.

The heavily-hyped cyclone did little more to oil production than slow down shipping in the Gulf. The Turkish “invasion” of Iraq’s Kurdistan turned out to be a minor border incursion of no immediate consequence to oil production.

The US gasoline stockpile report brought mixed news last week. In contrast to expectations, refinery utilization dropped considerably and gasoline consumption continued to rise. Again the salivation was another banner week for imports of foreign gasoline. The EIA reported that US gasoline stockpiles climbed for the fifth straight week, this time by 3.5 million barrels from the week before. For a while analysts were asking how stockpiles could grow by so much in a week when production and imports dropped and consumption climbed. The EIA, however, calmed those fears by explaining that the previous week’s stock growth was probably underreported.

Once again however gasoline imports were tilted to the West Coast, so that East Coast gasoline stocks are at an extremely low 51 million barrels as compared to the normal 60 million at this time of year. The risk of shortages in the wake of a hurricane strike on the US mainland this summer is very high.

Nothing much changed the global oil story last week. OPEC still maintains there is plenty of oil production, while the International Energy Agency warns of higher prices later in the year if production is not increased. For the moment US gasoline prices are dropping as traders focus on the steadily-increasing gasoline stockpiles and discount continuing refining problems as something that will be handled by imports.

Meanwhile, Guy Caruso, head of the EIA predicted that gasoline prices will fall another 10 cents or so in June, but warned of renewed price spikes during the July and August driving season.

2. Nigeria

There was some good news out of Nigeria last week when several of the major militant groups agreed to suspend kidnappings and attacks on the petroleum infrastructure until the end of June. This moratorium is to give the new government and the insurgents time to discuss compromises that will end the insurgency.

The heart of the matter, however, is whether the new President has the power and political support to redirect a sufficient share of the oil revenue to Niger Delta villagers to satisfy the insurgents. Given the culture of corruption that pervades the country and the tenuousness of the new administration’s hold on power, it is difficult to see how a satisfactory solution can be negotiated in the near future.

In the meantime, some 750,000 b/d of oil production remains shut down; kidnap-for-profit gangs are still running rampant; the British government just warned all its citizens to get out of the Niger Delta; one insurgent group is threatening to hold a group of Schlumberger employees hostage until the government releases an insurgent leader; fuel and electricity shortages are endemic; and a general strike over a variety of issues in scheduled for this week.

3. In Congress

The U.S. Congress has begun what could be a drawn-out markup and debate of several energy and emissions reform bills. Thus far, the general tenor of the discussion leaves one with the impression that the country and the Congress are deeply divided over energy strategy and there is little realization that serious energy problems may be only a few years away. While there is a growing recognition of the need to slow emissions and reduce “dependence on foreign oil,” the need to maintain the status quo and not inconvenience anyone or cause anyone economic hardship still trumps serious efforts to come to grips with the problem.

Pending proposals to increase efficiency standards for cars and trucks have set target dates so far out as to be meaningless in the context of an imminent peaking of world oil production. It is clear that Detroit automakers and their allies in Congress still believe the future of the US auto industry is still tied to selling substantial numbers of large, low mileage vehicles, in the face of steadily increasing gasoline prices.

Currently Detroit seems to be favoring a House proposal (Boucher/Dingell) and a Senate proposal (Levin/Stabenow) which are both more lenient than that proposed by President Bush and California Senator Feinstein. Under these new plans, cars and trucks would maintain two different fuel economy standards. The standard for cars would increase to 36 mpg by 2022; the standard for trucks would increase to 30 mpg by 2025. The Boucher/Dingell bill also bars states from implementing greenhouse gas limits on vehicles. This would preclude California and the other states adopting California regulations from acquiring the waiver from the EPA required to greenhouse gas limits on new vehicles.

4. Energy Briefs

  • Venezuelan President Chavez said last week that an unnamed US oil company has abandoned its oil wells in Venezuela and left.
  • Increasing numbers of diesel vehicles has forced oil-exporting Qatar to begin importing diesel fuel. There are now about 500,000 vehicles in the country. Some 84,000 vehicles were imported last year as compared to 26,000 in 2005 and 18,000 in 2004.
  • Norway announced that its crude-oil production fell 7.4 percent in May from a month earlier, and that gas production is also falling. The Norwegians are developing new gas fields in the Norwegian Sea and the Barents Sea and eventually will become the world's second-largest gas exporter.
  • Natural gas prices surged in New York to a six-month high as the second named tropical storm of the year focused trader concerns on possible supply disruptions this hurricane season, spurring buyers to move gas into storage.
  • Changing climate will mean increasing drought in the American Southwest — a region where water already is in tight supply — according to a new study issued by Columbia University’s Lamont Doherty Earth Observatory. [Ed. note: this could hurt plans to establish viable water-intensive production of oil from oil shale deposits in dry NW Colorado/SW Wyoming and NE Utah.)
  • China will put climate change at the heart of its economic and energy policies but without committing itself to “quantified emissions-reduction targets,” according to Beijing’s first comprehensive policy document on the issue.
  • Azerbaijan is richer in oil and gas than previously reported, according to President Ilham Aliyev. He said studies show reserves at Azerbaijan's oil and gas fields are twice the size estimated when the country signed a series of development contracts with Western companies in the 1990s. Azerbaijan is a partner in projects to deliver Caspian Sea energy reserves to the West via oil and gas pipelines to Turkey.
  • Bill Holbrook, spokesman for the National Petrochemical & Refiners Association, said the industry has built the equivalent of one large-scale refinery in each of the past 14 years in the form of expansions, and that "basically every major company is contemplating an expansion at a facility somewhere."
  • Higher US demand for electricity forecast for this summer will shrink the cushion of surplus power needed to avoid blackouts to 16.5 percent from 17.4 percent a year ago, said the North American Electric Reliability Corp., which oversees the power grid.
  • Last week, General Motors announced its selection of battery makers to develop and test battery packs for use in its proposed electric vehicles. Manufacturers say that they've overcome the performance and cost limitations that have been an obstacle to electric vehicles in the past.
  • Uranium prices may reach $200 a pound within the next two years. Prices have jumped 12-fold since early 2003, due to shortage, concerns over future production and a lack of investment in new mines.
  • Starting last week, Iranian drivers can only buy gasoline using special electronic cards, as part of a plan to ration fuel and cut surging consumption. The government has already increased the price of gasoline 25 percent to 11 US cents a liter.
  • High gasoline prices have spurred automakers to make plans to introduce tiny cars into the U.S. market, beginning early next year, when Mercedes plans to begin selling tiny, two-seater Smart models. General Motors unveiled three small Chevrolet concept cars aimed at young car buyers in urban markets. However, research from consulting firm CSM Worldwide shows that American consumers are not very big on very small cars.
  • According to the International Energy Agency, by 2015 demand for Opec oil will likely be 38.8 million b/d, up from about 31 million b/d today, while biofuels would provide just 3m b/d.
  • A study from the Carnegie Mellon Electricity Industry Center concludes that while enacting policies to subsidize the production of coal-to-liquids transportation fuel would enhance national security by lowering oil imports, encouraging plug-in hybrids powered by coal-generated electricity is a less costly policy that also reduces oil imports and does more to lower greenhouse gas emissions (GHG).
  • Back in 2004, leaders of Venezuela’s national oil company said they planned to produce over 5 million barrels per day by 2009 and that they would spend $37 billion to achieve that objective. Half way there—at a time when production should have reached over 4 million b/d—Venezuelan production is well below 3 million b/d and dropping, according to Petroleumworld News.

Quote of the Week

[To build a new refinery] “You're looking at seven to eight years and costs in the billions. Kuwait was looking at building a refinery. It was originally projected to cost $6 billion. Last November the price had run up to $10 billion. By February, it was $16 billion and the project was canceled. In the U.S. we're looking at twice the cost because of pollution controls. Now are you going to go to your board of directors and argue for an investment like that?”

           -- Lynn Westfall, chief economist for gasoline distributor Tesoro

Stat of the Week: Gasoline reserves on the US east coast

Last week the EIA reported that Gasoline reserves in PADD I (the east coast district) had fallen to 51.5 million barrels vs. the 60 million barrel average for this time of year.

ASPO-USA is a nonpartisan, proactive effort to encourage prudent energy management, constructive community transformation, and cooperative initiatives during an era of depleting petroleum resources.

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